-----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, WGzySWWNa5jpO26+EiLfa3GWEKS5oXF9gtqAUxcRMrw7kyP2PTRJ5UYQb4dY3ycW IWMdsfCg3ErI0kpvAH2thA== 0000927016-98-002906.txt : 19980806 0000927016-98-002906.hdr.sgml : 19980806 ACCESSION NUMBER: 0000927016-98-002906 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 75 FILED AS OF DATE: 19980805 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOUNTAIN VIEW INC CENTRAL INDEX KEY: 0001055468 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279 FILM NUMBER: 98677835 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUMMIT CARE CORP CENTRAL INDEX KEY: 0000875192 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 953656297 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-01 FILM NUMBER: 98677836 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUMMIT CARE CALIFORNIA INC CENTRAL INDEX KEY: 0001064368 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 952269142 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-03 FILM NUMBER: 98677837 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUMMIT CARE PHARMACY INC CENTRAL INDEX KEY: 0001064369 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 953747839 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-04 FILM NUMBER: 98677838 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUMMIT CARE TEXAS EQUITY INC CENTRAL INDEX KEY: 0001064371 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954604050 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-06 FILM NUMBER: 98677839 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUMMIT CARE TEXAS NO 2 INC CENTRAL INDEX KEY: 0001064372 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954060847 STATE OF INCORPORATION: TX FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-07 FILM NUMBER: 98677840 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUMMIT CARE TEXAS NO 3 INC CENTRAL INDEX KEY: 0001064373 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 742582813 STATE OF INCORPORATION: TX FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-08 FILM NUMBER: 98677841 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUMMIT CARE MANAGEMENT TEXAS INC CENTRAL INDEX KEY: 0001064374 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 742850517 STATE OF INCORPORATION: TX FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-09 FILM NUMBER: 98677842 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUMMIT CARE TEXAS LP CENTRAL INDEX KEY: 0001064375 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954642711 STATE OF INCORPORATION: TX FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-10 FILM NUMBER: 98677843 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOUNTAIN VIEW HOLDINGS INC CENTRAL INDEX KEY: 0001064376 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954644788 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-11 FILM NUMBER: 98677844 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIB CORP CENTRAL INDEX KEY: 0001064377 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 953918421 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-12 FILM NUMBER: 98677845 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALEXANDRIA CONVALESCENT HOSPITAL INC CENTRAL INDEX KEY: 0001064378 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954395382 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-13 FILM NUMBER: 98677846 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIA HOTEL CORP CENTRAL INDEX KEY: 0001064379 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 953918420 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-14 FILM NUMBER: 98677847 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRIER OAK CONVALESCENT INC CENTRAL INDEX KEY: 0001064380 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954212165 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-15 FILM NUMBER: 98677848 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELMCREST CONVALESCENT HOSPITAL CENTRAL INDEX KEY: 0001064381 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954274740 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-16 FILM NUMBER: 98677849 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOUNTAINVIEW CONVALESCENT HOSPITAL CENTRAL INDEX KEY: 0001064382 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 952506832 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-17 FILM NUMBER: 98677850 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOUNTAIN VIEW MANAGEMENT INC CENTRAL INDEX KEY: 0001064383 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954199013 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-18 FILM NUMBER: 98677851 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIO HONDO NURSING CENTER CENTRAL INDEX KEY: 0001064384 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954272737 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-19 FILM NUMBER: 98677852 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOCOMOTION HOLDINGS INC CENTRAL INDEX KEY: 0001064385 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954644786 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-20 FILM NUMBER: 98677853 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOCOMOTION THERAPY INC CENTRAL INDEX KEY: 0001064386 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954644790 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-21 FILM NUMBER: 98677854 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ON TRACK THERAPY CENTER INC CENTRAL INDEX KEY: 0001064387 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 770447168 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-22 FILM NUMBER: 98677855 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: I N O INC CENTRAL INDEX KEY: 0001064388 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954560821 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-23 FILM NUMBER: 98677856 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYCAMORE PARK CONVALESCENT HOSPITAL CENTRAL INDEX KEY: 0001064389 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 952260970 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-57279-24 FILM NUMBER: 98677857 BUSINESS ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105710351 MAIL ADDRESS: STREET 1: 11900 W OLYMPIC BLVD STREET 2: STE 680 CITY: LOS ANGELES STATE: CA ZIP: 90064 S-4/A 1 FORM S-4/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 1998 REGISTRATION NO. 333-57279 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------- FOUNTAIN VIEW, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------- DELAWARE 95-4644784 (STATE OR OTHER JURISDICTION OF INCORPORATION OR OR- GANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
AND SUBSIDIARY GUARANTORS SUMMIT CARE CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 95-3656297 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
SUMMIT CARE-CALIFORNIA, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 95-2269142 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
SUMMIT CARE PHARMACY, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 95-3747839 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
SUMMIT CARE TEXAS EQUITY, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 95-4604050 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
SUMMIT CARE TEXAS, NO. 2, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 95-4060847 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
SUMMIT CARE TEXAS, NO. 3, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 74-2582813 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
SUMMIT CARE MANAGEMENT TEXAS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 74-2850517 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
SUMMIT CARE TEXAS, L.P. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 95-4642711 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
FOUNTAIN VIEW HOLDINGS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 95-4644785 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
AIB CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 95-3918421 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
ALEXANDRIA CONVALESCENT HOSPITAL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 95-4395382 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
BIA HOTEL CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 95-3918420 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
BRIER OAK CONVALESCENT, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 95-4212165 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
ELMCREST CONVALESCENT HOSPITAL (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 95-4274740 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
FOUNTAINVIEW CONVALESCENT HOSPITAL (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 95-2506832 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
FOUNTAIN VIEW MANAGEMENT, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 95-4199013 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
RIO HONDO NURSING CENTER (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 95-4272737 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
LOCOMOTION HOLDINGS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 95-4644786 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
LOCOMOTION THERAPY, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 95-4644790 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
ON-TRACK THERAPY CENTER, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 77-0447168 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
I.'N O, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 95-4560821 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
SYCAMORE PARK CONVALESCENT HOSPITAL (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 95-2260970 (STATE OR OTHER JURISDICTION OF INCORPO- RATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
(Continued on next page) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Continued from previous page) 8051 (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER) -------------- 11900 W. OLYMPIC BOULEVARD SUITE 680 LOS ANGELES, CALIFORNIA 90064 (310) 571-0351 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ROBERT M. SNUKAL PRESIDENT AND CHIEF EXECUTIVE OFFICER FOUNTAIN VIEW, INC. 11900 W. OLYMPIC BOULEVARD, SUITE 680 LOS ANGELES, CALIFORNIA 90064 (310) 571-0351 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) -------------- WITH A COPY TO: STEPHEN M. L. COHEN, ESQ. CHOATE, HALL & STEWART EXCHANGE PLACE 53 STATE STREET BOSTON, MASSACHUSETTS 02109 (617) 248-5000 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the securities being registered on this Form are being offered in connection with the formation of a holding company and they are in compliance with General Instruction G, check the following box: [_] -------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED AUGUST 5, 1998 PROSPECTUS OFFER TO EXCHANGE UP TO $120,000,000 OF 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B OF FOUNTAIN VIEW, INC., WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL OF ITS OUTSTANDING 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008 FOUNTAIN VIEW, INC. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED Fountain View, Inc., a Delaware corporation (the "Company") hereby offers, upon the terms and subject to the conditions set forth in this Prospectus (as the same may be amended or supplemented from time to time, this "Prospectus") and the accompanying letter of transmittal (the "Letter of Transmittal" and, together with this Prospectus, the "Exchange Offer"), to exchange up to an aggregate amount of $120,000,000 of the Company's 11 1/4% Senior Subordinated Notes Due 2008, Series B (the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which this Prospectus is a part, which Exchange Notes shall be guaranteed (the "Exchange Guarantees"), on a full and unconditional basis, jointly and severally, by each of the Guarantors (as defined) and all future Restricted Subsidiaries (as defined) of the Company, or any of the Guarantors for a like principal amount of the Company's outstanding 11 1/4% Senior Subordinated Notes Due 2008 (the "Outstanding Notes"), of which $120,000,000 in aggregate principal amount was issued on April 16, 1998 and is outstanding as of the date hereof, which Outstanding Notes have been guaranteed on a full and unconditional basis by the Guarantors (the "Outstanding Guarantees" and, together with the Exchange Guarantees, the "Guarantees"). The form and terms of the Exchange Notes and the Exchange Guarantees are identical in all material respects to the form and terms of the Outstanding Notes and the Outstanding Guarantees, except for certain transfer restrictions and registration rights relating to the Outstanding Notes. The Exchange Notes will be issued pursuant to, and entitled to the benefits of, the Indenture, dated as of April 16, 1998, between the Company, the Guarantors and State Street Bank and Trust Company of California, as trustee, governing the Outstanding Notes. The Exchange Notes and the Outstanding Notes are hereinafter sometimes collectively referred to as the "Notes". The Company is a holding company, has no operations of its own and derives substantially all of its revenue from its subsidiaries. Holders of Outstanding Notes whose Outstanding Notes are not tendered and accepted in the Exchange Offer will continue to hold such Outstanding Notes and will be entitled to all the rights and benefits and will be subject to the limitations applicable thereto under the Indenture. Following the consummation of the Exchange Offer, the holders of Outstanding Notes will continue to be subject to the existing restrictions on the transfer thereof and the Company will have no further obligation to such holders to provide for the registration under the Securities Act of the Outstanding Notes held by them. The Company will not receive any proceeds from, and has agreed to pay all the expenses incurred by it incident to, the Exchange Offer. No underwriter is being used in connection with this Exchange Offer. Except as otherwise indicated, the following description relates both to the Outstanding Notes issued in the Note Offering and the Exchange Notes, together with the Exchange Guarantees, to be issued in exchange for the Outstanding Notes in the Exchange Offer. The form and terms of the Exchange Notes are the same as the form and terms of the Outstanding Notes, except that the Exchange Notes have been registered under the Securities Act and therefore will not bear legends restricting the transfer thereof. The Outstanding Notes are and the Exchange Notes will be general, unsecured obligations of the Company. There is currently no indebtedness outstanding that is subordinated to the Notes.The Outstanding Notes rank and the Exchange Notes will rank on the same level with all future senior subordinated debt of the Company. The claims of the holders of the Outstanding Notes are and the claims of the holders of the Exchange Notes will be subordinated to Senior Debt (as defined). The Company is highly leveraged. As of May 31, 1998, approximately $126 million of Senior Debt was outstanding, including approximately $101 million of borrowings under the Company's New Credit Facility (as defined herein). See "Capitalization" and "Description of Other Indebtedness". Based on no-action letters issued by the staff of the Securities and Exchange Commission (the "Commission") to third parties, the Company believes that Exchange Notes to be issued pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by any holder thereof (other than (i) a broker-dealer who purchasers such Exchange Notes from the Company to resell (Continued from previous page) pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and such holder has no arrangement or understanding with any person to participate in the distribution of such Exchange Notes. However, the Company has not sought and does not intend to seek its own no-action letter in connection with the Exchange Offer and there can be no assurance that the Commission would make a similar determination with respect to the Exchange Offer. Eligible holders of Outstanding Notes wishing to accept the Exchange Offer must represent to the Company that such conditions have been met. Each broker-dealer (a "Participating Broker-Dealer") that receives Exchange Notes for its account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. A broker-dealer may nonetheless be deemed to be an "underwriter" under the Securities Act notwithstanding such disclaimer. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of Exchange Notes received in exchange for Outstanding Notes where such Outstanding Notes were acquired by such Participating Broker-Dealer as a result of market making activities or other trading activities, provided such Outstanding Notes do not constitute any portion of an unsold allotment from the original sale of the Outstanding Notes. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus available to any Participating Broker-Dealer for use in connection with any such resale. See "Plan of Distribution". SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR INFORMATION THAT SHOULD BE CONSIDERED BY HOLDERS OF OUTSTANDING NOTES AND PROSPECTIVE PURCHASERS OF EXCHANGE NOTES. THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------------- The date of this Prospectus is , 1998. The Company will accept for exchange any and all validly tendered Outstanding Notes not withdrawn prior to 5:00 p.m., New York City time, on , 1998 unless the Exchange Offer is extended by the Company (the "Expiration Date"); however, in no event shall the Exchange Offer be extended beyond sixty (60) days after the date the registration statement of which this Prospectus is a part is declared effective by the Commission. Tenders of Outstanding Notes may be withdrawn at any time prior to the Expiration Date. The Exchange Offer is not conditioned on any minimum aggregate principal amount of Outstanding Notes being tendered for exchange. However, the Exchange Offer is subject to certain customary conditions which may be waived by the Company and to the terms and provisions of the Registration Rights Agreement. See "The Exchange Offer--Certain Conditions to the Exchange Offer". THE INITIAL PURCHASERS WHO PARTICIPATED IN THE OFFERING OF THE OUTSTANDING NOTES MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES. SPECIFICALLY, THE INITIAL PURCHASERS MAY BID FOR AND PURCHASE OUTSTANDING NOTES AND EXCHANGE NOTES IN THE OPEN MARKET. NEITHER THE COMPANY NOR THE INITIAL PURCHASERS ARE MAKING ANY REPRESENTATION TO ANY OFFEREE OR PURCHASER OF THE NOTES REGARDING THE LEGALITY OF AN INVESTMENT THEREIN BY SUCH OFFEREE OR PURCHASER UNDER APPROPRIATE LEGAL INVESTMENT OR SIMILAR LAWS. THE EXCHANGE OFFER IS BEING MADE ON THE BASIS OF THIS PROSPECTUS. ANY DECISION TO EXCHANGE NOTES IN THE EXCHANGE OFFER MUST BE BASED ON THE INFORMATION CONTAINED HEREIN. EACH PROSPECTIVE PURCHASER OF THE EXCHANGE NOTES MUST COMPLY WITH ALL APPLICABLE LAWS AND REGULATIONS IN FORCE IN ANY JURISDICTION IN WHICH IT PURCHASES, OFFERS OR SELLS THE EXCHANGE NOTES OR POSSESSES OR DISTRIBUTES THIS PROSPECTUS AND MUST OBTAIN ANY CONSENT, APPROVAL OR PERMISSION REQUIRED BY IT FOR THE PURCHASE, OFFER OR SALE BY IT OF THE EXCHANGE NOTES UNDER THE LAWS AND REGULATIONS IN FORCE IN ANY JURISDICTION TO WHICH IT IS SUBJECT OR IN WHICH IT MAKES SUCH PURCHASES, OFFERS OR SALES, AND NEITHER THE COMPANY NOR THE INITIAL PURCHASERS SHALL HAVE ANY RESPONSIBILITY THEREFOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE NOTES TO ANY PERSON IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. ---------------- NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE NEW HAMPSHIRE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. i PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial data, including the financial statements and notes thereto, appearing elsewhere in this Prospectus. Unless otherwise stated in this Prospectus, references to (a) "Fountain View" shall mean Fountain View, Inc., a Delaware corporation and its subsidiaries, other than Summit and its subsidiaries; (b) "Summit" shall mean Summit Care Corporation, a California corporation and its subsidiaries; and (c) the "Company" shall mean Fountain View and its subsidiaries, including Summit and its subsidiaries and, in certain cases, refers to the historical performance or operations of Fountain View and Summit, taken as a whole. All references to a fiscal year refer to the twelve months ended June 30, in the case of Summit, and December 31, in the case of Fountain View and the Company, of the year referenced. THE COMPANY The Company is a leading operator of long-term care facilities and a leading provider of a full continuum of post-acute care services, with a strategic emphasis on sub-acute specialty medical care. Sub-acute care is generally short-term, goal-oriented rehabilitation care intended for individuals who have a specific illness, injury or disease, but who do not require many of the services provided in an acute care hospital. Sub-acute care is typically rendered immediately after, or in lieu of, acute hospitalization in order to treat such specific medical conditions. Post-acute care is the provision of a continuum of care to patients following discharge from an acute care hospital. The Company operates a network of facilities in California, Texas and Arizona, including 44 skilled nursing facilities ("SNFs") that offer sub-acute, rehabilitative and specialty medical skilled nursing care, as well as six assisted living facilities ("ALFs") that provide room and board and social services in a secure environment. In addition to long-term care, the Company provides a variety of high-quality ancillary services such as physical, occupational and speech therapy in Company-operated facilities, unaffiliated facilities and acute care hospitals. The Company also operates three institutional pharmacies (one of which is a joint venture), which service acute care hospitals as well as SNFs and ALFs both affiliated and unaffiliated with the Company, an outpatient therapy clinic and a durable medical equipment ("DME") company. The Company consists of the combined operations of Fountain View and Summit and operates 50 facilities with approximately 6,600 beds serving Medicare, Medicaid, managed care, private pay and other patients. THE TRANSACTIONS On February 6, 1998, Fountain View, Summit, Heritage Fund II, L.P. and FV-SCC Acquisition Corp., a wholly-owned subsidiary of Fountain View ("Acquisition"), entered into an Agreement and Plan of Merger (the "Merger Agreement") providing for the acquisition of Summit by Fountain View. Pursuant to the Merger Agreement, Acquisition offered (the "Tender Offer") to purchase all of the outstanding shares of common stock of Summit (the "Summit Shares"), at a price of $21.00 per share, net to the seller in cash. A copy of the Merger Agreement is filed as an exhibit to the Schedule 14D-1 filed by Fountain View with the Securities and Exchange Commission (the "Commission") in connection with the Tender Offer. The Tender Offer expired on March 25, 1998 and Acquisition purchased approximately 99% of the Summit Shares at the closing of the Tender Offer on March 27, 1998. Pursuant to the terms of the Merger Agreement, Acquisition merged with and into Summit on April 16, 1998 (the "Merger"). Summit was the surviving corporation in the Merger and became a wholly-owned subsidiary of Fountain View. 1 In order to consummate the purchase of Summit Shares in the Tender Offer and the Merger, to refinance all then existing Fountain View funded indebtedness, to redeem all outstanding options for Summit Shares, and to pay certain fees, expenses and other costs arising in connection with such transactions, Fountain View sold, in a transaction exempt from registration pursuant to Rule 144A and Regulation S of the Securities Act, $120.0 million of the Outstanding Notes (the "Note Offering"). The Company also entered into a new revolving credit facility and term loan facilities (the "New Credit Facility") providing for revolving credit borrowings of up to $30.0 million and term loan borrowings of up to $85.0 million. In addition, Fountain View raised approximately $97.0 million of new equity investments in the amounts of $90.6 million from Heritage Fund II, L.P. and certain other co-investors, $5.0 million from Mr. Snukal, Fountain View's Chief Executive Officer, and Sheila Snukal, Fountain View's Executive Vice President and Mr. Snukal's wife ("Mrs. Snukal"), and $1.4 million from Mr. Scott, Summit's Chairman and Chief Executive Officer (collectively, the "Equity Investments"). The Company used the proceeds of the Note Offering to repay certain indebtedness of Summit assumed in connection with the Merger and to pay certain transaction fees and expenses. See "Use of Proceeds". The Tender Offer, the Merger, the establishment of the New Credit Facility, the Equity Investments, the Note Offering and the application of the proceeds therefrom are collectively referred to as the "Transactions". Since the Transactions, senior management of the Company have owned approximately 26.3% of the Company's outstanding common stock, on a fully- diluted basis, and Heritage Partners, Inc. and its affiliates ("Heritage"), along with certain co-investors, have owned approximately 72.7% of the Company's outstanding common stock, on a fully-diluted basis. Heritage is a Boston-based private equity firm with $530 million in capital under management, specializing in the acquisition and equity-based recapitalization of private, family-owned businesses. See "Management". In August 1997, Heritage invested $14.0 million in cash in Fountain View in a series of transactions (the "Fountain View Equity Transactions") which resulted in Heritage obtaining a 49.9% ownership position in the common equity of Fountain View and completing a $7.0 million preferred stock investment in Fountain View at that time. See Note 3 to the audited financial statements of Fountain View included elsewhere in this Prospectus. 2 Set forth below is a diagram showing the post-Merger organizational structure of Fountain View, Inc. and its subsidiaries (all subsidiaries are 100% owned, unless otherwise indicated): CHART APPEARS HERE The diagram depicts: (A) Fountain View as the owner of all of the outstanding stock of: Summit Care Corporation, I'NO, Inc., Locomotion Holdings, Inc., On-Track Therapy Center, Inc., Fountain View Holdings, Inc. and Sycamore Park Convalescent Hospital; (B) Summit Care Corporation as the owner of: (i) all of the outstanding stock of Summit Care California, Inc., Summit Care Pharmacy Inc., Summit Care Texas No. 2, Summit Care Texas Management, Inc., and Summit Care Texas No. 3, and (ii) 82.8% of the outstanding stock of Summit Care Texas Equity, Inc. (C) Locomotion Holdings, Inc. as the owner of all the outstanding stock Locomotion Therapy, Inc. (D) Fountain View Holdings, Inc. as the owner of all the outstanding stock of; AIB Corp., Alexandria Convalescent Hospital, Inc., BIA Hotel Corp., Brier Oak Convalescent, Inc., Elmcrest Convalescent Hospital, Fountainview Convalescent Hospital, Fountainview Management, Inc., Rio Hondo Nursing Center (E) Summit Care Texas No. 2, Inc. owning 17.2% of the outstanding stock of Summit Care Texas Equity, Inc. (F) Summit Care Texas Management, Inc. owning a 1% general partnership interest in Summit Care Texas L.P. (G) Summit Care Texas Equity, Inc. owning a 99% limited partnership interest in Summit Care Texas L.P. 3 THE FINANCINGS The following table illustrates the sources and uses of funds for the Transactions. See "Unaudited Pro Forma Financial Data".
(IN MILLIONS) SOURCES OF FUNDS New Credit Facility(1)........................................ $100.0 11 1/4% Senior Subordinated Notes............................. 120.0 ------ Total debt................................................ 220.0 ------ Equity Investments: Heritage and co-investors equity investments(2)............. 90.6 Fountain View management equity investment(3)............... 5.0 Summit management equity investment(4)...................... 1.4 ------ Total equity.............................................. 97.0 ------ Total sources of funds.................................... $317.0 ====== USES OF FUNDS Purchase of Summit Shares in the Tender Offer and the Merger(5).................................................... $145.6 Refinancing of Fountain View indebtedness(6).................. 32.0 Refinancing of Summit indebtedness(7)......................... 108.9 Fees and expenses............................................. 30.5 ------ Total uses of funds....................................... $317.0 ======
- -------- (1) The New Credit Facility provides for up to $30.0 million of revolving credit borrowings (with a $4.0 million sublimit for letters of credit) and up to $85.0 million of term loans and matures in 2004. As of May 31, 1998, term loans in the aggregate amount of approximately $85.0 million and revolving loans in the aggregate amount of approximately $16.0 million were outstanding under the New Credit Facility, and $14.0 million of revolving credit borrowings were then available to the Company. (2) Represents only the new cash invested in Fountain View by Heritage and certain co-investors in connection with the Transactions and excludes the Fountain View shares held by Heritage prior to the Transactions. (3) Represents only the new cash invested in Fountain View by Mr. Snukal and Mrs. Snukal in connection with the Transactions and excludes the Fountain View shares held by management prior to the Transactions. (4) Represents the full amount of the after-tax proceeds that Mr. Scott received from the cash-out in the Merger of all options to purchase Summit Shares held by him (and a payment from the Company to cover a portion of related taxes) and the full after-tax proceeds from payments under the Summit Executive Incentive Plan received by him from the Company, but does not include the issuance by Mr. Scott of a limited recourse promissory note in consideration for certain of the Fountain View shares issued to him in connection with the Transactions. See "Certain Relationships and Related Transactions--Investment Agreement" and "--Payments to Certain Stockholders". (5) Represents the purchase of all Summit Shares in the Tender Offer and the Merger, and the cash-out of options to purchase 909,500 Summit Shares which Summit effected upon the effectiveness of the Merger. (6) Reflects the total funded indebtedness of Fountain View outstanding immediately prior to the Merger. (7) Reflects total funded indebtedness of Summit (excluding mortgages, capital leases and certain other indebtedness) outstanding immediately prior to the Merger. 4 RECENT DEVELOPMENTS On May 4, 1998, Baylor Health Care System, a vertically integrated healthcare system operating in Texas ("Baylor"), and Buckner Foundation ("Buckner"), a subsidiary of Buckner Baptist Benevolences, a Texas social services organization (collectively, the "Baylor Group"), purchased from Heritage shares of Series A Preferred Stock of Fountain View and warrants to purchase shares of Fountain View's Series C Common Stock for approximately $12.4 million. The shares of Series A Preferred Stock purchased by the Baylor Group are entitled to receive a cumulative dividend calculated to achieve a 12% annual rate of return, and are subject to automatic redemption upon the completion of an initial public offering of Fountain View's common stock. The shares represented by the warrants issued to the Baylor Group currently represent approximately 5% of Fountain View's diluted capital stock. Baylor is also entitled to have one of its nominees serve on Fountain View's board of directors. Baylor and Fountain View also entered into an agreement on May 4, 1998 primarily to develop and operate skilled nursing facilities within a mile of the Baylor hospital campuses for which Baylor has the right to receive a market-rate development and license fee in the form of cash or warrants. Baylor, one of the nation's largest not-for-profit integrated health care providers, operates a network of 50 hospitals, clinics and primary care facilities in 19 cities throughout Northern Texas and Southern Oklahoma. Baylor is based in Dallas-Fort Worth, Texas, where its hospitals represent 16% of all hospital admissions in the Dallas-Forth Worth area. For the three months ended March 31, 1998, net revenues would have totaled $74.0 million pro forma for the Transactions. During the same period, management estimates that pro forma occupancy would have been 88.6% (excluding three Summit facilities which commenced operations or were renovated in 1996 or later) and the Company's pro forma quality mix (which is total net revenues less Medicaid net revenues) would have been 67.2%. The Company was incorporated in Delaware in 1997. Its principal executive offices are located at 11900 Olympic Boulevard, Suite 680, Los Angeles, California 90064, and its telephone number is (310) 571-0351. 5 THE EXCHANGE OFFER The Outstanding Notes were sold by the Company on April 16, 1998 to Goldman, Sachs & Co., Nesbitt Burns Securities Inc., Paribas Corporation and Sutro & Co., Incorporated (collectively, the Outstanding Notes........... "Initial Purchasers") pursuant to a Purchase Agreement, dated April 16, 1998 (the "Purchase Agreement"). The Initial Purchasers subsequently resold the Outstanding Notes in transactions not registered under the Securities Act in reliance upon exemptions from registration pursuant to Rule 144A and Regulation S under the Securities Act. Registration Rights Pursuant to the Purchase Agreement, the Company Agreement................... and the Initial Purchasers entered into the Registration Rights Agreement, which grants the holders of the Outstanding Notes certain exchange and registration rights. The Exchange Offer is intended to satisfy such exchange and registration rights which terminate upon the consummation of the Exchange Offer. Securities Offered.......... $120,000,000 aggregate principal amount of 11 1/4% Senior Subordinated Notes due 2008, Series B (the "Exchange Notes"). The Exchange Offer.......... The Company is offering to exchange $1,000 principal amount of Exchange Notes for each $1,000 principal amount of Outstanding Notes that are properly tendered and accepted. The Company will issue Exchange Notes on or promptly after the Expiration Date. As of the date hereof, there is $120,000,000 aggregate principal amount of Outstanding Notes outstanding. The terms of the Exchange Notes are identical in all material respects to the terms of the Outstanding Notes for which they may be exchanged pursuant to the Exchange Offer, except that the Exchange Notes will bear a Series B designation, are freely transferable by holders thereof (other than as provided herein), and are not subject to any covenant restricting transfer absent registration under the Securities Act. See "The Exchange Offer". The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Outstanding Notes being tendered for exchange. Based on no-action letters issued by the staff of the Commission to third parties with respect to similar transactions (e.g. Exxon Capital Holdings Corp. (April 13, 1989), Morgan Stanley & Co., Inc. (June 2, 1993) and Shearman & Sterling (July 2, 1993)), the Company believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for Outstanding Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than (i) a 6 broker-dealer who purchases such Exchange Notes from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act, or (ii) a person that is an "affiliate" of the Company within the meaning of Rule 405 of the Securities Act) without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders are not engaged in, have no arrangement or understanding with any person to participate in, and do not intend to engage in, any distribution of the Exchange Notes. However, the Company has not sought and does not intend to seek a no-action letter with respect to the Exchange Offer and there can be no assurance that the staff of the Commission would make a similar determination with respect to the Exchange Offer. Each holder of Exchange Notes, other than a broker-dealer, must represent that such conditions have been met. In addition, each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal accompanying this Prospectus states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. A broker-dealer may nonetheless be deemed to be an "underwriter" under the Securities Act notwithstanding such disclaimer. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Outstanding Notes where such Outstanding Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. Pursuant to the Registration Rights Agreements, the Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "The Exchange Offer-- Purpose of the Exchange Offer" and "Plan of Distribution". By tendering Outstanding Notes in exchange for Exchange Notes, each holder will represent to the Company that: (i) it is not an affiliate of the Company, (ii) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the Exchange Notes to be issued in the Exchange Offer, and (iii) any Exchange Notes to be received by it will be acquired in the ordinary course of business. Any holder who tenders in the Exchange Offer who is unable to make the foregoing representations may not rely on the position of the 7 staff of the Commission enunciated in no-action letters and, in the absence of an applicable exemption, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Failure to comply with such requirements in such instance may result in such holder incurring liability under the Securities Act for which the holder is not indemnified by the Company. Expiration Date............. 5:00 p.m., New York City time, on , 1998, unless the Exchange Offer is extended, in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer is extended. See "The Exchange Offer--Expiration Date; Extensions; Termination; Amendments". Accrued Interest on the Exchange Notes............. Each Exchange Note will bear interest from the most recent date to which interest has been paid on the Outstanding Notes or, if no interest has been paid on such Outstanding Notes, from April 16, 1998. Exchange Date............... As soon as practicable after the close of the Exchange Offer, the Company will accept for exchange all Outstanding Notes properly tendered and not validly withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. See "The Exchange Offer--Withdrawal Rights". Conditions to the Exchange Offer....................... The Exchange Offer is subject to the following conditions: (A) an injunction, order or decree shall not have been issued by any court or governmental agency that would prohibit, prevent or otherwise materially impair the ability of the Company to proceed with the Exchange Offer; and (B) there shall not have occurred a change in the current interpretation of the staff of the Commission which current interpretation permits the Exchange Notes issued pursuant to the Exchange Offer in exchange for the Outstanding Notes to be offered for resale, resold and otherwise transferred by holders thereof (other than (i) a broker-dealer who purchases such Exchange Notes directly from the Company to resell pursuant to Rule 144A, Regulation S or any other available exemption under the Securities Act or (ii) a person that is an affiliate of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in the distribution of Exchange Notes. The Company reserves the right to terminate or amend the Exchange Offer at any time prior to the Expiration Date upon the occurrence of any such condition. The Exchange Offer is not conditioned on any minimum aggregate principal amount 8 of Outstanding Notes being tendered for exchange. See "The Exchange Offer--Certain Conditions to the Exchange Offer". Consequences of Failure to Exchange................... Any Outstanding Notes not tendered pursuant to the Exchange Offer will remain outstanding and continue to accrue interest. Such Outstanding Notes will remain "restricted securities" under the Securities Act, subject to the transfer restrictions described herein. As a result, the liquidity of the market for such Outstanding Notes could be adversely affected upon completion of the Exchange Offer. See "Risk Factors-- Consequences of Failure to Exchange the Outstanding Notes". Certain Federal Income Tax Considerations............. The exchange of the Outstanding Notes for Exchange Notes by tendering holders should not be a taxable exchange for U.S. Federal income tax purposes, and such holders should not recognize any taxable gain or loss for U.S. Federal income tax purposes as a result of such exchange. See "Certain U.S. Federal Income Tax Consequences". Use of Proceeds............. There will be no cash proceeds to the Company from the Exchange Offer. See "Use of Proceeds". Tendering Outstanding Each holder of Outstanding Notes wishing to Notes....................... accept the Exchange Offer must complete, sign and date a Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with such Outstanding Notes and any other required documents, to the Exchange Agent (as defined) at the address set forth herein. See "Exchange Offer--Procedures for Tendering Outstanding Notes". Withdrawal Rights........... The tender of Outstanding Notes pursuant to the Exchange Offer may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date, in accordance with the procedures set forth in this Prospectus. See "The Exchange Offer--Withdrawal Rights". Untendered Outstanding Upon consummation of the Exchange Offer, the Notes....................... holders of Outstanding Notes, if any, will have no further rights under the Registration Rights Agreement, except as provided herein. Holders of Outstanding Notes whose Outstanding Notes are not tendered or are tendered but not accepted in the Exchange Offer will continue to hold such Outstanding Notes and will be entitled to all the rights and preferences and subject to the limitations applicable thereto. Following consummation of the Exchange Offer, the holders of Outstanding Notes will continue to be subject to the existing restrictions upon transfer thereof and, except as provided herein, the Company will have no further obligation to such 9 holders to provide for the registration under the Securities Act of the Outstanding Notes held by them. To the extent that Outstanding Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Outstanding Notes could be adversely affected. Exchange Agent.............. State Street Bank and Trust Company of California, N.A., is serving as Exchange Agent in connection with the Exchange Offer. See "The Exchange Offer--Exchange Agent". Shelf Registration Under certain circumstances described in the Statement................... Registration Rights Agreement, certain holders of Outstanding Notes (including holders who are not permitted to participate in the Exchange Offer or who may not freely resell Exchange Notes received in the Exchange Offer) may require the Company to file and use its reasonable efforts to cause to become effective, a shelf registration statement under the Securities Act, which would cover resales of Outstanding Notes by such holders. See "The Exchange Offer--Purpose of the Exchange Offer". TERMS OF THE NOTES Except as otherwise indicated, the following description relates both to the Outstanding Notes issued pursuant to the Note Offering and to the Exchange Notes to be issued in exchange for Outstanding Notes in connection with the Exchange Offer. The Exchange Notes will be obligations of the Company evidencing the same indebtedness as the Outstanding Notes, and will be entitled to the benefits of the same Indenture. The form and terms of the Exchange Notes are the same as the form and terms of the Outstanding Notes, except that the Exchange Notes have been registered under the Securities Act and therefore will not bear legends restricting the transfer thereof. For a more complete description of the Notes see "Description of Notes". Throughout this Prospectus, references to the "Notes" refer to the Exchange Notes and the Outstanding Notes collectively. Issuer...................... Fountain View, Inc. Securities Offered.......... $120.0 million aggregate principal amount of 11 1/4% Senior Subordinated Notes due 2008, Series B that have been registered under the Securities Act. See "Description of Notes". Maturity Date............... April 15, 2008 Guarantees.................. The Company's payment obligations under the Notes are fully and unconditionally, jointly and severally guaranteed on a senior subordinated basis by each of the Company's current and future Restricted Subsidiaries. As of the date of the Indenture, all of the Company's Subsidiaries will be Restricted Subsidiaries. The Outstanding Guarantees are, and the Exchange Guarantees will be, subordinated to all Senior Debt of the Guarantors. See "Description of Notes--Subsidiary Guarantees". 10 The Outstanding Notes accrue interest at a rate Interest on the Notes....... of 11 1/4% per annum from the Issue Date. The Exchange Notes will accrue interest at a rate of 11 1/4% per annum from the Issue Date or from the most recent date to which interest had been paid on the Outstanding Notes. Interest Payment Dates...... April 15 and October 15 of each year, commencing October 15, 1998. Optional Redemption......... Except as described below, the Notes are not redeemable at the Company's option prior to April 15, 2003. From and after April 15, 2003, the Notes will be subject to redemption at the option of the Company, in whole or in part, at the redemption prices set forth herein, plus accrued and unpaid interest and Liquidated Damages (as defined), if any, to the date of redemption. In addition, prior to April 15, 2001, up to 35% in aggregate principal amount of Notes will be redeemable at the option of the Company from the net proceeds of Public Equity Offerings (as defined) by the Company, at a price of 111.25% of the principal amount of the Notes, plus accrued and unpaid interest and Liquidated Damages, if any, to the date of redemption; provided that at least $78.0 million in aggregate principal amount of Notes remains outstanding immediately after each such redemption; and provided, further, that any such redemption occur within 60 days of the date of the closing of such Public Equity Offering. Change of Control........... In the event of a Change of Control, Holders of the Notes will have the right to require the Company to repurchase their Notes, in whole or in part, at a price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the date of repurchase. Ranking..................... The Notes constitute general, unsecured obligations of the Company, subordinated in right of payment to all Senior Debt of the Company, ranked on the same level with all senior subordinated debt of the Company and senior in right of payment to all existing and future subordinated debt of the Company, if any. The claims of the Holders of the Notes will be subordinated to Senior Debt, which, as of May 31, 1998, was approximately $126.0 million, approximately $101.0 million of which was fully secured borrowings under the New Credit Facility. See "Description of Notes--Subordination" and "Description of Other Indebtedness". Restrictive Covenants....... The Indenture governing the Notes (the "Indenture") contains certain covenants that, among other things, limit the ability of the Company and its Subsidiaries to incur additional 11 Indebtedness (as defined herein) and issue Disqualified Stock (as defined herein), pay dividends or distributions or make investments or make certain other Restricted Payments (as defined herein), enter into certain transactions with affiliates, dispose of certain assets, incur liens securing on the same level and subordinated indebtedness and engage in mergers and consolidations. See "Description of Notes". Use of Proceeds............. The gross proceeds of $120.0 million from the Note Offering along with the proceeds of equity investments made by Heritage and members of management were used to repay certain existing indebtedness, pay certain fees and expenses in connection with the Transactions, and for general corporate purposes. No proceeds will be received by the Company and the Guarantors from the Exchange Offer. See "--The Financings" and "Use of Proceeds". COMPARISON OF EXCHANGE NOTES WITH OUTSTANDING NOTES Freely Transferable......... Generally, the Exchange Notes will be freely transferable under the Securities Act by holders thereof other than any holder that is either an affiliate of the Company or a broker-dealer that purchased the Notes from the Company to resell pursuant to Rule 144A, Regulation S or any other available exemption. The Exchange Notes otherwise will be substantially identical in all material respects (including interest rate and maturity) to the Outstanding Notes. See "The Exchange Offer". Registration Rights......... The holders of Outstanding Notes currently are entitled to certain registration rights pursuant to the Registration Rights Agreement (the "Registration Rights Agreement"), dated as of April 16, 1998, among the Company, the Guarantors and the Initial Purchasers. However, upon consummation of the Exchange Offer, subject to certain exceptions, holders of Outstanding Notes who do not exchange their Outstanding Notes for Exchange Notes in the Exchange Offer will no longer be entitled to registration rights and will not be able to offer or sell their Outstanding Notes, unless such Outstanding Notes are subsequently registered under the Securities Act (which, subject to certain limited exceptions, the Company will have no obligation to do), except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. See "Risk Factors--Consequences of Failure to Exchange the Outstanding Notes" and "The Exchange Offer--Purpose of the Exchange Offer". Exchange Offer and Absence of a Public Market for the The Exchange Notes will generally be freely Notes...................... transferable (subject to the restrictions discussed elsewhere herein) but 12 will be new securities for which there will not initially be a market. The Outstanding Notes are eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") Market, the National Association of Securities Dealers' ("NASD") screen-based automated market for trading of securities eligible for resale under Rule 144A. "PORTAL" or "PORTAL Market" means the NASD's market for designated foreign and domestic securities through an automated quotation and communications system that facilitates private offerings, resales, trading, clearance and settlement by PORTAL participants. The PORTAL Market, as described by the NASD, is an electronic screen based system, which facilitates trading of SEC Rule 144A private placements by qualified investors. The purpose of PORTAL is to provide companies with increased flexibility in raising capital by creating a method for accessing a significant source of funds. It also is intended to give U.S. institutional investors another opportunity to diversify their portfolios by making certain foreign securities available for purchase in the domestic market. PORTAL complements the Commission's Rule 144A, which provides safe harbor protections by exempting the private placements of certain issuers from the Commission's registration and disclosure requirements and by allowing eligible institutional investors to trade these securities freely among themselves without having to observe restrictions that, prior to the adoption of the rule, otherwise delayed the trading of these securities. The Company does not intend to apply for a listing of the Exchange Notes on any securities exchange or on any automated dealer quotation system. See "Plan of Distribution". FOR MORE COMPLETE INFORMATION REGARDING THE NOTES, SEE "DESCRIPTION OF NOTES". RISK FACTORS Holders of Outstanding Notes and prospective purchasers of the Exchange Notes should consider carefully all of the information set forth in this Prospectus and, in particular, should evaluate the specific factors set forth under "Risk Factors" for risks involved with an exchange or acquisition of the Exchange Notes. ADDITIONAL INFORMATION For additional information regarding the Notes, see "The Exchange Offer", "Description of Notes" and "Certain Federal Income Tax Consequences". 13 SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA Set forth below is the pro forma financial information as of March 31, 1998 and December 31, 1997 and for the three months ended March 31, 1998 and for the year ended December 31, 1997. Such pro forma data does not purport to represent what the Company's actual results would have been if the Transactions had occurred on the date indicated, nor does such information purport to project the results of the Company for future periods. The summary unaudited pro forma financial information below should be read in conjunction with the "Unaudited Pro Forma Financial Data", "Selected Historical Financial and Other Data-- Fountain View", "Selected Historical Financial and Other Data--Summit" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes thereto included elsewhere in this Prospectus.
PRO FORMA PRO FORMA THREE MONTHS YEAR ENDED ENDED MARCH 31, 1998 DECEMBER 31, 1997 -------------------- ----------------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA Net revenue............................. $ 73,996 $287,144 Salaries and related benefits........... 34,318 135,248 Other operating costs................... 28,967 115,022 Depreciation and amortization........... 3,747 14,092 Rent expense............................ 1,706 6,754 Interest, net........................... 5,831 23,324 -------- -------- 74,569 294,440 -------- -------- Loss before provision for income taxes and extraordinary item................. (573) (7,296) Income taxes benefit(1)................. 137 2,792 Extraordinary item, net of tax.......... (517) -- -------- -------- Net loss................................ $ (953) $ (4,504) ======== ======== OTHER FINANCIAL DATA EBITDA(2)............................... $ 9,005 $ 30,120 Adjusted EBITDA(3)...................... 9,005 37,795 Adjusted EBITDA margin.................. 12.2% 13.2% Adjusted EBITDAR(3)..................... $ 10,711 $ 44,549 Adjusted EBITDAR margin................. 14.5% 15.5% Ratio of earnings to fixed charges(4)... -- -- Ratio of Adjusted EBITDA to net interest expense................................ 1.5 1.6 Ratio of net debt to Adjusted EBITDA(5). 6.7 6.3 Net cash provided by operating activities............................. $ 3,707 $ 34,984 OTHER DATA Number of facilities (end of period).... 50 50 Total beds (end of period).............. 6,578 6,574 Patient days (in thousands)(6).......... 468 1,963 Average occupancy rate(7)............... 89% 89% Percentage of revenues from: Managed care, private pay and Medicare............................. 67% 70% Medicaid.............................. 33 30 BALANCE SHEET DATA (AT MARCH 31, 1998 AND DECEMBER 31, 1997, RESPECTIVELY) Cash and cash equivalents............... $ 3,640 $ 4,253 Working capital......................... 34,475 23,146 Total assets............................ 407,516 410,800 Total debt and capital leases, including current maturities and excluding mandatory redeemable preferred stock... 244,904 241,990 Stockholders' equity.................... 70,119 69,764
14 - -------- (1) In July 1997, Fountain View's predecessor, which was comprised of all of Fountain View's operating units owned individually by certain controlling stockholders, was merged with and into several companies formed by Fountain View in connection with the Fountain View Equity Transactions. Prior to the Fountain View Equity Transactions, most of such individually owned corporations had elected to be taxed as cash-basis S-corporations. The pro forma income tax benefit for the year ended December 31, 1997 includes a charge in lieu of income taxes to indicate what the tax provision would have been had Fountain View been taxed as a C-corporation for all of 1997 with a combined federal and state tax rate of 41%. See Note 3 to the audited financial statements of Fountain View included elsewhere in this Prospectus. (2) EBITDA represents earnings before interest, taxes, depreciation and amortization. EBITDA is a widely recognized financial indicator of a company's ability to service or incur debt. EBITDA is not a measurement of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income, net income, cash flows from operations, or other statement of operations or cash flow data prepared in conformity with generally accepted accounting principles, or as a measure of profitability or liquidity. In addition, EBITDA may not be comparable to similarly titled measures of other companies. EBITDA may not be indicative of the historical operating results of the Company, nor is it meant to be predictive of future results of operations or cash flows. (3) For the year ended December 31, 1997, adjusted EBITDA represents EBITDA adjusted for certain non-recurring charges shown below. Adjusted EBITDAR represents Adjusted EBITDA plus rent expense. EBITDAR is not a measurement of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income, net income, cash flows from operations, or other statement of operations or cash flow data prepared in conformity with generally accepted accounting principles, or as a measure of profitability or liquidity. Similar to EBITDA, management views EBITDAR as a financial indicator of a company's ability to service or incur debt. A majority of Fountain View's nursing homes are leased, under operating leases, and not owned. Accordingly, EBITDAR is used since the rent expense approximates the interest and depreciation expense Fountain View may have incurred as if the nursing homes were owned as opposed to leased:
YEAR ENDED DECEMBER 31, 1997 ----------------- EBITDA..................................................... $30,120 Non-recurring charges(a)................................... 7,675 ------- Adjusted EBITDA............................................ $37,795 Rent expense............................................... 6,754 ------- Adjusted EBITDAR........................................... $44,549 =======
(a) EBITDA is adjusted for the following non-recurring entries in order to present comparable EBITDA with the preceding years since these entries are only reflected in the results of operations for the year ended December 31, 1997 for Fountain View and for the six months ended December 31, 1997 for Summit. In addition, the Company does not expect to incur similar costs in the future. Non-recurring charges consist of: (1) $2,100 of Medicare reserves taken by Summit due to adjustments proposed by the Medicare intermediary during their audit of prior year cost reports. The adjustments relate to issues not proposed by the Medicare intermediary during previous audits and therefore the one time impact relating to these adjustments for prior year cost reports is all reflected in the results of operations for the year ended December 31, 1997 when the cost reports were audited and finalized with the Medicare intermediary; (2) $1,074 of retroactive workers' compensation, group and general liability costs due to the recording of tail coverage insurance expense at the time Summit converted from an occurrence based insurance policy to a claims made insurance policy; (3) $983 of incremental bad debt expense relating to 1996 and prior periods recorded in 1997 resulting from a change in management's methodology for determining the allowance for bad debt; the change in methodology was made to convert Summit's allowance methodology accounting practices to Fountain View's accounting as a result of the acquisition; (4) termination of non-compete agreements and consulting arrangements totaling $965 relating to the Fountain View Equity Transactions; (5) certain transaction expenses including discretionary employee bonuses totaling $872 paid upon completion of the Fountain View Equity Transactions; (6) severance for an executive and other costs totaling $871, the severance package was paid in connection with the acquisition of Summit by Fountain View; and (7) $810 related to an employee lawsuit settled in 1997 involving a specific type of liability for which the Company currently maintains insurance coverage (net of ongoing insurance costs). (b) Management believes that as a consequence of the Transactions, the Company will realize significant ongoing cost savings and revenue enhancements. However there can be no assurance that these cost savings or revenue enhancements will be realized. Management's estimate of the ongoing cost reductions relating to the Transactions includes: (i) certain reductions in facility-level operating expense items totaling $1,451; (ii) $1,355 relating to the elimination of specifically identified duplicative staff; (iii) $512 relating to reductions in corporate expenses, including the elimination of certain public company expenses; and (iv) a reduction in costs of supplies. Such amounts have not been included in adjusted EBITDA or adjusted EBITDAR. (4) The ratio of earnings to fixed charges has been calculated by dividing income before income taxes and fixed charges by fixed charges. Fixed charges consists of interest expense and one-third of operating rent expense, which management believes is representative of the interest component of rent expense. Earnings were not sufficient to cover fixed charges. The amount of the shortfall approximated $7.3 million for the proforma year ended December 31, 1997 and $0.6 million for the proforma three months ended March 31, 1998. 15 (5) Ratio of net debt to Adjusted EBITDA represents the ratio of total debt less cash and cash equivalents to Adjusted EBITDA. (6) "Patient days" refers to the total number of days of patient care provided by the Company's facilities. (7) Average occupancy rate has been adjusted to exclude three Summit facilities which were not operational prior to 1996 or were significantly renovated during 1997 such that beds were not available during the entire year. Such facilities were deemed to be in a fill-up stage and, therefore, their occupancies are not considered to be indicative of a mature facility. Actual occupancy for the year ended December 31, 1997 including these facilities was 87%. Also excludes Fountain View's ALF, which represented less than 2% of Fountain View's total revenue during fiscal 1997. 16 SUMMARY HISTORICAL FINANCIAL AND OTHER DATA--FOUNTAIN VIEW The summary financial data of Fountain View as of December 31, 1996 and 1997 and for each of the three years in the period ended December 31, 1997 are derived from the audited financial statements included elsewhere herein. The summary financial and other data as of December 31, 1993, 1994 and 1995, for the two years in the period ended December 31, 1994 and for the three months ended March 31, 1997 and 1998 have been derived from Fountain View's unaudited financial statements included elsewhere herein and, in the opinion of management, include all necessary adjustments for a fair presentation of such information in conformity with generally accepted accounting principles. The information set forth below should be read in conjunction with "Capitalization", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes thereto included elsewhere in this Prospectus.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, -------------------------------------------- -------------------- 1993 1994 1995 1996 1997 1997 1998 ------- ------- ------- ------- -------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA Net revenue................... $41,061 $51,824 $55,836 $59,432 $ 67,905 $ 16,409 $ 20,078 Salaries and related benefits. 23,248 27,823 35,048 36,166 38,215 9,435 10,686 Other operating costs......... 10,884 14,886 13,454 14,614 17,990 3,556 5,584 Depreciation and amortization. 110 149 416 600 1,198 142 524 Rent expense.................. 4,002 4,017 3,946 3,896 3,775 941 983 Interest, net................. 307 355 332 278 1,164 20 851 ------- ------- ------- ------- -------- --------- --------- 38,551 47,230 53,196 55,554 62,342 14,094 18,628 ------- ------- ------- ------- -------- --------- --------- Income before provision for income taxes and extraordinary item........... 2,510 4,594 2,640 3,878 5,563 2,315 1,450 Income tax benefit (provision).................. (81) 43 (54) (78) (361) (33) (580) Extraordinary item, net of tax.......................... -- -- -- -- -- -- (517) ------- ------- ------- ------- -------- --------- --------- Net income.................... $ 2,429 $ 4,637 $ 2,586 $ 3,800 $ 5,202 $ 2,282 $ 353 ======= ======= ======= ======= ======== ========= ========= Basic and diluted earnings per share before extraordinary item(5)...................... $ 12.15 $ 23.19 $ 12.93 $ 19.00 $ 26.01 $ 11.41 $ 3.47 Basic and diluted loss per share-- extraordinary item........... -- -- -- -- -- -- (2.06) ------- ------- ------- ------- -------- --------- --------- Basic and diluted earnings per share--net income............ $ 12.15 $ 23.19 $ 12.93 $ 19.00 $ 26.01 $ 11.41 $ 1.41 ======= ======= ======= ======= ======== ========= ========= OTHER FINANCIAL DATA EBITDA(1)..................... $ 2,927 $ 5,098 $ 3,388 $ 4,756 $ 7,925 $ 2,477 $ 2,825 EBITDA margin................. 7.1% 9.8% 6.1% 8.0% 11.7% 15.1% 14.1% EBITDAR(1).................... $ 6,929 $ 9,115 $ 7,334 $ 8,652 $ 11,700 $ 3,418 $ 3,808 EBITDAR margin................ 16.9% 17.6% 13.1% 14.6% 17.2% 20.8% 19.0% Capital expenditures.......... $ 8 $ 537 $ 665 $ 1,816 $ 2,570 $ 837 $ 655 Ratio of earnings to fixed charges(2). . 2.5x 3.7x 2.6x 3.5x 3.3x 7.9x 2.2x Net cash provided by (used in) operating activities......... $(1,804) $ 908 $ 5,832 $ 1,059 $ 12,739 $ 6,651 $ (4,346) OTHER DATA Number of facilities (end of period)...................... 9 9 9 9 9 9 50 Average licensed beds(3)...... 1,061 1,061 1,061 1,061 1,061 1,061 5,937 Total beds (end of period).... 1,227 1,227 1,227 1,227 1,227 1,227 6,578 Patient days (in thousands)... 337 345 341 344 346 81 106 Average occupancy rate(4)..... 87.0% 89.1% 88.1% 88.8% 89.3% 84.9% 86.6% Percentage of revenues from: Managed care, private pay and Medicare............... 58.4% 65.1% 67.2% 69.7% 72.9% 72.8% 72.0% Medicaid.................... 41.6 34.9 32.8 30.3 27.1 27.2 28.0 BALANCE SHEET DATA (END OF PERIOD) Cash and cash equivalents..... $ 465 $ 629 $ 2,355 $ 1,161 $ 2,551 -- 3,640 Working capital............... 8,266 11,140 10,334 13,566 10,021 -- 8,509 Total assets.................. 14,408 18,433 24,693 24,122 25,941 -- 396,116 Total debt, including current maturities................... 6,758 7,359 6,764 666 30,076 -- 227,378 Shareholders' equity (deficit).................... 5,570 9,399 9,957 16,601 (12,236) -- 70,119
- ------- (1) EBITDA represents earnings before interest, taxes, depreciation and amortization. EBITDA is a widely recognized financial indicator of a company's ability to service or incur debt. EBITDA is not a measurement of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income, net income, cash 17 flows from operations, or other statement of operations or cash flow data prepared in conformity with generally accepted accounting principles, or as a measure of profitability or liquidity. In addition, EBITDA may not be comparable to similarly titled measures of other companies. EBITDA may not be indicative of the historical operating results of the Company, nor is it meant to be predictive of future results of operations or cash flows. EBITDAR represents EBITDA plus rent expense. EBITDAR is not a measurement of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income, net income, cash flows from operations, or other statement of operations or cash flow data prepared in conformity with generally accepted accounting principles, or as a measure of profitability or liquidity. Similar to EBITDA, management views EBITDAR as a financial indicator of a company's ability to service or incur debt. A majority of Fountain View's nursing homes are leased, under operating leases, and not owned. Accordingly, EBITDAR is used since the rent expense approximates the interest and depreciation expense Fountain View may have incurred as if the nursing home were owned as opposed to leased. (2) The ratio of earnings to fixed charges has been calculated by dividing income before income taxes and fixed charges by fixed charges. Fixed charges consists of interest expense and one-third of operating rental expense, which management believes is representative of the interest component of rent expense. (3) Excludes ALF beds. (4) Excludes Fountain View's ALF, which represents less than 2% of total revenue. (5) Weighted average shares outstanding for the five years ended December 31, 1997 and for the three months ended March 31, 1997 has been computed based on the 200,000 shares of Common Stock issued and outstanding in connection with the Fountain View Equity Transaction. See note 2 to the consolidated financial statements of Fountain View included elsewhere herein. 18 SUMMARY HISTORICAL FINANCIAL AND OTHER DATA--SUMMIT The summary financial data of Summit as of and for each of the five years in the period ended June 30, 1997 are derived from Summit's audited financial statements. The financial and other data for the six months ended December 31, 1996 and 1997 have been derived from Summit's unaudited financial statements included elsewhere herein and, in the opinion of management, include all necessary adjustments for a fair presentation of such information in conformity with generally accepted accounting principles. The information set forth below should be read in conjunction with "Capitalization", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes thereto included elsewhere in this Prospectus.
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ----------------------------------------------- ----------------- 1993 1994 1995 1996 1997 1996 1997 ------- -------- -------- -------- -------- ------- -------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA Net revenue............. $83,992 $ 97,599 $137,026 $176,062 $197,927 $95,088 $108,507 Salaries and related benefits............... 40,044 45,962 63,171 78,233 89,577 43,386 47,742 Other operating costs... 29,998 34,655 49,206 70,696 89,932 41,750 45,736 Depreciation and amortization........... 2,308 2,949 5,249 6,142 7,393 3,632 4,235 Rent expense............ 2,315 1,613 2,141 2,656 2,864 1,410 1,525 Interest, net........... 1,080 2,243 4,761 6,574 7,973 4,057 4,588 ------- -------- -------- -------- -------- ------- -------- 75,745 87,422 124,528 164,301 197,739 94,235 103,826 ------- -------- -------- -------- -------- ------- -------- Income before provision for income taxes....... 8,247 10,177 12,498 11,761 188 853 4,681 Income tax provision.... (3,224) (4,010) (4,987) (4,452) (119) (337) (1,849) ------- -------- -------- -------- -------- ------- -------- Net income.............. $ 5,023 $ 6,167 $ 7,511 $ 7,309 $ 69 $ 516 $ 2,832 ======= ======== ======== ======== ======== ======= ======== OTHER FINANCIAL DATA EBITDA(1)............... $11,635 $ 15,369 $ 22,508 $ 24,477 $ 15,554 $ 8,542 $ 13,504 EBITDA margin........... 13.9% 15.7% 16.4% 13.9% 7.9% 9.0% 12.4% EBITDAR(1).............. $13,950 $ 16,982 $ 24,649 $ 27,133 $ 18,418 $ 9,952 $ 15,029 EBITDAR margin.......... 16.6% 17.4% 18.0% 15.4% 9.3% 10.5% 13.9% Capital expenditures.... $29,901 $ 15,505 $ 9,004 $ 26,558 $ 24,075 $12,049 $ 6,706 Ratio of earnings to fixed charges(2)....... 5.5x 4.7x 3.3x 2.6x 1.0x 1.2x 1.9x Net cash provided by operating activities... $ 4,186 $ 7,512 $ 7,014 $ 6,866 $ 18,015 $ 3,563 $ 7,793 OTHER DATA Number of facilities (end of period)........ 21 23 37 38 39 39 41 Average licensed beds... 2,696 2,876 4,197 4,816 5,078 5,065 5,154 Total beds (end of period)................ 2,696 3,002 4,762 4,940 5,040 -- 5,347 Patient days (in thousands)............. 858 908 1,316 1,514 1,573 783 827 Average occupancy rate.. 87.2% 86.5% 85.9% 85.9% 84.8% 84.0% 87.2% Percentage of revenues from: Managed care and private pay.......... 36.5% 34.0% 33.8% 31.9% 29.9% 30.5% 31.6% Medicare.............. 28.3 30.3 29.5 34.7 39.7 39.1 36.7 Medicaid.............. 35.2 35.7 36.7 33.4 30.4 30.4 31.7 BALANCE SHEET DATA (END OF PERIOD) Cash and cash equivalents............ $ 6,301 $ 21,613 $ 3,101 $ 2,658 $ 3,994 -- $ 1,702 Working capital......... 7,151 24,880 10,161 13,906 12,648 -- 11,384 Total assets............ 73,369 114,915 184,480 223,052 250,516 -- 267,420 Total debt and capital leases, including current maturities..... 30,331 32,025 89,788 110,374 121,452 -- 129,754 Shareholders' equity.... 31,337 66,361 73,813 81,286 81,412 -- 84,721
- ------- (1) EBITDA represents earnings before interest, taxes, depreciation and amortization. EBITDA is a widely recognized financial indicator of a company's ability to service or incur debt. EBITDA is not a measurement of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income, net income, cash flows from operations, or other statement of operations or cash flow data prepared in conformity with generally accepted accounting principles, or as a measure of profitability or liquidity. In addition, EBITDA may not be comparable to similarly titled measures of other companies. EBITDA may not be indicative of the historical operating results of the Company, nor is it meant to be predictive of future results of operations or cash flows. EBITDAR represents EBITDA plus rent expense. EBITDAR is not a measurement of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income, net income, cash flows from operations, or other statement of operations or cash flow data prepared in conformity with generally accepted accounting principles, or as a measure of profitability or liquidity. Similar to EBITDA, management views EBITDAR as a financial indicator of a company's ability to service or incur debt. A majority of Fountain View's nursing homes are leased, under operating leases, and not owned. Accordingly, EBITDAR is used since the rent expense approximates the interest and depreciation expense Fountain View may have incurred as if the nursing homes were owned as opposed to leased. (2) The ratio of earnings to fixed charges has been calculated by dividing income before income taxes and fixed charges by fixed charges. Fixed charges consists of interest expense and one-third of operating rental expense, which management believes is representative of the interest component of rent expense. 19 RISK FACTORS In addition to the other information contained in this Prospectus, holders of the Outstanding Notes and prospective purchasers should carefully consider the following risk factors before exchanging their Outstanding Notes or purchasing the Exchange Notes offered hereby. This Prospectus includes statements that may be considered "forward-looking". Although the Company believes that its plans, intentions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such plans, intentions or expectations will be achieved. Important factors that could cause actual results to differ materially from the Company's forward- looking statements are set forth below and elsewhere in this Prospectus. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements set forth below. See "Special Note Regarding Forward-Looking Statements". SUBSTANTIAL LEVERAGE Significant Leverage as a Result of the Transactions. In connection with the Transactions, the Company incurred a significant amount of indebtedness, and, as a result, the Company is highly leveraged. As of May 31, 1998, the Company had total funded indebtedness of approximately $245.7 million, excluding mandatory redeemable preferred stock (of which $120.0 million consists of the Notes and the balance consisting of approximately $101.1 million of borrowings under the New Credit Facility and approximately $24.6 million of mortgages, capital leases and other debt). The Company's ratio of earnings to fixed charges was 1.03x for the five months ended May 31, 1998. While the Indenture and the New Credit Facility contain financial and other restrictive covenants that limit the ability of the Company to borrow money, the Company is, under those provisions, still permitted to incur substantial additional indebtedness in the future. See "Capitalization", "Unaudited Pro Forma Financial Data" and "Description of Notes". Liquidity and Capital Revenues The Company's ability to make scheduled payments of principal of, or to pay the interest or Liquidated Damages, if any, on, or to refinance, its indebtedness (including the Notes), or to fund planned capital expenditures and any acquisitions will depend on its future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control. Based upon the current level of operations and anticipated cost savings and revenue growth, management believes that cash flow from operations and available cash, together with available borrowings under the New Credit Facility, will be adequate to meet the Company's future liquidity needs for the next several years. The Company may, however, need to refinance all or a portion of the Notes on or prior to maturity. There can be no assurance that the Company's business will generate sufficient cash flow from operations, that anticipated revenue growth and operating improvements will be realized or that future borrowings will be available under the New Credit Facility in an amount sufficient to enable the Company to service its indebtedness, including the Notes, or to fund its other liquidity needs. In addition, there can be no assurance that the Company will be able to effect any such refinancing on commercially reasonable terms or at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources of the Company Following the Transactions". Effects of Leverage The degree to which the Company is leveraged could have important consequences to holders of the Notes, including, but not limited to: (i) making it more difficult for the Company to satisfy its obligations with respect to the Notes; (ii) increasing the Company's vulnerability to general adverse economic and industry conditions; (iii) limiting the Company's ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions and other general corporate requirements; (iv) requiring the dedication of a substantial portion of the Company's cash flow from 20 operations to the payment of principal of, and interest on, its indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures, or other general corporate purposes; (v) limiting the Company's flexibility in planning for, or reacting to, changes in its business and the healthcare industry; and (vi) placing the Company at a competitive disadvantage with respect to less leveraged competitors. In addition, the Indenture and the New Credit Facility contain financial and other restrictive covenants that limit the ability of the Company to, among other things, borrow additional funds. Failure by the Company to comply with such covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on the Company. In addition, the degree to which the Company is leveraged could prevent it from repurchasing all of the Notes tendered to it upon the occurrence of a Change of Control. See "Description of Notes--Repurchase at the Option of Holders--Change of Control" and "Description of Other Indebtedness--New Credit Facility". SUBORDINATION OF THE NOTES; GUARANTEES The Notes and the Guarantees are subordinated in right of payment to all current and future Senior Debt of the Company and the Guarantors. However, the Indenture provides that the Company will not, and will not permit any of the Guarantors to, incur or otherwise become liable for any indebtedness that is subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Notes or any of the Guarantees. The practical effect of these provisions is that any new indebtedness of the Company or Guarantors will have to be classified as Senior Debt under the Indenture in order for it to have a preference over the Notes (for a definition of "Senior Debt" see "Description of Notes--Certain Definitions"). Upon any distribution to creditors of the Company or a Guarantor in a liquidation or dissolution of the Company or a Guarantor or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or a Guarantor or its property, the holders of Senior Debt will be entitled to be paid in full before any payment may be made with respect to the Notes. In addition, the subordination provisions of the Indenture provide that payments with respect to the Notes will be blocked in the event of a payment default on Senior Debt and may be blocked for up to 179 days each year in the event of certain non-payment defaults on Senior Debt. In the event of a bankruptcy, liquidation or reorganization of the Company or a Guarantor, holders of the Notes will participate ratably with all holders of subordinated indebtedness of the Company or such Guarantor that is deemed to be of the same class as the Notes, and potentially with all other general creditors of the Company, based upon the respective amounts owed to each holder or creditor, in the remaining assets of the Company. In any of the foregoing events, there can be no assurance that there would be sufficient assets to pay amounts due on the Notes. As a result, holders of Notes may receive less, ratably, than the holders of Senior Debt. As of May 31, 1998, approximately $126.0 million of Senior Debt was outstanding, including approximately $101.0 million of borrowings under the New Credit Facility, and approximately $14.0 million was available for additional borrowings under the New Credit Facility. The Indenture permits the incurrence of substantial additional indebtedness, including Senior Debt, by the Company and its subsidiaries in the future. See "Description of Other Indebtedness--New Credit Facility" and "Description of Notes". EFFECTS OF NON-COMPLIANCE WITH COVENANTS IMPOSED BY THE NEW CREDIT FACILITY AND THE INDENTURE Among other obligations, the New Credit Facility requires the Company to satisfy certain tests and maintain specified financial ratios, including a minimum fixed charge coverage ratio and a maximum leverage ratio. In addition, the New Credit Facility restricts, among other things, the Company's ability to incur additional indebtedness and to make acquisitions, investments and capital expenditures beyond a certain level. A failure to comply with the restrictions contained in the New Credit Facility could lead to an event of default thereunder which could result in an acceleration of such indebtedness. Such an acceleration would constitute an event of default under the Indenture relating to the Notes. In addition, the Indenture restricts, among other things, the Company's ability to incur additional indebtedness, 21 make investments, sell assets, make certain payments and dividends or merge or consolidate. A failure to comply with the restrictions in the Indenture could result in an event of default under the Indenture. If, as a result thereof, a default occurs with respect to Senior Debt, the subordination provisions of the Indenture would likely restrict payments to holders of the Notes. See "Description of Other Indebtedness--New Credit Facility" and "Description of Notes--Subordination". ENCUMBRANCES ON ASSETS TO SECURE NEW CREDIT FACILITY In addition to being subordinated to all existing and future Senior Debt of the Company, the Notes will not be secured by any of the Company's assets. The Company's obligations under the New Credit Facility are secured by a first priority pledge of and security interest in the common stock of the Company's subsidiaries and in substantially all of the Company's assets, both tangible and intangible, including the Company's personal property and real property. If the Company becomes insolvent or is liquidated, or if payment under the New Credit Facility is accelerated, the lenders under the New Credit Facility will be entitled to exercise the remedies available to a secured lender under applicable law. See "Description of Other Indebtedness--New Credit Facility". ABILITY OF COMPANY TO OBTAIN FUNDS FROM SUBSIDIARIES The Company is a holding company, has no operations of its own and derives substantially all of its revenue from its subsidiaries. Holders of indebtedness of, and trade creditors of, subsidiaries of the Company would generally be entitled to payment of their claims from the assets of the affected subsidiaries before such assets were made available for distribution to the Company. As of May 31, 1998, the Company had approximately $126.0 million of Senior Debt outstanding, including approximately $101.0 million of borrowings under the New Credit Facility, and approximately $14 million was available for additional borrowings under the New Credit Facility. The Company's Subsidiaries would have had approximately $24.9 million of Indebtedness, $46.2 million of trade payables and other liabilities and $15.0 million of mandatory redeemable preferred stock outstanding as of March 31, 1998, on a pro forma basis after giving effect to the Transactions. The Indenture permits the incurrence of substantial additional indebtedness by the Company and its subsidiaries and permits significant investments by the Company in its subsidiaries. In the event of a bankruptcy, liquidation or reorganization of a subsidiary, holders of any of such subsidiary's indebtedness will have a claim to the assets of the subsidiaries that is prior to the Company's interest in those assets. FAILURE TO INTEGRATE BUSINESSES The Company has no prior history as a combined entity and its operations have not previously been managed on a combined basis. Prior to the Transactions, Fountain View and Summit had been operated as separate entities. The Company's future operations and earnings will be largely dependent upon management's ability to successfully execute the Company's strategy. This will require substantial attention from the Company's management team which, to date, has operated on a combined basis for only a short period. In addition, management will be required to apply its business strategy to an entity which is significantly larger than the entities it previously managed. Additionally, the need to focus management's attention on integration of the businesses and implementation of the Company's post-combination strategy may limit the Company's ability to successfully pursue other opportunities related to its business for the foreseeable future. The historical financial statements and pro forma financial statements presented in this Prospectus may not necessarily be indicative of the results that would have been attained had the Company operated on a combined basis. FAILURE TO COMPLY WITH GOVERNMENT REGULATIONS REGULATIONS GOVERNING HEALTH CARE FACILITIES The federal government and the states in which the Company operates regulate various aspects of the SNF, ALF, sub-acute and specialty medical care, therapy, pharmacy and DME businesses. In 22 particular, the operation of long-term care facilities and the provision of specialty medical services are subject to federal, state and local laws relating to the adequacy of medical care, resident rights, equipment, personnel, operating policies, fire prevention, rate-setting and compliance with building codes and environmental and other laws. Facilities which are not in substantial compliance with such laws and do not correct deficiencies within a certain time frame may be terminated from the Medicare and/or Medicaid programs. While the Company endeavors to comply with all applicable regulatory requirements, from time to time certain of the Company's SNFs have been subject to various sanctions and penalties as a result of deficiencies alleged by the Health Care Financing Administration ("HCFA") or state survey agencies. While in certain instances denial of certification or licensure revocation actions have been threatened, management believes that the Company will not suffer any material adverse effect as a result thereof. There can be no assurance, however, that the Company will not be subject to sanctions and penalties in the future as a result of such actions. REGULATIONS GOVERNING FINANCIAL ARRANGEMENTS BETWEEN HEALTH CARE PROVIDERS The Company is also subject to federal and state laws that govern financial and other arrangements between healthcare providers. These laws 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 Patient and Program Protection Act of 1987 (commonly referred to as the "Anti-Kickback Statute") and the physician self- referral ban contained in the Omnibus Budget Reconciliation Act as expanded in 1993 (commonly referred to as "Stark II"). The Anti-Kickback Statute 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. Stark II prohibits, in part, physicians from making any Medicare or Medicaid referrals for certain "designated health services" to any entity with which the physician has a "financial relationship". In addition to these anti-kickback and self-referral prohibitions, there are various federal and state laws prohibiting other types of fraud by healthcare providers, including criminal provisions which prohibit filing false claims or making false statements to receive payment or certification under Medicare and Medicaid, or failing to refund overpayments or improper payments. Violation of the Anti-Kickback Statute or the criminal false claims statute is a felony punishable by up to five years imprisonment and/or $25,000 fines, while violation of Stark II may result in the imposition of civil monetary penalties of up to $15,000 for each prohibited service provided as well as restitution of payments for such services. Civil provisions prohibit the knowing filing of a false claim or the knowing use of false statements to obtain payment. The penalties for such a violation are fines of not less than $5,000 nor more than $10,000, plus treble damages, for each claim filed. In addition, some states restrict certain business relationships between physicians and other providers of healthcare services. Many states, including California, Texas and Arizona, prohibit business corporations from providing, or holding themselves out as providers 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 (including Medicare and Medicaid), asset forfeitures and civil and criminal penalties. These laws vary from state to state, are often vague and have seldom been interpreted by the courts or regulatory agencies. Management believes the Company is in substantial compliance with the foregoing statutes and regulations. However, there can be no assurance that government officials responsible for enforcing these statutes will not assert that the Company or certain transactions in which the Company is involved are in violation of these statutes, possibly resulting in the imposition of fines or penalties that may adversely affect the Company's business, financial condition and results of operations. ANTI-FRAUD INITIATIVES GOVERNING HEALTH CARE PROVIDERS State and federal governments are devoting increasing attention and resources to anti-fraud initiatives against healthcare providers. The Health Insurance Portability and Accountability Act of 1996 23 (the "Accountability Act") and the Balanced Budget Act of 1997 (the "Balanced Budget Act") expand the penalties for healthcare fraud, including broader provisions for the exclusion of providers from the Medicare and Medicaid programs. Further, under Operation Restore Trust, a major anti-fraud demonstration project, the Office of the Inspector General of the U.S. Department of Health and Human Services (the "OIG"), in cooperation with other federal and state agencies, has focused on the activities of SNFs, home health agencies, hospices, and DME suppliers in certain states, including California and Texas, in which the Company currently operates. Due to the success of Operation Restore Trust, the project has been expanded to numerous other states and to additional healthcare providers including providers of ancillary nursing home services. While management believes that the Company's billing practices are consistent with Medicare and Medicaid criteria, those criteria are often vague and subject to interpretation. There can be no assurance that aggressive anti-fraud enforcement actions will not adversely affect the business of the Company. The federal government has indicated that the implementation of an effective compliance program is recommended for healthcare providers in order to maximize a provider's ability to detect and prevent potential infractions of applicable law and to address any infractions that may occur. Further, the existence of an effective compliance program may be taken into account by the government to reduce any fines or penalties incurred by the Company for infractions or violations of applicable law. Although the Company does not currently have a compliance program in place, the Company is in the process of developing and implementing a compliance program. See "Business--Compliance Program". DEPENDENCE ON REIMBURSEMENT BY THIRD-PARTY PAYORS COST CONTAINMENT MEASURES IMPOSED BY THIRD PARTY PAYORS On a pro forma basis, after giving effect to the Transactions the Company derived approximately 36% and 31% for the twelve months ended December 31, 1997 of its net patient revenues from Medicare and Medicaid, respectively. The Company expects to continue to derive a significant portion of its revenue from such federal and state reimbursement programs. There can be no assurance that the Company will achieve or improve this payor mix in the future. Both governmental and private payor sources have instituted cost containment measures designed to limit payments made to healthcare providers. Most recently, the Balanced Budget Act requires the establishment of a prospective payment system ("PPS") for Medicare SNFs under which facilities will be paid a federal per diem rate for virtually all covered SNF services in lieu of the current cost-based reimbursement rate. The cost-based system reimburses providers for reasonable direct and indirect allowable costs incurred in providing "routine costs" (as defined by the Medicare program) as well as capital costs and ancillary costs. Management believes that the transition to PPS will reward efficient providers and penalize those that are inefficient. The law contains numerous other changes that will adversely affect payments to Medicare and Medicaid providers. Further, the government has not yet set reimbursement rates under PPS. There can be no assurance that the implementation of PPS or other changes in the administration or interpretation of government healthcare programs will not have any adverse effect on the Company or that payments under government programs will remain at levels comparable to present levels or will be sufficient to cover the costs allocable to patients eligible for reimbursement under such programs. POSSIBLE CURTAILING OF MEDICAID PAYMENTS AND OTHER REIMBURSEMENT PROGRAMS DUE TO BUDGET CONSTRAINTS In addition, prior to the enactment of the Balanced Budget Act, federal law required state Medicaid programs to reimburse SNFs for the costs that are incurred by efficiently and economically operated providers in order to meet quality and safety standards. The Balanced Budget Act repealed this payment standard, effective for services provided on or after October 1, 1997, thereby granting states greater flexibility in establishing payment rates. There can be no assurance that budget constraints or 24 other factors will not cause states to reduce Medicaid reimbursement to SNFs or that payments to SNFs will be made on a timely basis. Any such efforts to reduce Medicaid payment rates or failure of states to meet their Medicaid obligations on a timely basis would have a material adverse effect on the Company. Further, government reimbursement programs are subject to additional statutory and regulatory changes, retroactive rate adjustments, administrative ceilings and government funding restrictions, all of which could materially decrease the rates paid to the Company for its future services or the services for which the Company will be able to seek reimbursement. Management cannot predict whether any of these additional proposals will be adopted or, if adopted and implemented, what effect such proposals would have on the Company. There can be no assurance that payments under state or federal governmental 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, particularly with respect to individual state-administered Medicaid programs, which generally provide lower reimbursement rates than the Medicare program. In addition, there can be no assurance that the facilities to be operated by the Company and the services and supplies to be provided by the Company will meet or continue to meet the requirements for participation in such programs. DELAYS IN RECEIVING REIMBURSEMENT The Company's financial condition and results of operations may also be affected by the revenue reimbursement process, which in the Company's industry is complex and can involve lengthy delays between the time that revenue is recognized and the time that reimbursement amounts are settled. The Company's results of operations would be materially and adversely affected if the amount actually received from third-party payors in any reporting period differed materially from the amounts accrued in prior periods. The Company's financial condition and results of operations may also be affected by the timing of reimbursement payments and rate adjustments from third-party payors. See "Business--Government Regulations". MEDICARE AND MEDICAID AUDITS AND REFORM The Company is subject to periodic audits by the Medicare and Medicaid programs, and the payment agencies for these programs have various rights and remedies against the Company if they assert that the Company has failed to comply with program requirements. In 1997, one of Summit's facilities was the subject of a Medicare billing audit by such a payment agency, resulting in a finding that approximately $1,500,000 of charges (after cost report settlement and subject to downward adjustment) for SNF services lacked a timely certification of medical necessity by a physician. Summit is currently repaying such charges against reimbursement of current claims. Government agencies could seek to require the Company to repay any overcharges or amounts billed in violation of program requirements, or could make deductions from future amounts due to the Company. Such agencies could also impose fines, criminal penalties or program exclusions. See "Business--Government Regulations". In addition, several states are considering various healthcare reforms, including Medicaid managed care demonstration projects. Several states in which the Company operates have applied for, or received, approval from the U.S. Department of Health and Human Services for waivers from certain Medicaid requirements that have generally been required for managed care projects. Although these demonstration projects generally exempt institutional care, including long-term care facilities, no assurance can be given that these waiver projects ultimately will not change the reimbursement system for long- term care from fee for service to managed care negotiated or capitated rates. Furthermore, the Balanced Budget Act now allows states to mandate enrollment in managed care systems without going through the federal waiver process provided certain standards are met. Although the Company believes it will be well-positioned to operate in a managed care environment, it is not possible to predict which reforms of state healthcare systems will be adopted and the effect, if any, that the reforms will have on the Company's business. See "Business--Government Regulations". 25 Current Medicare regulations applicable to transactions between related parties, such as the Company's subsidiaries, are relevant to the amount of Medicare reimbursement that the Company is entitled to receive for goods and services that are charged to the Medicare program. Management believes that the Company satisfies the requirements for exception to the related party rules in transactions between its long-term care facilities and its therapy, pharmacy and DME subsidiaries. If, however, the Company has failed, or in the future fails, to satisfy regulations for the related party exception with respect to inter-corporate transactions, the Medicare reimbursement that the Company received or will receive could be reduced, and as a result, the Company's financial condition could be materially and adversely affected. See "Business--Government Regulations". UNCERTAINTY OF HEALTHCARE LEGISLATION In addition to extensive government healthcare regulations, there are numerous initiatives on federal and state levels for comprehensive reforms affecting the payment for and availability of healthcare services. Changes in the law, new interpretations of existing laws, or changes in payment methodology may have a dramatic effect on the definition of permissible or impermissible activities, the relative costs associated with doing business and the amount of reimbursement by the government. In addition, there can be no assurance that currently proposed or future healthcare legislation or other changes in the administration or interpretation of governmental healthcare programs will not have an adverse effect on the Company. See "Business-- Government Regulations". DEVELOPMENT OF MANAGED CARE CONTRACTS IN RESPONSE TO PRICING PRESSURES The healthcare services industry is currently experiencing market-driven reforms from forces within and outside the industry that are exerting pressure on healthcare and related companies to reduce healthcare costs. These market- driven reforms are resulting in industry-wide consolidation that is expected to increase the downward pressure on healthcare service providers' margins, as larger buyer and supplier groups exert pricing pressure on healthcare providers. Given the increasing importance of managed care in the healthcare industry and the continued cost containment pressures for Medicare and Medicaid, the Company is focusing on developing managed care contracts. Additionally, the Company is establishing a network of services to meet the needs of managed care organizations. The success of the Company's managed care strategy will depend in large part on its ability to increase demand for sub- acute services among managed care organizations, to obtain favorable agreements with managed care organizations and to manage effectively its operations and healthcare delivery costs through various methods, including utilization management and competitive pricing for purchased services. There can be no assurance that pricing pressures faced by healthcare providers will not have a material adverse effect on the Company's business, financial condition and results of operations. HEALTHCARE INDUSTRY EXTREMELY COMPETITIVE The Company operates in a highly competitive industry. The Company's SNFs and ALFs are located in communities that also are served by similar facilities operated by others. Some competing facilities provide services not offered by the Company and some are operated by entities having greater financial and other resources than the Company. In addition, some are operated by non-profit organizations or government agencies supported by endowments, charitable contributions, tax revenues and other sources not available to the Company. Furthermore, cost containment efforts, which encourage more efficient utilization of acute care hospital services, have resulted in decreased hospital occupancy in recent years. As a result, a significant number of acute care hospitals have converted portions of their facilities to other purposes, including specialty and sub-acute units. In California, Texas and Arizona, a certificate of need is no longer required in order to build or expand a SNF, which is another factor increasing competition. However, in Texas, competition is limited by 26 restrictions on the number of beds that can be enrolled in the Medicaid program. The Company also may encounter competition in acquiring or developing new facilities. The Company's pharmacies and DME business also operate in highly competitive environments and compete with regional and local pharmacies, medical supply companies and pharmacies operated by other long- term care chains or by other companies ranging from small local operators to companies which are national in scope and distribution capability. The Company also may encounter competition in connection with the provision of other ancillary services, including physical, occupational and speech therapy. GEOGRAPHIC CONCENTRATION; DEPENDENCE ON CERTAIN STATE MEDICAID PROGRAMS Approximately 54% of the Company's properties are located in the State of California and approximately 44% are located in the State of Texas. Consequently, the Company will be dependent on the economies of California and Texas, the supply and demand in these states for the services provided by the Company, the regulatory environment in these states and, to a certain extent, on the continued funding of and reimbursement rates paid under those states' Medicaid programs. During both 1996 and 1997, payments received from state Medicaid agencies accounted for approximately 31% of the Company's revenue. The Company expects that the California and Texas Medicaid reimbursement programs will continue to constitute a significant source of revenue for the Company. Adverse changes in general economic factors affecting these states' respective healthcare industries or in these states' laws and regulatory environment, including Medicaid reimbursement rates, could have a material adverse effect on the Company's business, financial condition and results of operations. LIABILITY, INSURANCE AND LEGAL PROCEEDINGS The provision of healthcare services entails an inherent risk of liability. In recent years, participants in the long-term care industry have become subject to an increasing number of lawsuits alleging malpractice or related legal theories, many of which involve large claims and significant defense costs. The Company currently maintains liability insurance intended to cover such claims and the Company believes that its insurance is in keeping with industry standards. There can be no assurance, however, that claims in excess of the Company's insurance coverage or claims not covered by the Company's insurance coverage (e.g. claims for punitive damages) will not arise. A successful claim against the Company not covered by, or in excess of, the Company's insurance coverage could have a material adverse effect upon the Company's financial condition and results of operations. Claims against the Company, regardless of their merit or actual outcome, may also have a material adverse effect upon the Company's ability to attract patients or expand its business and would require management to devote time to matters unrelated to the operation of the Company's business. In addition, the Company's insurance policies must be renewed annually. There can be no assurance that the Company will be able to obtain liability insurance coverage in the future or that, if such coverage is available, it will be available on acceptable terms. DEPENDENCE ON KEY PERSONNEL The Company's business is managed by a number of key personnel, the loss of which could have a material adverse effect on the Company. In addition, as the Company's business develops and expands, the Company believes that its future success will depend greatly on its continued ability to attract and retain highly skilled and qualified personnel. Currently the Company has entered into employment agreements with Mr. Snukal and Mrs. Snukal, and with Mr. Scott. See "Management". The Company maintains key-man insurance on Mr. Snukal in the amount of $5.0 million. There can be no assurance that key personnel will continue to be employed by the Company or that the Company will be able to attract and retain qualified personnel in the future. Failure by the Company to retain or attract such personnel could have a material adverse effect on the Company. 27 CONTROLLING STOCKHOLDERS As a result of the Transactions, Heritage and certain members of senior management of the Company or their affiliates own approximately 68.6% of the outstanding voting stock of the Company. By virtue of such ownership, these stockholders have the power to control all matters submitted to stockholders of the Company and to elect a majority of the directors of the Company and its subsidiaries. CONFLICTS OF INTEREST Circumstances may occur in which the interests of the controlling stockholders conflict with the interests of the holders of the Notes. For example, if the Company encounters financial difficulties or is unable to pay certain of its debts as they mature, the interests of such controlling persons might conflict with those of holders of the Company's indebtedness, including the Notes. In addition, these stockholders may have an interest in pursuing acquisitions, divestitures or other transactions that, in their judgment, enhance their equity investment, even though such transactions might involve risks to the holders of the Notes. See "Principal Stockholders", "Management" and "Certain Relationships and Related Transactions". POSSIBLE INABILITY TO FUND A CHANGE OF CONTROL OFFER Upon a Change of Control, the Company will be required to offer to repurchase all outstanding Notes at 101% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the date of repurchase. Under the terms of the Stockholder Agreement, Heritage has the right to cause a sale of the Company under certain circumstances, which would constitute a Change of Control. See "Management--Stockholders Agreement". However, there can be no assurance that sufficient funds will be available at the time of any Change of Control to make any required repurchases of Notes tendered or that restrictions in the New Credit Facility will allow the Company to make such required repurchases. Notwithstanding these provisions, the Company could enter into certain transactions, including certain recapitalizations, that would not constitute a Change of Control but would increase the amount of debt outstanding at such time. See "Description of Notes--Repurchase at the Option of Holders". EFFECT OF FRAUDULENT TRANSFER STATUTES ON VALIDITY OF NOTES AND GUARANTEES Under applicable provisions of federal bankruptcy law or comparable provisions of state fraudulent transfer law, if, among other things, the Company, or any Guarantor, at the time it incurred the indebtedness evidenced by the Notes or the Guarantees, (i) (a) was or is insolvent or rendered insolvent by reason of such incurrence or (b) was or is engaged in a business or transactions for which the assets remaining with the Company or any Guarantor constituted unreasonably small capital or (c) intended or intends to incur, or believed or believes that it would incur debts beyond its ability to pay such debts as they mature, and (ii) received or receives less than reasonably equivalent value or fair consideration for the incurrence of such indebtedness, then the Notes or the Guarantees, could be voided, or claims in respect of the Notes or the Guarantees could be subordinated to all other debts of the Company or any Guarantor. In addition, the payment of interest and principal by the Company or any Guarantor pursuant to the Notes could be voided and required to be returned to the person making such payment, or to a fund for the benefit of the creditors of the Company or any Guarantor. The measures of insolvency for purposes of the foregoing considerations will vary depending upon the law applied in any proceeding with respect to the foregoing. Generally, however, the Company or any Guarantor would be considered insolvent if (i) the sum of its debts, including contingent liabilities, were greater than the saleable value of all of its assets at a fair valuation or if the present fair saleable value of its assets were less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature or (ii) it could not pay its debts as they become due. 28 On the basis of historical financial information, recent operating history and other factors, the Company and the Guarantors believe that neither the Company nor any Guarantor will be insolvent, will have unreasonably small capital for the business in which it is engaged or will incur debts beyond its ability to pay such debts as they mature. There can be no assurance, however, as to what standard a court would apply in making such determinations or that a court would agree with the Company's and the Guarantors' conclusions in this regard. CONSEQUENCES OF FAILURE TO EXCHANGE THE OUTSTANDING NOTES The Outstanding Notes have not been registered under the Securities Act or any state securities laws, and therefore, may not be offered, sold or otherwise transferred except in compliance with the registration requirements of the Securities Act and any other applicable securities laws, or pursuant to an exemption therefrom or in a transaction not subject thereto, and in each case in compliance with certain other conditions and restrictions, including the right of the Company and the Notes Trustee (as defined) in certain cases to require the delivery of opinions of counsel, certifications and other information prior to any such transfer. Outstanding Notes that remain outstanding after the consummation of the Exchange Offer will continue to bear a legend reflecting such restrictions on transfer. In addition, upon consummation of the Exchange Offer, holders of Outstanding Notes that remain outstanding will not be entitled to any rights to have such Outstanding Notes registered under the Securities Act or to any similar rights under the Registration Rights Agreement (subject to certain limited exceptions). The Company currently intends to register under the Securities Act Outstanding Notes that remain outstanding after consummation of the Exchange Offer only if such Outstanding Notes are held by Initial Purchasers or persons ineligible to participate in the Exchange Offer (other than due solely to the status of such holder as an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act). If Outstanding Notes are tendered and accepted in the Exchange Offer, the market for untendered Outstanding Notes is likely to diminish; accordingly, holders who do not tender their Outstanding Notes may encounter difficulties in selling such notes following the Exchange Offer. The Exchange Notes and any Outstanding Notes that remain outstanding after consummation of the Exchange Offer will constitute a single series of debt securities under the Indenture and, accordingly, will vote together as a single class for purposes of determining whether holders of the requisite percentage in outstanding principal amount of the Notes have taken certain actions or exercised certain rights under the Indenture. ABSENCE OF PUBLIC MARKET FOR THE NOTES The Outstanding Notes were issued to, and the Company believes are currently owned by, a relatively small number of beneficial owners. The Outstanding Notes have not been registered under the Securities Act and will be subject to restrictions on transferability to the extent that they are not exchanged for Exchange Notes. See "--Consequences of Failure to Exchange". Although the Exchange Notes will generally be permitted to be resold or otherwise transferred by the holders (who are not affiliates of the Company) without compliance with the registration and prospectus delivery requirements under the Securities Act, they will constitute a new issue of securities with no established trading market. If the Exchange Notes are traded after their initial issuance, they may trade at a discount from their initial offering price, depending upon prevailing interest rates, the market for similar securities and other factors including general economic conditions and the financial condition of the Company. The Company does not intend to apply for a listing or quotation of the Exchange Notes on any securities exchange or stock market. Accordingly, there can be no assurance as to the development or liquidity of any market for the Exchange Notes. The liquidity of, and trading market for, the Notes also may be adversely affected by general declines in the market for similar securities. Such a decline may adversely affect such liquidity and trading markets independent of the financial performance of, and prospects for, the Company. 29 Each broker-dealer that receives Exchange Notes for its own account in exchange for Outstanding Notes, where such Outstanding Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes. Subject to certain provisions set forth in the Registration Rights Agreement, the Company has agreed that, for a period of up to 180 days after the consummation of the Exchange Offer, it will make this Prospectus available to any participating broker-dealer for use in connection with any such resale. However, under certain circumstance, the Company has the right to require that participating broker-dealers suspend the resale of Exchange Notes pursuant to this Prospectus. Notwithstanding that the Company may cause the resale of Exchange Notes pursuant to this Prospectus to be suspended, the Company has no obligation to extend the 180-day period referred to above during which participating broker-dealers are entitled to use this Prospectus in connection with such resales. See "The Exchange Offer--Procedures for Tendering Outstanding Notes" and "Plan of Distribution". STATE LAWS REGARDING PROHIBITION OF CORPORATE PRACTICE OF MEDICINE The Company is a general business corporation. Corporations such as the Company are not permitted under certain state laws to practice medicine or exercise control over the medical judgments or decisions of practitioners. Corporate practice of medicine laws and their interpretations vary from state to state and are enforced by the courts and by regulatory authorities with broad discretion. The Company believes that it performs only non-medical services, does not represent to the public or its clients that it offers medical services and does not exercise influence or control over the practice of medicine by the practitioners with whom it deals. Although the Company believes its operations as currently conducted are in material compliance with existing applicable laws, there can be no assurance that the Company's structure will not be challenged as constituting the unlicensed practice of medicine or that the enforceability of the agreements underlying this structure will not be limited. If such a challenge were made successfully in any state, the Company could be subject to civil and criminal penalties under such state's law. Such results could have a material adverse effect upon the Company. POTENTIAL "YEAR 2000" PROBLEMS It is possible that the Company's currently installed computer systems, software products or other business systems, including certain date dependent medical equipment, or those of the Company's vendors or third-party payors, working either alone or in conjunction with other software or systems, will not accept input of, store, manipulate and output dates for the years 1999, 2000 or thereafter without error or interruption (commonly known as the "Year 2000" problem). The Company intends to conduct a review of its business systems, including its computer systems, and query its vendors and third-party payors as to their progress in identifying and addressing problems that their computer systems may face in correctly interrelating and processing date information as the year 2000 approaches and is reached. However, there can be no assurance that the Company will identify all such Year 2000 problems in its computer systems or those of its vendors or third-party payors in advance of their occurrence or that the Company will be able to successfully remedy any problems that are discovered. The expenses of the Company's efforts to identify and address such problems, or the expenses or liabilities to which the Company may become subject as a result of such problems, could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, failure of the Company to identify and remedy Year 2000 problems could put the Company at a competitive disadvantage relative to companies that have corrected such problems. 30 USE OF PROCEEDS The Company will not receive any of the proceeds of the issuance of the Exchange Notes offered hereby. In consideration for issuing the Exchange Notes as contemplated in this Prospectus, the Company will receive in exchange Outstanding Notes in like principal amount. The issuance of the Exchange Notes in exchange for the surrender of the Outstanding Notes will not result in any increase in the indebtedness of the Company. The net proceeds of the sale of the Outstanding Notes were approximately $114 million, after deducting discounts and commissions and expenses related to the sale of the Outstanding Notes. The Company used the net proceeds of the sale of the Outstanding Notes to consummate the Transactions, repay certain existing indebtedness, pay certain fees and expenses in connection with the Transactions and for general corporate purposes (see "Prospectus Summary--The Financings"). CAPITALIZATION The following table sets forth cash and cash equivalents and the capitalization of Fountain View as of March 31, 1998, and of the Company on a pro forma basis as of such date after giving effect to the Transactions. This table should be read in conjunction with "Unaudited Pro Forma Financial Data", "Selected Historical Financial and Other Data--Fountain View", "Selected Historical Financial and Other Data--Summit", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and the related notes thereto included elsewhere in this Prospectus.
AT MARCH 31, 1998 ----------------- PRO ACTUAL FORMA -------- -------- (IN THOUSANDS) Cash and cash equivalents................................. $ 3,640 $ 3,640 ======== ======== New Credit Facility(1).................................... -- 100,000 Outstanding Notes......................................... -- 120,000 Fountain View existing indebtedness....................... 202,474 -- Mortgages, capital leases and other debt assumed.......... 24,904 24,904 -------- -------- Total debt.............................................. 227,378 244,904 Mandatory redeemable preferred stock...................... -- 15,000 Shareholders' equity...................................... 70,119 70,119 -------- -------- Total capitalization...................................... $297,497 $330,023 ======== ========
- -------- (1) The New Credit Facility provides for up to $30.0 million of revolving credit borrowings (with a $4.0 million sublimit for letters of credit) and up to $85.0 million of term loans and matures in 2004. As of May 31, 1998, revolving credit loans in the aggregate amount of approximately $16 million and term loans in the aggregate amount of approximately $85 million were outstanding under the New Credit Facility, and $14 million of revolving credit borrowings were available to the Company. 31 UNAUDITED PRO FORMA FINANCIAL DATA The following unaudited pro forma financial data as of March 31, 1998 and for the three months then ended and for the year ended December 31, 1997 have been derived by the application of pro forma adjustments to the financial statements of Fountain View and Summit included elsewhere in this Prospectus. The pro forma statement of operations data for the three months ended March 31, 1998 give effect to the transactions as if they had occurred on January 1, 1998. The pro forma statement of operations data for the year ended December 31, 1997 give effect to (1) the Transactions and (2) the acquisition of Briarcliff, a SNF acquired by Summit on December 1, 1997, as if each had occurred as of January 1, 1997. The related pro forma balance sheet data give effect to the Transactions as if they had occurred on March 31, 1998. The adjustments are described in the accompanying notes. The pro forma adjustments are based on available data and certain assumptions that management believes are reasonable. The unaudited pro forma financial data do not purport to represent what the Company's results of operations actually would have been if the transactions described above had been consummated as of the dates or for the periods indicated above, or what such results will be for any future date or future period. The unaudited pro forma data should be read in conjunction with "Selected Historical Financial and Other Data--Fountain View", "Selected Historical Financial and Other Data--Summit", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes thereto included elsewhere in this Prospectus. 32 UNAUDITED PRO FORMA BALANCE SHEET MARCH 31, 1998 (DOLLARS IN THOUSANDS)
PRO FOUNTAIN VIEW, FORMA PRO INC. ADJUSTMENTS FORMA -------------- ----------- -------- ASSETS Cash and equivalents............... $ 3,640 $ -- (1)(2)(3) $ 3,640 Accounts receivable, net........... 55,267 -- 55,267 Other current assets............... 22,202 -- 22,202 --------- -------- -------- Total current assets............. 81,109 -- 81,109 Land and land improvements......... 24.951 -- 24,951 Buildings and leasehold improvements...................... 201,093 -- 201,093 Furniture and equipment............ 25,826 -- 25,826 Construction in progress........... 7,271 -- 7,271 --------- -------- -------- 259,141 -- 259,141 Less accumulated depreciation...... (2,892) -- (2,892) --------- -------- -------- 256,249 -- 256,249 Notes receivable, net.............. 6,596 -- 6,596 Intangibles and other assets....... 52,162 11,400(4)(2) 63,562 --------- -------- -------- Total assets..................... $ 396,116 $ 11,400 $407,516 ========= ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Payable to banks................... $ 4,192 $ -- $ 4,192 Accounts payable and accrued liabilities....................... 53,917 (21,126)(3) 32,791 Employee compensation and benefits. 9,223 -- 9,223 Income taxes payable............... 428 -- 428 Current portion of long-term debt.. 4,840 (4,840)(3) -- --------- -------- -------- Total current liabilities........ 72,600 (25,966) 46,634 Long-term debt..................... 222,538 22,366 (2) 244,904 Deferred income taxes.............. 30,859 -- 30,859 Mandatory redeemable preferred stock............................. -- 15,000 (1) 15,000 SHAREHOLDERS' EQUITY Common stock..................... 11 -- 11 Paid-in capital.................. 103,948 -- 103,948 Retained earnings................ (33,840) -- (33,840) --------- -------- -------- Total shareholders' equity....... 70,119 -- 70,119 --------- -------- -------- Total liabilities and shareholders' equity............ $ 396,116 $ 11,400 $407,516 ========= ======== ========
See Notes to Unaudited Pro Forma Balance Sheet. 33 NOTES TO UNAUDITED PRO FORMA BALANCE SHEET (DOLLARS IN THOUSANDS) (1) Represents $15,000 of Mandatory Redeemable Preferred Stock purchased by Heritage and subsequently sold by Heritage to Baylor and Buckner. The preferred stock is subject to mandatory redemption for cash at the time of an initial public offering. Increase in cash resulting from purchase of Mandatory Redeemable Preferred Stock by Heritage........................... $15,000 ======= Mandatory Redeemable Preferred Stock.............................. $15,000 =======
(2) Represents distribution of proceeds from new borrowings: New Credit Facility.............................................. $100,000 Senior Notes .................................................... 120,000 -------- Total new borrowings......................................... $220,000 ======== Distribution of proceeds: Pay-off old borrowings......................................... $197,634 Transactional costs [See (4) below] (a)........................ 11,400 Increase in cash (a)........................................... 10,966 -------- $220,000 ========
(a) Sum of these items represents incremental new borrowings of $22,366 (3) Net cash proceeds described in (1) and (2) above were utilized as follows: Total net cash proceeds per (1) and (2) above..................... $25,966 ======= Net cash proceeds utilized to: a. Reduce accounts payable........................................ $21,126 b. pay-off current portion of long-term debt...................... 4,840 ------- $25,966 =======
(4) Represents transactional costs to be paid in connection with the proceeds of the New Credit Facility and Senior Notes as follows: Underwriter and financial advisory fees........................... $10,804 Legal, accounting and other fees.................................. 596 ------- $11,400 =======
34 UNAUDITED PRO FORMA STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
BRIARCLIFF 11 MONTHS FOUNTAIN SUMMIT CARE ENDED PRO FORMA VIEW, INC. CORPORATION 11/30/97 TOTAL ADJUSTMENTS PRO FORMA ---------- ----------- ---------- -------- ----------- --------- Net revenue............. $67,905 $211,346 $7,893 $287,144 $ -- $287,144 Expenses: Salaries and related benefits............. 38,215 93,933 3,100 135,248 -- 135,248 Supplies.............. 8,293 20,040 644 28,977 -- 28,977 Purchased services.... 4,256 53,587 70 57,913 -- 57,913 Provision for doubtful accounts............. 395 3,343 858 4,596 -- 4,596 Other expenses........ 5,046 16,948 1,542 23,536 -- 23,536 Depreciation and amortization......... 1,198 7,996 688 9,882 4,210 (1) 14,092 Rent expense.......... 2,004 2,979 -- 4,983 -- 4,983 Rent expense to related parties...... 1,771 -- -- 1,771 -- 1,771 Interest, net......... 1,164 8,504 11 9,679 13,645 (2) 23,324 ------- -------- ------ -------- -------- -------- 62,342 207,330 6,913 276,585 17,855 294,440 ------- -------- ------ -------- -------- -------- Income (loss) before provision for income taxes........... 5,563 4,016 980 10,559 (17,855) (7,296) Income tax benefit (provision)............ (1,951) (1,631) (402) (3,984) 6,776 (3) 2,792 ------- -------- ------ -------- -------- -------- Net income (loss)....... 3,612 2,385 578 6,575 (11,079) (4,504) Preferred stock dividends.............. -- -- -- -- (1,800)(4) (1,800) ------- -------- ------ -------- -------- -------- Net income (loss) available to common shareholders........... $ 3,612 $ 2,385 $ 578 $ 6,575 $(12,879) $ (6,304) ======= ======== ====== ======== ======== ======== Basic and diluted earn- ings per share to com- mon shareholders....... $ 18.06 $ (31.52) ======= ======== OTHER DATA: EBITDA (as defined)(5).. $ 30,120 Adjusted EBITDA(6)...... 31,795 Adjusted EBITDA margin.. 13.2% Adjusted EBITDAR(6)..... 44,549 Adjusted EBITDAR margin. 15.5% Ratio of earnings to fixed charges(7)....... -- Ratio of Adjusted EBITDA to net interest expense................ 1.6 Ratio of net debt to Adjusted EBITDA(8)..... 6.3
See Notes to Unaudited Pro Forma Statement of Operations 35 UNAUDITED PRO FORMA STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 (DOLLARS IN THOUSANDS)
SUMMIT CARE CORPORATION PERIOD FROM FOUNTAIN JANUARY 1 TO PRO FORMA VIEW, INC. MARCH 26,1998 TOTAL ADJUSTMENTS PRO FORMA ---------- ------------- -------- ----------- --------- Patient Service Revenues............... $20,078 $ 53,918 $ 73,996 $ -- $ 73,996 Other Revenues -- -- -- -- -- ------- -------- -------- ------- -------- Total Revenue 20,078 53,918 73,996 -- 73,996 Expenses: Salaries and benefits. 10,686 23,632 34,318 -- 34,318 Supplies.............. 2,218 5,165 7,383 -- 7,383 Purchased services.... 1,828 13,743 15,571 -- 15,571 Provision for doubtful accounts............. 142 624 766 -- 766 Other expenses........ 1,396 3,851 5,247 -- 5,247 Rental................ 983 723 1,706 -- 1,706 Depreciation and amortization......... 524 2,119 2,643 1,104 (1) 3,747 Interest, net of Interest Income...... 851 2,604 3,455 2,376 (2) 5,831 ------- -------- -------- ------- -------- 18,628 52,461 71,089 3,480 74,569 ------- -------- -------- ------- -------- Income before provision for income taxes....... 1,450 1,457 2,907 (3,480) (573) Income tax benefit (provision)............ (580) (575) (1,155) 1,292 (3) 137 Extraordinary Item, net of tax................. (517) -- -- -- (517) ------- -------- -------- ------- -------- Net income (loss)....... 353 882 1,235 ( 2,188) (953) Preferred stock dividends.............. -- -- -- (450)(4) (450) ------- -------- -------- ------- -------- Net income (loss) available to common shareholders........... $ 353 $ 882 $ 1,235 $(2,638) $ (1,403) ======= ======== ======== ======= ======== Basic and diluted earn- ings per share avail- able to common share- holders before extraordinary item..... $ 3.47 $ (3.53) Basic and diluted loss per share available to common shareholders-- extraordinary item..... (2.06) (2.06) ------- -------- Basic and diluted earnings per share to common shareholders-- net income (loss) ..... $ 1.41 $ (5.59) ======= ======== OTHER DATA: EBITDA (as defined)(5).. $ 9,005 Adjusted EBITDA......... 9,005 Adjusted EBITDA mar- gin(6)................. 12.2% Adjusted EBITDAR(6)..... 10,711 Adjusted EBITDAR margin. 14.5% Ratio of earnings to fixed charges(7)....... -- Ratio of Adjusted EBITDA to net interest expense................ 1.5 Ratio of net debt to Ad- justed EBITDA(8)....... 6.7
See Notes to Unaudited Pro Forma Statement of Operations 36 NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS (DOLLARS IN THOUSANDS) (1) Pro forma adjustments to reflect the step-up in basis of property, plant and equipment and intangible assets, in connection with the Summit Care Corporation acquisition:
YEAR ENDED THREE MONTHS AMORTIZATION DECEMBER 31, ENDED PERIOD 1997 MARCH 31, 1998 ------------ -------------- -------------- Increase in amortization of deferred financing costs.................... 10 years $1,283 $ 320 Increase in amortization of goodwill........................... 35 years 1,308 327 Increase in depreciation of buildings, leaseholds and equipment.......................... 5-35 years 1,619 457 ------ ------ $4,210 $1,104 ====== ====== (2) Reflects additional interest on debt as follows: YEAR ENDED THREE MONTHS DECEMBER 31, ENDED 1997 MARCH 31, 1998 ------------ -------------- Interest on the New Credit Facility--Term Loan (8.44%)........ $ 7,171 $1,792 Interest on New Credit Facility-- Revolver (8.44%)................... 1,265 316 Interest on Notes offered hereby (11.25%)........................... 13,500 3,375 Interest on capital leases and other existing debt (various rates)...... 2,037 509 ---------- ------ Total interest expense.............. 23,974 5,992 Net historical interest (gross of interest expense).................. (10,329) (3,616) ---------- ------ Incremental interest................ $ 13,645 $2,376 ========== ======
Interest with respect to the New Credit Facility, for both the Term Loan and the Revolver, is computed on a floating rate based on LIBOR plus 2.75%. A 0.125% increase in the interest rate on the New Credit Facility would result in additional interest expense of $125 and would reduce net income by $74 for the year ended December 31, 1997. (3) Represents incremental income tax benefit relating to amortization of deferred financing costs, depreciation and interest expense at an incremental rate of 41%. (4) Represents the preferred stock dividend of 12% computed on the $15 million of mandatory redeemable preferred stock. (5) EBITDA represents earnings before interest, taxes, depreciation and amortization. EBITDA is a widely recognized financial indicator of a company's ability to service or incur debt. EBITDA is not a measurement of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income, net income, cash flows from operations, or other statement of operations or cash flow data prepared in conformity with generally accepted accounting principles, or as a measure of profitability or liquidity. In addition, EBITDA may not be comparable to similarly titled measures of other companies. EBITDA may not be indicative of the historical operating results of the Company, nor is it meant to be predictive of future results of operations or cash flows. (6) For the year ended December 31, 1997, Adjusted EBITDA represents EBITDA adjusted for certain non-recurring charges shown below. Adjusted EBITDAR represents Adjusted EBITDA plus rent expense. EBITDAR is not a measurement of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income, net income, cash flows from operations, or other statement of operations or cash flow data prepared in conformity with generally accepted accounting principles, or as a 37 measure of profitability or liquidity. Similar to EBITDA, management views EBITDAR as a financial indicator of a company's ability to service or incur debt. A majority of Fountain View's nursing homes are leased, under operating leases, and not owned. Accordingly, EBITDAR is used since the rent expense approximates the interest and depreciation expense Fountain View may have incurred as if the nursing homes were owned as opposed to leased:
YEAR ENDED DECEMBER 31, 1997 ----------------- EBITDA.................................................... $30,120 Non-recurring charges(a).................................. 7,675 ------- Adjusted EBITDA(b)........................................ 37,795 Rent expense.............................................. 6,754 ------- Adjusted EBITDAR(b)....................................... $44,549 =======
(a) EBITDA is adjusted for the non-recurring entries in order to present comparable EBITDA with the preceding years since these entries are only reflected in the results of operations for the year ended December 31, 1997 for Fountain View and for the six months ended December 31, 1997 for Summit. In addition, the Company does not expect to incur similar costs in the future. Non-recurring charges consist of: (1) $2,100 of Medicare reserves taken by Summit due to adjustments proposed by the Medicare intermediary during their audit of prior year cost reports. The adjustments relate to issues not proposed by the Medicare intermediary during previous audits and therefore the one time impact relating to these adjustments for prior year cost reports is all reflected in the results of operations for the year ended December 31, 1997 when the cost reports were audited and finalized with the Medicare intermediary; (2) $1,074 of retroactive workers' compensation, group and general liability costs due to the recording of tail coverage insurance expense at the time Summit converted from an occurrence based insurance policy to a claims made insurance policy; (3) $983 of incremental bad debt expense relating to 1996 and prior periods recorded in 1997 resulting from a change in management's methodology for determining the allowance for bad debts; the change in methodology was made to convert Summit's allowance methodology accounting practices to Fountain View's accounting as a result of the acquisition; (4) termination of non-compete agreements and consulting arrangements totaling $965 relating to Fountain View Equity Transactions; (5) certain transaction expenses including discretionary employee bonuses totaling $872 paid upon completion of Fountain View Equity Transactions; (6) severance for an executive and other costs totaling $871, the severance package was paid in connection with the acquisition of Summit by Fountain View; and (7) $810 related to an employee lawsuit settled in 1997 involving a specific type of liability for which the Company currently maintains insurance coverage (net of ongoing insurance costs). (b) Management believes that as a consequence of the Transactions, the Company will realize significant ongoing cost savings and revenue enhancements. However there can be no assurance that these cost savings or revenue enhancements will be realized. Management's estimate of the ongoing cost reductions relating to the Transactions includes: (i) certain reductions in facility-level operating expense items totaling $1,451; (ii) $1,355 relating to the elimination of specifically identified duplicative staff; (iii) $512 relating to reductions in corporate expenses, including the elimination of certain public company expenses; and (iv) a reduction in costs of supplies. Such amounts have not been included in adjusted EBITDA or adjusted EBITDAR. (7) The ratio of earnings to fixed charges has been calculated by dividing income before income taxes and fixed charges by fixed charges. Fixed charges consists of interest expense and one-third of operating rental expense, which management believes is representative of the interest component of rent expense. Earnings were not sufficient to cover fixed charges. The amount of the shortfall approximated $7.3 million for the pro forma year ended December 31, 1997 and $0.6 million for the pro forma three months ended March 31, 1998. (8) Ratio of net debt to Adjusted EBITDA represents the ratio of total debt, exclusive of mandatory redeemable preferred stock, less cash and cash equivalents to Adjusted EBITDA. 38 SELECTED HISTORICAL FINANCIAL AND OTHER DATA--FOUNTAIN VIEW Set forth below are selected historical financial data of Fountain View as of December 31, 1996 and 1997 and for each of the three years in the period ended December 31, 1997, which are derived from the audited financial statements included elsewhere herein. The selected historical financial data as of December 31, 1993, 1994 and 1995, for the two years in the period ended December 31, 1994 and for the three months ended March 31, 1997 and 1998 have been derived from Fountain View's unaudited financial statements included elsewhere herein, and, in the opinion of management, include all necessary adjustments for a fair presentation of such information in conformity with generally accepted accounting principles. The selected historical financial data below should be read in conjunction with "Capitalization", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes thereto included elsewhere in this Prospectus.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, -------------------------------------------- -------------------- 1993 1994 1995 1996 1997 1997 1998 ------- ------- ------- ------- -------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA Net revenue............. $41,061 $51,824 $55,836 $59,432 $ 67,905 $ 116,409 $ 20,078 Salaries and related benefits............... 23,248 27,823 35,048 36,166 38,215 9,435 10,686 Other operating costs... 10,884 14,886 13,454 14,614 17,990 3,556 5,584 Depreciation and amortization........... 110 149 416 600 1,198 142 524 Rent expense............ 4,002 4,017 3,946 3,896 3,775 941 983 Interest, net........... 307 355 332 278 1,164 20 851 ------- ------- ------- ------- -------- --------- -------- 38,551 47,230 53,196 55,554 62,342 14,094 18,628 ------- ------- ------- ------- -------- --------- -------- Income before provision for income taxes and extraordinary item..... 2,510 4,594 2,640 3,878 5,563 2,315 1,450 Income tax benefit (provision)............ (81) 43 (54) (78) (361) (33) (580) Extraordinary item, net of tax................. -- -- -- -- -- -- (517) ------- ------- ------- ------- -------- --------- -------- Net income.............. $ 2,429 $ 4,637 $ 2,586 $ 3,800 $ 5,202 $ 2,282 $ 353 ======= ======= ======= ======= ======== ========= ======== Basic and diluted earnings per share before extraordinary item(5)................ $ 12.15 $ 23.19 $ 12.93 $ 19.00 $ 26.01 $ 11.41 $ 3.47 Basic and diluted loss per share--extraordinary item................... -- -- -- -- -- -- (2.06) ------- ------- ------- ------- -------- --------- -------- Basic and diluted earn- ings per share--net income...... $ 12.15 $ 23.19 $ 12.93 $ 19.00 $ 26.01 $ 11.41 $ 1.41 ======= ======= ======= ======= ======== ========= ======== OTHER FINANCIAL DATA EBITDA(1)............... $ 2,927 $ 5,098 $ 3,388 $ 4,756 $ 7,925 $ 2,477 $ 2,825 EBITDA margin........... 7.1% 9.8% 6.1% 8.0% 11.7% 15.1% 14.1% EBITDAR(1).............. $ 6,929 $ 9,115 $ 7,334 $ 8,652 $ 11,700 $ 3,418 $ 3,808 EBITDAR margin.......... 16.9% 17.6% 13.1% 14.6% 17.2% 20.8% 19.0% Capital expenditures.... $ 8 $ 537 $ 665 $ 1,816 $ 2,570 $ 837 $ 655 Ratio of earnings to fixed charges(2)....... 2.5x 3.7x 2.6x 3.5x 3.3x 7.9x 2.2x Net cash provided by (used in) operating activities............. $(1,804) $ 908 $ 5,832 $ 1,059 $ 12,739 $ 6,651 $ (4,346) OTHER DATA Number of facilities (end of period)........ 9 9 9 9 9 9 50 Average licensed beds(3)................ 1,061 1,061 1,061 1,061 1,061 1,061 5,937 Total beds (end of period)................ 1,227 1,227 1,227 1,227 1,227 1,227 6,578 Patient days (in thousands)............. 337 345 341 344 346 81 106 Average occupancy rate(4)................ 87.0% 89.1% 88.1% 88.8% 89.3% 84.9% 86.6% Percentage of revenues from: Managed care, private pay and medicare..... 58.4% 65.1% 67.2% 69.7% 72.9% 72.8% 72.0% Medicaid.............. 41.6 34.9 32.8 30.3 27.1 27.2 28.0 BALANCE SHEET DATA (END OF PERIOD) Cash and cash equivalents............ $ 465 $ 629 $ 2,355 $ 1,161 $ 2,551 -- 3,640 Working capital......... 8,266 11,140 10,334 13,566 10,021 -- 8,509 Total assets............ 14,408 18,433 24,693 24,122 25,941 -- 396,116 Total debt, including current maturities..... 6,758 7,359 6,764 666 30,076 -- 227,378 Shareholders' equity (deficit).............. 5,570 9,399 9,957 16,601 (12,236) -- 70,119
- ------- (1) EBITDA represents earnings before interest, taxes, depreciation and amortization. EBITDA is a widely recognized financial indicator of a company's ability to service or incur debt. EBITDA is not a measurement of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income, net income, cash flows from operations, or other statement of operations or cash flow data prepared in conformity with generally accepted accounting principles, or as a measure of profitability or liquidity. In addition, EBITDA may not be comparable to similarly titled measures of other companies. EBITDA may not be indicative of the historical operating results of the Company, nor is it meant to be predictive of future results of operations or cash flows. EBITDAR represents EBITDA plus rent expense. EBITDAR is not a measurement of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income, net income, cash flows from operations, or other statement of operations or cash flow data prepared in conformity with generally accepted accounting principles, or as a measure of profitability or liquidity. Similar to EBITDA, management views EBITDA as a financial indicator of a company's ability to service or incur debt. A majority of Fountain View's nursing homes are leased, under operating leases, and not owned. Accordingly, EBITDAR is used since the rent expense approximates the interest and depreciation expense Fountain View may have incurred as if the nursing homes were owned as opposed to leased. (2) The ratio of earnings to fixed charges has been calculated by dividing income before income taxes and fixed charges by fixed charges. Fixed charges consists of interest expense and one-third of operating rental expense, which management believes is representative of the interest component of rent expense. (3) Excludes ALF beds. (4) Excludes Fountain View's ALF, which represents less than 2% of total revenue. (5) Weighted average shares outstanding for the five years ended December 31, 1997 and for the three months ended March 31, 1997 has been computed based on the 200,000 shares of Common Stock issued and outstanding in connection with the Fountain View Equity Transactions. See note 2 to the consolidated financial statements of Fountain View included elsewhere herein. 39 SELECTED HISTORICAL FINANCIAL AND OTHER DATA--SUMMIT Set forth below are selected historical financial data of Summit as of and for each of the five years in the period ended June 30, 1997, which are derived from Summit's audited financial statements. The selected historical financial data for the six months ended December 31, 1996 and 1997 have been derived from Summit's unaudited financial statements included elsewhere herein and, in the opinion of management, include all necessary adjustments for a fair presentation of such information in conformity with generally accepted accounting principles. The selected historical financial data below should be read in conjunction with "Capitalization", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes thereto included elsewhere in this Prospectus.
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ----------------------------------------------- ----------------- 1993 1994 1995 1996 1997 1996 1997 ------- -------- -------- -------- -------- ------- -------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA Net revenue............. $83,992 $ 97,599 $137,026 $176,062 $197,927 $95,088 $108,507 Salaries and related benefits............... 40,044 45,962 63,171 78,233 89,577 43,386 47,742 Other operating costs... 29,998 34,655 49,206 70,696 89,932 41,750 45,736 Depreciation and amortization........... 2,308 2,949 5,249 6,142 7,393 3,632 4,235 Rent expense............ 2,315 1,613 2,141 2,656 2,864 1,410 1,525 Interest, net........... 1,080 2,243 4,761 6,574 7,973 4,057 4,588 ------- -------- -------- -------- -------- ------- -------- 75,745 87,422 124,528 164,301 197,739 94,235 103,826 ------- -------- -------- -------- -------- ------- -------- Income before provision for income taxes....... 8,247 10,177 12,498 11,761 188 853 4,681 Income tax provision.... (3,224) (4,010) (4,987) (4,452) (119) (337) (1,849) ------- -------- -------- -------- -------- ------- -------- Net income.............. $ 5,023 $ 6,167 $ 7,511 $ 7,309 $ 69 $ 516 $ 2,832 ======= ======== ======== ======== ======== ======= ======== OTHER FINANCIAL DATA EBITDA(1)............... $11,635 $ 15,369 $ 22,508 $ 24,477 $ 15,554 $ 8,542 $ 13,504 EBITDA margin........... 13.9% 15.7% 16.4% 13.9% 7.9% 9.0% 12.4% EBITDAR(1).............. $13,950 $ 16,982 $ 24,649 $ 27,133 $ 18,418 $ 9,952 $ 15,029 EBITDAR margin.......... 16.6% 17.4% 18.0% 15.4% 9.3% 10.5% 13.9% Capital expenditures.... $29,901 $ 15,505 $ 9,004 $ 26,558 $ 24,075 $12,049 $ 6,706 Ratio of earnings to fixed charges(2)....... 5.5x 4.7x 3.3x 2.6x 1.0x 1.2x 1.9x Net cash provided by operating activities .. $ 4,186 $ 7,512 $ 7,014 $ 6,866 $ 18,015 $ 3,563 $ 7,793 OTHER DATA Number of facilities (end of period)........ 21 23 37 38 39 39 41 Average licensed beds... 2,696 2,876 4,197 4,816 5,078 5,065 5,154 Total beds (end of period)................ 2,696 3,002 4,762 4,940 5,040 -- 5,347 Patient days (in thousands)............. 858 908 1,316 1,514 1,573 783 827 Average occupancy rate.. 87.2% 86.5% 85.9% 85.9% 84.8% 84.0% 87.2% Percentage of revenues from: Managed care and private pay.......... 36.5% 34.0% 33.8% 31.9% 29.9% 30.5% 31.6% Medicare.............. 28.3 30.3 29.5 34.7 39.7 39.1 36.7 Medicaid.............. 35.2 35.7 36.7 33.4 30.4 30.4 31.7 BALANCE SHEET DATA (END OF PERIOD) Cash and cash equivalents............ $ 6,301 $ 21,613 $ 3,101 $ 2,658 $ 3,994 -- $ 1,702 Working capital......... 7,151 24,880 10,161 13,906 12,648 -- 11,384 Total assets............ 73,369 114,915 184,480 223,052 250,516 -- 267,420 Total debt and capital leases, including current maturities..... 30,331 32,025 89,788 110,374 121,452 -- 129,754 Shareholders' equity.... 31,337 66,361 73,813 81,286 81,412 -- 84,721
- ------- (1) EBITDA represents earnings before interest, taxes, depreciation and amortization. EBITDA is a widely recognized financial indicator of a company's ability to service or incur debt. EBITDA is not a measurement of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income, net income, cash flows from operations, or other statement of operations or cash flow data prepared in conformity with generally accepted accounting principles, or as a measure of profitability or liquidity. In addition, EBITDA may not be comparable to similarly titled measures of other companies. EBITDA may not be indicative of the historical operating results of the Company, nor is it meant to be predictive of future results of operations or cash flows. EBITDAR represents EBITDA plus rent expense. EBITDAR is not a measurement of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income, net income, cash flows from operations, or other statement of operations or cash flow data prepared in conformity with generally accepted accounting principles, or as a measure of profitability or liquidity. Similar to EBITDA, management views EBITDA as a financial indicator of a company's ability to service or incur debt. A majority of Fountain View's nursing homes are leased, under operating leases, and not owned. Accordingly, EBITDAR is used since the rent expense approximates the interest and depreciation expense Fountain View may have incurred as if the nursing homes were owned as opposed to leased. (2) The ratio of earnings to fixed charges has been calculated by dividing income before income taxes and fixed charges by fixed charges. Fixed charges consists of interest expense and one-third of operating rental expense, which management believes is representative of the interest component of rent expense. 40 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW--THE COMPANY The Company's business consists of the combined operations of Fountain View and Summit. At March 31, 1998, the Company operated 50 facilities in California, Texas and Arizona with approximately 6,600 skilled nursing and assisted living beds, three institutional pharmacies (one of which is a joint venture), a contract therapy company, an outpatient therapy clinic and a DME company. The Company generates revenues by providing basic healthcare services and specialty medical care. Basic healthcare services refer to (i) skilled nursing care which consists of room and board, special nutritional programs, social services, recreational activities and related medical services, and (ii) assisted living services which consist of room and board, social activities and assistance with activities of daily living such as dressing and bathing. Specialty medical care includes services other than routine skilled nursing care and are provided to patients who generally require more intensive treatment and a higher level of acute care. Specialty medical care also includes sub-acute services such as therapy, pharmacy and durable medical equipment, which the Company provides to both affiliated and unaffiliated facilities. Since the services comprising specialty medical care are reimbursed at higher rates as compared to basic healthcare services, specialty medical care generally represents the most profitable type of services offered by the Company. On a pro forma basis for the twelve months ended December 31, 1997, specialty medical revenues represented 55% of total revenues. The Company provides services to Medicare, Medicaid, managed care and private pay patients. Government payors, such as state-administered Medicaid programs, generally provide more restricted coverage and lower reimbursement rates than private pay and managed care payors. On a pro forma basis for the twelve months ended December 31, 1997, revenues from Medicare and Medicaid payors represented 36% and 31% of total revenues, respectively. Management believes the Company is well-positioned to benefit from the trend toward increased enrollment in managed care organizations by providing sub-acute specialty medical care on a cost-effective basis, offering managed care organizations an attractive alternative to acute hospital care. On a prospective basis, the Company will operate on a December 31 fiscal year end. Summit's historical results of operations, which were based on a June 30 fiscal year end, have not been restated for the purpose of any pro forma financial presentation of the Company's historical operations. In July 1997, Fountain View's predecessor, which was comprised of all of Fountain View's operating units owned individually by certain controlling stockholders, was merged with and into several companies formed by Fountain View in connection with the Fountain View Equity Transactions. The Fountain View Equity Transactions are described in more detail in Note 3 to the audited financial statements of Fountain View contained elsewhere in this Prospectus. 41 RESULTS OF OPERATIONS--FOUNTAIN VIEW The following table presents Fountain View's results of operations for the three months ended March 31, 1997 and 1998 and the three years ended December 31, 1997:
AMOUNT PERCENTAGE ------------------------------------------- --------------------------------- DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31, ------------------------- ---------------- ------------------- ------------ 1995 1996 1997 1997 1998 1995 1996 1997 1997 1998 ------- ------- ------- -------- ------- ----- ----- ----- ----- ----- (DOLLARS IN THOUSANDS) Net revenue............. $55,836 $59,432 $67,905 16,409 20,078 100.0% 100.0% 100.0% 100.0% 100.0% Salaries and related benefits............... 35,048 36,166 38,215 9,435 10,686 62.8 60.9 56.3 57.5 53.2 Other operating costs... 13,454 14,614 17,990 3,556 5,584 24.1 24.5 26.5 21.7 27.8 Rent expense............ 3,946 3,896 3,775 941 983 7.1 6.6 5.5 5.7 4.9 Depreciation and amortization........... 416 600 1,198 142 524 0.7 1.0 1.8 .9 2.6 Interest, net........... 332 278 1,164 20 851 0.6 0.5 1.7 .1 4.2 ------- ------- ------- -------- ------- ----- ----- ----- ----- ----- $53,196 $55,554 $62,342 $ 14,094 $18,628 95.3% 93.5% 91.8% 85.9% 92.7% ------- ------- ------- -------- ------- ----- ----- ----- ----- ----- Income before provision for income taxes and extraordinary item..... 2,640 3,878 5,563 2,315 1,450 4.7 6.5 8.2 14.1 7.3 Income tax provision.... (1,079) (1,571) (1,951) 926 580 (1.9) (2.6) (2.9) .06 2.9 Extraordinary Item...... -- -- -- -- 517 -- -- -- -- 2.6 ------- ------- ------- -------- ------- ----- ----- ----- ----- ----- Net income.............. $ 1,561 $ 2,307 $ 3,612 1,389 353 2.8% 3.9% 5.3% 14.0% 1.8% ======= ======= ======= ======== ======= ===== ===== ===== ===== =====
OCCUPANCY: Average Licensed Beds...................................... 1,061 1,061 1,061 Patient Days (in thousands)................................ 341 344 346 Average Occupancy.......................................... 88.1% 88.8% 89.3%
QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997 (DOLLARS IN THOUSANDS) Net revenue increased $3,669 or 22.4% from $16,409 for the quarter ended March 31, 1997 to $20,078 for the quarter ended March 31, 1998. The increase occurred due to the following:
AMOUNT PERCENT ------- ------- 1. Increased census days and revenue rates..................... $ 1,691 46.1% 2. Rehabilitative and other specialty services................. (1,208) (32.9) 3. Acquisition of Summit Care.................................. 3,186 86.8 ------- ----- $ 3,669 100.0% ======= =====
Average occupancy was 86.6% in the first quarter ended March 31, 1998 and 84.9% in the first quarter ended March 31, 1997. Excluding the Summit acquisition, the average occupancy was 86.4% in the first quarter ended March 31, 1998. The Company's quality mix (total net revenues less Medicaid net revenues) was 72.0% in the first quarter ended March 31, 1998 and 72.8% in the first quarter ended March 31, 1997. 42 Expenses, consisting of salaries and benefits, supplies, purchased services, provision for doubtful accounts and other expenses as a percent of net revenues increased from 79.2% of net revenues in the first quarter ended March 31, 1997 to 81.0% in the first quarter ended March 31, 1998. Expenses increased $3,279 or 25.2% from $12,991 in the first quarter ended March 31, 1997 to $16,270 in the first quarter ended March 31, 1998 for the following reasons:
AMOUNT PERCENT ------ ------- 1. Salaries and benefits....................................... $ (102) (3.1)% 2. Rehabilitative and other specialty services................. (36) (1.1) 3. Other expenses.............................................. 644 19.6 4. Acquisition of Summit Care.................................. 2,773 84.6 ------ ----- $3,279 100.0% ====== =====
Income before rent, rent to related parties, depreciation and amortization and interest expense increased $390 or 11.4% from $3,418 in the first quarter ended March 31, 1997 to $3,808 in the first quarter ended March 31, 1998 and was 19.0% of net revenues in the first quarter ended March 31, 1998 compared to 20.8% in the first quarter ended March 31, 1997. Rent, rent to related parties, depreciation and amortization and interest expense increased $1,255 or 113.8% from $1,103 in the first quarter ended March 31, 1997 to $2,358 in the first quarter ended March 31, 1998. Substantially all of this increase was due to higher depreciation costs related to renovation expenditures and an increase in interest expense as a result of the Fountain View Equity Transactions. The Company's effective tax rate was 40.0% of income in the first quarter ended March 31, 1998. In the first quarter ended March 31, 1997 the Company was organized as a Subchapter S Corporation for tax purposes and only recorded state income taxes. On a proforma basis, the Company has recorded a charge in lieu of income taxes to arrive at a combined proforma effective tax rate of 40.0%. Net income before the extraordinary item and after the proforma charge in lieu of income taxes, decreased $519 or 37.4% from $1,389 in the first quarter ended March 31, 1997 to $870 in the first quarter ended March 31, 1998. PROFORMA FINANCIAL PERFORMANCE On a proforma basis (as if the acquisition of Summit occurred on January 1, 1997), the Company's revenues increased from $68.5 million in the first quarter ended March 31, 1997 to $74.0 million in the first quarter ended March 31, 1998, or 8.0%. The increase in revenues can be attributed to the following: (1) $2.4 million related to the acquisition of a skilled nursing facility in Texas on December 1, 1997, (2) $1.5 million related to the fill-up of new facilities and bed additions completed during the last half of 1997, (3) $2.7 million related to increased census days and revenue rates, (4) $0.1 million related to the pharmacy operations, and (5) a reduction of $1.2 million related to the therapy operations due to the replacement of certain established contracts with new contracts, which require additional time to reach their full potential. Proforma earnings before interest, taxes, depreciation and amortization (EBITDA) increased slightly from $8.9 million in the first quarter of 1997 to $9.0 million in the first quarter of 1998. The EBITDA margin decreased between periods as increases in revenue were offset by increases in wage and salary expenses and lower margins at the therapy operations due to the ramp up of its new contracts. 43 Selected statistics are shown below:
INCREASE 1998 1997 (DECREASE) ----- ----- ----------- Facilities in operation at: March 31.......................................... 50 9 41 Nursing center beds at: March 31.......................................... 5,937 1,061 4,876 Assisted living beds at: March 31.......................................... 641 166 475 Total beds at: March 31.......................................... 6,578 1,227 5,351 Total occupancy: First quarter..................................... 86.6% 84.9% 1.7% Nursing center occupancy: First quarter..................................... 89.4% 89.8% (0.4)% Assisted living center occupancy: First quarter..................................... 67.4% 53.7% 13.7% Percentage of revenues from private, managed care and Medicare (quality mix): First quarter..................................... 72.0% 72.8% (0.8)% Percentage of revenues from Medicaid: First quarter..................................... 28.0% 27.2% 0.8%
LIQUIDITY AND CAPITAL RESOURCES At March 31, 1998, the Company had $3,640 in cash and cash equivalents and working capital of $8,509. During the quarter ended March 31, 1998, the Company's cash and cash equivalents increased by $1,089. Net cash provided by operating activities decreased $10,997 from $6,651 of net cash provided in the first quarter of 1997 to $4,346 net cash used in the first quarter of 1998. Net cash used by operating activities during the first quarter ended March 31, 1998 was primarily due to an increase in accounts receivable. Long-term debt consisted of mortgage and capital lease indebtedness of $24,798, a credit facility of $62,730, $17,000 in borrowings on the Company's bank line of credit and $122,850 in senior secured debt totaling $227,378 at March 31, 1998. 1997 COMPARED TO 1996 (DOLLARS IN THOUSANDS) Net revenue increased from $59,432 in 1996 to $67,905 in 1997, an increase of $8,473 or 14.3%. The increase in net revenue is due in part to growth in the skilled nursing business, driven by occupancy, improving quality mix, and the increase in provision of services by Medi-Cal sub-acute units in two facilities. During 1997, Medi-Cal sub-acute per diem reimbursement rates were approximately three times higher than Medi-Cal SNF per diem reimbursement rates. Fountain View's quality mix (percentage of revenues from Medicare, Medi-Cal sub-acute, managed care, private pay patients and therapy) as a percentage of total revenues increased from 69.7% in 1996 to 72.9% in 1997. The increase in net revenue was also attributable to increased revenues generated by Fountain View's Locomotion Therapy subsidiary. Expenses consisting of salaries, benefits, supplies, purchased services, provision for doubtful accounts and other operating costs increased from $50,780 in 1996 to $56,205 in 1997, an increase 44 of $5,425 or 10.7%, and as a percentage of net revenue, decreased from 85.4% in 1996 to 82.8% in 1997. Salary and related benefit expenses increased primarily as the result of four separate increases in federal and state minimum wage levels between October 1, 1996 and December 31, 1997 as well as discretionary employee bonuses paid during 1997. However, salary and related benefit expenses decreased as a percentage of net revenue from 60.9% in 1996 to 56.3% in 1997, reflecting the revenue benefit of improvement in Fountain View's quality mix relative to the level of increased salary expenses associated therewith. Other operating costs increased as the result of the termination of non-compete agreements and consulting agreements relating to the Fountain View Equity Transactions totaling $965, $810 (net of ongoing insurance costs) of settlement costs associated with an employee lawsuit involving a specific type of liability for which the Company currently maintains insurance coverage, and $415 of other charges related to the Fountain View Equity Transactions. Rent expense, depreciation and amortization and interest expense, net of interest income, was $6,137 in 1997 compared to $4,774 in 1996, an increase of $1,363 or 28.6%. The increase was primarily due to increased depreciation costs related to renovation expenditures during 1996 and 1997 and an increase in interest expense as a result of the Fountain View Equity Transactions. Fountain View's pro forma effective tax rate was 40% in both 1996 and 1997. Prior to the Fountain View Equity Transactions, the entities comprising Fountain View were owned individually by certain controlling stockholders, and were primarily formed as S-corporations. The pro forma effective tax rate represents the estimated taxes had such companies been taxed as C- corporations. 1996 COMPARED TO 1995 (DOLLARS IN THOUSANDS) Net revenue increased from $55,836 in 1995 to $59,432 in 1996, an increase of $3,596 or 6.4%. The increase in net revenue relates primarily to revenues generated by Medi-Cal sub-acute units established in two facilities and a transitional care unit opened in one facility during 1996. Net revenue also increased as the result of higher revenues from managed care patients, which are typically reimbursed at higher rates than Fountain View's private or Medicaid patients. Expenses consisting of salaries, benefits, supplies, purchased services, provision for doubtful accounts and other expenses increased from $48,502 in 1995 to $50,780 in 1996, an increase of $2,278 or 4.7%. However, salary and related benefit expenses decreased from 62.8% in 1995 to 60.9% in 1996 as a percentage of net revenue, reflecting the benefit of an increase in revenues from managed care patients relative to the level of increased salary expenses associated therewith. Rent expense, depreciation and amortization and interest expense, net of interest income, was $4,774 in 1996 compared to $4,694 in 1995, an increase of $80 or 1.7%. Fountain View's pro forma effective tax rate was 40% in both 1995 and 1996. Prior to the Fountain View Equity Transactions, the entities comprising Fountain View were owned individually by certain controlling stockholders and were primarily formed as S-corporations. The pro forma effective tax rate represents the estimated taxes had such companies been taxed as C- corporations. HISTORIC LIQUIDITY AND CAPITAL RESOURCES (DOLLARS IN THOUSANDS) Cash and cash equivalents were $2,551 as of December 31, 1997, and working capital was $10,021. This compares to cash and cash equivalents of $1,161 and working capital of $13,566 as of December 31, 1996. Working capital declined primarily as a result of the Fountain View Equity Transactions and payment of a $43,700 distribution to certain controlling stockholders in August 1997. Proceeds of $14,000 from an investment by Heritage and $32,500 in bank borrowings financed the $43,700 distribution and payment of related transaction costs. 45 Cash generated from operating activities increased to $12,739 in 1997 compared to $1,059 in 1996 and $5,832 in 1995. The increased level of cash from operating activities in 1997 as compared to 1996 reflects differences in the timing of receiving payments on accounts receivable, primarily managed care and Medicare balances. Receivables increased by $3,757 in 1996, and decreased by $2,908 in 1997. The combination of the increase in receivables in 1996 and decrease in 1997 resulted in a variance of $6,665 in cash from operations between such periods. In addition, accounts payable and accrued expenses increased by $2,772 in 1997 compared to an increase in 1996 of $421. In 1997, $2,570 of cash was used for the acquisition of leasehold improvements and purchases of equipment compared to $1,816 and $665 used in 1996 and 1995, respectively, for the acquisition of leaseholds and equipment. Cash used in financing activities was $7,604 in 1997 compared to $438 in 1996 and $3,159 in 1995. In 1997, $32,500 of new bank borrowings and $14,000 of proceeds from an investment by Heritage were used to repay $6,065 in bank borrowings and $48,118 in total distributions to certain stockholders inclusive of the $43,700 distribution made in connection with the Fountain View Equity Transactions. RESULTS OF OPERATIONS--SUMMIT SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 1996 (DOLLARS IN THOUSANDS) Net revenues increased $13,419 or 14.1% from $95,088 for the six months ended December 31, 1996 to $108,507 for the six months ended December 31, 1997. The increase occurred due to the following:
AMOUNT PERCENT ------- ------- 1. Increased census days and revenue rates.................. $ 4,874 36.3% 2. Special charge to Medicare revenues...................... 4,000 29.8 3. New beds opened in fiscal years 1997 and 1998............ 3,973 29.6 4. Pharmacy operations...................................... 1,406 10.5 5. Rehabilitative and other specialty services.............. (834) (6.2) ------- ----- $13,419 100.0% ======= =====
In December 1996, Summit recorded a special charge of $4,000 against Medicare revenues as a result of adjustments proposed by Medicare in connection with an audit of fiscal 1995, which would have an effect on revenues for that fiscal year, fiscal 1996 and the six months ended December 31, 1996. Average occupancy was 87.2% in the six months ended December 31, 1997 and 84.0% in the six months ended December 31, 1996. Excluding newly constructed beds, the average occupancy was 90.3% in the six months ended December 31, 1997 and 85.9% in the six months ended December 31, 1996. Summit's quality mix (revenues from Medicare, managed care and private pay patients, including pharmacy revenue) as a percentage of gross revenues was 68.3% in the six months ended December 31, 1997 and 69.6% in the six months ended December 31, 1996. Expenses, consisting of salaries and benefits, supplies, purchased services, provision for doubtful accounts and other expenses as a percent of net revenues, before the effect of the special charge, increased from 85.9% of net revenues in the six months ended December 31, 1996 to 86.1% in the six months ended December 31, 1997. Total salaries and employee related benefits were 44.0% of net revenues in the six months ended December 31, 1997 compared to 43.8% of net revenues, before the effect of the special charge, in the six months ended December 31, 1996. 46 Expenses increased $8,342 or 9.8% from $85,136 in the six months ended December 31, 1996 to $93,478 in the six months ended December 31, 1997 for the following reasons:
AMOUNT PERCENT ------ ------- 1. Expenses relating to new beds opened in fiscal years 1997 and 1998.......................................... $3,232 38.7% 2. Salaries and benefits................................... 2,776 33.3 3. Other expenses.......................................... 1,540 18.5 4. Rehabilitative and other specialty services............. 794 9.5 ------ ----- $8,342 100.0% ====== =====
Income before rental, depreciation and amortization and interest expense, net of interest income, increased $5,077 or 51.0% from $9,952 in the six months ended December 31, 1996 to $15,029 in the six months ended December 31, 1997 and was 13.9% of net revenues in the six months ended December 31, 1997 compared to 10.5% in the six months ended December 31, 1996 (and 14.1% of net revenues before the special charge to revenues). Rent, depreciation and amortization and interest expense, net of interest income, increased by $1,249 or 13.7% from $9,099 in the six months ended December 31, 1996 to $10,348 in the six months ended December 31, 1997. Substantially all of this increase was due to interest expense related to higher debt and depreciation expense related to capital additions. Summit's effective tax rate was 39.5% of income in the six months ended December 31, 1997 and in the six months ended December 31, 1996. Net income increased $2,316 from $516 in the six months ended December 31, 1996 to $2,832 in the six months ended December 31, 1997. The net income of $516 for the six months ended December 31, 1996 included $2,420 for the special charge described earlier. Net income before the special charge, decreased $104 or 3.5% from $2,936 in the six months ended December 31, 1996 to $2,832 in the six months ended December 31, 1997. 1997 COMPARED TO 1996 (DOLLARS IN THOUSANDS) Net revenues increased $21,865 or 12.4% from $176,062 in fiscal 1996 to $197,927 in fiscal 1997. The increase occurred due to the following:
AMOUNT PERCENT ------- ------- 1. Rehabilitative and other specialty services.............. $ 7,553 34.6% 2. New beds opened in fiscal years 1996 and 1997............ 12,450 56.9 3. Increased census days and revenue rates.................. 5,647 25.8 4. Pharmacy operations...................................... 2,315 10.6 5. Special charge to Medicare revenue....................... (6,100) (27.9) ------- ----- $21,865 100.0% ======= =====
The special charge to Medicare revenues reflects the result of adjustments proposed by Medicare in connection with an audit of fiscal 1995, which would have an effect on revenues for that fiscal year, fiscal 1996 and fiscal 1997. Average occupancy was 84.8% in the fiscal year ended June 30, 1997 compared to 85.9% in the fiscal year ended June 30, 1996. Excluding newly constructed beds, the average occupancy was 87.0% in the fiscal year ended June 30, 1997 and 86.4% in the fiscal year ended June 30, 1996. Summit's quality mix (revenues from Medicare, managed care and private pay patients, including pharmacy revenue) patients as a percentage of gross revenues was 69.6% in the fiscal year ended June 30, 1997 and 66.6% in the fiscal year ended June 30, 1996. Expenses, consisting of salaries and benefits, supplies, purchased services, provision for doubtful accounts and other expenses as a percent of net revenues, before the effect of the special charge, 47 increased from 84.6% of net revenues in the fiscal year ended June 30, 1996 to 88.0% in the fiscal year ended June 30, 1997. Total salaries and employee related benefits were 43.9% of net revenues, before the effect of the special charge, in the fiscal year ended June 30, 1997 compared to 44.4% of net revenues in the fiscal year ended June 30, 1996. Purchases of rehabilitative and other specialty services were 25.3% of net revenues, before the effect of the special charge, in the fiscal year ended June 30, 1997 compared to 21.6% of net revenues in the fiscal year ended June 30, 1996. Expenses increased $30,580 or 20.5% from $148,929 in the fiscal year ended June 30, 1996 to $179, 509 in the fiscal year ended June 30, 1997 for the following reasons:
AMOUNT PERCENT ------- ------- 1. Rehabilitative and other specialty services............ $ 8,680 28.4% 2. Expenses relating to new beds opened in fiscal years 1996 and 1997......................................... 11,529 37.7 3. Salaries and benefits.................................. 6,612 21.6 4. Other expenses......................................... 3,759 12.3 ------- ----- $30,580 100.0% ======= =====
Income before rental, depreciation and amortization and interest expense, net of interest income, decreased $8,715 or 32.1% from $27,133 in the fiscal year ended June 30, 1996 to $18,418 in the fiscal year ended June 30, 1997 and was 9.3% of net revenues in the fiscal year ended June 30, 1997 (and 12.0% of net revenues before the special charge to revenues) compared to 15.4% in the fiscal year ended June 30, 1996. Rental, depreciation and amortization and interest expense, net of interest income, increased by $2,858 or 18.6% from $15,372 in the fiscal year ended June 30, 1996 to $18,230 in the fiscal year ended June 30, 1997. The increase was primarily due to depreciation of additions to property and equipment and interest expense related to higher long-term debt. Summit's effective tax rate was 63.3% of income in the fiscal year ended June 30, 1997 compared to 37.9% of income in the fiscal year ended June 30, 1996. The increase in the effective tax rate was primarily due to certain permanent differences between book income and taxable income. Net income was $69 for the fiscal year ended June 30, 1997, a decrease of $7,240 or 99.1% from $7,309 for the fiscal year ended June 30, 1996. 1996 COMPARED TO 1995 (DOLLARS IN THOUSANDS) Net revenues increased $39,036 or 28.5% from $137,026 in fiscal 1995 to $176,062 in the fiscal year 1996. The increase occurred due to the following:
AMOUNT PERCENT ------- ------- 1. Acquisitions in fiscal year 1995.......................... $13,228 33.9% 2. Rehabilitative and other specialty services............... 11,527 29.5 3. Increased census days and revenue rates................... 8,017 20.5 4. New beds opened in fiscal years 1995 and 1996............. 3,614 9.3 5. Pharmacy operations....................................... 2,650 6.8 ------- ----- $39,036 100.0% ======= =====
Average occupancy was 85.9% in the fiscal years ended June 30, 1996 and 1995, and new beds were opened in both fiscal years. Excluding acquisitions and newly constructed beds, the average occupancy was 88.4% in the fiscal year ended June 30, 1996 and 89.0% in the fiscal year ended June 30, 1995. Summit's quality mix (revenues from Medicare, managed care and private pay patients, including pharmacy revenue) as a percentage of gross revenues was 66.6% in the fiscal year ended June 30, 1996 and 63.3% in the fiscal year ended June 30, 1995. 48 Expenses, consisting of salaries and benefits, supplies, purchased services, provision for doubtful accounts and other as a percent of net revenues increased from 82.0% of net revenues in the fiscal year ended June 30, 1995 to 84.6% in the fiscal year ended June 30, 1996. Total salaries and employee related benefits were 44.4% of net revenues in the fiscal year ended June 30, 1996 compared to 46.1% of net revenues in the fiscal year ended June 30, 1995. Expenses increased $36,552 or 32.5% from $112,377 in the fiscal year ended June 30, 1995 to $148,929 in the fiscal year ended June 30, 1996 for the following reasons:
AMOUNT PERCENT ------- ------- 1. Rehabilitative and other specialty services............ $10,906 29.8% 2. Acquisitions in fiscal year 1995....................... 10,454 28.6 3. Salaries and benefits.................................. 7,592 20.8 4. Expenses relating to new beds opened in fiscal years 1995 and 1996......................................... 3,202 8.8 5. Other expenses......................................... 4,398 12.0 ------- ----- $36,552 100.0% ======= =====
Income before rental, depreciation and amortization and interest expense, net of interest income, increased $2,484 or 10.1% from $24,649 in the fiscal year ended June 30, 1995 to $27,133 in the fiscal year ended June 30, 1996 and was 15.4% of net revenues in the fiscal year ended June 30, 1996 compared to 18.0% in the fiscal year ended June 30, 1995. Rental, depreciation and amortization and interest expense, net of interest income, increased by $3,221 or 26.5% from $12,151 in the fiscal year ended June 30, 1995 to $15,372 in the fiscal year ended June 30, 1996. Substantially all of this increase was due to depreciation and amortization, rent and interest expense related to acquisitions and newly constructed beds in fiscal years 1995 and 1996. Summit's effective tax rate was 37.9% of income in the fiscal year ended June 30, 1996 and 39.9% of income in the fiscal year ended June 30, 1995. Net income after taxes decreased $202 or 2.7% from $7,511 in the fiscal year ended June 30, 1995 to $7,309 in the fiscal year ended June 30, 1996. HISTORIC LIQUIDITY AND CAPITAL RESOURCES (DOLLARS IN THOUSANDS) At June 30, 1997, Summit had $3,994 in cash and cash equivalents and working capital of $12,648. For the fiscal year ended June 30, 1997, Summit's cash and cash equivalents increased by $1,336 over the prior year. Net cash provided by operating activities increased $11,149 from $6,866 for the fiscal year ended June 30, 1996 to $18,015 for the fiscal year ended June 30, 1997. Net cash provided by operating activities, plus proceeds of $15,000 in new long-term debt (see description below) were used principally for capital expenditures of $24,075 for new and existing centers, the net reduction of loans outstanding on the line of credit of $1,000, the purchase of a lease option for $2,022, and the acquisition of a 50% interest in an institutional pharmacy for $1,565. Accounts receivable, less allowance for doubtful accounts, increased $5,819 due to increased total revenues in the fiscal year ended June 30, 1997 compared to the prior year, primarily in Medicare and managed care revenues. At June 30, 1997, Summit's average accounts receivable days outstanding were 41, compared to 39 at June 30, 1996. For the fiscal year ended June 30, 1997, Summit added $24,075 to its property and equipment. These additions were primarily for the completion of a 210-bed SNF in Fort Worth, Texas, at a cost of 49 $2,300, construction of a 66-bed ALF in Orange, California, at a cost of $3,525, and the renovation of buildings and replacement of furniture and equipment at the remaining centers and the pharmacies, at a cost of $18,250. These additions to property and equipment were primarily financed with funds from $15,000 of Senior Secured Notes issued in July 1996 and with cash generated from operations. The $15,000 funding represents the second and last issuance of the $70,000 Senior Secured Notes. The initial funding of $55,000 occurred in December 1995. Summit believes that it has sufficient cash flow from its existing operations and from its bank line of credit to service long-term debt due within one year of $6,997 (Summit intends to borrow this amount against its bank line of credit which has a revolver extending to September 30, 1998 followed by a three-year payment period), to make normal recurring capital replacements, additions and improvements to existing centers of approximately $9,100 planned for the next twelve months, to develop properties costing approximately $3,000 over the next twelve months, to purchase a 111-bed center for $1,871 in accordance with a purchase option in a lease and to meet other long-term working capital needs and obligations. The loans outstanding on the line of credit at June 30, 1997 were $5,000. Summit expects, on a selective basis, to pursue expansion of its existing centers and the acquisition or development of additional centers in markets where demographics and competitive factors are favorable. LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY FOLLOWING THE TRANSACTIONS (DOLLARS IN THOUSANDS) Interest payments on the Notes and any borrowings under the New Credit Facility will represent significant liquidity requirements for the Company. Any future borrowings under the New Credit Facility will bear interest at floating rates and will require interest payments on varying dates depending on the interest rate option selected by the Company. See "Description of Other Indebtedness--New Credit Facility". The Company's remaining liquidity demands will be primarily for capital expenditures and working capital needs. The Company expects to spend approximately $4.5 million on capital projects in 1998, with approximately $4.0 million of that amount representing maintenance-related capital expenditures. The Company currently expects to spend a similar amount on capital expenditures in fiscal 1999. The New Credit Facility and the Indenture will impose restrictions on the Company's investments. The Company's primary sources of liquidity are expected to be cash flows from operations and borrowings under the New Credit Facility. See "Description of Other Indebtedness--New Credit Facility". Approximately $15.0 million is available to be drawn by the Company under the New Credit Facility. In addition, the Company has approximately $15.0 million in revolving credit loans and $85.0 million in term loans outstanding under the New Credit Facility. See "Description of Other Indebtedness--New Credit Facility". The Company's ability to make scheduled payments of principal of, or to pay the interest or Liquidated Damages, if any, on, or to refinance, its indebtedness (including the Notes), or to fund planned capital expenditures and any acquisitions will depend on its future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control. Based upon the current level of operations and anticipated cost savings and revenue growth, management believes that cash flow from operations and available cash, together with available borrowings under the New Credit Facility, will be adequate to meet the Company's future liquidity needs for at least the next several years. The Company may, however, need to refinance all or a portion of the principal of the Notes on or prior to maturity. There can be no assurance that the Company's business will generate sufficient cash flow from operations, that 50 anticipated revenue growth and operating improvements will be realized or that future borrowings will be available under the New Credit Facility in an amount sufficient to enable the Company to service its indebtedness, including the Notes, or to fund its other liquidity needs. In addition, there can be no assurance that the Company will be able to effect any such refinancing on commercially reasonable terms or at all. See "Risk Factors". 51 BUSINESS THE COMPANY The Company is a leading operator of long-term care facilities and a leading provider of a full continuum of post-acute care services, with a strategic emphasis on sub-acute specialty medical care. The Company operates a network of facilities in California, Texas and Arizona, including 44 SNFs that offer sub-acute, rehabilitative and specialty medical skilled nursing care, as well as six ALFs that provide room and board and social services in a secure environment. In addition to long-term care, the Company provides a variety of high-quality ancillary services such as physical, occupational and speech therapy in Company-operated facilities, unaffiliated facilities and acute care hospitals. The Company also operates three institutional pharmacies (one of which is a joint venture), which service acute care hospitals as well as SNFs and ALFs both affiliated and unaffiliated with the Company, an outpatient therapy clinic and a DME company. The Company operates 50 facilities with approximately 6,600 beds serving Medicare, Medicaid, managed care, private pay and other patients. Both Fountain View and Summit have demonstrated records of revenue growth, increasing average census (occupancy) levels and improvements in quality mix (defined as non-Medicaid revenues). During the five fiscal years ended 1997, revenues for Fountain View and Summit increased at compound annual growth rates of 13.1% and 27.1%, respectively. During the same period, average census levels at Fountain View facilities increased from 87.0% to 89.3%, quality mix increased from 58.4% to 72.9% and net income increased from $2.4 million to $5.2 million. Average census levels at Summit facilities (excluding three facilities which commenced operations or were renovated in 1996 or later) increased from 87.2% for the year ended June 30, 1993 to 88.7% for the six months ended December 31, 1997, quality mix increased from 64.8% to 69.6% during the four fiscal years ended 1997 and net income was $5.0 million for the year ended June 30, 1993 and $2.8 million for the six months ended December 31, 1997. Pro forma for the Transactions, the Company would have had revenues of $74.0 million, an average census level of 88.6% (excluding three Summit facilities which commenced operations or were renovated in 1996 or later), a quality mix of 67.2% and a net loss of $953,000 for the three months ended March 31, 1998. Management believes that the Company's strong operating performance has been supported by the Company's ability to (i) provide high-quality, high-acuity care, (ii) utilize an efficient cost structure, (iii) operate a network of attractive, modern facilities, (iv) maintain a leading market position and (v) capitalize on the extensive experience of its management. The Company intends to pursue a strategy of further increasing its revenues and profitability by capitalizing on the relative strengths of Fountain View and Summit. In implementing its strategy, the Company expects to (i) further increase the proportion of revenues derived from high-acuity specialty medical services, (ii) broaden the implementation of its cost-effective operating model, (iii) expand its ancillary services businesses, (iv) pursue controlled expansion through construction and acquisition-related growth, and (v) capitalize on benefits derived from the Transactions. COMPANY HISTORY Fountain View was founded in 1964 and originally operated two nursing homes in Los Angeles, California. Fountain View has expanded the size and scope of its core long-term care business by acquiring facilities and by introducing ancillary services to existing operations. Since 1982, the business has grown from two facilities to nine, with each facility providing a broad array of specialty medical care. Fountain View was one of the first operators of long- term care facilities to receive a contract with Medi-Cal to provide sub-acute care and currently has 36 beds in two facilities dedicated to providing Medi- Cal patients with sub-acute services (which are eligible for significantly higher per diem reimbursement rates than standard Medi-Cal per diem reimbursement rates). Fountain View's 52 nine facilities have a total of 1,227 beds, of which 1,061 are dedicated to serving skilled nursing patients and 166 of which comprise an ALF. Each of Fountain View's facilities is located in close proximity to a hospital, facilitating patient referrals. Many of Fountain View's skilled nursing patients have been discharged from acute care hospitals and require medically complex treatments. Fountain View has placed strategic emphasis on providing higher-acuity care while simultaneously developing a cost-effective operating model. Fountain View, through Locomotion Therapy, also provides physical, occupational and speech therapy to unaffiliated nursing homes and acute care hospitals as well as several Fountain View facilities. Fountain View also owns an outpatient therapy clinic company and a DME business. Summit was incorporated in 1981 as a wholly-owned subsidiary of Summit Health Ltd., an operator of acute care hospitals. Summit provides diversified nursing, specialty medical and sub-acute care at 36 owned or leased SNFs as well as assisted living services at five ALFs located in California, Texas and Arizona. Summit currently operates 36 SNFs with a total of 4,872 beds. Within its SNFs, Summit has established separate units for specialty medical and sub- acute care dedicated to patients requiring complex services such as chemotherapy, pulmonary and cardiac care, wound care, respiratory therapy and intensive physical, occupational and speech therapies. Summit also operates five ALFs with a total of 475 beds which include certain beds designated as specialty beds, primarily for early-stage Alzheimer's residents. Summit also operates two institutional pharmacies in Southern California and owns a 50% interest in a pharmacy in Texas through a joint venture. The pharmacies provide pharmaceutical products and services to all of Summit's facilities as well as to unaffiliated SNFs, ALFs and acute care hospitals in Southern California and Texas, including certain Fountain View facilities. INDUSTRY In 1997, nursing home spending was approximately $85 billion and is expected to reach more than $100 billion by the year 2000, representing an average annual increase of approximately 6.1%. Demand for long-term care facilities is expected to continue to increase substantially as the result of cost containment initiatives, demographic and social trends as well as industry consolidation. COST CONTAINMENT INITIATIVES. During the past several years, Medicare managed care enrollment has grown to more than 14% nationwide. The trend toward managed care in the Medicare population is particularly evident in California, where approximately 35% of Medicare enrollees were participating in a managed care program during 1996. Cost containment initiatives developed by managed care plans have contributed to shorter hospital stays for acute care patients. Because acute care patients often still require medically complex treatments following discharge from a hospital, management believes that SNFs will experience increased demand for high-acuity services, which are typically eligible for higher reimbursement rates. In addition, management believes that certain SNFs will further develop the ability to offer attractive rates to third-party payors for high-acuity specialty medical services primarily as the result of the significantly lower overhead costs generated by SNFs relative to acute care hospitals and hospital-based SNFs. Labor costs are also generally lower in SNFs than in hospitals, which typically have higher staffing ratios, higher salary structures, and significantly more administrative personnel, including nursing staff resources not fully dedicated to providing care. DEMOGRAPHIC TRENDS. Demand for long-term care services rises meaningfully among persons over the age of 75, an age group that has been growing and is projected to continue growing significantly faster than the overall population according to the United States Bureau of the Census. This increase in the elderly portion of the population reflects, among other things, improvements in medical technology, disease prevention, nutrition and overall health maintenance. The segment of the population over 85 years of age, which comprises the largest percentage of long-term care residents, is the fastest- growing segment of the population and is projected to increase by more than 19.4% from approximately 3.6 million or 1.4% of the domestic population in 1995 to approximately 4.3 million or 53 1.6% of the domestic population in the year 2000. By 2010, the population of this segment is expected to be approximately 5.7 million, representing more than a 58% increase from 1995. SOCIAL TRENDS. Two-income families often experience significant challenges in providing home care for elderly relatives. Management believes that ALFs will continue to experience increased demand as working families seek attractive alternatives to home care for the elderly. Additionally, management believes demand for higher-acuity services in long-term care facilities has contributed to the perception of SNFs as an increasingly attractive alternative to a wide range of potential patients. INDUSTRY CONSOLIDATION. Currently, approximately 1.7 million people receive care in approximately 17,000 long-term care facilities in the United States. Market share data indicates that the industry is highly fragmented, with the 30 largest operators accounting for less than 25% of total beds. Management believes that consolidation initiatives by industry participants have been structured to achieve economies of scale and to create networks of facilities that can be effectively marketed to managed care organizations. As a result, management expects that consolidation will continue among smaller local operators which lack sophisticated management information systems, high-acuity services necessary to remain attractive to acute patients and the ability to maintain strict compliance with complex regulations which govern the long-term care industry. COMPANY STRENGTHS ABILITY TO PROVIDE HIGH-QUALITY AND HIGH-ACUITY CARE. Management believes that the Company's strong operating performance has been supported by the Company's ability to provide a broad range of high-quality, high-acuity services which are generally more profitable than routine healthcare services. Pro forma for the Transactions, revenues from sub-acute and specialty medical care would have represented 55% of the Company's total revenues for the year ended December 31, 1997. The Company currently serves Medicare, Medicaid, managed care, private pay and other patients by providing a continuum of sub- acute and specialty medical care, which consists of ventilator services, tracheotomy care, multiple intravenous therapy, chemotherapy, enteral/parenteral nutrition, end-stage renal disease care, blood transfusions, dialysis, wound care, rehabilitation services, pharmacy services and the provision of durable medical equipment. In addition, both Fountain View and Summit have responded to the increased demand for Alzheimer's care by broadening their specialty medical care to include Alzheimer's units in a total of 21 facilities. Management believes that the Company's facilities provide services similar to those provided in acute care hospitals for approximately 40% to 60% of the costs generated by acute care hospitals in providing such services. As a result, management believes the Company will increase revenues by continuing to attract managed care payors and is well-positioned to benefit from growing managed care enrollment levels. EFFICIENT OPERATOR AND COST-EFFECTIVE PROVIDER. Management believes it has developed significant expertise in delivering high-quality, high-acuity care through the implementation of an efficient and cost-effective operating model. Developed within the Fountain View network of facilities, management believes this model has produced high levels of efficiency and facility-level EBITDAR through the application of specific operating initiatives. EBITDAR is not a measurement of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income, net income, cash flows from operations, or other statement of operations or cash flow data prepared in conformity with generally accepted accounting principles, or as a measure of profitability or liquidity. Similar to EBITDA, management views EBITDAR as a financial indicator of a company's ability to service or incur debt. A majority of Fountain View's nursing homes are lease, under operating leases, and not owned. Accordingly, EBITDAR is used since the rent expense approximates the interest and depreciation expense Fountain View may have 54 incurred as if the nursing homes were owned as opposed to leased. Management intends to expand its cost-effective operating model to maximize profitability and the quality of care provided across the Company's entire facility network. ATTRACTIVE, MODERN FACILITY NETWORK. Management believes the Company's facilities are in excellent aesthetic and operational condition as the result of recent comprehensive construction and renovation initiatives. Summit has expended more than $180 million over the past five years constructing, acquiring, expanding and upgrading facilities, and Fountain View has spent more than $4 million on facility improvements during the past two years. Approximately 80% of the Company's facilities were either constructed or renovated within the past three years. Management believes the Company's attractive and modern facility network will continue to support high average census and quality mix levels. In addition, management believes that the Company's recent construction and renovation initiatives will facilitate improvements in operating efficiency and reductions in maintenance capital expenditure levels. The Company owns 56% of its facilities (representing 70% of its beds) and holds options to purchase an additional 10% of its facilities, providing the Company with an attractive asset base, enhanced credit quality and increased financial flexibility. LEADING MARKET POSITION. Management believes the Company will operate as a leading provider of long-term and specialty medical care in several Southern California and Texas markets. The Company's Southern California facilities are strategically located in geographically clustered networks which management believes are particularly attractive to managed care organizations. Management believes the Company is well-positioned to benefit from California's rapidly increasing managed care enrollment levels, which included 35% of Medicare enrollees during 1996 as compared to a nationwide enrollment level of 14% as of July 1997. The Company also expects that the increased density of its Southern California market presence as a result of the Transactions will result in heightened brand awareness, expanded referral networks, operating and administrative economies of scale as well as improved purchasing economies. In addition to the Company's geographically clustered networks in Southern California, the Company operates a broad network of facilities in small to mid-size markets in Texas. Management believes the Company's Texas facilities are located in several demographically attractive markets and are generally characterized by leading market positions. In addition to the Company's strong local market presence in both Southern California and Texas, management believes the Company will be subject to a relatively low level of direct competition from any single large competitor due to the considerable fragmentation which characterizes the Company's markets. STRONG MANAGEMENT TEAM. Mr. Scott, the Chairman of the Company, and Mr. Snukal, the Chief Executive Officer of the Company, together have more than 43 years of senior management experience in the long-term care industry in Southern California and Texas. Mr. Scott has supervised significant expansion in the number of Summit's facilities and services through strategic acquisitions and construction. Mr. Snukal has demonstrated expertise in developing Fountain View's ability to provide specialty medical and sub-acute care in a cost-effective manner, and achieving strong facility-level operating and financial performance. Both Mr. Scott and Mr. Snukal will maintain significant involvement in the daily operations of the Company and have made significant equity contributions to the Company in connection with the Transactions. See "Prospectus Summary--The Transactions". BUSINESS STRATEGY FURTHER INCREASE PROPORTION OF REVENUES DERIVED FROM SPECIALTY MEDICAL CARE. The Company intends to leverage its existing specialty medical infrastructure, further increasing the proportion of total revenues derived from specialty medical care. On a pro forma basis for the twelve months ended December 31, 1997, specialty medical revenues represented 55% of total revenues. Services comprising specialty medical care generally represent the most profitable types of services 55 offered by long-term care providers since such services are reimbursed at higher rates than routine skilled nursing care and basic assisted living services. As a result of the trend toward shorter hospital stays by patients who require medically complex treatments and in order to deliver the highest quality care possible to its residents, the Company has developed significant expertise and experience caring for high-acuity patients. The Company's ability to provide high-acuity specialty medical and sub-acute care in its own facilities generates substantial revenue for the Company and benefits managed care payors by reducing hospital costs and by eliminating costs incurred by transferring patients to acute care hospitals to receive specialty medical care. BROADEN IMPLEMENTATION OF COST-EFFECTIVE OPERATING MODEL. Management intends to expand the Company's cost-effective operating model to maximize profitability and the quality of care provided across the Company's facilities. Management believes that expanded implementation of a well- designed and well-monitored operating model will enhance the quality and consistency of care delivered and improve profitability by simplifying procedures for administering care. EXPAND ANCILLARY SERVICES. The Company intends to increase the penetration of its therapy and pharmacy businesses within both affiliated and unaffiliated facilities. Ancillary services generally have produced higher revenues and profitability than routine long-term care services. The Company currently provides rehabilitative physical, occupational and speech therapy through Locomotion Therapy. Locomotion Therapy generated $19.7 million of revenues for the year ended December 31, 1997, providing services to unaffiliated nursing homes and acute care hospitals under 97 contracts and to eight Fountain View facilities. Management expects Locomotion Therapy to expand its provision of services to Summit facilities, which purchased approximately $34 million of therapy services from nonaffiliates during fiscal 1997. The Company also intends to pursue increased "bundling" of ancillary services, offering a unique package of rehabilitative and pharmacy services to unaffiliated facilities in a cost-efficient manner. In addition to providing ancillary therapy services, the Company operates three institutional pharmacies (one of which is a joint venture), a DME company and an outpatient therapy clinic through its subsidiary, On-Track. Several of Summit's facilities have existing, unoccupied space allocated to outpatient therapy services which the Company expects to utilize for the expansion of services provided by On-Track. PURSUE CONTROLLED EXPANSION THROUGH CONSTRUCTION AND ACQUISITION-RELATED GROWTH. The Company intends to acquire and construct facilities selectively in strategic locations which will facilitate operating efficiencies through economies of scale, will generate marketing synergies through further expansion of relationships and contracts with hospitals, physicians and physician groups and will lead to reduced overhead expenditures. The Company expects to acquire or construct new beds and facilities in a cost-effective manner, including expansion initiatives which utilize real estate currently owned by the Company. The Company currently owns properties adjacent to several facility locations which management believes can support the construction of approximately 1,400 additional beds at reduced cost levels relative to the expense associated with acquisition and development of new real estate. CAPITALIZE ON BENEFITS DERIVED FROM THE TRANSACTIONS. As a result of the Transactions, management believes the Company will be able to realize significant cost savings. As a result of the Company's contiguous geographic locations in several Southern California markets, management intends to eliminate specifically identified corporate expenses and leverage administrative resources across facilities. Management believes the Company will be able to reduce its cost of food, sanitary and medical supplies as a result of improved purchasing power and expects the Company to realize marketing and referral benefits as a result of the increased geographic density of the Company's clustered facilities. In addition, the Company expects to expand its provision of services through Locomotion Therapy to Summit facilities, which purchased approximately $34 million of therapy services from nonaffiliates during 1997. 56 SERVICES BASIC HEALTHCARE SERVICES Basic healthcare services refer to skilled nursing care and assisted living services. The Company provides skilled nursing care in each of Fountain View's eight SNFs and in each of Summit's 36 SNFs (which collectively have 5,933 beds). Skilled nursing care consists of 24-hour care by registered nurses, licensed practical or vocational nurses and certified aides, as well as room and board, special nutritional programs, social services, recreational activities and related medical and other services that may be prescribed by a physician. Assisted living services include general services provided by Fountain View in its ALF and by Summit in its five ALFs, all of which are located in California and which collectively have 641 beds. These services consist of basic room and board, social activities and assistance with activities of daily living such as dressing and bathing. SPECIALTY MEDICAL CARE The Company provides specialty medical care, including a wide range of sub- acute services, to patients with medically complex needs who generally require more intensive treatment and a higher level of skilled nursing care. These services represent an area of strategic emphasis for the Company and typically generate higher profit margins than basic healthcare services. SUB-ACUTE CARE. The Company provides a wide range of sub-acute services to patients with medically complex needs, including the following: COMPLEX MEDICAL CARE. The Company provides complex medical care to those patients who require a combination of medical treatments. Complex medical needs often include the administration of intravenous medications for various conditions, such as fluids for hydration, diuretics for congestive heart failure, antibiotics for the treatment of infection, anti-coagulants to prevent clotting or pain control for cancer patients. Patients requiring complex medical care have typically undergone surgical procedures ranging from common joint replacements to organ transplants, and require close monitoring. MULTIPLE INTRAVENOUS MEDICATIONS. A variety of intravenous medications are administered to patients through several types of veinous access. The Company's licensed nurses are intravenous therapy certified and skilled in initiating and handling central and peripheral lines for intravenous medications. BLOOD TRANSFUSIONS. The Company provides blood transfusions to post- surgical patients with severe and unresolved anemia. Blood products for transfusion are obtained through a contract with the American Red Cross. CHEMOTHERAPY. The Company provides chemotherapy to patients in accordance with instructions by attending hematologists/oncologists for the treatment of various cancers. Chemotherapy requires strict and careful handling of highly toxic chemotherapy agents. DIALYSIS. Peritoneal dialysis is typically provided to younger patients who can perform their own dialysis treatments, utilizing specialized solutions which are introduced through a peritoneal cavity port. Whenever possible, patients are taught to perform the procedure themselves upon discharge from the Company's facility. In addition, the Company provides hemodialysis to qualified patients. WOUND CARE PROGRAMS. Wound care programs address the needs of patients suffering from post-operative wounds, including stoma and ostomy care, and the care of amputees. Treatment for surgical wounds includes the prevention of post-operative infections and the removal of surgical staples. The Company also treats patients for existing infections, including the treatment of antibiotic resistant micro- organisms with multiple intravenous antibiotics. 57 Physical therapists aid in the debridement of necrotic wounds with jet lavage or pulsed irrigation and whirlpool treatments. Electrical stimulation is used to encourage the growth of healthy tissue. ENTERAL/PARENTERAL NUTRITION. Patients who are unable to eat for various reasons may receive enteral or parenteral feeding. The Company's registered dietitians periodically review the nutritional needs of each patient. TRACHEOTOMY CARE. The Company provides care to patients who, due to any number of conditions, cannot maintain a clear or adequate airway and have undergone a tracheotomy. These patients often require mechanical ventilator support. All such patients require frequent suctioning and humidified oxygen and aggressive pulmonary rehabilitation. VENTILATOR CARE. Many patients who have undergone a tracheotomy also require mechanical ventilation. In treating such patients, the Company utilizes a ventilator which mechanically regulates the breathing function of the patient by dictating the volume and/or the rates of inhalation and exhalation. The Company's licensed nurses and respiratory therapists oversee a ventilator weaning program under the direction of a pulmonologist. ALZHEIMER'S CARE. The Company's dedicated Alzheimer's units provide care for patients with Alzheimer's disease and severe dementia. This type of care is designed to reduce the stress and agitation associated with Alzheimer's disease by addressing the problems of short attention spans and hyperactivity. The physical environment of the Company's units is designed to address the problems of disorientation and perceptual confusion experienced by Alzheimer's sufferers. THERAPY SERVICES. Many of the Company's patients that have undergone orthopedic surgeries, including joint replacements such as total hip or knee replacements or fractures, receive physical therapy. The Company's physical therapists also perform wound care and utilize electric stimulation to stimulate viable tissue regrowth. Occupational therapy addresses functional skills of the upper body and all aspects of self-care. The Company also provides range of motion and strengthening exercises for contracture prevention and reduction. Speech therapists treat patients with speech disorders, perceptual problems, cognitive problems, and swallowing problems. In coordination with the efforts of the Company's nursing staff and respiratory therapists, speech therapists help tracheotomy and ventilator patients use speaking valves and breathing methods which allow them to communicate with others. During 1997, Locomotion Therapy provided rehabilitative physical, occupational and speech therapy to unaffiliated nursing home operators and acute care hospitals under 97 contracts, as well as to eight Fountain View facilities, using a progressive, personalized treatment approach to promote the resident's highest level of independence in mobility and strength. Historically, a majority of Fountain View's therapy services has been provided by Locomotion Therapy, which employs approximately 150 therapists licensed in various specialties who are assigned to facilities based on the types of contract services requested and the specialization of the therapists. Throughout the duration of the contract, the selected therapist functions as the resident therapist for a particular facility. Summit has also provided rehabilitative care in each of its 36 SNFs through the use of outside contractors. Historically, Summit has monitored the rehabilitative care provided in each Summit facility through the use of in-house supervisory therapists and therapy administration. PHARMACIES. The Company provides pharmaceutical products and services through two institutional pharmacies in Southern California. The Company also owns a 50% equity interest in a limited liability company that operates a pharmacy in Austin, Texas, which services Summit facilities in Texas as well as several unaffiliated facilities. These pharmacies service 86 unaffiliated 58 SNFs, ALFs and acute care hospitals located throughout much of Southern California and in certain Texas markets, as well as all of Summit's and several of Fountain View's SNFs and ALFs. The Company's pharmacies, historically operated by Summit, provide prescription drugs, intravenous products, enteral nutrition therapy services and infusion therapy services, including nutrition, pain management, antibiotics and hydration. OUTPATIENT THERAPY CLINICS. The Company's On-Track subsidiary provides physical therapy services to the outpatient community through a facility in Fresno, California. The Company intends to open additional facilities in underserved markets where it has existing relationships with doctors and currently provides physical therapy services to nursing homes through Locomotion Therapy. Several of Summit's Texas facilities have excess capacity intended for outpatient clinics which the Company expects to utilize for the expansion of services provided by On-Track. DURABLE MEDICAL EQUIPMENT. The Company provides various types of durable medical equipment to Fountain View-owned facilities, as well as unaffiliated facilities, through a subsidiary. The types of equipment and supplies provided include enteral feeding supplies, poles and pumps (on a rental basis), catheterization equipment and orthotics. SOURCES OF REVENUE The Company's SNFs receive payment for healthcare services from federally assisted Medicaid programs, Medicare, programs operated by preferred provider organizations, health maintenance organizations, the Veterans Administration and directly from patients or their responsible parties or insurers. The Company's ALFs receive payment exclusively from private individuals, some of whom depend upon supplemental Social Security payments as a primary source of income. The sources and amounts of the Company's revenues are and will continue to be determined by a number of factors, including the licensed bed capacity of its facilities, occupancy rate, quality mix, the type of services rendered to the patient and the rates of reimbursement among payor categories (primarily private, Medicare and Medicaid). The following table sets forth for Fountain View's SNFs, ALFs and therapy operations the approximate percentages of net revenues derived from the various sources of payment for the periods indicated.
YEAR ENDED DECEMBER 31, ------------------- 1995 1996 1997 ----- ----- ----- Managed care and private pay, including Locomotion Therapy.............................................. 46.6% 47.5% 44.2% Medicare.............................................. 20.3 19.6 25.6 Medi-Cal Sub-Acute.................................... 0.3 2.6 3.1 ----- ----- ----- Subtotal (Quality Mix).............................. 67.2 69.7 72.9 Medi-Cal.............................................. 32.8 30.3 27.1 ----- ----- ----- Total............................................... 100.0% 100.0% 100.0% ===== ===== =====
The following table sets forth for Summit's SNFs, ALFs and pharmacy operations the approximate percentages of total revenues derived from the various sources of payment for the periods indicated.
YEAR ENDED JUNE 30, ------------------- 1995 1996 1997 ----- ----- ----- Managed care and private pay............................ 33.8% 31.9% 29.9% Medicare................................................ 29.5 34.7 39.7 ----- ----- ----- Subtotal (Quality Mix)................................ 63.3 66.6 69.6 Medicaid................................................ 36.7 33.4 30.4 ----- ----- ----- Total................................................. 100.0% 100.0% 100.0% ===== ===== =====
59 Changes in the quality mix between Medicaid (known as Medi-Cal in California), on the one hand, and either Medicare, managed care or private pay, on the other hand, can significantly affect profitability. Quality mix represents revenues from Medicare, Medi-Cal sub-acute, managed care, and private pay patients as a percentage of revenues. Medicare, Medi-Cal sub- acute, managed care and private pay patients constitute the most profitable categories of patient mix and Medicaid patients the least profitable. Management believes the Company has maintained an attractive and improving high quality mix. In addition, the Company's average reimbursement rate per patient day for Medicare patients has increased more rapidly than for Medicaid patients, reflecting the increasing acuity level of the services provided by the Company. Services provided to Medicare patients generate a higher level of revenue per patient day at margins that generally exceed the level of profitability associated with services provided to Medicaid patients. However, the Company's profitability has not correlated directly with revenue growth, reflecting the additional costs associated with providing the higher level of care and other services required by high-acuity Medicare patients. QUALITY MIX, PATIENT MIX AND OCCUPANCY
YEAR ENDED DECEMBER 31, 1997 ----------------------------- FOUNTAIN VIEW SUMMIT COMPANY ------------- ------ ------- QUALITY MIX Managed care and private pay, including Locomotion Therapy.......................................... 44.2% 30.5% 33.4% Medicare.......................................... 25.6 38.5 35.8 Medi-Cal sub-acute................................ 3.1 -- 0.6 ----- ----- ----- Total (Quality Mix)............................. 72.9 69.0 69.8 Medicaid.......................................... 27.1 31.0 30.2 ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== ===== PATIENT MIX Managed care and private pay...................... 17.3 36.8 33.4 Medicare.......................................... 9.0 9.1 9.1 Medi-Cal sub-acute................................ 2.2 -- 0.4 ----- ----- ----- 28.5 45.9 42.9 Medicaid.......................................... 71.5 54.1 57.1 ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== ===== OCCUPANCY ........................................ 89.0% 86.0% 89.0%
The Company's contract therapy services are provided predominantly by Locomotion Therapy. Contract therapy revenues, after intercompany eliminations, represented $17.7 million, or 26.1%, of Fountain View's fiscal 1997 revenues and, on a pro forma basis after giving effect to the Transactions, would have represented 6.2% of the Company's revenues for the year ended December 31, 1997. The Company's pharmacy services are derived from the three institutional pharmacies historically operated by Summit (one of which is a joint venture). Pharmacy revenues represented $20.4 million, or 10.3%, of Summit's fiscal 1997 revenues and, on a pro forma basis after giving effect to the Transactions, would have represented 7.1% of the Company's revenues for the year ended December 31, 1997. The Company's DME business is provided by a Fountain View subsidiary. DME revenues represented approximately $3.0 million, or 4.4%, of Fountain View's fiscal 1997 revenues and, on a pro forma basis after giving effect to the Transactions, would have represented 1.0% of the Company's revenues for the year ended December 31, 1997. 60 COMPLIANCE PROGRAM Historically, senior management of the Company has supervised the Company's compliance with applicable laws and regulations. The Company is in the process of developing and implementing an enhanced compliance program to facilitate the integration of Fountain View and Summit. In the past several years, federal and state governments have increased their scrutiny of healthcare providers with regard to compliance with applicable laws and regulations. The Accountability Act and the Balanced Budget Act have provided the federal government with increased funding for this initiative as well as a broader range of penalties available for violation of applicable laws and regulations. See "--Government Regulations". Management believes that compliance programs are advisable, particularly in the current environment of stricter government enforcement in the healthcare industry. The OIG has released guidelines applicable to compliance programs for laboratories and hospitals, but has not yet developed a model compliance program or compliance program guidelines for the long-term care industry. Given the federal government's current fraud and abuse initiatives however, including Operation Restore Trust which focuses on the long-term care and home health industry, management believes that a compliance program will give the Company an additional layer of protection and assurance in a heavily regulated and continuously evolving industry. Management believes that an effective compliance program should maximize the Company's ability to detect and prevent potential infractions of applicable law (thus reducing the risk of a qui tam, or "whistleblower", action against the Company for infractions that were not timely detected and addressed) and may be used to resolve any infractions that do occur in a consistent and organized fashion. Further, the existence of an effective compliance program may be taken into account by the government to reduce any fines or penalties incurred by the Company for infractions or violations of applicable law or regulation. Management intends to develop and implement a compliance program that will involve the appointment of a compliance officer, who will report directly to the Company's board of directors and Chief Executive Officer, to assist in the development, implementation and maintenance of the compliance program. The Company anticipates that the compliance program will include policies and procedures applicable to all Fountain View and Summit facilities and will address all aspects of compliance with government requirements, including, among others, licensing obligations, quality of care, documentation requirements, billing and coding requirements, regulations regarding relationships with physicians and other healthcare providers, and federal and state reporting obligations. It is anticipated that the Company's compliance program will establish formal training requirements for all Company employees in areas applicable to individual job functions, as well as general training regarding criteria and requirements for participation in federal government healthcare programs. Management intends to establish a Company-wide hotline pursuant to which any employee may report activity that does not conform to current standards. Further, the Company anticipates that the existence of a compliance program will assist it in integrating all Fountain View and Summit facilities into a consistent Company-wide infrastructure, thereby facilitating operational and management economies of scale. QUALITY ASSURANCE The Company is committed to providing its patients with the highest possible standard of quality of care. To this end, both Fountain View and Summit have in place a Quality Assurance department consisting of registered nurses who routinely visit the Company's facilities and conduct quality assurance tests to ensure the consistently high quality of care provided in each facility. Further, Quality Assurance personnel conduct regular training for the nursing and other staff of each facility. The Company intends to consolidate the Quality Assurance departments of Fountain View and Summit in order to continue their tradition of providing the highest possible quality of care. In addition, the Company intends to develop and implement a compliance program that will address, in part, quality of care issues. See "--Compliance Program". 61 The Company is in the process of obtaining accreditation by the Joint Commission on Accreditation of Healthcare Organizations ("JCAHO") for each of its facilities. As of March 1, 1998, twelve of the Company's 44 SNFs are JCAHO accredited or are awaiting formal declaration of such accreditation, with the remainder of the facilities slated for JCAHO accreditation review in the next 24 months. Management believes that the Company's JCAHO accreditation will assist the Company in obtaining and maintaining high occupancy rates at its facilities and demonstrates its commitment to a high standard of quality of care. MARKETING The Company's sales and marketing efforts are directed toward improving overall occupancy and quality mix by maximizing the number of private pay, managed care and Medicare patients on each facility's census. The Company believes that the selection of a long-term care facility is strongly influenced by word-of-mouth marketing and referrals from physicians, hospital discharge planners, community leaders and family members. Therefore, the Company's marketing strategy is focused at the local level, and the administrator, admissions coordinator and other personnel at each facility are responsible for contacting potential referral sources. Case managers at certain facilities actively market services to managed care organizations. Regional marketing directors support and coordinate sales and marketing efforts. The Company maintains a sales and marketing information system to monitor the results of its strategy. GOVERNMENT REGULATIONS LICENSURE. The Company's SNF, ALF, sub-acute and specialty medical service, therapy, pharmacy and DME supplies businesses are subject to various regulatory and licensing requirements of state and local authorities in California, Texas and Arizona. Each SNF is licensed by either the California Department of Health Services, the Texas Department of Human Services or the Arizona Department of Health Services, as applicable. Each ALF is licensed by the California Department of Social Services and the pharmacies are licensed by the California Board of Pharmacy and the Texas State Board of Pharmacy. All licenses must be renewed annually, and failure to comply with applicable rules, laws and regulations could lead to loss of licenses. In granting, monitoring and renewing licenses, these agencies consider, among other things, the physical condition of the facility, the qualifications of the administrative and nursing staffs, the quality of care and compliance with applicable laws and regulations. Such regulatory and licensing requirements are subject to change, and there can be no assurance that the Company will continue to be able to maintain necessary licenses or that it will not incur substantial costs in doing so. Failure to comply with such requirements could result in the loss of the right to payment by Medicare or Medicaid as well as the right to conduct the business of the licensed entity. Further, the facilities operated by the Company are subject to periodic inspection by governmental and other regulatory authorities to assure continued compliance with various standards and to provide for their continued licensing under state law and certification under the Medicare and Medicaid programs. From time to time, the Company receives notices from federal and state regulatory agencies relating to alleged deficiencies for failure to comply with all components of the regulations. Facilities which are not in substantial compliance and do not correct deficiencies within a certain time frame may be terminated from the Medicare and/or Medicaid programs. While the Company endeavors to comply with all applicable regulatory requirements, from time to time certain of the Company's nursing facilities have been subject to various sanctions and penalties as a result of deficiencies alleged by HCFA or state survey agencies. While in certain instances denial of certification or licensure revocation actions have been threatened, management believes that the Company will not suffer any material adverse effect as a result thereof. There can be no assurance, however, that the Company will not be subject to sanctions and penalties in the future as a result of such actions. 62 MEDICARE AND MEDICAID. The Company's SNFs are subject to various requirements for participation in government-sponsored healthcare funding programs such as Medicare and Medicaid. To receive Medicare and Medicaid payments, each facility must also comply with a number of rules regarding charges and claims procedures, the violation of which can result in denial of reimbursement. Medicare is a health insurance program operated by the federal government for the aged and certain chronically disabled individuals. The Medicare program consists of Parts A and B. Participation in Part B is voluntary and is funded in part through the payment of premiums. Benefits under Part A include inpatient hospital services, skilled nursing services rendered in a SNF and medical services such as physical, occupational and speech therapy, certain pharmaceuticals and medical supplies. Part B provides coverage for physician services. Part B also reimburses for medical services with the exception of pharmaceutical services. Medicare benefits are not available for intermediate and custodial levels of care including but not limited to residence in ALFs; however, medical and physician services furnished to patients requiring such care may be reimbursable under Part B. Currently, the Medicare program utilizes a cost-based reimbursement system for free-standing SNFs which, subject to limits fixed for the particular geographic area on the costs for routine services (excluding capital related expenses), reimburses SNFs for reasonable direct and indirect allowable costs incurred in providing services (as defined by the Medicare program). Allowable costs normally include administrative and general costs, as well as operating costs and rental, depreciation and interest expenses. Reimbursement is subject to retrospective audit adjustment. An interim rate based upon estimated costs is paid by Medicare during the cost reporting period and a cost settlement is made following an audit of the actual costs as reported in the filed cost report. Such adjustments may result in additional payments being made to the Company or in recoupments from the Company. The Company maintains reserves to cover retroactive audit adjustments. To the extent that the Company's costs exceed certain limits known as the Medicare Routine Cost Limits, the Company may submit exception requests seeking reimbursement for such excess costs from Medicare. To date, Summit has filed three exception requests and has received approval on all three. Fountain View has not filed any exception requests to date. There is no assurance the Company will be able to recover such excess costs on any future requests. If the Company files exception requests on a regular basis in the future and fails to recover the excess costs covered by such requests, such failure could adversely affect the Company's financial position and results of operations. However, exception requests will no longer be necessary upon implementation of PPS, as discussed more fully below. Fiscal intermediaries also occasionally undertake a more in-depth audit of a facility's billing records. In March 1997, one of Summit's facilities was the subject of a Medicare billing audit by its fiscal intermediary, resulting in a finding that approximately $1,500,000 of charges for SNF services (after cost report settlement and subject to downward adjustment) lacked a timely certification of medical necessity by a physician. Summit is currently repaying such charges against reimbursement of current claims. Following this audit, Summit adopted measures to strengthen its documentation relating to physician certification. While the Company does not believe that it is the target of any other focused reviews, there can be no assurance that substantial amounts will not be expended by the Company in connection with any such audit or to defend allegations arising therefrom. If it were found that a significant number of the Company's Medicare claims failed to comply with Medicare billing requirements, the Company could be materially adversely affected. The Balanced Budget Act requires the establishment of a prospective payment system, or PPS, for Medicare SNFs under which facilities will be paid a federal per diem rate for virtually all covered SNF services in lieu of the current cost-based reimbursement rate. PPS will be phased in over three cost reporting periods, starting with cost reporting periods beginning on or after July 1, 1998. The PPS rates have not yet been determined and there can be no assurance that the Company's revenues under PPS will be sufficient to cover its costs to operate its facilities. 63 In addition, prior to the enactment of the Balanced Budget Act, federal law required state Medicaid programs to reimburse SNFs for costs incurred by efficiently and economically operated providers in order to meet quality and safety standards. The Balanced Budget Act repealed this payment standard, effective for services provided on or after October 1, 1997, thereby granting states greater flexibility in establishing payment rates. There can be no assurance that budget constraints or other factors will not cause states to reduce Medicaid reimbursement to SNFs or that payments to SNFs will be made on a timely basis. Any such efforts to reduce Medicaid payment rates or failure of states to meet their Medicaid obligations on a timely basis would have a material adverse effect on the Company. Current Medicare regulations applicable to transactions between related parties, such as the Company's subsidiaries, are relevant to the amount of Medicare reimbursement that the Company is entitled to receive for goods and services which are charged to the Medicare program. The amount charged on related party transactions is dependent upon whether or not the related party exception applies. For transactions between each provider and the applicable related party which do not qualify for the related party exception, the transaction is recorded at cost and no profit may be earned by the related party. For transactions which do qualify for the related party exception, the transaction is recorded at fair market value. In order for transactions to qualify as an exception to the related party rule, the following conditions must be met: (i) the related party must be a bona fide organization; (ii) a substantial part of the services of each such related party must be transacted with non-affiliated entities, and there must be an open, competitive market for such services; (iii) the services provided by each such entity commonly are obtained by a provider from other organizations, and are not a basic element of patient care provided by such facilities; and (iv) the prices charged to the provider by such entities are in line with the charges for such services in the open market, and no more than the prices charged by such entities under comparable circumstances to non-affiliated entities. The Company believes that it satisfies the requirements for exception to the related party rules in transactions between its long-term care facilities and its therapy, DME and pharmacy subsidiaries. If, however, the Company has failed or, in the future, fails to satisfy regulations for the related party exception with respect to inter-corporate transactions, the Medicare reimbursement that the Company received or will receive could be reduced, and as a result, the Company's financial condition could be materially and adversely affected. The Company's financial condition and results of operations may also be affected by the revenue reimbursement process, which in the Company's industry is complex and can involve lengthy delays between the time that revenue is recognized and the time that reimbursement amounts are settled. Net revenues realizable under third-party payor agreements are subject to change due to examination and retroactive adjustment by payors during the settlement process. Payors may disallow, in whole or in part, requests for reimbursement based on determinations that certain costs are not reimbursable or because additional supporting documentation is necessary. The majority of third-party payor balances are settled within two to three years following provision of services. The Company's results of operations would be materially and adversely affected if the amount actually received from third-party payors in any reporting period differed materially from the amounts accrued in prior periods. The Company's financial condition and results of operations may also be affected by the timing of reimbursement payments and rate adjustments from third-party payors (for example, Medi-Cal has in the past exposed providers to payment delays, thus affecting reimbursement). THERAPY REGULATION. The Company furnishes therapy services on a contract basis to certain affiliated and unaffiliated providers. For Medicare patients, the providers bill the Medicare program for reimbursement of the amounts paid to the Company for these services. HCFA has the authority to establish limits on the amount Medicare reimburses for therapy services. For services other than inpatient hospital services, these limits are equivalent to the reasonable amount that would have been paid if provider employees had furnished the services. HCFA has exercised this authority by publishing "salary equivalency guidelines" for physical therapy, respiratory therapy, speech language pathology 64 and occupational therapy services. On January 30, 1998, HCFA issued a final regulation, effective April 1, 1998, that will revise the pre-existing salary equivalency guidelines for physical therapy and respiratory therapy and establish, for the first time, salary equivalency guidelines for speech language pathology and occupational therapy services. HCFA estimates that the regulation will increase the reimbursement rates for physical therapy by 35% and for respiratory therapy by 10%. In contrast, however, HCFA expects the salary equivalency rates for occupational therapy and speech language pathology to reduce current reimbursement rates by 40% and 25%, respectively. The salary equivalency guidelines will not apply to SNFs that are paid under PPS, which is being phased-in by Medicare, as discussed above. Management cannot predict the effect the salary equivalency guidelines will have on the Company. PHARMACY REGULATION. The Company's pharmacies are subject to a variety of state licensing and other laws governing the storage, handling, sale or dispensing of drugs, and the provision of a duly licensed pharmacist in each pharmacy, in addition to federal regulation under the Food, Drug and Cosmetic Act and the Prescription Drug Marketing Act. Moreover, the Company is required to register its pharmacies with the United States Drug Enforcement Administration, and to comply with requirements imposed by that agency with respect to security and reporting of inventories and transactions. Medicare pays for the costs of prescription drugs furnished in a number of different settings under limited circumstances. The California and Texas Medicaid programs reimburse pharmacies for drugs supplied to patients based on the cost of the drug plus an additional amount which varies depending on the type of drugs supplied. OUTPATIENT THERAPY REGULATION. Outpatient therapy services are currently reimbursed on a per visit basis, subject to cost limits established by HCFA for the given type of therapy provided to the patient. The Balanced Budget Act contains provisions affecting outpatient rehabilitation agencies and providers, including a 10% reduction in operating and capital costs for 1998, a fee schedule for therapy services beginning in 1999, and the application of per beneficiary therapy caps currently applicable to independent therapists to all outpatient rehabilitation services beginning in 1999. These provisions may affect the reimbursement to the Company in connection with the services provided by On-Track, the Company's outpatient therapy subsidiary. DME REGULATION. Medicare generally provides reimbursement for DME on a fee schedule basis. The amount reimbursed depends on the classification of the DME and, generally, will be the lesser of (1) the provider's actual charge for the DME or (2) the fee schedule amount. REFERRAL RESTRICTIONS AND FRAUD AND ABUSE. The Company is also subject to federal and state laws which govern financial and other arrangements between healthcare providers. Federal law, as well as the law in California, Texas and Arizona and other states, prohibits direct or indirect payments in some cases 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. These laws include the federal Anti-Kickback Statute which prohibits, among other things, the offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce, the referral of Medicare and Medicaid patients. A wide array of relationships and arrangements, including ownership interests in a company by persons who refer or are in a position to refer patients, as well as personal service agreements have, under certain circumstances, been alleged or been found to violate these provisions. Certain arrangements, such as the provision of services for less than fair market value compensation, may also violate such laws. Because of the law's broad reach, the federal government has published regulations, known commonly as "safe harbors", which set forth the requirements under which certain relationships will not be considered to violate the law. One of these safe harbors protects payments for personal services which are set in advance at a fair market rate and which do not vary with the value or volume of services referred, provided there is a written contract which meets certain requirements. A similar safe harbor applies for 65 certain agreements for management services. A safe harbor for discounts, which focuses primarily on appropriate disclosure, is also available. A violation of the federal Anti-Kickback Statute and similar state laws could result in the loss of eligibility to participate in Medicare or Medicaid, or in criminal penalties of up to five years imprisonment and/or $25,000 fines. In addition, the federal government and some states restrict certain business relationships between physicians and other providers of healthcare services. Effective January 1, 1995, Stark II prohibits any physician with a financial relationship (defined as a direct or indirect ownership or investment interest or compensation arrangement) with an entity from making a referral for a Medicare directors or prohibit its medical directors from referring patients to the Company. Violations of Stark II may result in the imposition of civil monetary penalties of up to $15,000 for each prohibited service provided as well as restitution of reimbursement for such services. There are various federal and state laws prohibiting other types of fraud by healthcare providers, including criminal provisions which prohibit filing false claims or making false statements to receive payment or certification under Medicare and Medicaid, or failing to refund overpayments or improper payments. Violation of these provisions is a felony punishable by up to five years imprisonment and/or $25,000 fines. Civil provisions prohibit the knowing filing of a false claim or the knowing use of false statements to obtain payment. The penalties for such a violation are fines of not less than $5,000 nor more than $10,000, plus treble damages, for each claim filed. State and federal governments are devoting increasing attention and resources to anti-fraud initiatives against healthcare providers. The Accountability Act and the Balanced Budget Act expand the penalties for healthcare fraud, including broader provisions for the exclusion of providers from the Medicare and Medicaid programs and the establishment of civil monetary penalties for violations of the anti-kickback provisions. While the Company believes that its billing practices are consistent with Medicare and Medicaid criteria, those criteria are often vague and subject to interpretation. There can be no assurance that aggressive anti-fraud enforcement actions will not adversely affect the business of the Company. Under Operation Restore Trust, a major anti-fraud demonstration project, the OIG, in cooperation with other federal and state agencies, has focused on the activities of SNFs, home health agencies, hospices, and DME suppliers in certain states, including California and Texas, in which the Company currently operates. Due to the success of Operation Restore Trust, the project has been expanded to numerous other states and to additional healthcare providers including providers of ancillary nursing home services. While management does not believe the Company is the target of any Operation Restore Trust investigations, there can be no assurance that substantial amounts will not be expended by the Company to cooperate with any such investigation or to defend allegations arising therefrom. If it were found that any of the Company's practices failed to comply with the anti-fraud provisions, the Company could be materially affected. CORPORATE PRACTICE OF MEDICINE. Many states, including California, Texas and Arizona, prohibit business corporations and other persons or entities not licensed to practice medicine 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 and civil and criminal penalties. These laws, their construction and level of enforcement, vary from state to state and are enforced by both the courts and regulatory authorities, each with broad discretion. Some states interpret the 'practice of medicine' broadly to include activities of corporations such as the Company that have an indirect impact on the practice of medicine, even where the physician rendering the medical services is not an employee of the corporation and the corporation exercises no discretion with respect to the diagnosis or treatment of a particular patient. The Company believes that its current and intended operations do not and will not violate applicable state laws regulating the unlicensed practice of medicine by a business corporation. However, because the laws 66 governing the corporate practice of medicine vary from state to state, any expansion of the operations of the Company to a state with strict corporate practice of medicine laws may require the Company to modify its operations with respect to one or more of such practices, which may result in increased financial risk to the Company. Further, there can be no assurance that the Company's arrangements will not be successfully challenged as constituting the unauthorized practice of medicine. See "Risk Factors -- State Laws Regarding Prohibition of Corporate Practice of Medicine". PENDING LEGISLATION. Government reimbursement programs are subject to statutory and regulatory changes, retroactive rate adjustments, administrative ceilings and government funding restrictions, all of which could materially decrease the rates paid to the Company for its future services or the services for which the Company will be able to seek reimbursement. Since 1972, Congress has consistently attempted to curb federal spending on healthcare programs. The Company expects that there will continue to be a number of state and federal proposals to limit Medicare and Medicaid reimbursement for healthcare services. The Company cannot at this time predict what healthcare reform legislation will ultimately be enacted and implemented or whether other changes in the administration or interpretation of the governmental healthcare programs will occur. There can be no assurance that future healthcare legislation or other changes in the administration or interpretation of governmental healthcare programs, if enacted, will not have a material adverse effect on the results of operations of the Company. SHIFT TO MANAGED CARE. The growth in healthcare spending has caused the private sector, Medicare and state Medicaid programs to reshape the financing of healthcare services for their beneficiaries. Management anticipates that one of the most significant changes to the financing of healthcare services will be the shift to managed care, and that the federal Medicare program, state Medicaid programs and private insurers will place greater reliance on managed care alternatives in the future. According to HCFA, as of 1996, 35% of Medicare enrollees in California had enrolled in a managed care program. In comparison, 8% of Medicare enrollees in Texas are enrolled in managed care programs, and approximately 14% of Medicare enrollees nationwide are enrolled in a managed care program. Providers are generally willing to discount charges for services to managed care patients because managed care plans can direct (or strongly influence) the flow of patients. Management believes that the Company is likely to service an increasing proportion of managed care enrollees in the future, although payment rates for such services may not be as favorable as those presently in effect. There can be no assurance that reimbursements for services provided under managed care programs will not adversely affect the Company's revenues. ENVIRONMENTAL REGULATION. The Company is also subject to a wide variety of federal, state and local environmental and occupational health and safety laws and regulations. Among the types of regulatory requirements faced by healthcare providers are: air and water quality control requirements; waste management requirements; specific regulatory requirements applicable to asbestos, polychlorinated biphenyls, and radioactive substances; requirements for providing notice to employees and members of the public about hazardous materials and wastes; and certain other requirements. In its role as owner and/or operator of properties or centers, the Company may be subject to liability for investigating and remedying any hazardous substances that have come to be located on the property, including any such substances that may have migrated off, or emitted, discharged, leaked, escaped or been transported from, the property. Ancillary to the Company's operations are, in various combinations, the handling, use, storage, transportation, disposal and/or discharge of hazardous, infectious, toxic, radioactive, flammable and other hazardous materials, wastes, pollutants or contaminants. Such activities may result in damage to individuals, property or the environment; may interrupt operations and/or increase their costs; may result in legal liability, damages, injunctions or fines; may result in investigations, administrative proceedings, penalties or other governmental agency actions; and may not be covered by insurance. There can be no assurance that the Company will not encounter such risks in the future, and such risks may result in material adverse consequences to the operations or financial condition of the Company. 67 COMPETITION The Company operates in a highly competitive industry. The Company's SNFs and ALFs are located in communities that also are served by similar facilities operated by others. Some competing facilities provide services not offered by the Company and some are operated by entities having greater financial and other resources than the Company. In addition, some competing facilities are operated by non-profit organizations or government agencies supported by endowments, charitable contributions, tax revenues and other resources not available to the Company. Furthermore, cost containment efforts, which encourage more efficient utilization of acute care hospital services, have resulted in decreased hospital occupancy in recent years. As a result, a significant number of acute care hospitals have converted portions of their facilities to other purposes, including specialty and sub-acute units. The competitiveness of the Company's markets is further supported by the fact that within California, Texas and Arizona, a Certificate of Need is no longer required in order to build or expand a SNF. However, in Texas, competition is limited by restrictions on the number of beds that can be enrolled in the Medicaid program. The Company also expects to encounter competition during future initiatives of acquiring or developing new facilities. The Company's pharmacies and DME business also operate in highly competitive environments and compete with regional and local pharmacies, medical supply companies and pharmacies operated by other long-term care chains or by other companies ranging from small local operators to companies which are national in scope and distribution capability. The Company also expects to encounter continued competition in connection with the provision of other ancillary services, including physical, occupational and speech therapy. PROPERTIES As of March 31, 1998, the Company had a total of 44 SNFs with an aggregate of 5,937 beds and 6 ALFs with an aggregate of 641 beds, as reflected in the following tables:
SUMMIT FOUNTAIN VIEW ---------------- ---------------- TOTAL TOTAL STATES FACILITIES BEDS FACILITIES BEDS FACILITIES BEDS ------ ---------- ----- ---------- ----- ---------- ----- SNFs California............. 13 1,515 8 1,061 21 2,576 Texas.................. 22 3,211 -- -- 22 3,211 Arizona................ 1 150 -- -- 1 150 --- ----- --- ----- --- ----- Subtotal............. 36 4,876 8 1,061 44 5,937 ALFs California............. 5 475 1 166 6 641 --- ----- --- ----- --- ----- Total................ 41 5,351 9 1,227 50 6,578 === ===== === ===== === =====
FOUNTAIN VIEW FACILITIES
YEAR YEAR FACILITY LOCATION # BEDS OWNED/LEASED BUILT RENOVATED -------- ----------- ------ ------------ ----- --------- SKILLED NURSING--CALIFORNIA Rio Hondo...................... Montebello 200 Leased(a) 1968 1996/1998 Hancock Park................... Los Angeles 141 Leased 1969 1996/1998 Brier Oak Terrace.............. Los Angeles 159 Leased 1966 1997/1998 Alexandria..................... Los Angeles 177 Leased 1969 1997 Montebello..................... Montebello 99 Leased(a) 1969 -- Fountain View.................. Los Angeles 99 Leased(a) 1963 1996/1998 Sycamore Park.................. Los Angeles 90 Leased(a) 1965 1997 Elmcrest....................... El Monte 96 Leased 1958 1997 ASSISTED LIVING--CALIFORNIA Hancock Park................... Los Angeles 166 Leased 1971 1996/1998 ----- Total.................................... 1,227 =====
- -------- (a) Facility is owned by the Snukal family and leased to a subsidiary of Fountain View. 68 SUMMIT FACILITIES
YEAR FACILITY LOCATION # BEDS OWNED/LEASED YEAR BUILT RENOVATED -------- ---------------- ------ ------------ ------------ --------- SKILLED NURSING-- CALIFORNIA Woodland................ Reseda 153 Leased 1972 1996 Royalwood............... Torrance 108 Leased 1952 1998(c) Valley.................. Fresno 99 Owned 1960 1996 Villa Maria............. Santa Maria 85 Owned 1970 1995 Earlwood................ Torrance 85 Owned 1967 1993 Sharon.................. Los Angeles 85 Leased 1967 1996 Bay Crest............... Torrance 78 Leased 1960/1968(b) 1995 Fountain................ Orange 172 Owned 1963/1966(b) 1994 Carehouse............... Santa Ana 174 Owned 1974/1994(b) 1998(c) Palm Grove.............. Garden Grove 122 Leased 1958 1994 Anaheim................. Anaheim 97 Leased 1967 1997 Devonshire.............. Hemet 98 Owned 1969 1992 Willow Creek............ Fresno 159 Owned 1996 -- ----- Subtotal.............. 1,515 SKILLED NURSING--TEXAS Coronado................ Abilene 219 Owned 1969 1996 West Side............... White Settlement 238 Owned 1985 1996 The Woodlands........... Houston 212 Owned 1988 1994 Colonial Tyler.......... Tyler 162 Owned 1968 1997 Colonial Manor.......... New Braunfels 152 Owned 1967 1996 Guadalupe Valley........ Seguin 149 Leased(a) 1990 1996 Town & Country.......... Boerme 124 Owned 1972 1994 Clairmont--Longview..... Longview 174 Owned 1986/1996(b) -- Clairmont--Beaumont..... Beaumont 148 Owned 1987/1996(b) -- Clairmont--Tyler........ Tyler 116 Owned 1989 1998 Southern Manor.......... Hallettsville 114 Owned 1991 1995 Southwood............... Austin 112 Owned 1975 1992 Comanche Trail.......... Big Spring 115 Leased(a) 1991 1995 Lubbock................. Lubbock 114 Owned 1968 1995 Monument Hill........... La Grange 111 Owned 1987 1997 Live Oak................ George West 100 Leased(a) 1993 1995 Oak Crest............... Rockport 92 Owned 1991 1996 Oakland Manor........... Giddings 114 Owned 1992 1995 Oak Manor............... Flatonia 80 Owned 1980 1995 Heritage Oaks........... Lubbock 161 Owned 1995/1996(b) -- Cityview................ Fort Worth 210 Owned 1997 -- Briarcliff.............. McAllen 194 Leased(a) 1993/1996(b) -- ----- Subtotal.............. 3,211 SKILLED NURSING--ARIZONA Phoenix................. Phoenix 150 Leased 1965/1995(b) 1995 ASSISTED LIVING-- CALIFORNIA Carson.................. Carson 202 Owned 1972 1994 Spring.................. Torrance 51 Owned 1962 1993 Hemet................... Hemet 84 Owned(d) 1965 1997 Fountain................ Orange 72 Owned 1967 1995 Ashton Court............ Orange 66 Owned 1967 1997 ----- Subtotal.............. 475 ----- Total................. 5,351
- -------- (a) Option to purchase. (b) Year of latest addition to facility. (c) Scheduled. (d) Building owned by Summit with real property held under a ground lease extending to 2030. 69 EMPLOYEES As of March 31, 1998, Fountain View had approximately 1,200 full-time equivalent employees, and Summit had approximately 4,700 full-time equivalent employees. Fountain View has three collective bargaining agreements for a union covering approximately 400 of Fountain View's employees. Fountain View considers the relations with its employees to be good and it has not experienced any strikes or work stoppages. None of Summit's employees are covered by collective bargaining agreements and Summit considers the relations with its employees to be good and it has not experienced any strikes or work stoppages. Both Fountain View and Summit are subject to federal and state minimum wage and applicable federal and state wage and hour laws and maintain various employee benefit plans. INSURANCE Fountain View maintains general and professional liability coverage, employee benefits liability, property, inland marine, crime, boiler and machinery coverage, health, automobile, employment practices liability, earthquake and flood, workers' compensation and employers' liability that Fountain View believes is adequate. Summit maintains general and professional, property, casualty, health, directors and officers, automobile, crime, employee's and workers' compensation coverage that Summit believes is adequate. Summit's workers' compensation insurance for its California and Arizona employees pays for claims up to $250,000 per claim and for the purchase of reinsurance coverage for amounts in excess of the per claim limit and for annual aggregate claim amounts in excess of $986,000. Texas employees are covered by a policy for employer's excess and occupational indemnity for risks in excess of $150,000 up to $1,000,000 per occurrence and no annual aggregate stop loss. Summit pays for claims up to $150,000 per occurrence. Fountain View's and Summit's services subject them to liability risk. Malpractice claims may be asserted against them if their services are alleged to have resulted in patient injury or other adverse effects, the risk of which is greater for higher-acuity patients, such as those treated by specialty and sub-acute services, than for traditional long-term care patients. Fountain View and Summit have from time to time been subject to malpractice claims and other litigation in the ordinary course of their businesses. While the Company believes that the ultimate resolution of all pending legal proceedings will not have a material adverse effect on the Company's business or financial condition, there can be no assurance that future claims will not have such an effect on the Company. Fountain View's current policy for general and professional liability coverage is a per occurrence policy and has limits of $1,000,000 per occurrence and $3,000,000 in the aggregate per year and carries no deductible except for employee benefits liability coverage, which carries a $1,000 deductible per claim. In addition, Fountain View has a per occurrence umbrella policy which provides additional insurance limits of $10,000,000 per occurrence and $10,000,000 aggregate per year with a self-insured retention of $10,000 per occurrence over its primary general, professional, automobile and employers' liability coverage policies. Summit's current policy for general and professional liability coverages is a claims-made policy and has limits of $500,000 per occurrence and $1,000,000 in the aggregate per year and carries a self-insured retention of $100,000 per occurrence and a $700,000 annual aggregate loss limit. In addition, Summit has a claims-made umbrella policy which provides additional insurance of $8,500,000 per occurrence and $8,500,000 aggregate per year over its primary general and professional policy, its automobile liability policy and its employer liability policy. Although Fountain View and Summit have not been subject to any judgments or settlements in excess of their respective insurance limits, there can be no assurance that claims for damages in excess of such coverage limits will not arise in the future. LEGAL PROCEEDINGS Fountain View and Summit are subject to routine litigation in the ordinary course of business. Although there can be no assurances, in the opinion of management, the ultimate resolution of all pending legal proceedings will not have a material adverse effect on the Company's business, financial condition or results of operations. 70 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company are as follows:
NAME AGE POSITION(S) ---- --- ----------- William C. Scott...................... 60 Director and Chairman Robert M. Snukal...................... 55 Director, Chief Executive Officer and President Director and Executive Vice Sheila S. Snukal...................... 54 President Derwin L. Williams.................... 60 Chief Financial Officer Keith Abrahams........................ 38 President, Locomotion Therapy, Inc. and On-Track Therapy Center, Inc. Michael H. Martel..................... 35 Senior Vice President, Marketing Michel Reichert....................... 47 Director Michael F. Gilligan................... 42 Director Peter Z. Hermann...................... 43 Director Mark J. Jrolf......................... 33 Director
William C. Scott became a Director and Chairman upon the closing of the purchase of Summit Shares in the Tender Offer on March 27, 1998. Mr. Scott previously served as Chief Executive Officer of Summit since May 1994 and Chairman of the Board of Summit since December 1995. Mr. Scott served as President of Summit from December 1985 until January 1996 and held the office of Chief Operating Officer from December 1985 until May 1994. Mr. Scott served as Senior Vice President of Summit Health Ltd., Summit's former parent company, from December 1985 until its acquisition by OrNda Health Corp. in April 1994 and previously was a partner with Arthur Andersen & Co. Robert M. Snukal became a Director, Chief Executive Officer and President on August 1, 1997, upon the formation of Fountain View. For the preceding five years, Mr. Snukal has served as a Director and President of each of Fountain View's subsidiaries, which were owned directly by Mr. Snukal and Sheila Snukal during that period and prior to the formation of Fountain View. Mr. Snukal is the husband of Sheila Snukal and the father-in-law of Mr. Abrahams. Sheila S. Snukal became a Director and Executive Vice President on August 1, 1997, upon the formation of Fountain View. For the preceding five years, Mrs. Snukal has served as a Director and Executive Vice President of each of Fountain View's subsidiaries, which were owned directly by Mrs. Snukal and Robert M. Snukal during that period and prior to the formation of Fountain View. Mrs. Snukal is the wife of Robert M. Snukal and the mother-in-law of Mr. Abrahams. Derwin L. Williams assumed the role of Chief Financial Officer on April 16, 1998. Mr. Williams previously served as Vice President--Finance and Chief Financial Officer of Summit from July 1, 1993, and Treasurer from May 10, 1994. Mr. Williams held the Treasurer position at three other nursing home companies: Hallmark Health Service, Inc., from November 1989 to February 1992; Care Enterprises from April 1980 to August 1987; and Flagg Industries, Inc., from June 1978 to March 1980. Mr. Williams has also served in various capacities specializing in Medicare reimbursement for the Company in 1992 and 1993 and for Beverly Enterprises in 1988 and 1989. He is also a certified public accountant. Mr. Williams has given notice to the Company of his resignation to be effective no later than September 30, 1998. 71 Keith Abrahams has been President of Locomotion since 1995. Mr. Abrahams was previously employed as a Chief Financial Officer of Heftel Broadcasting from 1987 to 1992, a radio broadcasting company. He is also a certified public accountant. Mr. Abrahams is the son-in-law of Mr. and Mrs. Snukal. Michael H. Martel assumed the role of Senior Vice President-Marketing on April 16, 1998. Mr. Martel previously served as Senior Vice President-- Marketing of Summit in March 1995. Prior to joining Summit, Mr. Martel was Vice President--Marketing for Arbor Health Care Company from August 1992 to March 1995. Mr. Martel served as Regional Director of Marketing for the acute care rehabilitation division of National Medical Enterprises from April 1988 to August 1992. Michel Reichert has been a Director of the Company since August 1, 1997. Since 1994, Mr. Reichert has been a Managing General Partner of Heritage Partners, Inc., a Boston-based private investment firm. Prior to 1994, Mr. Reichert was a Managing Director of BancBoston Capital Inc., a private investment firm. Michael F. Gilligan became a Director of the Company immediately prior to the consummation of the Tender Offer on March 27, 1998. Since December 1993, Mr. Gilligan has been a General Partner of Heritage Partners, Inc., a Boston- based private investment firm. Prior to 1994, Mr. Gilligan was a Director of BancBoston Capital Inc., a private investment firm. Peter Z. Hermann became a Director of the Company immediately prior to the consummation of the Tender Offer on March 27, 1998. Since January 1994, Mr. Hermann has been a General Partner of Heritage Partners, Inc., a Boston- based private investment firm. Prior to 1994, Mr. Hermann was a Director of BancBoston Capital Inc., a private investment firm. Mark J. Jrolf has been a Director of the Company since August 1, 1997. Since February 1997, Mr. Jrolf has served as Partner and Vice President of Heritage Partners, Inc. From September 1996 to January 1997, Mr. Jrolf served as a Vice President of Heritage Partners, Inc. From September 1993 to September 1996, Mr. Jrolf was a consultant with McKinsey & Co. specializing in healthcare. Executive officers of the Company are appointed by the Board, subject to the provisions of such officers' respective employment agreements. See "-- Employment Agreements". The other officers and Directors are elected to serve until their respective successors have been duly elected and qualified or until their earlier resignation or removal. 72 EXECUTIVE COMPENSATION Summary Compensation Table. The following table sets forth compensation for the past three fiscal years for the Company's Chief Executive Officer and the other four most highly compensated executive officers (the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION AWARDS --------------- ------------ SECURITIES UNDERLYING ALL OTHER FISCAL SALARY BONUS OPTIONS COMPENSATION NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($) - --------------------------- ------ ------- ------- ------------ ------------ Robert M. Snukal............. 1997 298,340 400,000 -- -- President, Chief Executive 1996 258,750 696,912 -- -- Officer and Director 1995 246,000 967,900 -- -- William C. Scott (2)......... 1997 394,773 -- -- -- Director and Chairman 1996 369,869 150,000 165,000 -- 1995 344,869 162,500 50,000 -- Sheila S. Snukal............. 1997 178,125 200,000 -- -- Executive Vice President 1996 144,750 327,570 -- -- and Director 1995 132,000 521,200 -- -- Derwin L. Williams (2)....... 1997 181,423 -- -- -- Chief Financial Officer 1996 171,008 50,000 25,000 -- 1995 147,162 40,000 20,000 -- Michael H. Martel (1)(2)..... 1997 152,404 10,000 10,000 -- Senior Vice President/Marketing 1996 141,308 -- 10,000 -- 1995 36,250 10,000 25,000 --
- -------- (1) Mr. Martel joined Summit Care Corporation in March 1995. (2) Compensation indicated is for the fiscal year ended June 30. Options Grants In Last Fiscal Year. The Company did not grant any options to the Named Executive Officers in the last fiscal year. All options to purchase shares of Summit Care Corporation outstanding immediately prior to the date of the Merger were converted into the right to receive $21.00 per share in cash, less the exercise price of such option. Fiscal Year-End Option Values. During fiscal 1997, none of the Named Executive Officers exercised stock options issued by the Company. In addition, none of the Named Executive Officers held options to purchase stock of the Company as of the end of the Company's most recent fiscal year. All options to purchase shares of Summit Care Corporation outstanding immediately prior to the date of the Merger were converted into the right to receive $21.00 per share in cash, less the exercise price of such option. STOCKHOLDERS AGREEMENT CORPORATE GOVERNANCE. On March 27, 1998, the Company and its stockholders entered into a Stockholders Agreement (the "Stockholders Agreement") concurrently with the closing of the Tender Offer. The Stockholders Agreement, which was amended on May 4, 1998, provides that the Company's board of directors (the "Board") will consist of directors nominated as follows: (i) two individuals (but not less than 25% of the total number of directors) will be designated by Mr. Snukal, as long as he continues to hold any shares of the Company's common stock; (ii) one individual will be designated by Mr. Scott, as long as he continues to hold any shares of the Company's common stock; 73 (iii) one individual will be designated by Baylor, as long as it continues to hold any shares of the Company's common stock or any securities convertible into or exercisable for the Company's common stock; and (iv) all other directors will be designated by the holders of a majority of the shares of common stock of the Company held by Heritage and certain co-investors (which designation is expected to be controlled by Heritage). The Board includes a majority of directors designated by Heritage. Under the Stockholders Agreement, each stockholder of the Company has granted Heritage an irrevocable proxy to vote such stockholder's securities of the Company, except with respect to matters the effect of which on such stockholder differs materially and adversely from the effect on Heritage. The practical effect of the grant of the proxy is that Heritage will control the outcome of most matters which come before the stockholders of the Company, except where such matter will result in significant harm to the other stockholders of the Company, but not to Heritage. For example, Heritage would not be able to exercise the proxy to vote the shares of the other stockholders in favor of an amendment to the Stockholders Agreement which would provide that, in the event of a sale of the Company, the other stockholders would receive one-half the consideration per share that Heritage would receive. The purpose of the limitation on Heritage's exercise of the proxy is to protect the other stockholders from Heritage abusing its control position. Board vacancies will be filled by a designee of the individual or group who originally designated the vacating director. Each individual or group entitled to designate a director will also be entitled to direct the removal of such director and designate a replacement director. SPECIAL PROVISIONS FOR SERIES B NON-VOTING COMMON STOCK. Mr. and Mrs. Snukal own an aggregate of 62,599 shares of the Company's Series B Non-Voting Common Stock and Mr. Scott owns 51,603 shares of the Company's Series B Non-Voting Common Stock, all of which were issued to them by the Company for nominal consideration. These shares represent approximately 9.63% of the total number of outstanding shares of the Company's common stock, on a fully-diluted basis. The Stockholders Agreement provides that some or all of the Company's Series B Non-Voting Common Stock will be subject to forfeiture upon a change of control of the Company, an initial public offering of its shares or other similar events (each, a "Trigger Event"), with the precise number of shares forfeited to be determined on a sliding scale based on the value of the Company's common equity at the date of the Trigger Event in relation to certain value targets at various dates in the future. Under this arrangement, the higher the value of the Company at the date of the Trigger Event, the more shares of Series B Non-Voting Common Stock Mr. and Mrs. Snukal and Mr. Scott will retain. STOCK TRANSFER RESTRICTIONS AND RIGHTS. The Stockholders Agreement provides for certain transfer restrictions on securities of the Company. The stockholders of the Company who are members of management may not transfer their securities until four years after the consummation of the Tender Offer, except for certain transfers in connection with estate planning, provided that Mr. Snukal may transfer his securities earlier if the Company terminates his employment without cause. See "--Employment Agreements". The Company and certain stockholders have a right of first refusal on transfers of Company securities by a stockholder, other than estate planning transfers by management, transfers by Heritage and certain transfers to affiliates. If Heritage transfers its securities, other than to its partners, the other stockholders will have the right to participate on a pro rata basis with Heritage in such transfers. Heritage will also have the right to require all other stockholders to transfer a pro rata portion of their shares in a transaction in which Heritage transfers its shares. For example, on the one hand, if Heritage decides to sell half of its shares to a third party (other than one of its partners), each of the other stockholders will have the right also to sell half of their shares to the same third party; on the other hand, if a third party wants to buy half of the Company, and Heritage is willing to sell only half of its shares to this third party, then Heritage can require each other stockholder to sell half of his shares to the same third party. OTHER. The Stockholders Agreement also (i) provides stockholders with pre- emptive rights in the event of certain future issuances of securities by the Company, (ii) restricts the ability of the Company 74 to issue shares of capital stock having rights senior or on par with those of the Series A Preferred Stock and of the Company's subsidiaries to issue shares of capital stock while any shares of Series A Preferred Stock are outstanding, unless the Company is in compliance with certain financial tests, (iii) limits the amounts of dividends or distributions which the Company may pay with respect to its common stock while the Series A Preferred Stock remains outstanding, and (iv) includes a mechanism to convert all existing shares of common stock into a single series of common stock upon an initial public offering of the Company. The agreement will terminate upon the consummation of an initial public offering by the Company. EMPLOYMENT AGREEMENTS On March 27, 1998, the Company entered into employment agreements with Mr. Snukal, Mrs. Snukal and Mr. Scott. Each employment agreement provides a term of employment of five years, which will automatically renew for up to five additional one-year terms unless either the Company or the respective employee provides prior written notice of termination to the other party, and specifies a base salary, a bonus range and a package of benefits. Mr. Snukal is employed as Chief Executive Officer, Mrs. Snukal is employed as Executive Vice President and Mr. Scott is employed as Chairman of the Company. The employment agreements provide base salaries for the year ending March 1999 as follows: William C. Scott--$450,000; Robert M. Snukal--$500,000; and Sheila Snukal--$225,000. Such base salaries will be subject to cost of living adjustments for each subsequent year. The employment agreements provide for annual bonuses, based upon the achievement of certain financial targets, of up to the following amounts for the year ending March 1999 and each subsequent year: William C. Scott--$350,000; Robert M. Snukal-- $500,000; and Sheila Snukal--$125,000. Each employment agreement provides for termination of employment at any time by the Company with or without cause or in the event of the death or disability of the employee. Each of the employment agreements also provides for severance pay upon termination by the Company without cause (other than for death or disability). The Company must pay the employee his or her base salary as in effect prior to any such termination for the duration of the employee's scheduled employment term (plus an additional $25,000 annually in the case of such termination of both Mr. and Mrs. Snukal and, in the case of Mr. Scott, less an amount, if any, he is then due under the Summit Special Severance Plan adopted by Summit in connection with the Merger). If Mr. Snukal is terminated without cause, Mrs. Snukal may, at her option, deem her employment to have been terminated without cause and receive the severance referred to in the preceding sentence. No severance will be payable in the event of a termination of employment as a result of death, disability or retirement, or a termination by the employee without good reason or by the Company with cause. Under the employment agreements, each of Mr. and Mrs. Snukal and Mr. Scott agree not to compete with the Company for the greater of five years after the date of such agreements or three years after termination of employment, subject to certain exceptions. In addition, each of Mr. and Mrs. Snukal and Mr. Scott agree that, for the greater of five years after the date of the employment agreement or two years after termination, he or she will not solicit (i) any person who is, or was within the one-year period immediately prior to termination of the employee's employment with the Company, employed by, a consultant to or associated with the Company or (ii) a recent (within two years) client, customer or supplier to the Company. MANAGEMENT EQUITY INCENTIVE PLANS The Company intends to adopt one or more management equity incentive plans to attract, retain and incentivize its management and employees. These plans may include a stock option plan to make stock options available to employees (other than Mr. Scott and Mr. Snukal), directors and consultants. 75 Stock options granted may be qualified or non-qualified. The Company expects that vesting of stock options may be subject to certain conditions, including achievement of Company and individual performance objectives. In addition, these plans may include a restricted stock plan providing for the grant of restricted stock that would be subject to vesting based on the achievement of operating and financial goals. DIRECTOR COMPENSATION Directors of the Company do not currently receive compensation from the Company for their service in such capacity. 76 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding ownership of the voting common stock of the Company by (i) each person who beneficially owns more than 5% of the outstanding shares of the Company's voting common stock, (ii) each director of the Company, (iii) each of the executive officers of the Company and (iv) each of the directors and executive officers of the Company as a group. Each of the following stockholders has sole voting and investment power with respect to shares beneficially owned by such stockholder, except to the extent that authority is shared with spouses under applicable law or as otherwise noted.
NUMBER PERCENT NAME OF SHARES(1) OF CLASS ---- ------------ -------- Heritage Fund II, L.P.(2)............................. 537,486 50.2% Michel Reichert(2).................................... 537,486 50.2 Michael F. Gilligan(2)................................ 537,486 50.2 Peter Z. Hermann(2)................................... 537,486 50.2 Mark J. Jrolf(2) ..................................... 537,486 50.2 Robert M. Snukal(3)................................... 149,484 14.0 Sheila S. Snukal(3)................................... 149,484 14.0 Goldman, Sachs & Co.(4)............................... 79,032 7.4 GS Private Equity Partners, L.P.(4)................... 79,032 7.4 GS Private Equity Partners Offshore, L.P.(4).......... 79,032 7.4 PMI Mezzanine Fund, L.P.(5)........................... 59,275 5.5 Baylor Health Care System(6) ......................... 54,999 5.1 William C. Scott(7)................................... 31,357 2.9 Keith Abrahams(8)..................................... 16,588 1.6 All directors and executive officers as a group (10 persons)............................................. 734,915 68.6
- -------- (1) Number of shares represents the number of shares of Series A Common Stock and Series C Common Stock, which comprise all of the Company's voting stock. It does not include the Series A Preferred Stock and Series B Non- Voting Common Stock. For purposes of this table, a person or group of persons is deemed to have "beneficial ownership" of any shares as of a given date which such person has the right to acquire within 60 days after such date. (2) The address of such stockholder is c/o Heritage Partners, Inc., 30 Rowes Wharf, Boston, MA 02110. The shares shown as beneficially owned by Mr. Reichert, Mr. Gilligan, Mr. Hermann and Mr. Jrolf represent 525,633 shares and warrants to purchase 11,853 shares owned of record by Heritage. Each of such persons, through one or more intermediaries may be deemed to control the voting and disposition of the securities owned by Heritage, and accordingly may be deemed to have shared voting and investment power with respect to all shares held by Heritage. However, each of such persons disclaims beneficial ownership of the securities held by Heritage. Heritage has a proxy to vote an additional 474,367 shares held by other stockholders, representing 44.2% of the Company's voting stock, except with respect to matters the effect of which on such other stockholders differs materially and adversely from the effect on Heritage. Heritage, Mr. Reichert, Mr. Gilligan, Mr. Hermann and Mr. Jrolf disclaim beneficial ownership of such shares. (3) The address of such stockholder is c/o Fountain View, Inc., 11900 Olympic Boulevard, Suite 680, Los Angeles, CA 90064. The shares shown as beneficially owned by Mr. Snukal and by Mrs. Snukal represent an aggregate of 149,484 shares owned jointly by them, and as to which they have shared voting and investment power. Mr. and Mrs. Snukal also own an aggregate of 62,599 shares of the Company's Series B Non-Voting Common Stock. (4) The address of such stockholder is c/o Goldman, Sachs & Co., 85 Broad Street, New York, NY 10004. Shares shown as beneficially owned by Goldman, Sachs & Co., GS Private Equity Partners, L.P. and GS Private Equity Partners Offshore, L.P. represent 53,393 shares owned of record by GS Private Equity Partners, L.P. and 25,639 shares owned of record by GS Private Equity Partners Offshore, L.P. Each of GS Private Equity Partners, L.P. and GS Private Equity Partners Offshore, L.P. is an affiliate of Goldman, Sachs & Co. and each of such entities disclaims beneficial ownership of the other entity's securities. Goldman, Sachs & Co. disclaims beneficial ownership of the securities owned by such entities. (5) The address of such stockholder is c/o Pacific Mezzanine Group, 610 Newport Center Dr., Suite 1100, Newport Beach, CA 92660. (6) The address of such stockholder is 3500 Gaston Avenue, Suite 150, Dallas, TX 75246. (7) Mr. Scott also owns an aggregate of 51,603 shares of the Company's Series B Non-Voting Common Stock. (8) The address of such stockholder is c/o Fountain View, Inc., 11900 Olympic Blvd., Suite 680, Los Angeles, CA 90064. Shares shown as beneficially owned by Mr. Abrahams include 8,294 shares owned by Stacy Abrahams, his wife. 77 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS INVESTMENT AGREEMENT The Company and Robert Snukal, Sheila Snukal, William Scott, Heritage Fund II, L.P., Heritage Investors II, L.L.C., Heritage Fund II Investment Corporation, HFV Holdings, LLC, Nassau Capital Partners II L.P., NAS Partners I LLC, Paribas North America, Inc., Phoenix Home Life Mutual Insurance Company, PMI Mezzanine Fund, L.P., GS Private Equity Partners, L.P., GS Private Equity Partners Offshore, L.P. and Sutro Investment Partners V, LLC (collectively, the "Investors") entered into an Investment Agreement dated March 27, 1998, providing for the issuance by the Company to such stockholders of an aggregate of 15,000 shares of Series A Preferred Stock, 668,065 shares of Series A Common Stock, 114,202 shares of Series B Common Stock and a warrant to purchase 71,119 shares of Series C Common Stock. These securities were issued immediately prior to the consummation of the Tender Offer (other than the Series A Preferred Stock, the warrant and certain shares issued to Mr. Scott, which were issued promptly after the Merger). The Investment Agreement specifies the consideration paid by the Investors for the issuance of such Company securities, which includes (i) a new cash investment in an aggregate amount of approximately $82 million, (ii) in the case of Heritage, Mr. Snukal and Mrs. Snukal, the exchange of previously-held stock of Fountain View, and (iii) in the case of Mr. Scott, the issuance by him to the Company of a limited recourse promissory note in the amount of $2,530,600, with an interest rate of 5.7%, due and payable on the earlier to occur of (A) April 15, 2007, or (B) the sale by Mr. Scott of the 20,000 shares of the Company's common stock pledged as security for the note; the Company has recourse for the payment of up to $1,012,240 of the principal amount of the note. Pursuant to the terms of the Investment Agreement, Heritage made an additional cash investment of $2.6 million for the purchase of the shares of Series A Preferred Stock and the warrants for shares of Series C Common Stock. On May 4, 1998, Baylor and Buckner purchased certain shares of the Company's Series A Preferred Stock and a portion of the warrants to purchase Series C Preferred Stock from Heritage and signed a supplemental signature page agreeing to become parties to the Investment Agreement. See "Prospectus Summary--The Financings" and "--Recent Developments". THE CERTIFICATE OF INCORPORATION In connection with the Transactions, on March 27, 1998 and May 6, 1998, the Company amended its certificate of incorporation to provide that its authorized capital stock consists of (a) 3,000,000 shares of Common Stock designated as follows: (i) 1,500,000 shares of Series A Common Stock, (ii) 200,000 shares of Series B Non-Voting Common Stock, (iii) 1,300,000 shares of Series C Common Stock and (b) 1,000,000 shares of Preferred Stock, 200,000 of which are designated Series A Preferred Stock. The shares of Series A Preferred Stock are subject to mandatory redemption upon an underwritten initial public offering of the Company's common stock or after May 1, 2010. The certificate of incorporation further provides that, on liquidation of the Company, the holders of Series A Preferred Stock are entitled to receive a liquidation payment. After such payment, the assets of the Company will be divided ratably among the holders of (i) the Series A Common Stock and the Series B Non-Voting Common Stock, on the one hand, and (ii) the holders of the Series C Common Stock, on the other, based on the relative number of shares of Common Stock outstanding and held by such holders, provided that the aggregate number of outstanding shares of Series A Common Stock and Series B Non-Voting Common Stock shall be deemed to be 1,114,202, or, if different, shall be deemed to be the number of shares of Series A Common Stock and Series B Non- Voting Common Stock then outstanding plus any shares of Series B Non-Voting Common Stock previously outstanding but forfeited pursuant to the Stockholders Agreement. All amounts distributable among the Series A Common Stock and the Series B Non-Voting Common Stock will be divided as follows, to the extent of available proceeds: (A) first, each share of Series A Common Stock will receive $126.53 plus a 22% internal rate of return thereon calculated from March 27, 1998 (the "Series A Common Stock Preference"); (B) second, each share of Series B Non-Voting Common Stock will receive an amount 78 equal to the Series A Common Stock Preference; and (C) third, the remaining assets will be distributed ratably among the Series A Common Stock and the Series B Non-Voting Common Stock. The March 27 amendment to the Company's certificate of incorporation also provides that all shares of Company stock outstanding prior to the amendment were reclassified into an aggregate of 331,935 shares of Series A Common Stock. REGISTRATION RIGHTS AGREEMENT The Company and its stockholders entered into a Registration Rights Agreement (the "Investor Registration Rights Agreement") on March 27, 1998 concurrently with the consummation of the Tender Offer. The Investor Registration Rights Agreement provides that Heritage has the right to require the Company on two occasions to effect the registration of the Company's common stock held by it under the Securities Act and Mr. and Mrs. Snukal have the right to cause the Company to effect one demand registration, each at the Company's expense and subject to certain conditions. Mr. Scott has the right to request inclusion of the Company common stock held by him in any such registrations. In addition, all holders of Registrable Securities (as defined in the Investor Registration Rights Agreement) are entitled to request the inclusion of any shares of common stock of the Company in any registration statement at the Company's expense whenever the Company proposes to register any of its common stock under the Securities Act. However, the underwriter managing any such offering or any offering effected pursuant to a demand registration may reduce the number of shares included therein. PAYMENTS TO CERTAIN STOCKHOLDERS SUMMIT EXECUTIVE INCENTIVE PLAN FOR MR. SCOTT. Mr. Scott was the beneficiary of an Executive Incentive Plan maintained by Summit. Under the terms of this plan, which was amended by Summit prior to the signing of the Merger Agreement, Mr. Scott received a cash payment from Summit at the effective time of the Merger of approximately $1,275,000. REDEMPTION OF MR. SCOTT'S SUMMIT STOCK OPTIONS. Under the Summit Stock Option Plan, which terminated at the effective time of the Merger, Mr. Scott received in cash from Summit the net value of his options to purchase Summit Shares, which equalled $749,125. Mr. Scott held options to acquire 300,000 Summit Shares. BONUS TO MR. SCOTT FROM THE COMPANY. At the effective time of the Merger, the Company paid Mr. Scott a bonus equal to $550,000 to partially cover the tax cost he will incur upon redemption of his stock options described in the preceding paragraph. The amount of the bonus was calculated not to exceed the tax benefit which Summit realized as a result of the payments of those amounts. BONUS TO MR. SCOTT FROM SUMMIT. At the effective time of the Merger, Summit paid Mr. Scott a $100,000 bonus. REINVESTMENT BY MR. SCOTT. The entire net after-tax proceeds of the foregoing payments to Mr. Scott were invested by Mr. Scott in securities of the Company under the terms of the Investment Agreement. PAYMENT TO HERITAGE PARTNERS MANAGEMENT COMPANY, INC. At the effective time of the Merger, the Company paid Heritage Partners Management Company, Inc., a fee of $3 million in connection with the Transactions. PRE-TRANSACTION ARRANGEMENTS FOUNTAIN VIEW EQUITY TRANSACTIONS Prior to August 1, 1997, each of the corporations which is now a subsidiary of Fountain View (other than Summit and its subsidiaries) was owned directly by Mr. and Mrs. Snukal. On July 24, 1997, 79 each of those corporations entered into a Stock Purchase and Contribution Agreement (the "1997 Agreement") with Mr. and Mrs. Snukal, Heritage and Fountain View providing for the recapitalization of Fountain View, the issuance of stock of Fountain View to Heritage and the restructuring of the ownership of the various corporations so that all of them became wholly-owned subsidiaries of Fountain View. In addition, under the terms of the 1997 Agreement, Mr. and Mrs. Snukal received cash payments from the investments by Heritage and loans from a senior lender in the aggregate amount of $43.7 million. The 1997 Agreement contained certain representations, warranties and covenants, and provided for Mr. and Mrs. Snukal to indemnify Heritage and Fountain View for varying amounts. The transactions contemplated by the 1997 Agreement were consummated on August 1, 1997. From August 1, 1997, until the closing of the purchase of Summit Shares in the Tender Offer, Fountain View's Board of Directors has consisted and will consist of three nominees of Mr. and Mrs. Snukal and two nominees of Heritage. For additional information with respect to the Fountain View Equity Transactions, see Note 3 to the audited financial statements of Fountain View included elsewhere in this Prospectus. RELATED PARTY LEASES Fountain View leases four SNFs from Mr. and Mrs. Snukal under leases entered into on August 1, 1997 pursuant to the 1997 Agreement. These facilities are Fountainview Convalescent Hospital in Los Angeles, California, Montebello Convalescent Hospital in Montebello, California, Rio Hondo Nursing Center in Montebello, California and Sycamore Park Convalescent Hospital in Los Angeles, California. Each lease is for a term of 20 years. The annual rent for the year ending July 31, 1998 for each of these facilities is as follows: Fountainview Convalescent Hospital--$360,000; Montebello Convalescent Hospital--$360,000; Rio Hondo Nursing Center--$720,000; and Sycamore Park Convalescent Hospital-- $324,000. The leases contain rent escalation clauses based on increases in the consumer price index. Fountain View believes the terms of these leases to be at fair market value. TWIN MED Mrs. Snukal owns approximately 33% of the outstanding equity of Twin Med, Inc. ("Twin Med"), a supplier of disposable products to long-term care facilities. Twin Med is one of Fountain View's and Summit's suppliers. Average monthly payments by Fountain View and Summit to Twin Med are approximately $50,000 to $70,000 in the aggregate. 80 DESCRIPTION OF OTHER INDEBTEDNESS NEW CREDIT FACILITY GENERAL. The Company entered into a credit facility with Bank of Montreal ("BMO") that provides Fountain View with financing in the aggregate amount of up to $115 million. The following summary of the material provisions of the New Credit Facility does not purport to be complete, and is subject to, and qualified in its entirety by reference to, (i) the Credit Agreement dated as of April 16, 1998 among Fountain View, the Banks party thereto and BMO, as Agent and (ii) the Loan Documents referenced therein . While BMO committed to fund the entire amount of the credit facilities described in the Summary of Terms, subject to the conditions described therein, BMO has formed a syndicate to participate in the New Credit Facility, and in the future may add financial institutions and other investors (collectively with BMO, the "Lenders") to such syndicate, who shall be reasonably acceptable to Fountain View, to join with BMO in providing the financing. BMO will act as agent for the Lenders (the "Agent"). The New Credit Facility commitments of the Lenders, which, after syndication, will be several and not joint, were allocated among (i) a $30 million revolving credit facility (the "Revolving Credit Facility"), with a $4 million sublimit for letters of credit (with BMO as the issuing bank), and (ii) one or more term loan facilities in an aggregate amount of up to $85.0 million (collectively, the "Term Loan Facility"). The proceeds of the New Credit Facility were used to refinance certain indebtedness incurred by Fountain View in connection with the Tender Offer and the Merger, to refinance certain indebtedness of Summit, to pay fees and expenses incurred in connection with the Transactions (not to exceed $28 million) and to fund working capital and capital expenditure needs of the Company and its subsidiaries and for other general corporate purposes. MATURITY AND PREPAYMENT. The Revolving Credit Facility will mature on April 16, 2004. The Term Loan Facility will be payable in installments with a final maturity on March 31, 2004. The Term Loan amortization schedule is as follows: year 1--$0; year 2--$5,000,000; year 3--$10,000,000; year 4--$20,000,000; year 5--$22,500,000; and year 6--$27,500,000. The New Credit Facility is also subject to mandatory prepayment out of the net cash proceeds of certain asset sales, issuances of equity, subordinated debt (excluding the Notes offered hereby) or senior debt securities, as well as out of 85% of excess cash flow if a specified leverage ratio is exceeded. Prepayments will be applied to reduce the Term Loan Facility. REPRESENTATIONS AND WARRANTIES. The credit documents relating to the New Credit Facility contain customary representations and warranties, including with respect to corporate status; corporate power, authority and enforceability; no violation of law, contracts or organizational documents; no material litigation; correctness of specified financial statements and no material adverse change; no required governmental or third party approvals; use of proceeds and compliance with margin regulations; status under the Investment Company Act of 1940; the Employment Retirement Income Security Act of 1974, as amended ("ERISA"); environmental matters; perfected liens and security interests; and payment of taxes. COVENANTS. The credit documents contain usual and customary covenants, including covenants with respect to delivery of financial statements and other reports; compliance with laws; payment of taxes; maintenance of insurance; limitations on liens; limitations on future mergers, consolidations, joint ventures and partnerships; prohibitions on sale of all or a substantial part of the Company's assets; limitations on the incurrence of debt; limitations on dividends, stock redemptions and the redemption and/or prepayment of other debt; limitations on investments and acquisitions; limitations on capital expenditures; compliance with ERISA; limitations on transactions with affiliates; and a negative pledge, with certain exceptions, for equipment financing. The credit documents also contain certain financial covenants, including a minimum fixed charge coverage ratio, a maximum leverage ratio and a minimum net worth test. INTEREST AND FEES. Pursuant to the terms of New Credit Facility, Fountain View may elect to have the interest rate on loans outstanding under the Revolving Credit Facility and loans outstanding 81 under the Term Loan Facility bear interest at the LIBOR or the applicable alternate base rate (defined as the higher of the federal funds rate plus 0.50% or BMO's base rate), in each case plus an applicable margin which will vary between 1.75% and 2.75% for LIBOR loans and between 0.75% and 1.75% for alternate base rate loans, depending upon the ratio of the sum of Fountain View's total funded debt plus a multiple of its operating rents to EBITDAR. During the continuance of an event of default, a default interest rate equal to 2.00% above the rate otherwise in effect shall apply. The Company will pay a commitment fee of 0.50% on the unused portion of the Revolving Credit Facility. The Company will also pay BMO, as Agent, a customary annual administration fee. EVENTS OF DEFAULT; REMEDIES. The New Credit Facility contains customary events of default, including with respect to nonpayment of principal, interest, fees or other amounts; violation of covenants; inaccuracy of representations and warranties; cross-default to other material agreements and indebtedness; bankruptcy; material judgments; ERISA; and actual or asserted invalidity of any loan documents or security interest. INDEMNIFICATION. Under the New Credit Facility, the Company will indemnify the Lenders from and against all losses, liabilities, claims, damages or expenses relating to their loans and the Company's use of loan proceeds or the commitments, including but not limited to, reasonable attorneys' fees and settlement costs. SECURITY AND GUARANTEES. The New Credit Facility contains a perfected first lien on all of the Company's assets, both tangible and intangible, including without limitation, cash, cash equivalents, inventory, accounts receivable, property, plant and equipment, intangibles, bank accounts, instruments, securities, contract rights and other agreements, and the stock of or other equity interests in all currently owned or to be acquired subsidiaries of the Company (other than the capital stock of Alexandria Convalescent Hospital, Inc.). The New Credit Facility is fully guaranteed by all existing and future subsidiaries of the Company. The guarantees are secured by a perfected first lien on all assets of the subsidiaries of the Company. BMO is an affiliate of Nesbitt Burns Securities Inc., one of the Initial Purchasers of the Notes. One of the other Lenders is Banque Paribas, an affiliate of Paribas Corporation, one of the Initial Purchasers of the Notes, and another affiliate of Paribas Corporation is a Fountain View stockholder. CAPITAL LEASES In addition to the indebtedness described above, Summit is also party to seven capital leases for certain of its facilities. All of these capital leases contain purchase options and certain of these leases contain various renewal options and extend up to the year 2030. For the year ended June 30, 1997, property and equipment of Summit includes the following amounts for leases which have been capitalized (assuming the purchase options contained in these leases will be exercised):
(DOLLARS IN THOUSANDS) ---------------------- Land and land improvements.......................... $ 1,400 Buildings and leasehold improvements................ 21,481 Furniture and equipment............................. 2,405 ------- 25,286 Less accumulated amortization....................... 2,070 ------- $23,216 =======
The minimum rental payments for the next five years under noncancellable capital leases (including purchase options when expected to be exercised) that have initial or remaining lease terms in excess of one year as of the year ended June 30, 1997 are $3,321,000, $4,634,000, $4,297,000, $350,000 and $350,000 for 1998, 1999, 2000, 2001 and 2002, respectively. 82 THE EXCHANGE OFFER GENERAL The Company hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal (which together constitute the Exchange Offer), to exchange up to $120.0 million aggregate principal amount of Exchange Notes for a like aggregate principal amount of Outstanding Notes properly tendered on or prior to the Expiration Date and not withdrawn as permitted pursuant to the procedures described below. The Exchange Offer is being made with respect to all of the Outstanding Notes; the total aggregate principal amount of Outstanding Notes and Exchange Notes will in no event exceed $120.0 million. The summary herein of material provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Registration Rights Agreement, a copy of which will be available upon request of the Company. PURPOSE OF THE EXCHANGE OFFER On April 16, 1998, the Company issued $120.0 million aggregate principal amount of Outstanding Notes. The issuance of the Outstanding Notes was not registered under the Securities Act in reliance upon exemptions provided in Rule 144A and Regulation S under the Securities Act. The Company, the Guarantors and the Initial Purchasers entered into the Registration Rights Agreement on the Closing Date. Pursuant to the Registration Rights Agreement, the Company and the Guarantors agreed to use commercially reasonable efforts to file with the Commission the Exchange Offer Registration Statement on the appropriate form under the Securities Act with respect to the Exchange Notes. Upon the effectiveness of the Exchange Offer Registration Statement, the Company and the Guarantors will offer the Exchange Notes (which will have terms substantially identical in all material respects to the Outstanding Notes), including the Existing Guarantees (the "Exchange Notes") (except that the Exchange Notes will not contain terms with respect to transfer restrictions). If (i) the Company and the Guarantors are not required to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy or (ii) any Holder of Transfer Restricted Securities notifies the Company within 20 days after the Exchange Offer has been consummated (A) that it is prohibited by applicable law or Commission policy from participating in the Exchange Offer or (B) that it may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder, or (C) that such Holder is a broker-dealer and holds Notes acquired directly from the Company or one of its affiliates, then the Company and the Guarantors will use commercially reasonable efforts to file a shelf registration statement pursuant to Rule 415 under the Securities Act, which may be an amendment to the Existing Offer Registration Statement (in either event, the "Shelf Registration Statement") on or prior to the earliest to occur of (1) the 60th day after the date on which the Company determines that it is not required to file the Exchange Offer Registration Statement or (2) the 60th day after the date on which the Company receives notice from a Holder of Transfer Restricted Securities as contemplated by clause (ii) above (such earliest date being the "Shelf Filing Deadline"), which Shelf Registration Statement shall provide for resales of all Transfer Restricted Securities the Holders of which shall provide certain information to the Company. The Company and the Guarantors will use commercially reasonable efforts to cause such Shelf Registration Statement to be declared effective by the Commission on or before the 135th day after the obligation to file the Shelf Registration Statement arises. For purposes of the foregoing, "Transfer Restricted Securities" means each Note until the earliest of (i) the date on which such Note is exchanged in the Exchange Offer and the Note for which it is exchanged is entitled to be resold to the public by the Holder thereof without complying 83 with the prospectus delivery requirements of the Securities Act, (ii) the date on which such Note has been disposed of in accordance with a Shelf Registration Statement, or (iii) the date on which such Note is permitted to be distributed to the public pursuant to Rule 144 under the Securities Act or by a broker-dealer pursuant to the "Plan of Distribution" contemplated by the Exchange Offer Registration Statement (including delivery of a copy of this prospectus). The Registration Rights Agreement provided that unless the Exchange Offer were not permissible under applicable law or Commission policy (i) the Company and the Guarantors would cause to be filed an Exchange Offer Registration Statement with the Commission as soon as practicable after the Closing Date, but in no event later than 90 days after the Closing Date, (ii) the Company and the Guarantors would use commercially reasonable efforts to cause the Exchange Offer Registration Statement to become effective at the earliest possible time, but in no event later than 150 days after the Closing Date, (iii) in connection with the foregoing, file (A) all pre-effective amendments to such Registration Statement as may be necessary in order to cause such Registration Statement to become effective, (B) if applicable, a post- effective amendment to such Registration Statement pursuant to Rule 430A under the Securities Act and (C) cause all necessary filings in connection with the registration and qualification of the Exchange Notes to be made under the Blue Sky laws of such jurisdictions as are necessary to permit the Exchange Offer to be consummated, and (iv) upon the effectiveness of such Registration Statement, commence the Exchange Offer. The Company is entitled to suspend the effectiveness of any Shelf Registration Statement for certain limited periods under certain prescribed circumstances. If (a) any of the Registration Statements required by the Registration Rights Agreement is not filed with the Commission on or prior to the date specified for such filing; (b) any of such Registration Statements has not been declared effective by the Commission on or prior to the date specified for such effectiveness; (c) an Exchange Offer Registration Statement becomes effective but the Company and the Guarantors fail to consummate the Exchange Offer within 30 business days thereafter with respect to the Exchange Offer Registration Statement; or (d) subject to certain exceptions, the Shelf Registration Statement or the Exchange Offer Registration Statement is filed and is declared effective but thereafter ceases to be effective or fails to be usable for its intended purpose prior to the expiration of the time period specified in the Registration Rights Agreement without being succeeded immediately by a post-effective amendment to such Registration Statement that cures such failure and that is itself declared effective immediately (each such event referred to in clauses (a) through (d) above, a "Registration Default", and each period during which a Registration Default has occurred and is Continuing, a "Registration Default Period"), the Company and Guarantors jointly and severally agree that the liquidated damages ("Liquidated Damages"), in addition to the base interest that would otherwise accrue on the Transfer Restricted Securities, shall accrue at a per annum rate of 0.25% of the aggregate principal amount of such Transfer Restricted Securities for the first 90 days of the Registration Default Period, increasing by 0.25% per annum every 90 days up to a maximum of 1.0% per annum until such Registration Default has been cured. All accrued Liquidated Damages will be paid by the Company to the Record Holders by wire transfer of immediately available funds or by federal funds check on each interest payment date at the office or agency of the Company maintained for such purpose in the Borough of Manhattan, The City of New York. Following the cure of all Registration Defaults relating to any particular Transfer Restricted Securities, the accrual of Liquidated Damages with respect to such Transfer Restricted Securities will cease immediately. Holders of such Notes will be required to make certain representations to the Company and the Guarantors (as described in the Registration Rights Agreement) in order to participate in the Exchange Offer and will be required to deliver information to be used in connection with the Shelf Registration Statement within the time periods set forth in the Registration Rights Agreement in order to have their Notes included in the Shelf Registration Statement and benefit from the provisions regarding Liquidated Damages set forth above. 84 EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS The Exchange Offer will expire at 5:00 P.M., New York City time, on , 1998, unless the Company, in its sole discretion, has extended the period of time (as described below) for which the Exchange Offer is open (such date, as it may be extended, is referred to herein as the "Expiration Date"). The Expiration Date will be at least 20 business days after the commencement of the Exchange Offer (or longer if required by applicable law). The Company expressly reserves the right, at any time or from time to time, to extend the period of time during which the Exchange Offer is open, and thereby delay acceptance for exchange of any Outstanding Notes by giving oral notice (confirmed in writing) or written notice to the Exchange Agent (as defined herein) and by giving written notice of such extension to the holders thereof or by timely public announcement communicated, unless otherwise required by applicable law or regulation, by making a release through the Dow Jones News Service, in each case, no later than 9:00 A.M. New York City time, on the next business day after the previously scheduled Expiration Date. Such announcement may state that the Company is extending the Exchange Offer for a specified period of time. During any such extension, all Outstanding Notes previously tendered will remain subject to the Exchange Offer. In addition, the Company expressly reserves the right to terminate or amend the Exchange Offer and not to accept for exchange any Outstanding Notes not theretofore accepted for exchange upon the occurrence of any of the events specified below under "-- Certain Conditions to the Exchange Offer". If any such termination or amendment occurs, the Company will notify the Exchange Agent and will either issue a press release or give oral or written notice to the holders of the Outstanding Notes as promptly as practicable. PROCEDURES FOR TENDERING OUTSTANDING NOTES The tender to the Company of Outstanding Notes by a holder thereof as set forth below and the acceptance thereof by the Company will constitute a binding agreement between the tendering holder and the Company upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal. A holder of Outstanding Notes may tender the same by (i) properly completing and signing the Letter of Transmittal or a facsimile thereof (all references in this Prospectus to the Letter of Transmittal shall be deemed to include a facsimile thereof) and delivering the same, together with the certificate or certificates representing the Outstanding Notes being tendered, if any, and any required signature guarantees, to the Exchange Agent at its address set forth below on or prior to 5:00 p.m., New York City time, on the Expiration Date (or complying with the procedure for book-entry transfer described below) or (ii) complying with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OUTSTANDING NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, OR AN OVERNIGHT OR HAND DELIVERY SERVICE, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY DELIVERY. NO OUTSTANDING NOTES OR LETTERS OF TRANSMITTAL SHOULD BE SENT TO THE COMPANY. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Outstanding Notes surrendered for exchange pursuant thereto are tendered (i) by a registered holder of the Outstanding Notes who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution (as defined herein). In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by a participant in a recognized signature guaranty medallion program (each an 85 "Eligible Institution"). If Outstanding Notes are registered in the name of a person other than a signer of the Letter of Transmittal, the Outstanding Notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company in its sole discretion, duly executed by the registered holder with the signature thereon guaranteed by an Eligible Institution. The Exchange Agent will make a request promptly after the date of this Prospectus to establish accounts with respect to the Outstanding Notes at the book-entry transfer facility, The Depository Trust Company, for the purpose of facilitating the Exchange Offer, and subject to the establishment thereof, any financial institution that is a participant in the book-entry transfer facility's system may make book-entry delivery of Outstanding Notes by causing such book-entry transfer facility to transfer such Outstanding Notes into the Exchange Agent's account with respect to the Outstanding Notes in accordance with the book-entry transfer facility's procedures for such transfer. Although delivery of Outstanding Notes may be effected through book-entry transfer in the Exchange Agent's account at the book-entry transfer facility, an appropriate Letter of Transmittal with any required signature guarantee and other required documents must in each case be transmitted to and received or confirmed by the Exchange Agent at its address set forth below on or prior to the Expiration Date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under such procedures. If a holder desires to accept the Exchange Offer and time will not permit a Letter of Transmittal or Outstanding Notes to reach the Exchange Agent before the Expiration Date or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if the Exchange Agent has received at its address or facsimile number set forth below on or prior to the Expiration Date a letter, telegram or facsimile from an Eligible Institution setting forth the name and address of the tendering holder, the name in which the Outstanding Notes are registered and, if possible the certificate number or numbers of the certificate or certificates representing the Outstanding Notes to be tendered, and stating that the tender is being made thereby and guaranteeing that within three business days after the Expiration Date the Outstanding Notes in proper form for transfer (or a confirmation of book-entry transfer of such Outstanding Notes into the Exchange Agent's account at the book-entry transfer facility), will be delivered by such Eligible Institution together with a properly completed and duly executed Letter of Transmittal (and any other required documents). Unless Outstanding Notes being tendered by the above-described method are deposited with the Exchange Agent within the time period set forth above (accompanied or preceded by a properly completed Letter of Transmittal and any other required documents), the Company may, at its option, reject the tender. Copies of a Notice of Guaranteed Delivery which may be used by an Eligible Institution for the purposes described in this paragraph are available from the Exchange Agent. A tender will be deemed to have been received as of the date when (i) the tendering holder's properly completed and duly signed Letter of Transmittal accompanied by the Outstanding Notes (or a confirmation of book-entry transfer of such Outstanding Notes into the Exchange Agent's account at the book-entry transfer facility) is received by the Exchange Agent, or (ii) a Notice of Guaranteed Delivery or letter, telegram or facsimile to similar effect (as provided above) from an Eligible Institution is received by the Exchange Agent. Issuances of Exchange Notes in exchange for Outstanding Notes tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram or facsimile to similar effect (as provided above) by an Eligible Institution will be made only against deposit of the Letter of Transmittal (and any other required documents) and the tendered Outstanding Notes. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of Outstanding Notes tendered for exchange will be determined by the Company in its sole discretion, which determination will be final and binding on all parties. The Company reserves the right to reject any and all tenders of any particular Outstanding Notes not properly tendered or reject any particular shares of Outstanding Notes the acceptance of which might, in the judgment of the Company or its counsel, be unlawful. The 86 Company also reserves the absolute right to waive any defects or irregularities or condition of the Exchange Offer as to any particular Outstanding Notes either before or after the Expiration Date (including the right to waive the ineligibility of any holder who seeks to tender Outstanding Notes in the Exchange Offer). The interpretation of the terms and conditions of the Exchange Offer (including the Letter of Transmittal and the instructions thereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Outstanding Notes for exchange must be cured within such time as the Company shall determine. Neither the Company nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Outstanding Notes for exchange, nor shall any of them incur any liability for failure to give such notification. If the Letter of Transmittal or any Outstanding Notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in- fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, proper evidence satisfactory to the Company of their authority to so act must be submitted. By tendering, each holder that is not a broker-dealer or is a broker-dealer but is not receiving Exchange Notes for its own account will represent to the Company that the Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of such holder's business, that such holder has no arrangement or understanding with any person to participate in the distribution of such Exchange Notes and that such holder is not an "affiliate" of the Company as defined in Rule 405 under the Securities Act or, if it is an affiliate, such holder will comply with the registration and prospectus delivery requirements of the Securities Act, to the extent applicable. Each broker-dealer that is receiving Exchange Notes for its own account in exchange for Outstanding Notes that were acquired as a result of market-making or other trading activities will represent to the Company that it will deliver a prospectus in connection with any resale of such Outstanding Notes. In addition, the Letter of Transmittal requires each holder to represent and warrant that (a) the holder accepts the terms and conditions of the Exchange Offer, (b) the holder has a net long position within the meaning of Rule 14e-4 under the Exchange Act ("Rule 14e-4") equal to or greater than the principal amount of Outstanding Notes being tendered, (c) the tender of such Outstanding Notes complies with Rule 14e-4 (to the extent that Rule 14e-4 is applicable to such exchange), (d) the holder has full power and authority to tender, exchange, assign and transfer the Outstanding Notes being tendered, and (e) when the same are accepted for exchange by the Company, the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim or right. In addition, the Company reserves the right in its sole discretion to (a) purchase or make offers for any Outstanding Notes that remain outstanding subsequent to the Expiration Date, or, as set forth under "--Certain Conditions to the Exchange Offer", to terminate the Exchange Offer and (b) to the extent permitted by applicable law, purchase Outstanding Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers may differ from the terms of the Exchange Offer. WITHDRAWAL RIGHTS Tenders of Outstanding Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the business day prior to the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal sent by letter, telegram or facsimile must be received by the Exchange Agent at any time prior to 5:00 p.m., New York City time, on the business day prior to the Expiration Date at its address or facsimile number set forth below. Any such notice of withdrawal must (i) specify the name of the person having tendered the Outstanding Notes to be withdrawn (the "Depositor"), (ii) identify the 87 Outstanding Notes to be withdrawn (including the certificate number of numbers of the certificate or certificates representing such Outstanding Notes and the aggregate principal amount of such Outstanding Notes), (iii) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Outstanding Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to permit the Transfer Agent with respect to the Outstanding Notes to register the transfer of such Outstanding Notes into the name of the person withdrawing the tender and (iv) specify the name in which any such Outstanding Notes are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by the Company in its sole discretion, which determination will be final and binding on all parties. Any Outstanding Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Outstanding Notes so withdrawn are validly retendered. Any Outstanding Notes which have been tendered but which are withdrawn will be returned to the holder thereof without cost to such holder as soon as practicable after such withdrawal. Properly withdrawn Outstanding Notes may be retendered by following one of the procedures described above under "-- Procedures for Tendering Outstanding Notes" at any time prior to the Expiration Date. ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES Upon satisfaction or waiver of all of the conditions to the Exchange Offer, the Company will accept, promptly after the Expiration Date, all Outstanding Notes properly tendered and will issue the Exchange Notes promptly after acceptance of the Exchange Offer. See "-- Certain Conditions to the Exchange Offer" below. For purposes of the Exchange Offer, the Company will be deemed to have accepted properly tendered Outstanding Notes for exchange when the Company has given oral or written notice thereof to the Exchange Agent. In all cases, issuance of the Exchange Notes in exchange for Outstanding Notes pursuant to the Exchange Offer will be made only after timely receipt by the Company of such Outstanding Notes, a properly completed and duly executed Letter of Transmittal and all other required documents. If any tendered Outstanding Notes are not accepted for exchange for any reason set forth in the terms and conditions of the Exchange Offer, such unaccepted Outstanding Notes will be returned without expense to the tendering holder thereof as promptly as practicable after the rejection of such tender or the expiration or termination of the Exchange Offer. UNTENDERED OUTSTANDING NOTES Holders of Outstanding Notes whose Outstanding Notes are not tendered or are tendered but not accepted in the Exchange Offer will continue to hold such Outstanding Notes and will be entitled to all the rights and preferences and subject to the limitations applicable thereto. Following consummation of the Exchange Offer, the holders of Outstanding Notes will continue to be subject to the existing restrictions upon transfer thereof and, except as provided herein, the Company will have no further obligation to such holders to provide for the registration under the Securities Act of the Outstanding Notes held by them. To the extent that Outstanding Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Outstanding Notes could be adversely affected. CERTAIN CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other term of the Exchange Offer, the Company will not be required to accept for exchange, or issue Exchange Notes in exchange for, any Outstanding Notes, and may terminate or amend the Exchange Offer, if at any time before the acceptance of such Outstanding Notes for exchange, any of the following events shall occur: (A) an injunction, order or decree shall have been issued by any court or governmental agency that would prohibit, prevent or otherwise materially impair the ability of the Company to proceed with the Exchange Offer; or 88 (B) there shall occur a change in the current interpretation of the staff of the Commission which current interpretation permits the Exchange Notes issued pursuant to the Exchange Offer in exchange for the Outstanding Notes to be offered for resale, resold and otherwise transferred by holders thereof (other than (i) a broker-dealer who purchases such Exchange Notes directly from the Company to resell pursuant to Rule 144A, Regulation S or any other available exemption under the Securities Act or (ii) a person that is an affiliate of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in the distribution of Exchange Notes. The foregoing conditions are for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances giving rise to any such condition or may be waived by the Company in whole or in part at any time and from time to time in its sole discretion. The failure by the Company at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. If the Company determines that it may terminate the Exchange Offer, as set forth above, the Company may (i) refuse to accept any Outstanding Notes and return any Outstanding Notes that have been tendered to the holders thereof, (ii) extend the Exchange Offer and retain all Outstanding Notes tendered prior to the Expiration Date, subject to the rights of such holders of tendered shares of Outstanding Notes to withdraw their tendered Outstanding Notes, or (iii) waive such termination event with respect to the Exchange Offer and accept all properly tendered Outstanding Notes that have not been withdrawn. If such waiver constitutes a material change in the Exchange Offer, the Company will disclose such change by means of a supplement to this Prospectus that will be distributed to each registered holder of Outstanding Notes, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders of the Outstanding Notes, if the Exchange Offer would otherwise expire during such period. In addition, the Company will not accept for exchange any Outstanding Notes tendered, and no Exchange Notes will be issued in exchange for any such Outstanding Notes, if at any time any stop order shall be threatened by the Commission or in effect with respect to the Registration Statement. The Exchange Offer is not conditioned on any minimum principal amount of Outstanding Notes being tendered for exchange. EXCHANGE AGENT State Street Bank and Trust Company has been appointed as Exchange Agent for the Exchange Offer. Questions regarding Exchange Offer procedures and requests for additional copies of this Prospectus or the Letter of Transmittal should be directed to the Exchange Agent addressed as follows: By Mail: By Hand: or Overnight Delivery: State Street Bank and Trust Company of California, N.A. c/o State Street Bank and Trust Company Two International Place Boston, MA 02110 Attention: Kellie Mullen Re: Fountain View, Inc. 89 By Facsimile: 617-664-5290 Confirm by Telephone: 617-664-5587 State Street Bank and Trust Company of California, N.A. is also the Transfer Agent for the Outstanding Notes and Exchange Notes. SOLICITATION OF TENDERS; FEES AND EXPENSES The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers or other persons soliciting acceptance of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse the Exchange Agent for its reasonable out-of-pocket expenses in connection therewith. The cash expenses to be incurred by the Company in connection with the Exchange Offer will be paid by the Company. No person has been authorized to give any information or to make any representation in connection with the Exchange Offer other than those contained in this Prospectus. If given or made, such information or representations should not be relied upon as having been authorized by the Company. Neither the delivery of this Prospectus nor any exchange made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the respective dates as of which information is given herein. The Exchange Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Outstanding Notes in any jurisdiction in which the making of the Exchange Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. TRANSFER TAXES The Company will pay all transfer taxes, if any, applicable to the exchange of Outstanding Notes pursuant to the Exchange Offer. If, however, certificates representing Exchange Notes or Outstanding Notes not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Outstanding Notes tendered, or if tendered Outstanding Notes are registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Exchange Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holders. ACCOUNTING TREATMENT No gain or loss for accounting purposes will be recognized by the Company upon the consummation of the Exchange Offer. Expenses incurred in connection with the issuance of the Exchange Notes will be amortized by the Company over the term of the Exchange Notes under generally accepted accounting principles. 90 PLAN OF DISTRIBUTION Based on interpretations of the staff of the Division of Corporation Finance of the Commission set forth in no-action letters issued to third parties, the Company believes that, except as described below, Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by the respective holders thereof without further compliance with the registration and prospectus delivery requirements of the Securities Act, provided that (i) such Exchange Notes are acquired in the ordinary course of such holder's business and (ii) such holder is not participating, and has no arrangement or understanding with any person to participate, in a distribution of the Exchange Notes. A holder of Outstanding Notes that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act or that is a broker-dealer that purchased Outstanding Notes from the Company to resell pursuant to an exemption from registration under the Securities Act (a) cannot rely on such interpretations by the staff of the Division of Corporation Finance of the Commission, (b) will not be permitted or entitled to tender such Outstanding Notes in the Exchange Offer and (c) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or other transfer of such Outstanding Notes unless such sale or transfer is made pursuant to an exemption from such requirements. In addition, any holder who tenders Outstanding Notes in the Exchange Offer with the intention or for the purpose of participating in a distribution of the Exchange Notes cannot rely on such interpretations by the staff of the Division of Corporation Finance of the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with the secondary resale transaction. Unless an exemption from registration is otherwise available, any such resale transaction should be covered by an effective registration statement containing selling security holders information required by Item 507 of Regulation S-K under the Securities Act. To date, the staff of the Division of Corporation Finance of the Commission has taken the position that a broker-dealer that has acquired securities in exchange for securities that were acquired by such broker-dealer as a result of market-making activities or other trading activities may fulfill the prospectus delivery requirements with the prospectus contained in an exchange offer registration statement. Each holder of Outstanding Notes who wishes to exchange its Outstanding Notes for Exchange Notes in the Exchange Offer will be required to make certain representations to the Company set forth in "The Exchange Offer-- Purpose of the Exchange Offer". Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes. This Prospectus may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Outstanding Notes where such Outstanding Notes were acquired as a result of market-making activities or other trading activities. Subject to certain provisions set forth in the Registration Rights Agreement, the Company has agreed that, for a period of up to 180 days after the effective date of the Registration Statement, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Risk Factors--Absence of Public Market for the Notes" and "The Exchange Offer--Procedures for Tendering Outstanding Notes". The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer 91 and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit from any such resale of Exchange Notes and any commissions or concessions received by any such person may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Subject to certain provisions set forth in the Registration Rights Agreement, for a period of 180 days after the effective date of the Registration Statement, the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any participating broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay the expenses incident to the Exchange Offer, other than any discounts or commissions incurred upon the sale of the Exchange Notes. The Company will indemnify each participating broker- dealer selling Exchange Notes against certain liabilities, including liabilities under the Securities Act. 92 DESCRIPTION OF NOTES GENERAL Except as otherwise indicated, the following description relates both to the Outstanding Notes issued in the Note Offering and the Exchange Notes, together with the Exchange Guarantees, to be issued in exchange for the Outstanding Notes in the Exchange Offer. The form and terms of the Exchange Notes are the same as the form and terms of the Outstanding Notes, except that the Exchange Notes have been registered under the Securities Act and therefore will not bear legends restricting the transfer thereof. The Exchange Notes will be obligations of the Company evidencing the same indebtedness as the Outstanding Notes. The Outstanding Notes were issued, and the Exchange Notes offered hereby will be issued, pursuant to an Indenture (the "Indenture") between the Company, the Guarantors and State Street Bank and Trust Company of California, N.A., as trustee (the "Trustee"), in a private transaction that is not subject to the registration requirements of the Securities Act. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The following summary of the material provisions of the Indenture does not purport to be complete and is qualified in its entirety by reference to the Indenture, including the definitions therein of certain terms used below. Copies of the proposed form of Indenture and Registration Rights Agreement are available as set forth below under "--Additional Information". The definitions of certain terms used in the following summary are set forth below under "--Certain Definitions". For purposes of this summary, the term "Company" refers only to Fountain View, Inc. and not to any of its Subsidiaries. The Notes are general unsecured obligations of the Company and are subordinated in right of payment to all current and future Senior Debt. As of March 31, 1998, on a pro forma basis giving effect to the Transactions the Company would have had Senior Debt of approximately $124.9 million, $15.0 million of mandatory redeemable preferred stock and, through its Subsidiaries, would have had additional liabilities (including trade payables) aggregating approximately $71.1 million. The Indenture permits the incurrence of additional Senior Debt in the future. The operations of the Company are conducted through its Subsidiaries and, therefore, the Company is dependent upon the cash flow of its Subsidiaries to meet its obligations, including its obligations under the Notes. The Notes are effectively subordinated to all Indebtedness and other liabilities and commitments (including trade payables) of the Company's Subsidiaries. Any right of the Company to receive assets of any of its Subsidiaries upon the latter's liquidation or reorganization (and the consequent right of the Holders of the Notes to participate in those assets) will be effectively subordinated to the claims of that Subsidiary's creditors, except to the extent that the Company is itself recognized as a creditor of such Subsidiary, in which case the claims of the Company would still be subordinate to any security in the assets of such Subsidiary and any indebtedness of such Subsidiary senior to that held by the Company. As of March 31, 1998, the Company's Subsidiaries would have had approximately $24.9 million of Indebtedness, $46.2 million of trade payables and other liabilities outstanding and $15.0 million of mandatory redeemable preferred stock after giving pro forma effect to the Transactions. See "Risk Factors--Ability of Company to Obtain Funds from Subsidiaries". As of the date of the Indenture, all of the Company's Subsidiaries are Restricted Subsidiaries. However, under certain circumstances, the Company will be able to designate current or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the restrictive covenants set forth in the Indenture. PRINCIPAL, MATURITY AND INTEREST The Notes are limited in aggregate principal amount to $120.0 million and will mature on April 15, 2008. Interest on the Notes accrues at the rate of 11 1/4% per annum and will be payable semi-annually 93 in arrears on April 15 and October 15, commencing on October 15, 1998, to Holders of record on the immediately preceding April 1 and October 1. Interest on the Notes accrues from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance. Interest is computed on the basis of a 360-day year comprised of twelve 30-day months. Principal, premium, if any, and interest and Liquidated Damages on the Notes is payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders of the Notes at their respective addresses set forth in the register of Holders of Notes; provided that all payments of principal, premium, interest and Liquidated Damages with respect to Notes the Holders of which have given wire transfer instructions to the Company will be required to be made by wire transfer of immediately available funds to the respective accounts specified by the Holders thereof. Until otherwise designated by the Company, the Company's office or agency in New York will be the office of the Trustee maintained for such purpose. The Notes will be issued in denominations of $1,000 and integral multiples thereof. SUBSIDIARY GUARANTEES The Company's payment obligations under the Notes are jointly and severally guaranteed by the Guarantors. The Guarantee of each Guarantor are unsecured and subordinated to the prior payment in full of all Senior Debt of such Guarantor, which as of May 31, 1998 included approximately $126.0 million of Senior Debt and the amounts for which the Guarantors are liable under the guarantees issued from time to time with respect to Senior Debt, including guarantees of all Obligations under the New Credit Facility. The Subsidiary Guarantees provide that the Obligations of each Guarantor thereunder are limited so as not to constitute a fraudulent conveyance under applicable law. See, however, "Risk Factors--Effect of Fraudulent Transfer Statutes on Validity of Notes and Guarantees". The Indenture provides that no Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another corporation, Person or entity whether or not affiliated with such Guarantor unless (i) subject to the provisions of the following paragraph, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the obligations of such Guarantor under the Registration Rights Agreement and, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes and the Indenture; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; and (iii) except in the case of a merger of a Guarantor with or into another Guarantor or a merger of a Guarantor with or into the Company, the Company would be permitted by virtue of the Company's pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such transaction, to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the covenant described below under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock". The Indenture provides that in the event of a sale or other disposition of all of the assets of any Guarantor (other than to the Company or another Guarantor), by way of merger, consolidation or otherwise, or a sale or other disposition of all of the Capital Stock of any Guarantor (other than to the Company or another Guarantor), then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the entity acquiring the property (in the event of a sale or other disposition of all of the assets of such Guarantor) will be released and relieved of any obligations under its Subsidiary Guarantee and any such acquiring entity will not be required to assume any obligations of such Guarantor under the applicable Subsidiary Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture. See "Repurchase at Option of Holders--Asset Sales". 94 SUBORDINATION The payment of principal of, premium, if any, and interest on the Notes is subordinated in right of payment, as set forth in the Indenture, to the prior payment in full of all Senior Debt, whether outstanding on the date of the Indenture or thereafter incurred. Upon any distribution to creditors of the Company or any Guarantor in a liquidation or dissolution of the Company or any Guarantor or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or any Guarantor or its property, an assignment for the benefit of creditors or any marshalling of the Company's or any Guarantor's assets and liabilities, the holders of Senior Debt will be entitled to receive payment in full of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt) before the Holders of Notes will be entitled to receive any payment with respect to the Notes, and until all Obligations with respect to Senior Debt are paid in full, any distribution to which the Holders of Notes would be entitled shall be made to the holders of Senior Debt (except that Holders of Notes may receive and retain Permitted Junior Securities and payments made from the trust described under "--Legal Defeasance and Covenant Defeasance"). The Company and the Guarantors also may not make any payment upon or in respect of the Notes or the Guarantees (except in Permitted Junior Securities or from the trust described under "--Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of the principal of, premium, if any, or interest on Senior Debt occurs and is continuing beyond any applicable period of grace or (ii) any other default occurs and is continuing with respect to Designated Senior Debt that permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Company or the holders of any Designated Senior Debt. Payments on the Notes may and shall be resumed (a) in the case of a payment default, upon the date on which such default is cured or waived and (b) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received by the Trustee, unless the maturity of any Designated Senior Debt has been accelerated. No new period of payment blockage under clause (ii) above may be commenced unless and until (i) 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (ii) all scheduled payments of principal, premium, if any, and interest on the Notes that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been waived for a period of not less than 180 days. The Indenture further requires that the Company promptly notify holders of Senior Debt if payment of the Notes is accelerated because of an Event of Default. As a result of the subordination provisions described above, in the event of a liquidation or insolvency, Holders of Notes may recover less ratably than creditors of the Company and the Guarantors who are holders of Senior Debt. The principal amount of Senior Debt outstanding at May 31, 1998 was approximately $126.0 million. The Indenture limits, subject to certain financial tests, the amount of additional Indebtedness, including Senior Debt, that the Company and its Subsidiaries can incur. See "--Certain Covenants-- Incurrence of Indebtedness and Issuance of Preferred Stock". OPTIONAL REDEMPTION The Notes will not be redeemable at the Company's option prior to April 15, 2003. Thereafter, the Notes will be subject to redemption at any time or from time to time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices 95 (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on April 15 of the years indicated below:
YEAR PERCENTAGE ---- ---------- 2003........................................................... 105.625% 2004........................................................... 103.750 2005........................................................... 101.875 2006 and thereafter............................................ 100.000%
Notwithstanding the foregoing, at any time prior to April 15, 2001, the Company may redeem up to 35% of the aggregate principal amount of Notes originally issued under the Indenture at a redemption price of 111.25% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the redemption date, with the net cash proceeds of one or more Public Equity Offerings by the Company; provided that at least $78.0 million in aggregate principal amount of Notes remain outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and provided, further, that such redemption shall occur within 60 days of the date of the closing of such Public Equity Offering. SELECTION AND NOTICE If less than all of the Notes are to be redeemed at any time, selection of Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. Notices of redemption may not be conditional. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption. MANDATORY REDEMPTION The Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. REPURCHASE AT THE OPTION OF HOLDERS Change of Control Upon the occurrence of a Change of Control, each Holder of Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (the "Change of Control Payment"). Within fifteen Business Days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures required by the Indenture and described in such notice. The Company will 96 comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. On the Change of Control Payment Date, the Company will, to the extent lawful, (1) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Paying Agent will promptly mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof. The Indenture will provide that, prior to complying with the provisions of this covenant, but in any event within 90 days following a Change of Control, the Company will either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this covenant. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Change of Control provisions described above will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction. The New Credit Facility currently prohibits the Company from purchasing any Notes and also provides that certain change of control events, including, without limitation, a Change of Control, with respect to the Company would constitute a default thereunder. Any future credit agreements or other agreements relating to Senior Debt to which the Company becomes a party may contain similar restrictions and provisions. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing Notes, the Company could seek the consent of its lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company's failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under the New Credit Facility. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of Notes. The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. The definition of Change of Control includes a phrase relating to the sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the assets of the Company and its Subsidiaries taken as a whole. Although there is a developing body of case law interpreting the phrase "substantially all", there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of Notes to require the Company to repurchase such Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Company and its Subsidiaries taken as a whole to another Person or group may be uncertain. 97 Asset Sales The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash; provided that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet), of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or the Subsidiary Guarantees thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability and (y) in the case of any Asset Sale constituting the transfer (by merger or otherwise) of all of the Capital Stock of a Restricted Subsidiary, any liabilities (as shown on such Restricted Subsidiary's most recent balance sheet) of such Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or the Subsidiary Guarantees) that will remain outstanding after such transfer and will not be a liability of the Company or any other Restricted Subsidiary of the Company following such transfer and (z) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are contemporaneously (subject to ordinary settlement periods) converted by the Company or such Restricted Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this provision. Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds, at its option, (a) to repay Senior Debt, or (b) to the acquisition of a majority of the assets of, or a majority of the Voting Stock of, a Healthcare Related Business, the making of a capital expenditure or the acquisition of other long-term assets for use in a Healthcare Related Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce revolving credit borrowings or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds". When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be required to make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes tendered into such Asset Sale Offer surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. CERTAIN COVENANTS Restricted Payments The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company's or 98 any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or to the Company or a Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes except a payment of interest or principal at Stated Maturity, or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under caption "--Incurrence of Indebtedness and Issuance of Preferred Stock"; and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Subsidiaries after the date of the Indenture (excluding Restricted Payments permitted by clauses (ii), (iii), (iv), (vi) and (vii) of the next succeeding paragraph), is less than the sum, without duplication, of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the date of the Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds received by the Company since the date of the Indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of Disqualified Stock or debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or Disqualified Stock or convertible debt securities) sold to a Subsidiary of the Company), plus (iii) to the extent that any Restricted Investment that was made after the date of the Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (B) the initial amount of such Restricted Investment. The foregoing provisions will not prohibit (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any Indebtedness that is subordinated to the Notes or Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of, other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (c) (ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of Indebtedness that is subordinated to the Notes with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any dividend (in cash or otherwise) by a Restricted Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis; and (v) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any member of the Company's (or any of its Restricted Subsidiaries') management pursuant to any management equity 99 subscription agreement, stock option agreement or employment agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $2.0 million in any twelve-month period and no Default or Event of Default shall have occurred and be continuing immediately after such transaction; (vi) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Subsidiary of the Company held by any member of the Company's (or any of its Subsidiaries') management pursuant to any management equity subscription agreement, stock option agreement or employment agreement, provided that the purchase price is paid with the proceeds to the Company of key man life insurance or disability insurance policies purchased by the Company specifically to finance any such repurchase, redemption or other acquisition; or (vii) the payment of the Transaction Related Payments. The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation and will reduce the amount available for Restricted Payments under the first paragraph of this covenant or Permitted Investments, as applicable. All such outstanding investments will be deemed to constitute Restricted Investments in an amount equal to the greatest of (x) the net book value of such Investments at the time of such designation, (y) the fair market value of such Investments at the time of such designation and (z) the original fair market value of such Investments at the time they were made. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if such redesignation would not cause a Default. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets or securities that are required to be valued by this covenant shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee, such determination to be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if such fair market value exceeds $10.0 million. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant "Restricted Payments" were computed, together with a copy of any fairness opinion or appraisal required by the Indenture. Incurrence of Indebtedness and Issuance of Preferred Stock The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and that the Company will not issue any Disqualified Stock and will not permit any of its Subsidiaries to issue any shares of preferred stock, provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock and the Company's Subsidiaries may incur Indebtedness or issue preferred stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters (excluding any fiscal quarters ending prior to July 1, 1997) for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or preferred stock is issued would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock or preferred stock had been issued, as the case may be, at the beginning of such four-quarter period. 100 The provisions of the first paragraph of this covenant will not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (i) the incurrence by the Company of Indebtedness and letters of credit (with letters of credit being deemed to have a principal amount equal to the stated amount thereof) and other obligations under Credit Facilities in an aggregate principal amount that does not exceed at any one time $115.0 million less the aggregate amount of all Net Proceeds of Asset Sales applied by the Company or any of its Subsidiaries to repay Indebtedness under such Credit Facilities pursuant to the covenant described above under the caption "--Asset Sales" (other than temporary paydowns pending final application of such Net Proceeds); (ii) the incurrence by the Company and the Guarantors of the Existing Indebtedness and the issuance of the Existing Disqualified Stock; (iii) the incurrence by the Company of Indebtedness represented by the Notes in an aggregate principal amount not to exceed $120.0 million; (iv) the incurrence by the Company or any of the Guarantors of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Subsidiary, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any other Indebtedness incurred pursuant to this clause (iv), that does not exceed at any one time the amount of such Capital Lease Obligations, mortgage financings or purchase money obligations outstanding as of the date of the Indenture, plus $5.0 million; (v) the incurrence by the Company or any of the Guarantors of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the Indenture to be incurred under the first paragraph hereof or clauses (ii) or (iv) of this paragraph; (vi) the incurrence by the Company or any of the Guarantors of intercompany Indebtedness between or among the Company and any Guarantor; provided, however, that (i) if the Company is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Guarantor thereof and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Guarantor thereof shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Guarantor, as the case may be, that was not permitted by this clause (vi); (vii) the incurrence by the Company or any of the Guarantors of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding; and (viii) the guarantee by the Company or any of its Subsidiaries or any of the Guarantors of Indebtedness of the Company or another Guarantor that was permitted to be incurred by another provision of this covenant; (ix) the incurrence by the Company's Unrestricted Subsidiaries of Non- Recourse Debt, provided, however, that if any such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of the Company that was not permitted by this clause (ix), and the issuance of preferred stock by Unrestricted Subsidiaries; and 101 (x) the incurrence by the Company or any of the Guarantors of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (x), not to exceed $5.0 million. For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (x) above or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this covenant. Accrual of interest, accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this covenant; provided, in each such case, that the amount thereof is included in Fixed Charges of the Company as accrued (to the extent not already included in Fixed Charges). Liens The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any asset now owned or hereafter acquired, securing Indebtedness or trade payables, except Permitted Liens. Dividend and Other Payment Restrictions Affecting Subsidiaries The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any indebtedness owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or advances to the Company or any of its Restricted Subsidiaries or (iii) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. However, the foregoing restrictions will not apply to encumbrances or restrictions existing under or by reason of (a) Existing Indebtedness as in effect on the date of the Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the agreements governing such Existing Indebtedness as in effect on the date of the Indenture, (b) the New Credit Facility as in effect as of the date of the Indenture, or other Credit Facilities entered into subsequent to the date of the Indenture, and in either case any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such other Credit Facilities or amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the New Credit Facility as in effect on the date of the Indenture, (c) the Indenture and the Notes, (d) applicable law, (e) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or 102 the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred, (f) customary non-assignment provisions in leases and other contracts and other contracts entered into in the ordinary course of business and consistent with past practices, (g) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, (h) any agreement for the sale of a Subsidiary or a substantial proportion of such Subsidiary's assets that restricts distributions by that Subsidiary pending its sale, (i) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced, (j) secured Indebtedness otherwise permitted to be incurred pursuant to the provisions of the covenant described above under the caption "--Liens" that limits the right of the debtor to dispose of the assets securing such Indebtedness, (k) provisions with respect to the disposition or distribution of assets or property in joint venture agreements and other similar agreements entered into in the ordinary course of business and (l) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business. Merger, Consolidation, or Sale of Assets The Indenture provides that the Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) except in the case of a merger or consolidation of the Company with or into a Wholly Owned Restricted Subsidiary of the Company, the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Registration Rights Agreement, the Notes and the Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) except in the case of a merger of the Company with or into a Wholly Owned Subsidiary of the Company, the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition shall have been made (A) will have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) will, immediately after such transaction after giving pro forma effect thereto and any related financing transaction as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock". The Indenture will provide that the Company shall not lease its properties and assets substantially as an entirety to any Person. Transactions with Affiliates The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is 103 on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. Notwithstanding the foregoing, the following items shall not be deemed to be Affiliate Transactions: (i) any employment agreement entered into by the Company or any of its Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Subsidiary, (ii) transactions between or among the Company and/or its Restricted Subsidiaries, (iii) payment of reasonable directors fees to Persons who are not otherwise Affiliates of the Company, (iv) any sale or other issuance of Equity Interests (other than Disqualified Stock) of the Company, (v) Restricted Payments that are permitted by the provisions of the Indenture described above under the caption "-- Restricted Payments", and (vi) Existing Affiliate Transactions. Sale and Leaseback Transactions The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that the Company may enter into a sale and leaseback transaction if (i) the Company could have incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption "--Incurrence of Additional Indebtedness and Issuance of Preferred Stock", (ii) the gross cash proceeds of such sale and leaseback transaction are at least equal to the fair market value (as determined in good faith by the Board of Directors and set forth in an Officers' Certificate delivered to the Trustee) of the property that is the subject of such sale and leaseback transaction and (iii) the transfer of assets in such sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, the covenant described above under the caption "--Asset Sales". Senior Subordinated Debt The Indenture provides that (i) the Company will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is expressly subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Notes, and (ii) no Guarantor will incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is expressly subordinate or junior in right of payment to the Senior Guarantees and senior in any respect in right of payment to the Guarantees. Payments for Consent The Indenture provides that neither the Company nor any of its Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid or is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. 104 Additional Subsidiary Guarantees The Indenture provides that if the Company or any of its Restricted Subsidiaries shall acquire or create another Subsidiary after the date of the Indenture, then such newly acquired or created Subsidiary shall become a Guarantor and execute a Supplemental Indenture and deliver an Opinion of Counsel, in accordance with the terms of the Indenture; provided, that all Subsidiaries that have properly been designated as Unrestricted Subsidiaries in accordance with the Indenture (i) shall not be subject to the requirements of this covenant and (ii) shall be released from all Obligations under any Guarantee, in each case for so long as they continue to constitute Unrestricted Subsidiaries. Reports The Indenture provides that, whether or not required by the rules and regulations of the Commission, so long as any Notes are outstanding, the Company will furnish to the Holders of Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports, in each case within the time periods specified in the Commission's rules and regulations. In addition, following the consummation of the Exchange Offer, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information and reports with the Commission for public availability within the time periods specified in the Commission's rules and regulations (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, the Company and the Guarantors have agreed that, for so long as any Notes remain outstanding, they will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. Any materials required to be furnished to Holders of Notes by this covenant shall discuss, in reasonable detail, either on the face of the financial statements included therein or in the footnotes thereto and in any Management's Discussion and Analysis of Financial Condition and Results of Operations, the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company. EVENTS OF DEFAULT AND REMEDIES The Indenture provides that each of the following constitutes an Event of Default: (i) default for 30 days in the payment when due of interest on, or Liquidated Damages with respect to, the Notes (whether or not prohibited by the subordination provisions of the Indenture); (ii) default in payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (iii) failure by the Company or any of its Subsidiaries for 30 days after notice to comply with the provisions described under the captions "--Change of Control", "--Asset Sales", "--Restricted Payments" or "--Incurrence of Indebtedness and Issuance of Preferred Stock"; (iv) failure by the Company or any of its Subsidiaries for 60 days after notice to comply with any of its other agreements in the Indenture or the Notes; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness the maturity of which has been so accelerated, aggregates $5.0 million or more; 105 (vi) failure by the Company or any of its Restricted Subsidiaries to pay final judgments aggregating in excess of $5.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries; and (viii) except as permitted by the Indenture, any Guarantee shall be held in any judicial proceeding to be unenforceable or invalid in any material respect or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs prior to April 15, 2003 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to April 15, 2003, then the premium specified in the Indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the Notes. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest, Liquidated Damages or premium on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes, the Indenture or the Registration Rights Agreement or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding Notes ("Legal Defeasance") except for (i) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, premium, if any, and interest and Liquidated Damages on such Notes when such payments are due from the trust referred to below, 106 (ii) the Company's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest and Liquidated Damages on the outstanding Notes on the Stated Maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound, including, without limitation, the New Credit Facility; (vi) the Company must have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (viii) the Company must deliver to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. TRANSFER AND EXCHANGE A Holder may transfer or exchange Notes in accordance with the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and 107 transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption. Also, the Company is not required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed. The registered Holder of a Note will be treated as the owner of it for all purposes. AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the next two succeeding paragraphs, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder): (i) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (ii) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (other than provisions relating to the covenants described above under the caption "--Repurchase at the Option of Holders"); (iii) reduce the rate of or change the time for payment of interest on any Note; (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, Liquidated Damages, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration); (v) make any Note payable in money other than that stated in the Notes; (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or premium, if any, or interest on the Notes; (vii) waive a redemption payment with respect to any Note (other than a payment required by one of the covenants described above under the caption "--Repurchase at the Option of Holders"); or (viii) make any change in the foregoing amendment and waiver provisions. In addition, any amendment to the provisions of Article 10 of the Indenture (which relate to subordination) will require the consent of the Holders of at least 75% in aggregate principal amount of the Notes then outstanding if such amendment would adversely affect the rights of Holders of Notes. Notwithstanding the foregoing, without the consent of any Holder of Notes, the Company and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of Notes in the case of a merger or consolidation or sale of all or substantially all of the Company's assets, to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. CONCERNING THE TRUSTEE The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. 108 The Holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. ADDITIONAL INFORMATION Anyone who receives this Prospectus may obtain a copy of the Indenture and Registration Rights Agreement without charge by writing to Fountain View, Inc., 11900 W. Olympic Blvd., Suite 680, Los Angeles, California 90064, Attention: Chief Financial Officer. BOOK-ENTRY, DELIVERY AND FORM The Outstanding Notes were offered and sold to qualified institutional buyers in reliance on Rule 144A ("Rule 144A Notes"). The Outstanding Notes were also offered and sold in offshore transactions in reliance on Regulation S ("Regulation S Notes"). Except as set forth below, the Outstanding Notes are issued in registered, global form in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof. Notes were issued at the Closing only against payment in immediately available funds. Rule 144A Notes are represented by one or more Notes in registered, global form without interest coupons (collectively, the "Rule 144A Global Notes"). Regulation S Notes are represented by one or more Notes in registered, global form without interest coupons (collectively, the "Regulation S Global Notes" and, together with the Rule 144A Global Notes, the "Outstanding Global Notes"). The Outstanding Global Notes were deposited upon issuance with the Trustee as custodian for The Depository Trust Company ("DTC"), in New York, New York, and registered in the name of DTC or its nominee, in each case for credit to an account of a direct or indirect participant in DTC as described below. Through and including the 40th day after the later of the commencement of the Note Offering and the Closing (such period through and including such 40th day, the "Restricted Period"), beneficial interests in the Regulation S Global Notes could be held only through the Euroclear System ("Euroclear") and Cedel, S.A. ("Cedel") (as indirect participants in DTC), unless transferred to a person that took delivery through a Rule 144A Global Note in accordance with the certification requirements described below. Beneficial interests in the Rule 144A Global Notes may not be exchanged for beneficial interests in the Regulation S Global Notes at any time except in the limited circumstances described below. See "--Exchanges between Regulation S Notes and Rule 144A Notes". Except as set forth below, the Outstanding Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Outstanding Global Notes may not be exchanged for Outstanding Notes in certificated form except in the limited circumstances described below. See "--Exchange of Book-Entry Notes for Certificated Notes". Except in the limited circumstances described below, owners of beneficial interests in the Outstanding Global Notes are not entitled to receive physical delivery of Certificated Notes (as defined below). Rule 144A Notes (including beneficial interests in the Rule 144A Global Notes) are subject to certain restrictions on transfer and bear a restrictive legend. Regulation S Notes also bear a restrictive legend. In addition, transfers of beneficial interests in the Outstanding Global Notes are subject to the applicable rules and procedures of DTC and its direct or indirect participants (including, if applicable, those of Euroclear and Cedel), which may change from time to time. The Trustee acts as Paying Agent and Registrar. The Outstanding Notes may be presented for registration of transfer and exchange at the offices of the Registrar. 109 Depository Procedures The following description of the operations and procedures of DTC, Euroclear and Cedel are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to changes by them from time to time. The Company takes no responsibility for these operations and procedures and urges investors to contact the system or their participants directly to discuss these matters. DTC has advised the Company that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book- entry changes in accounts of its Participants. The Participants include securities brokers and dealers (including the Initial Purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants. DTC has also advised the Company that, pursuant to procedures established by it, (i) upon deposit of the Outstanding Global Notes, DTC credited the accounts of Participants designated by the Initial Purchasers with portions of the principal amount of the Outstanding Global Notes and (ii) ownership of such interests in the Outstanding Global Notes is shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interest in the Outstanding Global Notes). Investors in the Rule 144A Global Notes may hold their interests therein directly through DTC, if they are Participants in such system, or indirectly through organizations (including Euroclear and Cedel) which are Participants in such system. Investors in the Regulation S Global Notes must initially hold their interests therein through Euroclear or Cedel, if they are participants in such systems, or indirectly through organizations that are participants in such systems. After the expiration of the Restricted Period (but not earlier), investors may also hold interests in the Regulation S Global Notes through Participants in the DTC system other than Euroclear and Cedel. Euroclear and Cedel will hold interests in the Regulation S Global Notes on behalf of their participants through customers' securities accounts in their respective names on the books of their respective depositories, which are Morgan Guaranty Trust Company of New York, Brussels office, as operator of Euroclear, and Citibank, N.A., as operator of Cedel. All interests in a Global Note, including those held through Euroclear or Cedel, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear or Cedel may also be subject to the procedures and requirements of such systems. The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to such persons will be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants and certain banks, the ability of a person having beneficial interests in a Outstanding Global Note to pledge such interests to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests. EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE OUTSTANDING GLOBAL NOTES DO NOT HAVE OUTSTANDING NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF OUTSTANDING NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR "HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE. 110 Payments in respect of the principal of, and premium, if any, Liquidated Damages, if any, and interest on an Outstanding Global Note registered in the name of DTC or its nominee will be payable to DTC in its capacity as the registered Holder under the Indenture. Under the terms of the Indenture, the Company and the Trustee will treat the persons in whose names the Outstanding Notes, including the Outstanding Global Notes, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, neither the Company, the Trustee nor any agent of the Company or the Trustee has or will have any responsibility or liability for (i) any aspect of DTC's records or any Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interest in the Outstanding Global Notes, or for maintaining, supervising or reviewing any of DTC's records or any Participant's or Indirect Participant's records relating to the beneficial ownership interests in the Outstanding Global Notes or (ii) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants. DTC has advised the Company that its current practice, upon receipt of any payment in respect of securities such as the Outstanding Notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date, in amounts proportionate to their respective holdings in the principal amount of beneficial interest in the relevant security as shown on the records of DTC unless DTC has reason to believe it will not receive payment on such payment date. Payments by the Participants and the Indirect Participants to the beneficial owners of the Outstanding Notes will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the Trustee or the Company. Neither the Company nor the Trustee will be liable for any delay by DTC or any of its Participants in identifying the beneficial owners of the Outstanding Notes, and the Company and the Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes. Except for trades involving only Euroclear and Cedel participants, interest in the Outstanding Global Notes are eligible to trade in DTC's Same-Day Funds Settlement System and secondary market trading activity in such interests will, therefore, settle in immediately available funds, subject in all cases to the rules and procedures of DTC and its Participants. See "--Same Day Settlement and Payment". Subject to any applicable transfer restrictions, transfers between Participants in DTC will be effected in accordance with DTC's procedures, and will be settled in same day funds, and transfers between participants in Euroclear and Cedel will be effected in the ordinary way in accordance with their respective rules and operating procedures. Subject to compliance with the transfer restrictions applicable to the Outstanding Notes described herein, cross-market transfers between the Participants in DTC, on the one hand, and Euroclear or Cedel participants, on the other hand, will be effected through DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case may be, by its respective depositary; however, such cross-market transactions will require delivery of instructions to Euroclear or Cedel, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Cedel, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Outstanding Global Note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Cedel participants may not deliver instructions directly to the depositories for Euroclear or Cedel. DTC has advised the Company that it will take any action permitted to be taken by a Holder of the Outstanding Notes only at the direction of one or more Participants to whose account DTC has credited the interests in the Outstanding Global Notes and only in respect of such portion of the aggregate principal amount of the Outstanding Notes as to which such Participant or Participants has 111 or have given such direction. However, if there is an Event of Default under the Outstanding Notes, DTC reserves the right to exchange the Outstanding Global Notes for legended Outstanding Notes in certificated form, and to distribute such Outstanding Notes to its Participants. Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to facilitate transfers of interests in the Regulation S Global Notes and in the Rule 144A Global Notes among Participants in DTC, Euroclear and Cedel, they are under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Company nor the Trustee nor any of their respective agents will have any responsibility for the performance by DTC, Euroclear or Cedel or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations. Exchange of Book-Entry Notes for Certificated Notes An Outstanding Global Note is exchangeable for definitive Outstanding Notes in registered certificated form ("Certificated Notes") if (i) DTC (x) notifies the Company that it is unwilling or unable to continue as depositary for the Outstanding Global Notes and the Company thereupon fails to appoint a successor depositary or (y) has ceased to be a clearing agency registered under the Exchange Act, (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of the Certificated Notes or (iii) there shall have occurred and be continuing a Default or Event of Default with respect to the Outstanding Notes. In addition, beneficial interests in an Outstanding Global Note may be exchanged for Certificated Notes upon request upon compliance with the procedures set forth in the Indenture. In all cases, Certificated Notes delivered in exchange for any Outstanding Global Note or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures) and will bear the applicable restrictive legend, unless the Company determines otherwise in compliance with applicable law. Exchange of Certificated Notes for Book-Entry Notes Outstanding Notes issued in certificated form may not be exchanged for beneficial interests in any Outstanding Global Note unless the transferor first delivers to the Trustee a written certificate (in the form provided in the Indenture) to the effect that such transfer will comply with any appropriate transfer restrictions applicable to such Outstanding Notes. Exchanges Between Regulation S Notes and Rule 144A Notes Prior to the expiration of the Restricted Period, beneficial interests in the Regulation S Global Note may be exchanged for beneficial interests in the Rule 144A Global Note only if such exchange occurs in connection with a transfer of the Outstanding Notes pursuant to Rule 144A and the transferor first delivers to the Trustee a written certificate (in the form provided in the Indenture) to the effect that the Outstanding Notes are being transferred to a person who the transferor reasonably believes to be a qualified institutional buyer within the meaning of Rule 144A, purchasing for its own account or the account of a qualified institutional buyer in a transaction meeting the requirements of Rule 144A and in accordance with all applicable securities laws of the states of the United States and other jurisdictions. Beneficial interest in a Rule 144A Global Note may be transferred to a person who takes delivery in the form of an interest in the Regulation S Global Note, whether before or after the expiration of the Restricted Period, only if the transferor first delivers to the Trustee a written certificate (in the form provided in the Indenture) to the effect that such transfer is being made in accordance with Rule 903 or 904 of Regulation S or Rule 144 (if available) and that, if such transfer occurs prior to the expiration of the Restricted Period, the interest transferred will be held immediately thereafter through Euroclear or Cedel. 112 Transfers involving an exchange of a beneficial interest in the Regulation S Global Note for a beneficial interest in a Rule 144A Global Note or vice versa will be effected in DTC by means of an instruction originated by the Trustee through the DTC Deposit/Withdraw at Custodian system. Accordingly, in connection with any such transfer, appropriate adjustments will be made to reflect a decrease in the principal amount of the Regulation S Global Note and a corresponding increase in the principal amount of the Rule 144A Global Note or vice versa, as applicable. Any beneficial interest in one of the Outstanding Global Notes that is transferred to a person who takes delivery in the form of an interest in the other Outstanding Global Note will, upon transfer, cease to be an interest in such Outstanding Global Note and will become an interest in the other Outstanding Global Note and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interest in such other Outstanding Global Note for so long as it remains such an interest. The policies and practices of DTC may prohibit transfers of beneficial interests in the Regulation S Global Note prior to the expiration of the Restricted Period. Same Day Settlement and Payment The Indenture requires that payments in respect of the Outstanding Notes represented by the Outstanding Global Notes (including principal, premium, if any, interest and Liquidated Damages, if any) be made by wire transfer of immediately available funds to the accounts specified by the Outstanding Global Note Holder. With respect to Outstanding Notes in certificated form, the Company will make all payments of principal, premium, if any, interest and Liquidated Damages, if any, by wire transfer of immediately available funds to the accounts specified by the Holders thereof or, if no such account is specified, by mailing a check to each such Holder's registered address. The Outstanding Notes represented by the Outstanding Global Notes are expected to be eligible to trade in the PORTAL market and to trade in the Depositary's Same-Day Funds Settlement System, and any permitted secondary market trading activity in such Outstanding Notes will, therefore, be required by the Depositary to be settled in immediately available funds. The Company expects that secondary trading in any certificated Outstanding Notes will also be settled in immediately available funds. Because of time zone differences, the securities account of a Euroclear or Cedel participant purchasing an interest in an Outstanding Global Note from a Participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or Cedel participant, during the securities settlement processing day (which must be a business day for Euroclear and Cedel) immediately following the settlement date of DTC. DTC has advised the Company that cash received in Euroclear or Cedel as a result of sales of interests in an Outstanding Global Note by or through a Euroclear or Cedel participant to a Participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Cedel cash account only as of the business day for Euroclear or Cedel following DTC's settlement date. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of 113 this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than sales of inventory in the ordinary course of business consistent with past practices (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption "--Change of Control" and/or the provisions described above under the caption "--Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant), and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company's Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0 million. Notwithstanding the foregoing, the following items shall not be deemed to be Asset Sales: (i) a transfer of assets by the Company to a Restricted Subsidiary or by a Restricted Subsidiary to the Company or to another Restricted Subsidiary, (ii) an issuance of Equity Interests by a Restricted Subsidiary to the Company or to another Restricted Subsidiary, (iii) a Restricted Payment that is permitted by the covenant described above under the caption "--Restricted Payments", and (iv) an exchange of facilities by the Company or a Restricted Subsidiary to the extent that such facilities are exchanged for one or more nursing centers, long-term care facilities, assisted living facilities, outpatient clinics or any other facilities or businesses that are used or useful in the provision of healthcare related services, in each case the aggregate fair market value of which is equal to or greater than the fair market value of the facilities so exchanged, as determined in good faith by the Board of Directors. "Attributable Debt" in respect of a sale and leaseback transaction or an operating lease in respect of a healthcare facility means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee of the property subject to such sale and leaseback transaction or operating lease in respect of a healthcare facility for net rental payments during the remaining term of the lease included in such transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with 114 any lender party to the New Credit Facility or with any domestic commercial bank having capital and surplus in excess of $500 million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition and (vi) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (i)-(v) of this definition. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act) other than one or more Principals and their Related Parties, (ii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than one or more Principals and their Related Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), directly or indirectly, of more than 50% of the Voting Stock of the Company (measured by voting power rather than number of shares), (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than one or more Principals and their Related Parties, becomes the "beneficial owner" (as defined above), directly or indirectly, of more than 35% of the Voting Stock of the Company (measured by voting power rather than number of shares) and the Principals and their Related Parties in the aggregate "beneficially own" (as defined above) less than 35% of the Voting Stock of the Company (measured by voting power rather than number of shares) or, in the event the Company has consummated a Public Equity Offering, less than 20% of the Voting Stock of the Company (measured by voting power rather than number of shares), or (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income, plus (v) any non-recurring expenses related to Fountain View's reorganization transactions during August 1997, plus (vi) non-recurring financing, advisory and other expenses incurred in connection with the Transactions, minus (vii) non-cash items increasing 115 such Consolidated Net Income for such period (other than items that were accrued in the ordinary course of business), in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash expenses of, a Subsidiary of the Company shall be added to Consolidated Net Income to compute Consolidated Cash Flow of the Company only to the extent that a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Wholly Owned Restricted Subsidiary thereof that is a Guarantor, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iv) the cumulative effect of a change in accounting principles shall be excluded, (v) the Net Income of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the Company or one of its Subsidiaries and (vi) the Net Income of any Restricted Subsidiary shall be calculated after deducting preferred stock dividends payable by such Restricted Subsidiary to Persons other than the Company and its other Restricted Subsidiaries. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments). "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of the Indenture, (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election, or (iii) was elected to such Board of Directors pursuant to a designation made pursuant to the Stockholder Agreement, provided that at such time the Principals and their Related Parties own more than 35% of the Voting Stock of the Company. "Credit Facilities" means, one or more debt facilities (including, without limitation, the New Credit Facility) or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. Indebtedness under Credit Facilities outstanding on 116 the date on which Notes are first issued and authenticated under the Indenture shall be deemed to have been incurred on such date in reliance on the exception provided by clause (i) of the definition of Permitted Indebtedness. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Designated Senior Debt" means (i) so long as the New Credit Facility is outstanding, any Indebtedness outstanding under the New Credit Facility, and (ii) at any time thereafter any other Senior Debt permitted under the Indenture the principal amount of which is $25.0 million or more and that has been designated by the Company as "Designated Senior Debt". "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature; provided, however, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Company to repurchase such Capital Stock upon the occurrence of a Change of Control or an Asset Sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption "--Certain Covenants--Restricted Payments". "Employment Agreement" means any of the employment agreements between the Company and William C. Scott, Robert M. Snukal or Sheila S. Snukal in effect as of the date of the Indenture. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Existing Affiliate Transactions" means any transaction contemplated by any of (i) the Stockholder Agreement, (ii) the Employment Agreements, (iii) the Agreement and Plan of Merger, dated as of February 6, 1998, among the Company, Summit Care Corporation, Heritage Fund II, L.P. and FV-SCC Acquisition Corp., (iv) the Investment Agreement, dated as of March 27, 1998, among the Company, Heritage Fund II, L.P., Heritage Investors II, L.L.C. and certain other Persons named therein, (v) the leases of the Company's Rio Hondo, Fountain View, Montebello and Sycamore Park skilled nursing facilities, between Robert M. Snukal, Sheila S. Snukal or their affiliates and the Company, and (vi) the purchase and supply agreements between the Company or its Subsidiaries and Twin Med, Inc. consistent with past practice in the ordinary course of business. "Existing Disqualified Stock" means the Series A Preferred Stock of the Company. "Existing Indebtedness" means up to $165 million in aggregate principal amount of Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the New Credit Facility) in existence on the date of the Indenture, until such amounts are repaid. "Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of debt issuance costs (other than any such costs incurred in connection with the Transactions) and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated interest of such Person and its 117 Restricted Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or any of its Restricted Subsidiaries or secured by a Lien on assets of such Person or any of its Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv) the product of (a) all dividend payments, whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the referent Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Guarantors" means each of Summit Care Corporation, a California corporation, Summit Care-California, Inc., a California corporation, Summit Care Pharmacy, Inc., a California corporation, Skilled Care Network, a California corporation, Summit Care Texas Equity, Inc., a California corporation, Summit Care-Texas No. 2, Inc., a Texas corporation, Summit Care- Texas No. 3, Inc., a Texas corporation, Summit Care Management Texas, Inc., a Texas corporation, Summit Care Texas, L.P., a Texas limited partnership, Fountain View Holdings, Inc., a Delaware corporation, AIB Corp., a California corporation, Alexandria Convalescent Hospital, Inc., a California corporation, BIA Hotel Corp., a California corporation, Brier Oak Convalescent, Inc., a California corporation, Elmcrest 118 Convalescent Hospital, a California corporation, Fountainview Convalescent Hospital, a California corporation, Fountain View Management, Inc., a California corporation, Rio Hondo Nursing Center, a California corporation, Locomotion Holdings, Inc., a Delaware corporation, Locomotion Therapy, Inc., a Delaware corporation, On-Track Therapy Center, Inc., a California corporation, I.'N O., Inc., a California corporation, and Sycamore Park Convalescent Hospital, a California corporation, and (ii) any other subsidiary that executes a Guarantee in accordance with the provisions of this Indenture, and their respective successors and assigns. "Healthcare Related Business" means a business, at least a majority of whose revenues result from healthcare, long-term care or assisted living related businesses or facilities. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such Indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any Indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof, in the case of any Indebtedness issued with original issue discount, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of direct or indirect loans (including Guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption "--Restricted Payments". "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). 119 "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness (other than Indebtedness under the New Credit Facility) secured by a lien on the asset or assets that were the subject of such Asset Sale, and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "New Credit Facility" means that certain Credit Agreement, by and among the Company and Bank of Montreal, as agent, providing for up to $30 million of revolving credit borrowings and $85 million of term loan borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise), or (c) constitutes the lender; and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness (other than the Notes being offered hereby) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Permitted Investments" means (a) any Investment in the Company or in a Restricted Subsidiary of the Company that is a Guarantor; (b) any Investment in Cash Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Restricted Subsidiary of the Company and a Guarantor or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company that is a Guarantor; (d) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "--Repurchase at the Option of Holders--Asset Sales"; (e) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (f) Hedging Obligations; (g) any Investment in Permitted Joint Ventures; (h) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when 120 taken together with all other Investments made pursuant to this clause (h) that are at the time outstanding, not to exceed $2.5 million; and (i) Investments provided for in the Investment Agreement as of the date of the Indenture. "Permitted Joint Venture" means (i) any Restricted Subsidiary which owns, operates or services a Healthcare Related Business, and (ii) Summit Care Pharmacy, L.L.C., which owns and operates a pharmacy in Texas. "Permitted Junior Securities" means Equity Interests in the Company or any Guarantor or debt securities that are unsecured and subordinated to all Senior Debt (and any debt securities issued in exchange for Senior Debt) to at least the same extent as, or to a greater extent than, the Notes are subordinated to Senior Debt pursuant to Article 10 of the Indenture. "Permitted Liens" means (i) Liens on assets of the Company, and of its Restricted Subsidiaries or any of the Guarantors securing Senior Debt that was permitted by the terms of the Indenture to be incurred; (ii) Liens in favor of the Company; (iii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Restricted Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company; (iv) Liens on property existing at the time of acquisition thereof or the acquisition of a Person owning such property or assets by the Company or any Restricted Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (v) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (vi) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (iv) of the second paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock" covering only the assets acquired with such Indebtedness; (vii) Liens existing on the date of the Indenture; (viii) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (ix) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (x) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (xi) Liens on assets of Guarantors to secure Senior Debt of such Guarantors that was permitted by the Indenture to be incurred; (xii) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $5.0 million at any one time outstanding and that (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Restricted Subsidiary; and (xiii) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable 121 expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Principals" means Heritage Partners Management Company, Inc. and Heritage Fund II, L.P. "Public Equity Offerings" means a public offering of common stock of the Company pursuant to a registration statement filed with the Securities and Exchange Commission in accordance with the Securities Act. "Related Party" with respect to any Principal means (A) any controlling holder of Equity Interests, 80% (or more) owned Subsidiary, or spouse or ex- spouse or immediate family member (in the case of an individual) of such Principal or (B) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (A) or (C) any investment fund, whether a limited partnership, limited liability company or corporation or other entity managed or controlled by Heritage Partners Management Company, Inc. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "Senior Debt" means (i) all Indebtedness outstanding under Credit Facilities and all Hedging Obligations with respect thereto, (ii) any other Indebtedness permitted to be incurred by the Company under the terms of the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes and (iii) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include (w) any liability for federal, state, local or other taxes owed or owing by the Company, (x) any Indebtedness of the Company to any of its Subsidiaries or other Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in violation of the Indenture. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without 122 regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "Transaction Related Payments" means (i) certain bonus and other payments not to exceed $1,925,000 from Summit or the Company to William Scott, payable at the effective time of the Merger, (ii) payments not to exceed $2,535,000 in the aggregate to effect the cash-out of Summit stock options, as described in the Merger Agreement, (iii) the payment of a transaction fee of up to $3 million by the Company to Heritage, payable at the effective time of the Merger, and (iv) payments to Mr. and Mrs. Snukal and William Scott, not to exceed $150,000 in the aggregate, upon the forfeiture of Series B Common Stock pursuant to the Stockholders Agreement. "Unrestricted Subsidiary" means any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (c) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) has at least one director on its board of directors that is not a director or executive officer of the Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of the Company or any of its Restricted Subsidiaries. Any such designation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions and was permitted by the covenant described above under the caption "Certain Covenants--Restricted Payments". If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date (and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption "Incurrence of Indebtedness and Issuance of Preferred Stock", the Company shall be in default of such covenant). The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (i) such Indebtedness is permitted under the covenant described under the caption "Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock", calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period, and (ii) no Default or Event of Default would be in existence following such designation. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, 123 including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries of such Person. 124 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following general discussion of the anticipated material United States federal income tax consequences of an exchange of the Outstanding Notes for the Exchange Notes and of the purchase at original issue, ownership and disposition of the Exchange Notes is based upon the provisions of the Internal Revenue Code of 1986, as amended, (the "Code"), the final, temporary and proposed regulations promulgated thereunder, and administrative rulings and judicial decisions now in effect, all of which are subject to change (possibly with retroactive effect) or different interpretations. This summary does not purport to deal with all aspects of federal income taxation that may be relevant to a particular investor, nor any tax consequences arising under the laws of any state, locality, or foreign jurisdiction, and it is not intended to be applicable to all categories of investors, some of which may be subject to special rules. The tax treatment of holders of the Notes may vary depending upon their particular situations. Certain holders (including insurance companies, tax-exempt organizations, financial institutions, subsequent purchasers of Notes and broker-dealers) may be subject to special rules not discussed below. In general, this discussion assumes that a holder acquires a Note at original issuance and holds such Note as a capital asset and not as part of a "hedge", "straddle", "conversion transaction", "synthetic security" or other integrated investment. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES FEDERAL TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF NOTES, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY FOREIGN, STATE, LOCAL OR OTHER TAXING JURISDICTION. TAXATION OF HOLDERS ON EXCHANGE Subject to the limitation set forth above, an exchange of Outstanding Notes for Exchange Notes should not be a taxable event to holders of Outstanding Notes, and holders should not recognize any taxable gain or loss as a result of such an exchange. Accordingly, a holder would have the same adjusted basis and holding period in the Exchange Notes as it had in the Outstanding Notes immediately before the exchange. Further, the tax consequences of ownership and disposition of any Exchange Notes should be the same as the tax consequences of ownership and disposition of Outstanding Notes. As used herein, the term "United States Holder" means a beneficial owner of a Note that is, for United States federal income tax purposes, a citizen or resident of the United States, a corporation, partnership or other entity created or organized in the United States or under the law of the United States or of any political subdivision thereof, an estate whose income is includible in gross income for United States federal income tax purposes regardless of its source or a trust, if a United States court is able to exercise primary supervision over the administration of the trust and one or more United States fiduciaries have the authority to control all substantial decisions of the trust. UNITED STATES HOLDERS STATED INTEREST. Stated interest on a Note will be taxable to a United States Holder as ordinary interest income at the time that such interest accrues or is received, in accordance with the United States Holder's regular method of accounting for federal income tax purposes. The Company expects that the Notes will not be considered to be issued with original issue discount for federal income tax purposes. LIQUIDATED DAMAGES. The Company intends to take the position that the Liquidated Damages described above under "The Exchange Offer--Purpose of the Exchange Offer" will be taxable to a United States Holder as ordinary income in accordance with such United States Holder's method of 125 accounting for tax purposes. The Internal Revenue Service ("IRS"), however, may take a different position, which could affect the timing of both a United States Holder's income and the timing of the Company's deduction with respect to such Liquidated Damages. SALE, EXCHANGE OR RETIREMENT OF THE NOTES. Upon the sale, exchange, redemption, retirement at maturity or other disposition of a Note, a United States Holder will generally recognize taxable gain or loss equal to the difference between the sum of cash plus the fair market value of all other property received on such disposition (except to the extent such cash or property is attributable to accrued interest which will be taxable as ordinary income) and such holder's adjusted tax basis in the Note. Gain or loss recognized on the disposition of a Note generally will be capital gain or loss. Pursuant to the recently enacted Taxpayer Relief Act of 1997, long-term capital gains tax rates will apply to dispositions by individuals of capital assets (such as the Notes) held for more than 18 months. The maximum long-term capital gains tax rate applicable to individuals is currently 20% (10% for individuals in the 15% tax bracket). Mid-term capital gains tax rates will apply to dispositions by individuals of capital assets held for more than one year but not more than 18 months. The maximum mid-term capital gains tax rate applicable to individuals is currently 28% (15% for individuals in the 15% tax bracket). Corporate taxpayers continue to be subject to a maximum regular tax rate of 35% on all capital gains and ordinary income. The exchange of a Note by a United States Holder for an Exchange Note should not constitute a taxable exchange of the Note. As a result, a United States Holder should not recognize taxable gain or loss upon receipt of an Exchange Note, a United States Holder's holding period for an Exchange Note should generally include the holding period for the Note so exchanged and such holder's adjusted tax basis in an Exchange Note should generally be the same as such holder's adjusted tax basis in the Note so exchanged. BACKUP WITHHOLDING AND INFORMATION REPORTING. In general, a United States Holder of a Note will be subject to backup withholding at the rate of 31% with respect to interest, premium and possibly principal, if any, paid on a Note, unless the holder (a) is an entity (including corporations, tax-exempt organizations and certain qualified nominees) that is exempt from withholding and, when required, demonstrates this fact, or (b) provides the Company with its Taxpayer Identification Number ("TIN") (which, for an individual, would be the holder's Social Security number), certifies that the TIN provided to the Company is correct and that the holder has not been notified by the IRS that it is subject to backup withholding due to underreporting of interest or dividends, and otherwise complies with applicable requirements of the backup withholding rules. In addition, such payments of interest, premium and possibly principal to United States Holders that are not corporations, tax- exempt organizations or qualified nominees will generally be subject to information reporting requirements. The amount of any backup withholding from a payment to a United States Holder will be allowed as a credit against such holder's federal income tax liability and may entitle such holder to a refund, provided that the required information is furnished to the IRS. NON-UNITED STATES HOLDERS STATED INTEREST. Interest paid by the Company to any beneficial owner of a Note that is not a United States Holder (a "Non-United States Holder") will not be subject to United States federal income or withholding tax if such interest is not effectively connected with the conduct of a trade or business within the United States by such Non-United States Holder and (a) such Non- United States Holder (i) does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the Company; (ii) is not a controlled foreign corporation with respect to which the Company is a "related person" within the meaning of the Code and (iii) satisfies certain certification requirements or (b) such Non-United States Holder is entitled to the benefits of an income tax treaty under which the interest is exempt from United States withholding tax, and such Non-United States 126 Holder provides a properly executed IRS Form 1001 claiming the exemption (or, after December 31, 1998, IRS Form W-8, which may require obtaining a TIN and making certain certifications). However, to the extent that any payment of Liquidated Damages is not treated as a payment of interest on the Notes, such payment may be subject to U.S. withholding taxes. See "--United States Holders". SALE, EXCHANGE OR RETIREMENT OF THE NOTES. A Non-United States Holder will generally not be subject to United States federal income tax on gain recognized on a sale, exchange, redemption, retirement at maturity or other disposition of a Note unless (i) the gain is effectively connected with the conduct of a trade or business within the United States by the Non-United States Holder or (ii) in the case of a Non-United States Holder who is a nonresident alien individual and holds the Note as a capital asset, such holder is present in the United States for 183 or more days in the taxable year and certain other requirements are met. FEDERAL ESTATE TAXES. If interest on the Notes is exempt from withholding of United States federal income tax under clause (a) of the rules described under "--Stated Interest", the Notes will not be included in the estate of a deceased Non-United States Holder for United States federal estate tax purposes. BACKUP WITHHOLDING AND INFORMATION REPORTING. The Company will, where required, report to the holders of Notes and the IRS the amount of any interest paid on the Notes in each calendar year and the amounts of tax withheld, if any, with respect to such payments. In the case of payments of interest to Non-United States Holders, Treasury Regulations provide that the 31% backup withholding tax and certain information reporting will not apply to such payment with respect to which either the requisite certification has been received or an exemption has otherwise been established; provided that neither the Company nor its payment agent has actual knowledge that the holder is a United States person or that the conditions of any other exemption are not in fact satisfied. Under the Treasury Regulations, these information reporting and backup withholding requirements will apply, however, to the gross proceeds paid to a Non-United States Holder on the disposition of the Notes by or through a United States office of a United States or foreign broker, unless certain certification requirements are met or the holder otherwise establishes an exemption. Information reporting requirements, but not backup withholding, will also apply to a payment of the proceeds of a disposition of the Notes by or through a foreign office of a United States broker or foreign brokers with certain types of relationships to the United States unless the holder is an exempt recipient (as demonstrated through appropriate certification) or such broker has documentary evidence in its file that the holder of the Notes is not a United States person and has no actual knowledge to the contrary and certain other conditions are met. Neither information reporting nor backup withholding generally will apply to a payment of the proceeds of a disposition of the Notes by or through a foreign office of a foreign broker not subject to the preceding sentence. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against the Non-United States Holder's United States federal income tax liability, provided that the required information is furnished to the IRS. Recently, the Treasury Department has promulgated final regulations regarding the withholding and information reporting rules discussed above. In general, the final regulations do not significantly alter the substantive withholding and information reporting requirements but unify current certification procedures and forms and clarify reliance standards. Under the final regulations, special rules apply which permit the shifting of primary responsibility for withholding to certain financial intermediaries acting on behalf of beneficial owners. The final regulations are generally effective for payments made after December 31, 1998, subject to certain transition rules. Non-United States Holders are urged to consult their tax advisors with respect to the application of these final regulations. 127 VALIDITY OF THE NOTES Certain legal matters with respect to U.S. federal and Delaware law in connection with the Exchange Notes offered hereby will be passed upon for the Company by Choate, Hall & Stewart (a partnership including professional corporations), Boston, Massachusetts. Stephen M. L. Cohen, a partner of Choate, Hall & Stewart, is a limited partner in Heritage Fund II, L.P. AVAILABLE INFORMATION The Company is not currently subject to the periodic reporting and other informational requirements of the Exchange Act. The Company has agreed that, whether or not it is required to do so by the rules and regulations of the Commission, for so long as any of the Notes remain outstanding, the Company will furnish to the holders of the Notes and file with the Commission (unless the Commission will not accept such a filing) (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company was required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports, in each case within the time periods set forth in the Commission's rules and regulations. In addition, following the consummation of the Exchange Offer, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information and reports with the Commission for public availability (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. Once the Registration Statement has been declared effective by the Commission, the Company will become subject to the informational requirements of the Exchange Act and in accordance therewith will be required to file reports and other information with the Commission. When filed, the Registration Statement and the exhibits thereto, as well as such reports and other information to be filed by the Company with the Commission, may be inspected, without charge, at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, as well as the regional offices of the Commission at the Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such documents can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. In addition, the Company will be required to file electronic versions of these documents with the Commission through the Commission's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. The Commission maintains a World Wide Web site, located at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. EXPERTS The consolidated financial statements and schedule of Fountain View, Inc. as of December 31, 1996 and 1997, and for each of the three years in the period ended December 31, 1997, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as stated in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements of Summit Care Corporation at June 30, 1997 and 1996, and for each of the three years in the period ended June 30, 1997, appearing in this Prospectus and 128 Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Prospectus contains certain statements that may be considered "forward- looking". Such forward-looking statements include, among other things, synergies resulting from the Transactions, the success of the Company's business strategy, the Company's ability to develop and expand its business in its regional markets, the Company's ability to increase the level of sub-acute and specialty medical care it provides, the effects of government regulation and healthcare reform, litigation, the Company's anticipated future revenues and additional revenue opportunities, capital spending and financial resources, the liquidity demands of the Company, the Company's ability to meet its liquidity needs, the resolution of Year 2000 issues, and other statements contained in this Prospectus regarding matters that are not historical facts. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements of the Company expressed or implied by such forward-looking statements. Prospective investors in the Notes offered hereby are cautioned that although management believes that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate and, as a result, the forward-looking statements based on those assumptions also could be materially incorrect. The uncertainties in this regard include, but are not limited to, those identified in the section of this Prospectus entitled "Risk Factors". In light of these and other uncertainties, the inclusion of a forward-looking statement herein should not be regarded as a representation by the Company that the Company's plans and objectives will be achieved and prospective investors in the Notes should not place undue reliance on such forward-looking statements. 129 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- FOUNTAIN VIEW, INC. Report of Independent Auditors............................................ F-2 Consolidated Balance Sheets at December 31, 1996 and 1997................. F-3 Consolidated Statements of Income for the Years Ended December 31, 1995, 1996 and 1997............................................................ F-4 Consolidated Statements of Shareholders' Equity (Deficit) for the Three Years Ended December 31, 1997............................................ F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997................................................................. F-6 Notes to Consolidated Financial Statements................................ F-7 Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 1997 and 1998.................................................. F-14 Consolidated Balance Sheet (Unaudited) at March 31, 1998.................. F-15 Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 1997 and 1998............................................ F-17 Notes to Unaudited Consolidated Financial Statements...................... F-18 SUMMIT CARE CORPORATION Report of Independent Auditors............................................ F-22 Consolidated Balance Sheets at June 30, 1996 and 1997..................... F-23 Consolidated Statements of Income for the Years Ended June 30, 1995, 1996 and 1997................................................................. F-24 Consolidated Statements of Shareholders' Equity for the Three Years Ended June 30, 1997............................................................ F-25 Consolidated Statements of Cash Flows for the Years Ended June 30, 1995, 1996 and 1997............................................................ F-26 Notes to Consolidated Financial Statements................................ F-27 Consolidated Balance Sheet (Unaudited) at December 31, 1997............... F-38 Consolidated Statements of Income (Unaudited) for the Period from July 1, 1997 to December 31, 1997........................................................ F-39 Consolidated Statements of Cash Flows (Unaudited) for the Period from July 1, 1997 to December 31, 1997........................................................ F-40 Notes to Unaudited Consolidated Financial Statements...................... F-41
F-1 REPORT OF INDEPENDENT AUDITORS The Board of Directors Fountain View, Inc. We have audited the accompanying consolidated balance sheets of Fountain View, Inc. as of December 31, 1996 and 1997 and the related consolidated statements of income, shareholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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 Fountain View, Inc. at December 31, 1996 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Ernst & Young LLP Los Angeles, California March 11, 1998 F-2 FOUNTAIN VIEW, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, ---------------- 1996 1997 ------- ------- ASSETS Current assets: Cash and cash equivalents.................................. $ 1,161 $ 2,551 Accounts receivable, less allowance for uncollectible accounts of $779 and $1,152, respectively ......................... 18,717 15,809 Deferred income taxes...................................... -- 927 Other current assets....................................... 713 576 ------- ------- Total current assets..................................... 20,591 19,863 ------- ------- Leasehold improvements and equipment, at cost: Leasehold improvements..................................... 2,329 4,659 Furniture and equipment.................................... 1,914 2,096 ------- ------- 4,243 6,755 Less accumulated depreciation and amortization............. (1,680) (2,481) ------- ------- 2,563 4,274 Other assets................................................. 968 1,804 ------- ------- Total assets................................................. $24,122 $25,941 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Payable to banks........................................... $ 2,975 $ -- Accounts payable and accrued liabilities................... 1,457 4,179 Employee compensation and benefits......................... 2,423 2,479 Income taxes payable....................................... -- 1,443 Current maturities of long-term debt....................... 170 1,741 ------- ------- Total current liabilities................................ 7,025 9,842 ------- ------- Long-term debt, less current maturities...................... 496 28,335 ------- ------- Total liabilities............................................ 7,521 38,177 Commitments and contingencies -- -- Shareholders' equity (deficit): Preferred stock, $0.01 par value: 7,000 shares authorized, issued and outstanding (liquidation preference $7,000).......................... $ -- $ -- Common Stock Series A-1, $0.01 par value: 53,850 shares authorized, issued and outstanding......... -- 1 Common Stock Series A-2, $0.01 par value: 99,950 shares authorized, issued and outstanding......... -- 1 Common Stock Series A-3, non-voting, $0.01 par value: 46,200 shares authorized, issued and outstanding......... -- -- Additional paid-in capital................................. 8,000 21,957 Treasury Stock............................................. (120) -- Retained earnings (accumulated deficit).................... 8,721 (34,195) ------- ------- Total shareholders' equity (deficit)......................... 16,601 (12,236) ------- ------- Total liabilities and shareholders' equity (deficit)......... $24,122 $25,941 ======= =======
See accompanying notes. F-3 FOUNTAIN VIEW, INC. CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ----------------------- 1995 1996 1997 ------- ------- ------- REVENUES: Net revenue............................................ $55,836 $59,432 $67,905 EXPENSES: Salaries and benefits................................ 35,048 36,166 38,215 Supplies............................................. 5,642 5,483 8,293 Purchased services................................... 3,964 4,658 4,256 Provision for doubtful accounts...................... 427 430 395 Other expenses....................................... 3,421 4,043 5,046 Rent................................................. 1,890 2,120 2,004 Rent to related parties.............................. 2,056 1,776 1,771 Depreciation and amortization........................ 416 600 1,198 Interest (net of interest income--$65, $29 and $4 for 1995, 1996 and 1997, respectively).................. 332 278 1,164 ------- ------- ------- Total expenses..................................... 53,196 55,554 62,342 ------- ------- ------- INCOME BEFORE PROVISION FOR INCOME TAXES............... 2,640 3,878 5,563 Provision for income taxes............................. 54 78 361 ------- ------- ------- NET INCOME............................................. $ 2,586 $ 3,800 $ 5,202 ======= ======= ======= Pro forma net income: Net income as reported............................... $ 2,586 $ 3,800 $ 5,202 Charge in lieu of income taxes....................... 1,025 1,493 1,590 ------- ------- ------- Net income............................................. $ 1,561 $ 2,307 $ 3,612 ======= ======= ======= Earnings per share: Basic and diluted--Historical........................ $ 12.93 $ 19.0 $ 26.01 ======= ======= ======= Pro forma............................ $ 7.81 $ 11.53 $ 18.06 ======= ======= ======= Weighted average shares outstanding: Basic and diluted.................................... 200 200 200 ======= ======= =======
See accompanying notes. F-4 FOUNTAIN VIEW, INC. CONSOLIIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) THREE YEARS ENDED DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
SERIES A PREFERRED SERIES A-1 SERIES A-2 SERIES A-3 RETAINED STOCK COMMON STOCK COMMON STOCK COMMON STOCK ADDITIONAL EARNINGS ------------- ------------- ------------- ------------- PAID-IN TREASURY (ACCUMULATED SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK DEFICIT) TOTAL ------ ------ ------ ------ ------ ------ ------ ------ ---------- -------- ------------ -------- Balance at January 1, 1995............ -- $ -- -- $ -- -- $ -- -- $ -- $ 916 $(120) $ 8,998 $ 9,794 Net income........ -- -- -- -- -- -- -- -- -- -- 2,586 2,586 Issuance of common stock...... -- -- -- -- -- -- -- -- 300 -- -- 300 Distributions to shareholders...... -- -- -- -- -- -- -- -- -- -- (2,724) (2,724) ----- ----- ------ ----- ------ ----- ------ ----- ------- ----- -------- -------- Balance at December 31, 1995........... -- -- -- -- -- -- -- -- 1,216 (120) 8,860 9,956 Contributions from shareholders...... -- -- -- -- -- -- -- -- 6,784 -- -- 6,784 Net income........ -- -- -- -- -- -- -- -- -- -- 3,800 3,800 Distributions to shareholders...... -- -- -- -- -- -- -- -- -- -- (3,939) (3,939) ----- ----- ------ ----- ------ ----- ------ ----- ------- ----- -------- -------- Balance at December 31, 1996........... -- -- -- -- -- -- -- -- 8,000 (120) 8,721 16,601 Net income........ -- -- -- -- -- -- -- -- -- -- 5,202 5,202 Contributions before reorganization.... -- -- -- -- -- -- -- -- 1,277 -- -- 1,277 Cancellation of treasury stock.... -- -- -- -- -- -- -- -- -- 120 -- 120 Distributions to shareholders before reorganization.... -- -- -- -- -- -- -- -- -- -- (4,418) (4,418) Reorganization: Issuance of preferred stock. 7,000 -- -- -- -- -- -- -- 7,000 -- -- 7,000 Issuance of common stock.... -- -- 53,850 1 99,950 1 46,200 -- 6,998 -- -- 7,000 Transactional costs........... -- -- -- -- -- -- -- -- (1,318) -- -- (1,318) Distributions to shareholders.... -- -- -- -- -- -- -- -- -- -- (43,700) (43,700) ----- ----- ------ ----- ------ ----- ------ ----- ------- ----- -------- -------- Balance at December 31, 1997........... 7,000 $ -- 53,850 $ 1 99,950 $ 1 46,200 $ -- $21,957 $ -- $(34,195) $(12,236) ===== ===== ====== ===== ====== ===== ====== ===== ======= ===== ======== ========
See accompanying notes. F-5 FOUNTAIN VIEW, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, -------------------------- 1995 1996 1997 ------- ------- -------- OPERATING ACTIVITIES: Net income....................................... $ 2,586 $ 3,800 $ 5,202 ------- ------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................. 416 600 1,198 Changes in operating assets and liabilities: Accounts receivable............................ 1,176 (3,757) 2,908 Other current assets........................... 165 (92) 137 Accounts payable and accrued liabilities....... 317 421 2,722 Employee compensation and benefits............. 1,152 116 56 Income taxes payable........................... 20 (29) 1,443 Deferred income taxes.......................... -- -- (927) ------- ------- -------- Total adjustments............................ 3,246 (2,741) 7,537 ------- ------- -------- Net cash provided by operating activities.... 5,832 1,059 12,739 ------- ------- -------- INVESTING ACTIVITIES: Additions to leasehold improvements and equipment....................................... (665) (1,816) (2,570) Additions to other assets........................ (282) -- (1,175) ------- ------- -------- Net cash used in investing activities........ (947) (1,816) (3,745) ------- ------- -------- FINANCING ACTIVITIES: Decrease in payable to bank...................... (250) (925) (2,975) Principal payments on long-term debt............. (910) (472) (3,090) Proceeds from long-term debt..................... 725 249 32,500 Proceeds from issuances of stock................. -- -- 12,682 Contributions from shareholders.................. -- 4,649 1,277 Cancellation of treasury stock................... -- -- 120 Distributions to shareholders.................... (2,724) (3,939) (48,118) ------- ------- -------- Net cash used in financing activities........ (3,159) (438) (7,604) ------- ------- -------- Increase (decrease) in cash and cash equivalents... 1,726 (1,195) 1,390 Cash and cash equivalents at beginning of year..... 630 2,356 1,161 ------- ------- -------- Cash and cash equivalents at end of year........... $ 2,356 $ 1,161 $ 2,551 ======= ======= ======== NONCASH ACTIVITY: Additional paid-in-capital relating to debt forgiveness..................................... $ -- $ 2,135 $ -- Additional paid-in-capital relating to stock acquisition..................................... 300 -- --
See accompanying notes. F-6 FOUNTAIN VIEW, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 1. DESCRIPTION OF BUSINESS Fountain View, Inc. (the "Company") provides a variety of healthcare services primarily to the elderly through the operation of eight skilled nursing care centers and a retirement hotel in California. These services include nursing care, lodging, food and certain specialty medical services, including rehabilitation care, infusion therapy and other ancillary services. The Company also provides therapy services to other long-term care providers. In July 1997, the Company's predecessor, which was comprised of all of the Company's operating units owned individually by the controlling shareholders, was merged with and into several companies formed by Fountain View, Inc., a holding company, formed for the express purpose of effectuating the reorganization of the Company. These transactions are described further in Note 3 to the consolidated financial statements. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. EARNINGS PER SHARE Basic and diluted earnings per share have been computed reflecting the Fountain View Equity Transactions as if such transactions had occurred as of January 1, 1995, and all common stock, series A-1, A-2 and A-3, was outstanding from that date. CASH AND CASH EQUIVALENTS Cash and cash equivalents include highly liquid investments with an original or remaining maturity of three months or less when purchased. The Company places its temporary cash investments with high credit quality financial institutions. LEASEHOLD IMPROVEMENTS AND EQUIPMENT Depreciation and amortization (straight-line method) is based on the estimated useful lives of the individual assets as follows: Leasehold improvements...... Shorter of lease term or estimated useful life, generally 5-10 years. Furniture and equipment..... 3-10 years.
NET PATIENT SERVICES REVENUE Approximately 53 percent, 52 percent and 56 percent of the Company's revenues in the years ended December 31, 1995, 1996 and 1997, respectively, were derived from funds under federal and state medical assistance programs, the continuation of which are dependent upon governmental policies. These revenues are based, in certain cases, upon cost reimbursement principles and are subject to audit. Revenues are recorded on an accrual basis as services are performed at their estimated net realizable value. Differences between final settlement and estimated net realizable value accrued in prior years are reported as adjustments to the current year's net revenues. A significant F-7 FOUNTAIN VIEW, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) portion of the Company's skilled nursing care center revenues is derived from government-sponsored healthcare programs such as Medicare and Medicaid. These programs are highly regulated and are subject to budgetary and other constraints. While the Company's cash flow could be adversely affected by periodic government program funding delays or shortfalls, management does not believe there are any significant credit risks associated with these government programs. REGULATORY MATTERS Laws and regulations governing the Medicare program are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing. Compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from the Medicare and Medicaid programs. INSURANCE COVERAGE The Company insures for workers' compensation and general and professional liability coverage under an occurrence based policy, with no deductible. Prior to October 1997, the Company was self-insured for claims arising from employees relating to employment matters. ACCOUNTING FOR THE IMPAIRMENT AND DISPOSAL OF LONG LIVED ASSETS Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121), requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company believes, based on current circumstances, that there are no indicators of impairment to its long-lived assets, and the Company presently has no expectations for disposing of any long-lived assets. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130), which is effective for fiscal years beginning after December 15, 1997. This statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. Items recognized as components of comprehensive income which are not included in the income statement include unrealized gains and losses in marketable securities, foreign currency translation adjustments, tax benefits related to nonqualified stock options, and others. The Company is presently evaluating the new standard to determine how it will present comprehensive income. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Settlements of an Enterprise and Related Information" (SFAS 131), which is effective for fiscal years ending after December 15, 1997. SFAS 131 establishes standards for the way that public enterprises report information about operating segments in annual financial statements. It also requires that those enterprises report selected information about F-8 FOUNTAIN VIEW, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) operating segments in interim financial reports issued to shareholders. Under existing accounting standards, the Company has reported its operations as one line of business because substantially all of its revenues have been derived from its skilled nursing care centers and assisted living centers and closely related ancillary services. The Company is presently evaluating the new standard in order to determine its effect, if any, on the way the Company might report its operations in the future. 3. FOUNTAIN VIEW EQUITY TRANSACTIONS On or about August 1, 1997, the controlling shareholders of the Company consummated a reorganization transaction (the "Fountain View Equity Transactions"). Prior to the Fountain View Equity Transactions, the controlling shareholders were the sole owners of a number of healthcare companies, which they managed as one business enterprise. The separately owned companies consisted of eight skilled nursing facilities, an assisted living facility and a therapy company which provides therapy services primarily to third-party owned facilities as well as Company-owned facilities. Additionally, the controlling shareholders owned the real estate which is operated by four of the nursing homes. The remaining real estate is leased from unrelated third parties. The controlling shareholders along with Heritage formed a new holding company known as Fountain View, Inc. ("New Fountain View") along with several acquisition subsidiaries to consolidate the healthcare companies owned by the controlling shareholders into one company. At the same time, New Fountain View entered into market rate leases for the four real estate facilities owned by the controlling shareholders. Under the terms of the Fountain View Equity Transactions, Heritage invested $14.0 million in cash in New Fountain View in exchange for all of the Company's preferred stock with a liquidation value of $7.0 million, and 99,950 shares of the Company's Common Stock Series A-2. The controlling shareholders at the same time contributed all of their healthcare assets, except for owned real estate, to New Fountain View in exchange for 53,850 shares of the Company's Common Stock Series A-1 and 46,200 shares of the Company's common Stock Series A-3. Concurrent with the exchange of shares, the New Fountain View obtained bank financing totaling $32.5 million, the proceeds of which along with the $14.0 million invested by Heritage was used to fund a distribution of $43.7 million of cash to the controlling shareholders and pay $1,318,000 in transaction costs. The Common Stock Series A-1 shares have three votes for each share, whereas Series A-2 has one vote per share, and Series A- 3 is non-voting. By virtue of the voting features, the controlling shareholders maintained a controlling financial interest in New Fountain View. Also, a shareholders agreement between the controlling shareholders and Heritage provides that the Controlling Shareholders hold a majority of the seats on the Board of Directors. The preferred shareholders are entitled to receive dividends, at the Board of Director's discretion, at an annual rate of 10 percent of the preferred stock base amount, as defined. The initial base amount is $7,000,000. The preferred stock is non-voting and the holders are entitled to be paid in cash, in respect of each share of preferred stock held, upon any liquidation or dissolution of the Company before any distribution is made to the common shareholders. Since the controlling shareholders maintained a controlling financial interest in New Fountain View, a change in control was not deemed to have occurred upon the consummation of the Fountain View Equity Transactions. Therefore, the Fountain View Equity Transactions were treated as a reorganization/merger of companies under common control, with no step-up in basis of the assets of New Fountain View. F-9 FOUNTAIN VIEW, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating its fair market value disclosures. CASH AND CASH EQUIVALENTS The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. LONG-TERM DEBT (INCLUDING CURRENT PORTION) The carrying value of $30,076,000 of long-term approximates the fair market value of such debt since the interest rate approximates the Company's incremental borrowing rate. 5. MATERIAL TRANSACTIONS WITH RELATED ENTITIES Robert and Sheila Snukal own the real estate for four of the Company's facilities. Such real estate has not been included in the financial statements for any of the years presented herein since such real estate was excluded from the Fountain View Equity Transactions discussed in Note 3. Lease payments to the shareholders under operating leases for these facilities totaled $2,056,000, $1,776,000 and $1,771,000 for the years ended December 31, 1995, 1996 and 1997, respectively. 6. OTHER ASSETS Other assets consist of the following (in thousands):
DECEMBER 31, ----------- 1996 1997 ---- ------ Deposits........................................................ $ 56 $ 56 Goodwill, net................................................... 530 500 Lease acquisition costs, net.................................... 382 337 Deferred loan fees.............................................. -- 911 ---- ------ $968 $1,804 ==== ======
7. LONG-TERM DEBT Long-term debt consists of the following (in thousands):
DECEMBER 31, ------------ 1996 1997 ---- ------- Union Bank of California, $15 million Term Loan A due in 2002 and $15 million Term Loan B due in 2004, payable in quarterly installments ranging from $37 to $1,781, including interest based on the LIBOR rate. The Company's accounts receivable and equipment collateralize the Term Loans........................ $-- $29,925 Note payable to shareholders................................... 337 -- Other.......................................................... 329 151 ---- ------- 666 30,076 Less current maturities........................................ 170 1,741 ---- ------- $496 $28,335 ==== =======
F-10 FOUNTAIN VIEW, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 7. LONG-TERM DEBT (CONTINUED) Future maturities of long-term debt are as follows: years ending December 31, 1998--$1,741,000; 1999--$3,710,000; 2000--$4,150,000; 2001--$4,150,000; 2002--$5,638,000; and thereafter $10,687,000. Interest payments were $397,000, $307,000 and $1,105,000, in 1995, 1996 and 1997, respectively. 8. LINE OF CREDIT The Company has a line of credit with a financial institution amounting to $4,500,000 in 1996 and $15,000,000 in 1997. Total draws on the line amounted to $0 and $2,975,000 as of December 31, 1996 and 1997, respectively. The line of credit terminates on August 1, 2002 and bears interest at the LIBOR rate. The Company's accounts receivable and equipment collateralize the line of credit. 9. INCOME TAXES The provision (benefit) for income taxes consists of the following (in thousands):
DECEMBER 31, -------------------- 1995 1996 1997 ------ ------ ---- Federal: Current................................................. $ -- $ -- $1,004 Deferred................................................ -- -- (722) State: Current................................................. 54 78 282 Deferred................................................ -- -- (203) ------ ------ ------ 54 78 361 Charge in lieu of income taxes............................ 1,025 1,493 1,590 ------ ------ ------ $1,079 $1,571 $1,951 ====== ====== ======
Deferred income taxes result from temporary differences between the tax basis of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Temporary differences are primarily attributable to reporting for income tax purposes the excess of tax over book depreciation, allowance for uncollectible accounts, accrued expenses and accrued vacation benefits. Significant components of the Company's deferred tax liabilities and assets are as follows (in thousands):
DECEMBER 31, ------------------------------- 1996 1997 --------------- --------------- NON- NON- CURRENT CURRENT CURRENT CURRENT ------- ------- ------- ------- Deferred tax liabilities: Tax over book depreciation................... $ -- $ -- $-- $ 1 Total deferred tax liabilities................. -- -- -- 1 Deferred tax assets: Vacation, accrued expenses and allowance for uncollectible accounts -- -- 770 -- State tax...................................... -- -- 157 -- ----- ----- ---- ---- Total deferred tax assets...................... -- -- 927 -- ----- ----- ---- ---- Net deferred tax assets........................ $ -- $ -- $927 $ 1 ===== ===== ==== ====
F-11 FOUNTAIN VIEW, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 9. INCOME TAXES (CONTINUED) A reconciliation of the provision for income taxes with the amount computed using the federal statutory rate is as follows (in thousands):
DECEMBER 31, -------------------- 1995 1996 1997 ------ ------ ------ Federal rate (34%).................................... $ 898 $1,324 $1,902 State taxes, net of federal tax benefit............... 158 234 336 Goodwill.............................................. -- -- 84 Other, net............................................ 23 13 (4) Establishment of deferred taxes due to conversion from S-Corporation to C-Corporation....................... -- -- (367) ------ ------ ------ $1,079 $1,571 $1,951 ====== ====== ======
Total income tax payments during 1995, 1996 and 1997 were $17,000, $30,000 and $8,000, respectively. CHARGE IN LIEU OF INCOME TAXES AND S-CORPORATION STATUS Prior to the Fountain View Equity Transactions, most of the individually owned corporations had elected to be taxed as cash basis S-Corporations. Included herein are pro forma charges in lieu of income taxes to indicate what the tax provision would have been had the Company been taxed as a C- Corporation for all years with a federal and state effective tax rate of 41%. In connection with the Fountain View Equity Transactions, the controlling shareholders elected to make a Section 338(h)(10) election (the "Election"). Since the corporations which comprised the predecessor organization were owned individually by the controlling shareholders, and some of such corporations had previously elected to be taxed as cash basis S-Corporations, upon the Election, the cash basis S-Corporations incurred taxable income to the extent of any receivables and payables not previously recognized in the S-Corporation tax returns. The controlling shareholders, and not the Company, are responsible for the taxes due as a result of the Election. 10. LEASES The Company leases certain of its centers and equipment under noncancelable operating leases. The leases generally provide for payment of property taxes, insurance and repairs, and have rent escalation clauses based upon the consumer price index or annual per bed adjustments. The future minimum rental payments under noncancelable operating leases that have initial or remaining lease terms in excess of one year as of December 31, 1997 are as follows (in thousands):
RELATED PARTY OTHER TOTAL ------- ------- ------- 1998................................................. $ 1,764 $ 1,954 $ 3,718 1999................................................. 1,764 2,003 3,767 2000................................................. 1,764 1,938 3,702 2001................................................. 1,764 1,995 3,759 2002................................................. 1,764 2,023 3,787 Thereafter........................................... 25,726 7,008 32,734 ------- ------- ------- $34,546 $16,921 $51,467 ======= ======= =======
F-12 FOUNTAIN VIEW, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 11. CONTINGENCIES The Company is subject to malpractice claims and other litigation arising in the ordinary course of business. In the opinion of management, any liability beyond amounts covered by insurance and the ultimate resolution of all pending legal proceedings will not have a material adverse effect on the Company's financial position or results of operations. YEAR 2000 (UNAUDITED) Some of the Company's information systems and biomedical equipment have time-sensitive software that will not properly recognize the year 2000. This could result in a system failure or miscalculations causing disruption of the Company's operations. The Company is currently completing an assessment and developing a plan to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. 12. SHAREHOLDERS' EQUITY SHAREHOLDERS AGREEMENT In connection with the Fountain View Equity Transactions, the controlling shareholders and Heritage which owns all of the preferred stock, and all of the Series A-2 common stock consummated a shareholders agreement (the Agreement). Under the Agreement, each of the parties has certain rights and obligations. The controlling shareholders retain 3 of the 5 board of directors seats unless certain events occur including non-payment of any debt of $1 million or more, and the failure to meet certain earnings targets. In addition, at any time on or after July 1, 2001, at the option of Heritage, Heritage will have the right to put its common stock holdings to the Company at appraised value. At any time on or after July 1, 2003, if Heritage has not elected to put its stock to the Company, at the option of a majority of the controlling shareholders, the controlling shareholders will have the right to put the stock to the Company at appraised value. Heritage has also retained certain protective rights with respect to its investment in the Company. In addition to the above rights and obligations, should certain Company terminal value targets not be met, then the Common Stock Series A-3 will be returned to the Company and cancelled, without remuneration to the controlling shareholders. The number of shares returned is based on a formula included in the Agreement. The Agreement terminates upon the occurrence of an IPO. PURCHASE AND CONTRIBUTION AGREEMENT In connection with the Fountain View Equity Transactions, the controlling shareholders agreed to reimburse the Company for any adverse change in cost report settlements for periods prior to the investment of funds by Heritage. The controlling shareholders also agreed to indemnify the Company from any future liability arising from a certain lawsuit. 13. SUBSEQUENT EVENT In February 1998, the Company entered into a purchase agreement with Summit Care Corporation ("Summit") to acquire all of the outstanding common stock of Summit for cash of $21 per share. The total purchase price approximates $145 million. F-13 FOUNTAIN VIEW, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, --------------- 1997 1998 ------- ------- Net revenues.................................................. $16,409 $20,078 Expenses: Salaries and benefits....................................... 9,435 10,686 Supplies.................................................... 1,648 2,218 Purchased services.......................................... 846 1,828 Provision for doubtful accounts............................. 60 142 Other expenses.............................................. 1,002 1,396 Rent........................................................ 497 542 Rent to related parties..................................... 444 441 Depreciation and amortization............................... 142 524 Interest expense............................................ 20 851 ------- ------- 14,094 18,628 ------- ------- Income before provision for income taxes and extraordinary item......................................................... 2,315 1,450 Provision for income taxes.................................... 33 580 ------- ------- Income before extraordinary item.............................. 2,282 870 Extraordinary item: Loss on early extinguishment of debt, net of taxes.......... -- 517 ------- ------- Net income.................................................... $ 2,282 $ 353 ======= ======= Pro forma net income: Net income as reported...................................... $ 2,282 $ 353 Charge in lieu of income taxes for S-Corporation............ 893 -- ------- ------- Net income.................................................... $ 1,389 $ 353 ======= ======= Basic and diluted earnings per share: Income before extraordinary item............................ $ 11.41 $ 3.47 Extraordinary item, net of taxes............................ -- (2.06) ------- ------- Net income.................................................. $ 11.41 $ 1.41 ======= ======= Basic and diluted earnings per share--pro forma $ 6.95 ======= Weighted average shares outstanding: Basic and diluted........................................... 200 251 ======= =======
See accompanying notes. F-14 FOUNTAIN VIEW, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DEC. 31, MARCH 31, 1997 1998 ------- ----------- (NOTE) (UNAUDITED) ASSETS Current assets: Cash and cash equivalents............................... $ 2,551 $ 3,640 Accounts receivable, less allowance for doubtful accounts: March 1998--$7,245; December 1997--$1,152.... 15,809 55,267 Supplies inventory, at cost............................. -- 2,993 Other current assets.................................... 1,503 19,209 ------- -------- Total current assets.................................. 19,863 81,109 Property and equipment, at cost: Land and land improvements.............................. -- 24,951 Buildings and leasehold improvements.................... 4,659 201,093 Furniture and equipment................................. 2,096 25,826 Construction in progress................................ -- 7,271 ------- -------- 6,755 259,141 Less accumulated depreciation and amortization.......... (2,481) (2,892) ------- -------- 4,274 256,249 Notes receivable, less allowance for doubtful accounts: March 1998--$384;........................................ -- 6,596 Goodwill and other intangible assets...................... -- 44,199 Deferred financing costs.................................. -- 1,421 Other assets.............................................. 1,804 6,542 ------- -------- $25,941 $396,116 ======= ========
NOTE: The balance sheet at December 31, 1997 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes. F-15 FOUNTAIN VIEW, INC. CONSOLIDATED BALANCE SHEETS (CONTINUED) (IN THOUSANDS)
DEC. 31, MARCH 31, 1997 1998 -------- ----------- (NOTE) (UNAUDITED) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Payable to banks....................................... $ -- $ 4,192 Accounts payable and accrued liabilities............... 4,179 53,917 Employee compensation and benefits..................... 2,479 9,223 Income taxes payable................................... 1,443 428 Current portion of long-term debt...................... 1,741 4,840 -------- -------- Total current liabilities............................ 9,842 72,600 Long-term debt, less current portion..................... 28,335 222,538 Deferred income taxes.................................... -- 30,859 -------- -------- Commitments and contingencies Shareholders' equity (deficit): Preferred Stock Series A, $0.01 par value: 1,000,000 shares authorized; none issued.............. -- -- Common Stock Series A, $0.01 par value: 1,500,000 shares authorized; 200,000 and 1,000,000 shares issued and outstanding at 1997 and 1998........ 2 10 Common Stock Series B, $0.01 par value: 200,000 shares authorized; 114,202 shares issued and outstanding at 1998................................... -- 1 Common Stock Series C, $0.01 par value: 1,300,000 shares authorized; none issued.............. -- -- Paid in capital........................................ 21,957 103,948 Accumulated deficit.................................... (34,195) (33,840) -------- -------- Total shareholders' equity (deficit)................. (12,236) 70,119 -------- -------- $ 25,941 $396,116 ======== ========
NOTE: The balance sheet at December 31, 1997 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes. F-16 FOUNTAIN VIEW, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ------------------ 1997 1998 ------- --------- OPERATING ACTIVITIES: Net income............................................... $ 2,282 $ 353 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 142 524 (Increase) decrease in accounts receivable, net........ 2,640 (2,988) (Increase) decrease in other current assets............ 153 (249) (Decrease) increase in accounts payable and accrued liabilities........................................... 1,244 (2,498) Increase in employee compensation and benefits......... 160 1,527 (Decrease) increase in income taxes payable............ 30 (1,015) ------- --------- Total adjustments.................................... 4,369 (4,699) ------- --------- Net cash (used in) provided by operating activities.. 6,651 (4,346) ------- --------- INVESTING ACTIVITIES: Additions to property and equipment...................... (837) (655) Decrease in deferred financing costs..................... -- 861 Acquisition of Summit Care, net of cash acquired......... -- (143,795) ------- --------- Net cash (used in) investing activities.............. (837) (143,589) ------- --------- FINANCING ACTIVITIES: Distributions to shareholders............................ (2,465) -- (Decrease) in payable to banks........................... (2,975) (27,677) (Decrease) in capital lease obligations.................. (20) (29) Proceeds from long-term debt............................. -- 94,730 Proceeds from stock issuance............................. -- 82,000 ------- --------- Net cash provided by (used in) financing activities.. (5,460) 149,024 ------- --------- Increase in cash and cash equivalents...................... 354 1,089 Cash and cash equivalents at beginning of period........... 1,161 2,551 ------- --------- Cash and cash equivalents at end of period................. $ 1,515 $ 3,640 ======= ========= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest............................................... $ 20 $ 703 Income taxes........................................... -- 1,250 Detail of purchase business combination: Fair value of assets acquired............................ -- 367,944 Less: Liabilities assumed................................ -- 222,785 ------- --------- Cash paid for acquisition................................ -- 145,159 Less: Cash acquired from Summit.......................... -- (1,364) ------- --------- Net cash paid for acquisition........................ $ -- $ 143,795 ======= =========
F-17 FOUNTAIN VIEW, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. DESCRIPTION OF BUSINESS Fountain View, Inc. ("Fountain View" or "Company") is a leading provider of long-term care with a full continuum of post-acute care services, with a strategic emphasis on sub-acute specialty medical care. With the acquisition of Summit Care Corporation ("Summit") on March 27, 1998, Fountain View now operates a network of facilities in California, Texas, and Arizona, including 44 skilled nursing facilities ("SNFs") that offer sub-acute, rehabilitative and specialty medical skilled nursing care, as well as six assisted living facilities ("ALFs") that provide room and board and social services in a secure environment. In addition to long-term care, Fountain View provides a variety of high-quality ancillary services such as physical, occupational and speech therapy in Fountain View-operated facilities, unaffiliated facilities and acute care hospitals. Fountain View also operates three institutional pharmacies (one of which is a joint venture), which service acute care hospitals as well as SNFs and ALFs, both affiliated and unaffiliated with Fountain View, an outpatient therapy clinic and a durable medical equipment ("DME") company. 2. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The unaudited financial information contained herein includes the results of operations of Fountain View for the full periods reported and the results of operations of Summit for the five day period March 27, 1998 through March 31, 1998. In the opinion of management, the unaudited financial information reflects all adjustments (all of which are of a normal recurring nature), which are considered necessary to fairly state the Company's financial position, its cash flows and the results of operations. These statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the Company's audited financial statements for the year ended December 31, 1997. The interim financial information herein is not necessarily representative of that to be expected for a full year. 3. FOUNTAIN VIEW EQUITY TRANSACTIONS On or about August 1, 1997, the controlling shareholders of the Company consummated a reorganization transaction (the "Fountain View Equity Transactions"). Prior to the Fountain View Equity Transactions, the controlling shareholders were the sole owners of a number of healthcare companies, which they managed as one business enterprise. The separately owned companies consisted of eight skilled nursing facilities, an assisted living facility and a therapy company which provides therapy services primarily to third-party owned facilities as well as Company-owned facilities. Additionally, the controlling shareholders owned the real estate which is operated by four of the nursing homes. The remaining real estate is leased from unrelated third parties. The controlling shareholders along with Heritage Fund II, L.P. ("Heritage") formed a new holding company known as Fountain View, Inc. along with several acquisition subsidiaries to consolidate the healthcare companies owned by the controlling shareholders into one company. At the same time, Fountain View entered into market rate leases for the four real estate facilities owned by the controlling shareholders. Under the terms of the Fountain View Equity Transactions, Heritage invested $14.0 million in cash in Fountain View in exchange for all of the Company's preferred stock with a liquidation value of $7.0 F-18 FOUNTAIN VIEW, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (UNAUDITED) million, and 99,950 shares of the Company's Common Stock Series A-2. The controlling shareholders at the same time contributed all of their healthcare assets, except for owned real estate, to Fountain View in exchange for 53,850 shares of the Company's Common Stock Series A-1 and 46,200 shares of the Company's Common Stock Series A-3. Concurrent with the exchange of shares, Fountain View obtained bank financing totaling $32.5 million, the proceeds of which, along with the $14.0 million invested by Heritage, was used to fund a distribution of $43.7 million to the controlling shareholders and pay $1.3 million in transaction costs. Since the controlling shareholders maintained a controlling financial interest in Fountain View, a change in control was not deemed to have occurred upon the consummation of the Fountain View Equity Transactions. Therefore, the Fountain View Equity Transactions were treated as a reorganization/merger of companies under common control, with no step-up in basis of the assets of Fountain View. 4. ACQUISITION OF SUMMIT CARE CORPORATION On February 6, 1998, Fountain View, Summit, Heritage and FV-SCC Acquisition Corp. ("Acquisition"), a wholly-owned subsidiary of Fountain View entered into an Agreement and Plan of Merger providing for the acquisition of Summit by Fountain View at a price of $21.00 per share. On February 13, 1998, Acquisition initiated a Tender Offer for the outstanding shares of Summit. The Tender Offer expired on March 25, 1998 and Acquisition purchased approximately 99% of the shares of Summit for approximately $141.8 million, at the closing of the Tender Offer on March 27, 1998. Pursuant to the short form merger provisions of California law the Merger became effective 20 days later on April 16, 1998 and Acquisition was merged into Summit, a wholly owned subsidiary of Fountain View. In order to consummate the purchase of the Summit shares in the Tender Offer and to refinance Fountain View's existing debt, Fountain View entered into a term-loan borrowing of $32.0 million and a credit facility of approximately $62.7 million. These borrowings and Summit's existing debt of $132.5 million, including capital lease and mortgage obligations of $24.7 million were outstanding as of March 31, 1998. In addition, Fountain View raised approximately $82.0 million of new equity investments in the amounts of $75.6 million from Heritage and certain other co-investors through the issuance of 597,190 shares of Common Stock Series A, $5.0 million from Mr. Robert Snukal, Fountain View's Chief Executive Officer, and Mrs. Sheila Snukal, Fountain View's Executive Vice President through the issuance of 39,516 shares of Common Stock Series A and 62,599 shares of Common Stock Series B and $1.4 million from Mr. William Scott, Summit's Chairman and Chief Executive Officer through the issuance of 11,357 shares of Common Stock Series A and 51,603 shares of Common Stock Series B. The Company also secured a commitment for an additional equity investment of $15.0 million as of March 31, 1998. 5. SUBSEQUENT EVENTS On April 16, 1998 concurrent with the Merger becoming effective, Fountain View entered into a new $30.0 million revolving credit facility, an $85.0 million term loan facility, and successfully completed a Senior Subordinated Note Offering providing for borrowings of $120.0 million. These funds, as well as the remaining equity commitment of $15.0 million, were used to consummate the purchase of Summit's remaining shares, refinance all then existing Fountain View and Summit indebtedness (except for capital lease and mortgage obligations), redeem all outstanding options for Summit shares, and pay certain fees, expenses, and other costs arising in connection with such F-19 FOUNTAIN VIEW, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (UNAUDITED) transactions. In exchange for the $15.0 million in new cash investment 15,000 shares of Preferred Stock Series A and warrants to purchase 71,119 shares of Common Stock Series C were issued to Heritage, which were subsequently issued to the Baylor Group. On May 4, 1998, Fountain View signed an investment agreement with the Baylor Health Foundation System ("Baylor"), a vertically integrated healthcare system operating in Texas, and Buckner, a non-profit foundation, (collectively, the "Baylor Group"). In addition, Fountain View signed an operating agreement with Baylor. Pursuant to these agreements, Heritage exchanged Series A Preferred Stock of Fountain View with the Baylor Group for $12.5 million that entitles them to a dividend at the time of a liquidity event calculated to achieve a 12% annual rate of return, as well as warrants to purchase shares of Fountain View's Series C Common Stock. As part of its investment, the Baylor Group is entitled to have one of its nominees serve on Fountain View's board of directors. Fountain View and Baylor have signed an agreement to develop and operate certain facilities on a joint or cooperative basis. 6. OTHER CURRENT ASSETS Other current assets (in thousands) consist of the following:
DECEMBER 31, MARCH 31, 1997 1998 ------------ --------- Deferred tax assets................................ $ 926 $ 9,468 Notes receivable................................... -- 1,253 Prepaid expenses................................... 551 2,758 Income tax receivable.............................. -- 3,741 Other receivables.................................. 26 1,989 ------ ------- $1,503 $19,209 ====== =======
7. RECENT ACCOUNTING PRONOUNCEMENTS Reporting Comprehensive Income In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") which establishes standards for the reporting of comprehensive income and its components in a full set of general-purpose financial statements. The standard is effective for fiscal years beginning after December 15, 1997. An enterprise is required to report a total for comprehensive income in condensed financial statements of interim periods issued for external reporting purposes. Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. SFAS 130 uses the term comprehensive income to describe the total of all components of comprehensive income, that is, net income plus other comprehensive income. Other comprehensive income items currently include: unrealized gains and losses on available-for-sale securities; foreign currency translation adjustments; changes in the market value of certain futures contracts; and changes in certain minimum pension liabilities. Fountain View has no items of other comprehensive income in the periods reported, and therefore, this statement does not apply. Disclosures about Segments of an Enterprise In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS F-20 FOUNTAIN VIEW, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (UNAUDITED) 131"), which is effective for fiscal years beginning after December 15, 1997. This Statement is not required to be applied to interim financial statements in the initial year of its application. SFAS 131 establishes standards for the way that public enterprises report information about operating segments in annual financial statements. It also requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. Under existing accounting standards, the Company has reported its operations as one line of business because substantially all of its revenues have been derived from its skilled nursing care centers and assisted living centers and closely related ancillary services. The Company is presently evaluating the new standard in order to determine its effect, if any, on the way the Company might report its operations in the future. F-21 REPORT OF INDEPENDENT AUDITORS The Board of Directors Summit Care Corporation We have audited the accompanying consolidated balance sheets of Summit Care Corporation and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended June 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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 Summit Care Corporation at June 30, 1997 and 1996, and the consolidated results of its operations and cash flows for each of the three years in the period ended June 30, 1997, in conformity with generally accepted accounting principles. Ernst & Young LLP Los Angeles, California August 22, 1997 F-22 SUMMIT CARE CORPORATION CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
JUNE 30, ----------------- 1996 1997 -------- -------- ASSETS Current assets: Cash and cash equivalents.................................. $ 2,658 $ 3,994 Accounts receivable, less allowance for doubtful accounts: 1996--$2,084; 1997--$2,028................................ 27,930 33,749 Supplies inventory, at cost................................ 2,058 2,690 Other current assets....................................... 13,032 12,356 -------- -------- Total current assets..................................... 45,678 52,789 Property and equipment, at cost: Land and land improvements................................. 16,018 19,513 Buildings and leasehold improvements....................... 136,907 161,080 Furniture and equipment.................................... 18,668 23,978 Construction in progress................................... 15,043 5,947 -------- -------- 186,636 210,518 Less accumulated depreciation and amortization............. 21,713 28,605 -------- -------- 164,923 181,913 Notes receivable, less allowance for doubtful accounts: 1996--$268; 1997--$322..................................... 4,845 6,859 Other assets................................................. 7,606 8,955 -------- -------- $223,052 $250,516 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Payable to bank............................................ $ 4,165 $ 4,678 Accounts payable........................................... 19,895 29,586 Employee compensation and benefits......................... 3,738 5,877 Income taxes payable....................................... 989 -- Long-term debt due within one year......................... 2,985 -- -------- -------- Total current liabilities................................ 31,772 40,141 Long-term debt............................................... 107,389 121,452 Deferred income taxes........................................ 2,605 7,511 -------- -------- Total liabilities........................................ 141,766 169,104 Commitments and contingencies Shareholders' equity: Preferred stock, no par value, 2,000,000 authorized shares, none issued............................................... -- -- Common stock, no par value, 100,000,000 authorized shares; 6,776,000 and 6,772,800 issued and outstanding, respectively.............................................. 51,486 51,543 Retained earnings............................................ 29,800 29,869 -------- -------- Total shareholders' equity............................... 81,286 81,412 -------- -------- $223,052 $250,516 ======== ========
See accompanying notes. F-23 SUMMIT CARE CORPORATION CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED JUNE 30, -------------------------- 1995 1996 1997 -------- -------- -------- REVENUES: Net revenues........................................ $137,026 $176,062 $197,927 EXPENSES: Salaries and benefits............................. 63,171 78,233 89,577 Supplies.......................................... 15,374 18,071 20,160 Purchased services................................ 22,234 37,963 51,520 Provision for doubtful accounts................... 1,330 2,241 2,530 Other expenses.................................... 10,268 12,421 15,722 Rental............................................ 1,691 2,656 2,864 Rental to related parties......................... 450 -- -- Depreciation and amortization..................... 5,249 6,142 7,393 Interest (net of interest income: $513, $522 and $645, respectively).............................. 4,761 6,574 7,973 -------- -------- -------- 124,528 164,301 197,739 -------- -------- -------- INCOME BEFORE PROVISION FOR INCOME TAXES............ 12,498 11,761 188 Provision for income taxes.......................... 4,987 4,452 119 -------- -------- -------- NET INCOME.......................................... $ 7,511 $ 7,309 $ 69 ======== ======== ========
See accompanying notes. F-24 SUMMIT CARE CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY THREE YEARS ENDED JUNE 30, 1997 (DOLLARS IN THOUSANDS)
COMMON STOCK ----------------- RETAINED SHARES AMOUNT EARNINGS TOTAL --------- ------- -------- ------- Balances at June 30, 1994.................. 6,743,600 $51,381 $14,980 $66,361 Net income............................... -- -- 7,511 7,511 Exercise of stock options................ 15,700 192 -- 192 Expenses on sale of common stock......... -- (251) -- (251) --------- ------- ------- ------- Balances at June 30, 1995.................. 6,759,300 51,322 22,491 73,813 Net income............................... -- -- 7,309 7,309 Exercise of stock options................ 13,500 164 -- 164 --------- ------- ------- ------- Balances at June 30, 1996.................. 6,772,800 51,486 29,800 81,286 Net income............................... -- -- 69 69 Exercise of stock options................ 3,200 57 -- 57 --------- ------- ------- ------- Balances at June 30, 1997.................. 6,776,000 $51,543 $29,869 $81,412 ========= ======= ======= =======
See accompanying notes. F-25 SUMMIT CARE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEAR ENDED JUNE 30, ---------------------------- 1995 1996 1997 -------- -------- -------- OPERATING ACTIVITIES: Net income..................................... $ 7,511 $ 7,309 $ 69 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................ 5,249 6,142 7,393 (Increase) in accounts receivable............ (6,907) (7,594) (5,819) (Increase) decrease in supplies inventory.... (623) 118 (632) Decrease (increase) in other current assets.. (1,740) (8,429) 1,257 Increase in accounts payable................. 2,512 8,923 9,691 Increase (decrease) in employee compensation and benefits................................ 478 (270) 2,139 (Decrease) increase in income taxes payable.. 577 (72) (989) Increase (decrease) in deferred income taxes. (43) 739 4,906 -------- -------- -------- Total adjustments.......................... (497) (443) 17,946 -------- -------- -------- Net cash provided by operating activities.... 7,014 6,866 18,015 -------- -------- -------- INVESTING ACTIVITIES: Issuance of notes receivable................... (2,089) (916) (3,142) Principal payments of notes receivable......... 962 498 547 Additions to property and equipment............ (9,004) (26,558) (24,075) Acquisitions of nursing centers................ (51,178) -- -- Additions to other assets...................... (3,279) (2,276) (1,657) -------- -------- -------- Net cash used in investing activities........ (64,588) (29,252) (28,327) FINANCING ACTIVITIES: Increase in payable to bank.................... 826 1,193 513 Principal payments on long-term debt........... (38,225) (49,914) (17,922) Proceeds from long-term debt................... 76,520 70,500 29,000 Net expenses from sale of common stock......... (251) -- -- Net proceeds on exercise of stock options...... 192 164 57 -------- -------- -------- Net cash provided by financing activities.... 39,062 21,943 11,648 -------- -------- -------- Increase (decrease) in cash and cash equivalents. (18,512) (443) 1,336 Cash and cash equivalents at beginning of year... 21,613 3,101 2,658 -------- -------- -------- Cash and cash equivalents at end of year......... $ 3,101 $ 2,658 $ 3,994 ======== ======== ======== Supplemental disclosures of non-cash investing and financing activities: Acquisition notes payable...................... $ (2,814) $ -- $ -- Acquisition of nursing care centers............ 2,814 -- -- Acquisition of nursing care centers under capital leases................................ 16,654 -- -- Capital lease obligations...................... (16,654) -- --
See accompanying notes. F-26 SUMMIT CARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED JUNE 30, 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS. Summit Care Corporation ("Company" or "Summit") provides a variety of healthcare services primarily to the elderly through the operation of sub-acute, skilled nursing, Alzheimer's and assisted living units in skilled nursing care centers and assisted living centers in California, Texas and Arizona. These services include nursing care, room, board and certain specialty medical services, including rehabilitation care, infusion therapy and other ancillary services. The Company also provides specialty pharmaceutical and infusion therapy services to other long-term care providers. In April 1994, OrNda HealthCorp ("OrNda") acquired the Company's then majority shareholder, Summit Health Ltd. ("SHL"). OrNda's 7.5% Exchangeable Subordinated Notes ("OrNda Notes") were exchangeable into its equity interest in the Company's common stock, at the option of the holders. OrNda redeemed 100% of the outstanding OrNda Notes in exchange for its equity interest in the Company's common stock in August 1995. OrNda currently has no position in the Company's common stock. In January 1997, OrNda was merged into Tenet Healthcare Corporation ("Tenet"). BASIS OF CONSOLIDATION. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated. USE OF ESTIMATES. The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. INVENTORIES. Inventories are stated at the lower of cost (first-in, first- out method) or market. REVENUES. Approximately 68 percent, 70 percent and 72 percent of the Company's revenues in the years ended June 30, 1995, 1996 and 1997 were derived from funds under federal and state medical assistance programs, the continuation of which are dependent upon governmental policies. These revenues are based, in certain cases, upon cost reimbursement principles and are subject to audit. Revenues are recorded on an accrual basis as services are performed at their estimated net realizable value. Differences between final settlement and estimated net realizable value accrued in prior years are reported as adjustments to the current year's net revenues. These adjustments decreased net revenues by $4,892 in fiscal 1997. A significant portion of the Company's skilled nursing care center revenues is derived from government sponsored healthcare programs such as Medicare and Medicaid. These programs are highly regulated and are subject to budgetary and other constraints. While the Company's cash flow could be adversely affected by periodic government program funding delays or shortfalls, management does not believe there are any significant credit risks associated with these government programs. PROPERTY AND EQUIPMENT. Depreciation and amortization (straight-line method) is based on the estimated useful lives of the individual assets as follows: Buildings and improvements....... 15-40 years Shorter of lease term or estimated useful Leasehold improvements........... life Furniture and equipment.......... 3-20 years
F-27 SUMMIT CARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Amortization of capital leases is included in depreciation and amortization expense. For leasehold improvements, where the Company has acquired the right of first refusal to purchase or to renew the lease, amortization is based on the lesser of the estimated useful lives and the period covered by the right. INTANGIBLE ASSETS. Goodwill of $2,321 less accumulated amortization of $182 is included in other assets at June 30, 1997 and is amortized over 35 years using the straight-line method. INSURANCE COVERAGE. The Company self insures for certain levels of workers' compensation and general and professional liability coverage. The Company utilizes a captive insurance company for the purpose of providing reinsurance coverage for workers' compensation claims filed by its California and Arizona employees in excess of a $250 self insurance retention per occurrence and not subject to an annual aggregate limit. The Company has elected under Texas law to decline to participate in the Texas workers' compensation insurance program and maintains employer's excess and occupational indemnity insurance on claims subject to a $150 self insurance retention per occurrence with no annual aggregate limit. The Company maintains general and professional liability insurance on a claims made basis, subject to a $100 self insurance retention per occurrence and $600 on an annual aggregate basis. Under both self insurance programs, the Company estimates its liability, including potential legal fees and settlement amounts, based on claims filed and estimates of claims incurred but not reported, utilizing historical experience on an undiscounted basis. Differences between the amounts accrued and subsequent settlements are recorded in operations in the year of settlement. CASH AND CASH EQUIVALENTS. Cash and cash equivalents include highly liquid investments with an original maturity of three months or less. The Company places its temporary cash investments with high credit quality financial institutions. CASH MANAGEMENT. The Company utilizes a centralized cash management system. Payable to bank represents checks outstanding. ACCOUNTING FOR THE IMPAIRMENT AND DISPOSAL OF LONG-LIVED ASSETS. Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company believes, based on current circumstances, that there are no indicators of impairment to its long-lived assets, and the Company presently has no expectations for disposing of any long-lived assets. RECENT ACCOUNTING PRONOUNCEMENTS. In October 1995, Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), was issued which, if elected, would require companies to use a new fair value method of valuing stock-based compensation plans. The Company has elected to continue following present accounting rules under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" which uses an intrinsic value method and often results in no compensation expense. In accordance with SFAS 123, the Company has provided pro forma disclosure of what net income and earnings per share would have been had the new fair value method been used (see Note 10). F-28 SUMMIT CARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which is effective for fiscal years ending after December 15, 1997, including interim periods. Earlier adoption is not permitted. However, an entity is permitted to disclose pro forma earnings per share amounts computed under SFAS 128 in the notes to the financial statements in periods prior to adoption. The statement requires restatement of all prior-period earnings per share data presented after the effective date. SFAS 128 specifies the computation, presentation, and disclosure requirements for earnings per share and is substantially similar to the standard recently issued by the International Accounting Standards Committee entitled "International Accounting Standards, Earnings per Share." The Company plans to adopt SFAS 128 in fiscal year 1998 and has not determined the impact of adoption. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), which is effective for fiscal years ending after December 15, 1997. SFAS 131 establishes standards for the way that public enterprises report information about operating segments in annual financial statements. It also requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. Under existing accounting standards, the Company has reported its operations as one line of business because substantially all of its revenues have been derived from its skilled nursing care centers and assisted living centers and closely related ancillary services. The Company is presently evaluating the new standard in order to determine its effect, if any, on the way the Company might report its operations in the future. RECLASSIFICATIONS. Certain amounts have been reclassified to conform with 1997 presentations. 2. FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating its fair market value disclosures. CASH AND CASH EQUIVALENTS. The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. NOTES RECEIVABLE (INCLUDING CURRENT PORTION). The carrying amount, before the allowance for doubtful accounts, is $8,434. The fair value of $8,400 is estimated using discounted cash flow analyses, based on interest rates currently being offered for notes with similar terms to borrowers of similar credit quality. LONG-TERM DEBT (INCLUDING CURRENT PORTION). The carrying value of $121,452 of long-term debt is based on the original face value (issue amount). The fair value of $120,300 is estimated based on the present value of the underlying cash flows discounted at the Company's incremental borrowing rate. 3. MATERIAL TRANSACTIONS WITH RELATED ENTITIES TENET HEALTHCARE CORPORATION, ORNDA HEALTHCORP AND SUMMIT HEALTH LTD. The Company had an agreement with Tenet/OrNda, which expired in March 1997, under which the Company leased a F-29 SUMMIT CARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 3. NATIONAL TRANSACTIONS WITH RELATED ENTITIES (CONTINUED) portion of its corporate office space to OrNda and shared the cost of building services with OrNda. The agreement also required OrNda to provide tax accounting to the Company. The Company's rental income from OrNda for the space exceeded the payments to OrNda for services by $31 for the year ended June 30, 1997. For the years ended June 30, 1996 and 1995, payments to OrNda for services exceeded rental income for the space by $50 and $23, respectively. The Company believes that the amount reimbursed for the services provided and the rental income received are reasonable. The agreement also indemnified the Company against any liability arising from its divestiture of facilities, the net assets of which were purchased by SHL during the year ended June 30, 1992. The provisions of the indemnification survive the termination of the agreement. Certain provisions of this agreement were terminated or amended as a result of the redemption on August 28, 1995 by OrNda of 100% of the OrNda Notes in exchange for the Company's common stock (see Note 1). In January 1994, the Company entered into a ten-year sub-lease of a nursing care center with SHL. The Company believes the monthly lease payments of $37 are reasonable for the market areas. Lease payments to Tenet, OrNda and SHL were $450 for each of the years ended June 30, 1995, 1996 and 1997. At June 30, 1997, the net amount due from Tenet for transactions between the Company and Tenet was $918 and is included in Other Current Assets (see Note 5). 4. ACQUISITIONS AND CONSTRUCTION ACTIVITY FISCAL YEAR 1995. On September 1, 1994, the Company purchased a 220-bed skilled nursing care center in White Settlement (Fort Worth), Texas, for $11,925 in cash and a four-acre site for $1,500 in cash for construction of a 210-bed skilled nursing care center located in Fort Worth, Texas, which began in May 1995. The Company acquired on October 1, 1994 the leasehold interest in six skilled nursing care centers and the real and personal property of a seventh with a combined total of 783 beds located in various communities in Texas for $30,938, including goodwill of $2,321. The purchase price consists of (i) $11,470 in cash (of which $8,541 was funded under the Company's bank line of credit), (ii) a $2,814 promissory note ($3,000 less a $186 discount) at 9% interest (7% contract rate) fully amortized in seven years and (iii) a $16,654 capital lease obligation assumed by the Company. The leases on the six centers range from eight to twenty-one years, include purchase options, the first exercisable in July 1996, and the last exercisable in February 2005, and have combined monthly payments of $159. On December 1, 1994, the Company acquired four skilled nursing care centers in three communities in East Texas with a combined total of 548 beds for $27,000 in cash and, in a separate transaction, the leasehold interest in a 119-bed skilled nursing care center located in Big Spring, Texas, for $800 in cash. Both transactions were funded under the Company's bank line of credit. The Company's acquisitions have been accounted for as purchases and, accordingly, the results of operations of the acquired centers have been included in the consolidated statement of income since the date of acquisition. The Company completed in May 1995 an addition of 74 beds to a 76-bed nursing care center which is operated under a ten-year sub-lease with OrNda (see Note 3). FISCAL YEAR 1996. On January 8, 1996, the Company opened a 108-bed skilled nursing care center in Fresno, California, and in August 1996, opened another 51 beds at the same site. Total cost of construction including the original purchase price was $14,024. In March 1996, the Company added F-30 SUMMIT CARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. ACQUISITION AND CONSTRUCTION ACTIVITY (CONTINUED) 20 licensed beds to one of its two skilled nursing care centers in Beaumont, Texas, increasing the center's total beds to 148. Total cost of construction was $785. In June 1996, the Company also added 54 beds to its skilled nursing care center in Longview, Texas, increasing the total beds to 182. Total cost of construction was $1,860. Cost of construction completed in the year ended June 30, 1996 was financed with funds from Notes issued in December 1995 and draws against the Company's bank line of credit (see Note 6). FISCAL YEAR 1997. In August 1996, the Company opened a 110-bed skilled nursing care center in Fort Worth, Texas, and in June 1997, opened another 100 beds at the same site. Total cost of construction including the original purchase price (see this Note, Fiscal Year 1995) was $12,012. On July 1, 1997, the Company opened a 66-bed assisted living center in Orange, California, dedicated to Alzheimer's and other patients with dementia. Total cost of construction, which constituted renovation of an existing building on a campus with a 172-bed skilled nursing center and a 72-bed assisted living center, was $3,525. Cost of construction completed in the year ended June 30, 1997 was financed with funds from $15 million of Senior Secured Notes ("Notes") issued in July 1996 and with cash generated from operations. The Notes represented the second and last issuance of $70 million of Notes. The first issuance of $55 million occurred in December 1995. In July 1996, the Company exercised a purchase option in its lease of a 88- bed skilled nursing care center in Rockport, Texas. The purchase price of $2,022 was financed with funds from the Notes. In December 1996, the Company entered into a limited liability company ("LLC") agreement to operate a pharmacy in Austin, Texas. The purchase price for its 50% membership interest was $1,565 in cash. The pharmacy services nursing centers in Texas operated by either the Company, the other LLC member or non-affiliated nursing center owners. The Company accounts for its investment in the LLC under the equity method of accounting. The Company's equity in earnings of the LLC was insignificant during fiscal year 1997. In June 1997, the Company purchased 10 acres of vacant land in Longview, Texas for $648 in cash. The land will be used for new services which will complement the 174-bed skilled nursing center currently owned and operated by the Company. 5. OTHER CURRENT ASSETS Other current assets consist of the following:
JUNE 30, --------------- 1996 1997 ------- ------- Due from third party payors.................................... $ 8,055 $ 2,491 Deferred tax assets............................................ 1,810 1,956 Notes receivable............................................... 672 1,253 Prepaid expenses............................................... 952 1,004 Income tax receivable.......................................... -- 4,128 Other receivables.............................................. 1,543 1,524 ------- ------- $13,032 $12,356 ======= =======
F-31 SUMMIT CARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 6. LONG-TERM DEBT Long-term debt consists of the following:
JUNE 30, ------------------ 1996 1997 -------- -------- Senior secured notes, at fixed interest rates from 7.38% to 8.14%, interest only payable semi-annually, principal due from December 2000 to December 2010 in various annual payments, secured by property and equipment with a book value of approximately $91,781 at June 30, 1997........... $ 55,000 $ 70,000 Secured revolving bank line of credit expires September 30, 1998, variable interest rates approximating 7.44% in the year ending June 30, 1997, convertible to a term loan due in equal quarterly principal payments through September 2001, secured by property and equipment with a book value of approximately $6,556 at June 30, 1997.................. 6,000 5,000 8.96% senior secured notes, due 2002, interest only, payable semi-annually through June 1997, annual principal payments of $4,150 beginning December 1997, secured by property and equipment with a book value of approximately $32,779 at June 30, 1997.................................. 25,000 25,000 Present value of capital lease obligations at effective interest rates from 7% to 9%, secured by property and equipment with a book value of approximately $23,216 at June 30, 1997............................................. 15,680 13,133 Mortgage and other note payable, fixed interest rates from 7.75% to 9%, due in various monthly installments through January 2026, secured by property and equipment with a book value of approximately $7,379 at June 30, 1997....... 5,231 5,281 Promissory note, less imputed interest of $81 in the year ended June 30, 1997, at an effective interest rate of 9% due in October 2001, secured by the leasehold interest in a nursing care center, with a book value of approximately $3,060 at June 30, 1997................................... 2,304 1,944 Mortgage note payable, variable interest rates from 8.25% to 9.0% in year ended June 30, 1997, due in equal monthly principal installments through March 2001, secured by property and equipment with a book value of approximately $2,816 at June 30, 1997................................... 1,159 1,094 Less current portion....................................... (2,985) -- -------- -------- Non-current portion........................................ $107,389 $121,452 ======== ========
Future maturities of long-term debt (including capital lease obligations) are as follows: years ending June 30, 1998--$-0-; 1999--$8,699; 2000--$13,788; 2001--$17,187; 2002--$10,904, and thereafter--$70,874. In December 1995, the Company amended its secured bank line of credit which reduced the commitment from $60,000 to $40,000, converted accounts receivable from collateral to a negative pledge, extended the revolver to September 30, 1997 (the revolver has been subsequently extended to September 30, 1998) and reduced the period of the term loan upon termination of the revolver from four to three years. The interest rate is variable and at the Company's option, will equal either the bank prime rate or the Eurodollar rate plus a margin (reduced by the amendment) that varies depending on the ratio of certain senior debt to earnings before certain interest, taxes, depreciation and amortization. F-32 SUMMIT CARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 6. LONG-TERM DEBT (CONTINUED) At June 30, 1997, credit line loans outstanding were $5,000 which was used to finance the construction described in Note 4. At June 30, 1997, the Company classified $6,997 of current debt maturities as long-term debt based on its intent and ability to refinance these obligations under the bank line of credit. The bank line of credit loan agreement and the two senior secured note agreements contain covenants that include requirements to comply with certain financial tests and ratios and restrict the ability of the Company to incur additional indebtedness. Also, the Company is restricted by the agreements from the payment of dividends (other than dividends payable in common stock) or to acquire its common stock to the extent that such payments exceed $5,000 plus 50% of the Company's net income after June 30, 1995. The Company currently is meeting all financial tests and ratios. Interest expense was $6,033, $8,701 and $10,296 in fiscal years 1995, 1996 and 1997, respectively, of which $759, $1,605 and $1,678 in 1995, 1996 and 1997 were capitalized as part of the ongoing construction projects. Interest payments were $5,712 , $7,874 and $10,124 in fiscal years 1995, 1996 and 1997, respectively. 7. INCOME TAXES The provision for income taxes consists of the following:
YEARS ENDED JUNE 30, ---------------------- 1995 1996 1997 ------ ------ ------- Federal: Current............................................ $4,359 $3,611 $(3,979) Deferred........................................... (277) 19 4,003 ------ ------ ------- 4,082 3,630 24 State: Current............................................ 952 798 (662) Deferred........................................... (47) 24 757 ------ ------ ------- 905 822 95 ------ ------ ------- $4,987 $4,452 $ 119 ====== ====== =======
F-33 SUMMIT CARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 7. INCOME TAXES (CONTINUED) Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements and represent differences between income for tax purposes and income for financial statement purposes in future years. Temporary differences are primarily attributable to reporting for income tax purposes the excess of tax over book depreciation, bad debts and vacation benefits. The current deferred tax assets are included in other current assets (see Note 5). Significant components of the Company's deferred tax liabilities and assets as of June 30 are as follows:
1996 1997 ------------------- ------------------- CURRENT NON-CURRENT CURRENT NON-CURRENT ------- ----------- ------- ----------- Income Taxes Deferred tax liabilities: Tax over book depreciation........ $ -- $(3,136) $ -- $(7,858) Other............................. -- (137) -- (264) ------ ------- ------ ------- Total deferred tax liabilities.. -- (3,273) -- (8,122) Deferred tax assets: Vacation and deferred compensation benefits and bad debt............ 1,810 330 1,956 452 State tax......................... -- 338 -- 159 ------ ------- ------ ------- Total deferred tax assets....... 1,810 668 1,956 611 ------ ------- ------ ------- Net deferred tax assets (liabilities)...................... $1,810 $(2,605) $1,956 $(7,511) ====== ======= ====== =======
A reconciliation of the provision for income taxes with the amount computed using the federal statutory rate is as follows:
JUNE 30, ----------- 1996 1997 ---- ----- Federal rate 35.0% 34.0% State taxes, net of federal tax benefit........................ 4.5 4.5 Tax credits.................................................... (1.6) -- Other, net..................................................... -- 24.8 ---- ----- 37.9% 63.3% ==== =====
The increase in the effective tax rate was primarily due to certain permanent differences between book income and taxable income. Total income tax payments during fiscal years 1995, 1996 and 1997 were $4,876, $3,904 and $1,828, respectively. 8. LEASES The Company leases certain of its centers, equipment and its pharmacy space under both noncancellable operating leases and capital leases. The leases generally provide for payment of property taxes, insurance and repairs, and have rent escalation clauses based upon the consumer price index or annual per bed adjustments. F-34 SUMMIT CARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. LEASES (CONTINUED) All capital leases contain purchase options, and the accompanying balance sheet and following table have been prepared assuming such options will be exercised (see Note 11). Some leases contain various renewal options and extend up to the year 2030. Property and equipment includes the following amounts for leases which have been capitalized:
JUNE 30, 1997 ------------- Land and land improvements..................................... $ 1,400 Buildings and leasehold improvements........................... 21,481 Furniture and equipment........................................ 2,405 ------- 25,286 Less accumulated amortization.................................. 2,070 ------- $23,216 =======
The future minimum rental payments under noncancellable operating leases and capital leases (including purchase options when expected to be exercised) that have initial or remaining lease terms in excess of one year as of June 30, 1997 are as follows:
OPERATING CAPITAL YEAR ENDING JUNE 30, LEASES LEASES TOTAL -------------------- --------- -------- -------- 1998.......................................... $ 3,054 $ 3,321 $ 6,375 1999.......................................... 2,995 4,634 7,629 2000.......................................... 2,755 4,297 7,052 2001.......................................... 2,513 350 2,863 2002.......................................... 2,176 350 2,526 Thereafter.................................... 7,827 3,525 11,352 -------- -------- -------- Total minimum lease payments.................. 21,320 16,477 37,797 Less amount representing interest............. -- 3,344 3,344 -------- -------- -------- Present value of net minimum lease payments (capital lease amount included in long-term debt--see Note 6)............................ $21,320 $13,133 $34,453 ======== ======== ========
9. CONTINGENCIES The Company is subject to malpractice claims and other litigation arising in the ordinary course of business. In the opinion of management, any liability beyond amounts covered by insurance and the ultimate resolution of all pending legal proceedings will not have a material adverse effect on the Company's financial position or results of operations. 10. STOCK OPTION PLAN Effective July 1, 1991, the Company adopted a stock option plan authorizing the issuance of 250,000 shares of common stock. The plan was amended on December 9, 1994 and again on December 8, 1995 to increase the authorized shares to 1,400,000. Options may be granted to key employees and directors of the Company. Options granted to employees may be either incentive stock options or nonstatutory options. Only non-qualified options may be granted to non-employee directors. Options granted to non-employee directors are granted automatically pursuant to a formula grant provision contained in the plan. The option price per share for incentive stock options shall not be less than 85% of the fair market value at the date of the grant. The terms of each option and the increments F-35 SUMMIT CARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 10. STOCK OPTION PLAN (CONTINUED) in which each is exercisable are determined by a committee appointed by the Board of Directors. No option may be exercised after ten years from the date of the grant and no option may be granted under the plan after June 30, 2001. The following summarizes activity in the stock option plan:
YEARS ENDED JUNE 30, ------------------------------------------------------- 1995 1996 1997 ----------------- ----------------- ------------------- WEIGHTED WEIGHTED WEIGHTED NUMBER AVERAGE NUMBER AVERAGE AVERAGE OF EXERCISE OF EXERCISE NUMBER OF EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------- -------- ------- -------- --------- -------- Options at beginning of year................... 256,000 $12.97 523,000 $16.79 948,500 $18.91 Changes during year: Granted............... 284,500 $19.94 504,000 $21.15 112,000 $13.36 Exercised............. (15,700) $12.20 (13,500) $12.13 (3,200) $17.85 Canceled.............. (1,800) $12.26 (65,000) $20.58 (26,800) $20.31 ------- ------- --------- Options outstanding at end of year............ 523,000 $16.79 948,500 $18.91 1,030,500 $18.27 ======= ======= ========= Options exercisable at end of year............ 58,100 $12.26 161,600 $14.97 352,300 $17.10 Options available for grant at end of year... 57,700 418,700 333,500
The weighted average fair value per share of options granted during the year was $10.14 and $6.72 for fiscal years 1996 and 1997, respectively. The exercise prices for options outstanding at June 30, 1997 ranged from $10.50 to $22.50. The weighted average remaining contractual life of these options is approximately eight years. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) which uses an intrinsic value method and, because the exercise price of the Company's stock options equals the market price of the underlying stock on the date of grant, results in no compensation expense. However, pro forma information regarding net income and earnings per share is required by Statement of Financial Accounting Standards No. 123, "Accounting and Disclosure of Stock-Based Compensation" (SFAS 123), and, in the following disclosure, has been determined as if the Company had accounted for its stock options under the fair value method of SFAS 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for the years ended June 30, 1997 and 1996, respectively: risk-free interest rates of 6.4% and 5.5%; dividend yields of zero percent for both years; volatility factors of the expected market price of the Company's common stock of 48.4% and 46.8%; and a weighted average expected life of the options of five years. Because the Company's stock options have characteristics significantly different from those options used in the Black-Scholes option pricing model, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the Company's stock options. F-36 SUMMIT CARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 10. STOCK OPTION PLAN (CONTINUED) For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The effects of providing pro forma disclosure are not likely to be representative of the effects on reported net income for future years. The Company's pro forma information follows for the years ended June 30, 1996 and 1997:
1996 1997 ------ ----- Pro forma net income (loss)................................... $6,914 $(543)
11. SUBSEQUENT EVENT In September 1997, the Company exercised a purchase option in its lease of a 111-bed skilled nursing care center in La Grange, Texas. The purchase option price of $1,871 was financed by a draw on the Company's bank line of credit (see Note 6). 12. UNAUDITED QUARTERLY INFORMATION Following is a summary of unaudited quarterly results of operations from the years ended June 30, 1996 and 1997:
YEAR ENDED JUNE 30, 1996 ------------------------------------------ 1ST 2ND 3RD 4TH QTR. QTR. QTR. QTR. TOTAL ------- ------- ------- ------- -------- Net revenues..................... $41,270 $42,801 $45,232 $46,759 $176,062 Income before income taxes....... 3,924 3,400 2,077 2,360 11,761 Net income....................... 2,359 2,043 1,327 1,580 7,309 YEAR ENDED JUNE 30, 1997 ------------------------------------------ 1ST 2ND 3RD 4TH QTR. QTR. QTR. QTR. TOTAL ------- ------- ------- ------- -------- Net revenues..................... $48,907 $46,181 $52,012 $50,827 $197,927 Income (loss) before income taxes........................... 2,587 (1,734) 2,394 (3,059) 188 Net income (loss)................ 1,565 (1,049) 1,448 (1,895) 69
F-37 SUMMIT CARE CORPORATION CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS)
DECEMBER 31, 1997 ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents....................................... $ 1,702 Accounts receivable, less allowance for doubtful accounts of $2,474......................................................... 36,343 Supplies inventory, at cost..................................... 3,204 Other current assets............................................ 15,569 -------- Total current assets.......................................... 56,818 Property and equipment, at cost: Land and land improvements...................................... 20,036 Buildings and leasehold improvements............................ 175,078 Furniture and equipment......................................... 24,361 Construction in progress........................................ 5,298 -------- 224,773 Less accumulated depreciation and amortization.................. 30,220 -------- 194,553 Notes receivable, less allowance for doubtful accounts of $363 ... 6,842 Other assets...................................................... 9,207 -------- Total assets.................................................. $267,420 ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Payable to bank................................................. $ 2,985 Accounts payable................................................ 36,776 Employee compensation and benefits.............................. 4,622 Income taxes payable............................................ 1,051 -------- Total current liabilities..................................... 45,434 Long-term debt.................................................... 129,754 Deferred income taxes............................................. 7,511 -------- Total liabilities............................................. 182,699 Commitments and contingencies Shareholders' equity: Preferred stock, no par value, 2,000 authorized shares, none issued......................................................... -- Common stock, no par value, 100,000 authorized shares; 6,776 and 6,813 issued and outstanding, respectively..................... 52,020 Retained earnings............................................... 32,701 -------- Total shareholders' equity.................................... 84,721 -------- Total liabilities and shareholders' equity.................... $267,420 ========
See accompanying notes. F-38 SUMMIT CARE CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED DECEMBER 31, ---------------- 1996 1997 ------- -------- NET REVENUES.................................................. $95,088 $108,507 EXPENSES: Salaries and benefits....................................... 43,386 47,742 Supplies.................................................... 10,381 10,261 Purchased services.......................................... 24,144 26,211 Provision for doubtful accounts............................. 967 1,780 Other expenses.............................................. 6,258 7,484 Rent........................................................ 1,410 1,525 Depreciation and amortization............................... 3,632 4,235 Interest (net of interest income, $371 in 1997 and $179 in 1996, respectively)........................................ 4,057 4,588 ------- -------- 94,235 103,826 ------- -------- INCOME BEFORE PROVISION FOR INCOME TAXES...................... 853 4,681 Provision for income taxes.................................... 337 1,849 ------- -------- NET INCOME.................................................... $ 516 $ 2,832 ======= ========
See accompanying notes. F-39 SUMMIT CARE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
SIX MONTHS ENDED DECEMBER 31, ------------------ 1996 1997 -------- -------- OPERATING ACTIVITIES: Net income............................................... $ 516 $ 2,832 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization.......................... 3,632 4,235 (Increase) in accounts receivable, net................. (5,027) (2,594) (Increase) in supplies inventory......................... (66) (514) (Increase) in other current assets....................... (1,602) (3,152) Increase in accounts payable............................. 6,805 7,190 (Decrease) increase in employee compensation and benefits.............................................. 294 (1,255) Increase (decrease) in income taxes payable.............. (989) 1,051 -------- -------- Total adjustments...................................... 3,047 4,961 -------- -------- Net cash provided by operating activities.............. 3,563 7,793 -------- -------- INVESTING ACTIVITIES: Issuance of notes receivable............................. (550) (2,281) Principal payments of notes receivable................... 253 2,294 Additions to property and equipment...................... (12,049) (6,706) Property and equipment related to purchase of nursing center.................................................. -- (4,209) (Increase) in other assets............................... (1,579) (470) -------- -------- Net cash (used in) investing activities................ (13,925) (11,372) -------- -------- FINANCING ACTIVITIES: (Decrease) in payable to bank............................ (1,229) (1,693) Principal payments on long-term debt..................... (8,435) (10,497) Proceeds from long-term debt............................. 19,000 13,000 Proceeds from exercise of stock options.................. -- 477 -------- -------- Net cash provided by financing activities.............. 9,336 1,287 -------- -------- (Decrease) in cash and cash equivalents.................... (1,026) (2,292) Cash and cash equivalents at beginning of year............. 2,658 3,994 -------- -------- Cash and cash equivalents at end of the period............. $ 1,632 $ 1,702 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest............................................... $ 5,161 $ 5,015 Income taxes............................................. 1,654 808 Non cash investing and financing activities: Acquisition of nursing care center under capital lease. -- 5,799 Capital lease obligation............................... -- (5,799)
See accompanying notes. F-40 SUMMIT CARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS) 1. The unaudited financial information included herein, in the opinion of management, reflects all adjustments (all of which are of a normal recurring nature except for a special charge recorded in December 1996, see Note 5), which are considered necessary to fairly state the Company's financial position, its cash flows and the results of operations. These statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the Company's annual report filed on Form 10-K for the year ended June 30, 1997. The interim financial information herein is not necessarily representative of that to be expected for a full year. 2. Certain amounts have been reclassified to conform with fiscal 1998 presentations. 3. Other current assets consist of the following:
DECEMBER 31, 1997 ------------ Due from third-party payors..................................... $ 4,743 Deferred tax assets............................................. 1,956 Notes receivable................................................ 1,257 Prepaid expenses................................................ 2,526 Income tax receivable........................................... 3,000 Other receivables............................................... 2,087 ------- $15,569 =======
4. In December 1996, the Company recorded a special charge of $4,000 against revenues ($2,420 against net income) as a result of adjustments proposed by Medicare in connection with an audit of fiscal 1995 completed in the quarter ended December 31, 1996, which would have an effect on revenues for that fiscal year, fiscal 1996 and the six months ended December 31, 1996. 5. In July 1997, the Company opened its fifth assisted living center with 66 beds in Orange, California, at a total cost of construction of $3,924. In September 1997, the Company exercised a purchase option in the amount of $1,871 in its lease of a 111-bed skilled nursing care center in La Grange, Texas. In November 1997, the Company opened 47 additional beds at one of its two skilled nursing care centers in Lubbock, Texas, at an approximate cost of construction of $1,900. In December 1997, the Company acquired the assets of a 194 bed skilled nursing care center in McAllen, Texas at an approximate cost of $10,058. The Compan's bank line of credit was used to finance the two construction projects, the exercise of the purchase option and $4,259 of the acquisition cost of the McAllen center. The balance of the McAllen acquisition cost of $5,799 was financed with a capitalized lease obligation. 6. In December 1997, the Company amended its secured bank line of credit by reducing the commitment from $40,000 to $33,000. One of the four lenders was deleted from the credit agreement, and the revolving credit termination date was extended one year to September 30, 1999. No other terms and conditions were added, deleted or amended. 7. Recent Accounting Pronouncement: In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), which is effective for fiscal years ending after December 15, 1997. This Statement is not required to be applied to interim financial statements in the F-41 SUMMIT CARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) initial year of its application. SFAS 131 establishes standards for the way that public enterprises report information about operating segments in annual financial statements. It also requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. Under existing accounting standards, the Company has reported its operations as one line of business because substantially all of its revenues have been derived from its skilled nursing care centers and assisted living centers and closely related ancillary services. The Company is presently evaluating the new standard in order to determine its effect, if any, on the way the Company might report its operations in the future. 8. Subsequent Event: On February 6, 1998, the Company and Fountain View, Inc., a privately-held skilled nursing care company based in Los Angeles, California, entered into a definitive merger agreement for Fountain View to acquire the Company. According to the terms of the merger agreement, the Company's shareholders will receive $21.00 per share in cash for a total purchase price of approximately $274 million, including the assumption of approximately $130 million of the Company's debt. On February 13, 1998, Fountain View commenced a cash tender offer for all outstanding shares of the Company's stock at $21.00 per share. The tender offer expired on March 25, 1998 and, following consummation of the tender offer on March 27, 1998, subject to the terms and conditions contained in the merger agreement, the Company will be merged with a subsidiary of Fountain View, and each remaining outstanding share of the Company will be converted in the merger into $21.00 in cash. Fountain View has received a commitment from Heritage Fund II, L.P. for $82 million of the equity financing necessary to complete the transaction and a bank financing commitment from Bank of Montreal covering an additional $250 million. Completion of the tender offer and the merger are subject to customary conditions to closing, including the receipt of any applicable regulatory approvals and the expiration of any applicable regulatory waiting periods. F-42 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ----------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary........................................................ 1 Risk Factors.............................................................. 22 Use of Proceeds........................................................... 33 Capitalization............................................................ 33 Unaudited Pro Forma Financial Data........................................ 34 Selected Historical Financial and Other Data--Fountain View............... 40 Selected Historical Financial and Other Data--Summit...................... 41 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 42 Business.................................................................. 53 Management................................................................ 72 Principal Stockholders.................................................... 78 Certain Relationships and Related Transactions............................ 79 Description of Other Indebtedness......................................... 82 The Exchange Offer........................................................ 84 Plan of Distribution...................................................... 92 Description of Notes...................................................... 94 Certain Federal Income Tax Consequences................................... 126 Validity of the Notes..................................................... 129 Available Information..................................................... 129 Experts................................................................... 129 Special Note Regarding Forward-Looking Statements......................... 130 Index to Consolidated Financial Statements................................ F-1
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- FOUNTAIN VIEW, INC. OFFER TO EXCHANGE UP TO $120,000,000 OF 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED FOR ANY AND ALL OF ITS OUTSTANDING 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008 OF WHICH $120,000,000 IN PRINCIPAL AMOUNT IS OUTSTANDINGON THE DATE HEREOF. ----------- PROSPECTUS ----------- , 1998 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Fountain View, Inc. and certain of the Registrants (Fountain View Holdings, Inc., Locomotion Holdings, Inc. and Locomotion Therapy, Inc.) are Delaware corporations. Section 145 of the Delaware General Corporation Law (the "DGCL") grants a Delaware corporation the power to indemnify any director, officer, employee or other agent if such person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. No indemnification may be provided, however, for any person with respect to any matter as to which he shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his action was in the best interest of the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. With respect to indemnification of directors, Article Eight of the Certificate of Incorporation of the Company states that the Company shall indemnify and hold harmless any director, officer, employee or agent of the Company from any expenses and liabilities that may be imposed upon or incurred in connection with, or as a result of, any proceeding in which he or she may become involved, by reason of the fact that he or she is or was such a director, officer, employee, or agent, whether or not he or she is in such capacity at the time such expenses and liabilities are imposed or incurred, to the fullest extent permitted by the laws of the State of Delaware. Certain of the Registrants (Summit Care Corporation, Summit Care California, Inc., Summit Care Pharmacy, Inc., Summit Care Texas Equity, Inc., AIB Corp., Alexandria Convalescent Hospital, Inc., BIA Hotel Corp., Brier Oak Convalescent, Inc., Elmcrest Convalescent Hospital, Fountainview Convalescent Hospital, Fountain View Management, Inc., Rio Hondo Nursing Center, On-Track Therapy Center, Inc., I.' NO, Inc. and Sycamore Park Convalescent Hospital) are California corporations. The California General Corporation Law provides that a corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor) by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with the proceeding if that person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of the person was unlawful. Certain of the Registrants (Summit Care Texas No. 2, Inc., Summit Care Texas No. 3, Inc. and Summit Care Management Texas, Inc.) are Texas corporations. Article 2.02-1 of the Texas Business Corporation Act provides that a corporation may indemnify its officers, directors, employees and agents for expenses and costs incurred in certain proceedings arising out of actions taken in their official capacity only if such persons were acting in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation, except in relation to matters in which they have been found liable (i) to the corporation, or (ii) on the basis that personal benefit was improperly received regardless of whether or not the benefit resulted from action taken in their official capacity. In the case of any criminal proceeding, such persons must also have had no reasonable cause to believe such conduct was unlawful. Article 2.02-1 further provides that a corporation shall indemnify its officers II-1 and directors against reasonable expenses incurred in connection with proceedings arising out of actions taken in their official capacity in which such persons have been wholly successful, on the merits or otherwise, in the defense of such actions. The Companies maintain insurance, the general effect of which is to provide coverage for the Companies with respect to amounts that they may required to pay officers and directors under the indemnity provisions described above and coverage for officers and directors against certain liabilities, including certain liabilities under the federal securities law. Summit Care Texas, L.P. is a Texas limited partnership (the "Partnership"). Article 10.2 of its Articles of Limited Partnership provides that the Partnership shall indemnify the General Partner against all judgments, penalties (including excise and similar taxes), fines, amounts paid in settlement and reasonable Expenses actually incurred by the General Partner in connection with any Proceeding to which it was, is or is threatened to be named a defendant or respondent, or in which it was or is a witness without being named a defendant or respondent, by reason, in whole or in part, of it serving or having served, as a General Partner if it is determined that the General Partner (a) acted in good faith, (b) reasonably believed, in the case of conduct in its official capacity, that its conduct was in the Partnership's best interests and, in all other cases, that its conduct was at least not opposed to the Partnership's best interests, and (c) in the case of any criminal proceeding, had no reasonable cause to believe that its conduct was unlawful. No indemnification shall be made under this Section 10.2 in respect of any judgment, penalty, fine, or amount paid in settlement in connection with any Proceeding in which such General Partner shall have been (x) found liable on the basis that personal benefit was improperly received by it whether or not the benefit resulted form an action taken in the General Partner's official capacity, or (y) found liable to the Partnership. However, if the General Partner is found liable on the basis that personal benefit was improperly received by it, or is found liable to the Partnership, or the Limited Partner, the General Partner shall be entitled to reasonable expenses actually incurred by it in connection with the Proceeding unless it has been found liable for willful or intentional misconduct in the performance of its duty to the Partnership or the Limited Partner. The termination of any Proceeding by judgment, order, settlement or conviction, or on a plea of nolo contendere or its equivalent, is not of itself determinative that the General Partner did not meet the requirements set forth in clauses (a), (b) or (c) in the first sentence of this Section 10.2. The General Partner shall be deemed to have been found liable in respect of any claim, issue or matter only after it shall have been so adjudged by a court of competent jurisdiction after exhaustion of all appeals therefrom. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits
EXHIBIT NUMBER DESCRIPTION ------- ----------- 1.1 Purchase Agreement dated as of April 16, 1998 by and among Fountain View and the Initial Purchasers named therein relating to the 11 1/4% Senior Subordinated Notes due 2008. 3.1 Certificate of Incorporation of Fountain View. 3.1(a) Certificate of Amendment amending Certificate of Incorporation of Fountain View filed March 27, 1998. 3.1(b) Certificate of Amendment amending Certificate of Incorporation of Fountain View filed May 6, 1998. 3.2 By-laws of Fountain View. 3.3 Articles of Incorporation of Summit Care Corporation.
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.4 By-laws of Summit Care Corporation. 3.5 Articles of Incorporation of Summit Care-California, Inc. 3.6 By-laws of Summit Care-California, Inc. 3.7 Articles of Incorporation of Summit Care Pharmacy, Inc. 3.8 By-laws of Summit Care Pharmacy, Inc. 3.9 Omitted 3.10 Omitted 3.11 Articles of Incorporation of Summit Care Texas Equity, Inc. 3.12 By-laws of Summit Care Texas Equity, Inc. 3.13 Articles of Organization of Summit Care Texas, No. 2, Inc. 3.14 By-laws of Summit Care Texas, No. 2, Inc. 3.15 Articles of Organization of Summit Care Texas, No. 3, Inc. 3.16 By-laws of Summit Care Texas, No. 3, Inc. 3.17 Articles of Organization of Summit Care Texas Management, Inc. 3.18 By-laws of Summit Care Texas Management, Inc. 3.19 Certificate of Limited Partnership of Summit Care Texas, L.P. 3.20 Omitted 3.21 Certificate of Incorporation of Fountain View Holdings, Inc. 3.22 By-laws of Fountain View Holdings, Inc. 3.23 Articles of Incorporation of AIB Corp. 3.24 By-laws of AIB Corp. 3.25 Articles of Incorporation of Alexandria Convalescent Hospital, Inc. 3.26 By-laws of Alexandria Convalescent Hospital, Inc. 3.27 Articles of Incorporation of BIA Hotel Corp. 3.28 By-laws of BIA Hotel Corp. 3.29 Articles of Incorporation of Brier Oak Convalescent, Inc. 3.30 By-laws of Brier Oak Convalescent, Inc. 3.31 Articles of Incorporation of Elmcrest Convalescent Hospital 3.32 By-laws of Elmcrest Convalescent Hospital 3.33 Articles of Incorporation of Fountainview Convalescent Hospital 3.34 By-laws of Fountainview Convalescent Hospital 3.35 Articles of Incorporation of Fountain View Management, Inc. 3.36 By-laws of Fountain View Management, Inc. 3.37 Articles of Incorporation of Rio Hondo Nursing Center 3.38 By-laws of Rio Hondo Nursing Center 3.39 Certificate of Incorporation of Locomotion Holdings, Inc. 3.40 By-laws of Locomotion Holdings, Inc. 3.41 Certificate of Incorporation of Locomotion Therapy, Inc.
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.42 By-laws of Locomotion Therapy, Inc. 3.43 Articles of Incorporation of On-Track Therapy Center, Inc. 3.44 By-laws of On-Track Therapy Center, Inc. 3.45 Articles of Incorporation of I.' NO, Inc. 3.46 By-laws of I.' NO, Inc. 3.47 Articles of Incorporation of Sycamore Park Convalescent Hospital 3.48 By-laws of Sycamore Park Convalescent Hospital 4.1 Indenture dated as of April 16, 1998 by and among Fountain View, certain subsidiaries of Fountain View, and State Street Bank and Trust Company of California, N.A., as trustee, for the 11 1/4% Senior Subordinated Notes due 2008. 4.2 Form of the Company's 11 1/4% Senior Subordinated Notes due 2008 (see Exhibit A-1 to Exhibit 4.1). 5.1 Opinion of Choate, Hall & Stewart.(+) 10.1 Omitted 10.2 Omitted 10.3 Omitted 10.4 Omitted 10.5 Omitted 10.7 Palmcrest Convalescent Home (now known as Palm Grove Convalescent Center): Convalescent Hospital Lease, dated November 20, 1969, between Palmcrest Associates, Ltd., and Century Convalescent Centers, as amended by Lease of Convalescent Hospital Facility (as amended), dated September 1, 1979, by which SHL and its appointed nominee Royalwood Convalescent Hospital, Inc. (now Summit Care-California, Inc.) are substituted as lessees.(+) 10.8 Anaheim Care Center: Lease, dated June 1, 1995, between Sam Menlo, Trustee of the Menlo Trust U/T/I 5/22/83 and Summit Care-California, Inc., doing business as Anaheim Care Center.(+) 10.9 Sharon Care Center: Lease, dated May 1, 1987, between Jozef Nabel and Marie Gabrielle Nabel, as tenants in common, and Summit Care- California, Inc.(+) 10.10 Royalwood Convalescent Hospital: Lease dated August 18, 1964, between Jack H. Cramer and Walter Lee Brown (together, as lessors) and Albert J. Allasandra, as amended by Amendment to Lease and Right of First Refusal to Purchase, dated May 23, 1969, by which Alaric Corporation is substituted as lessee, and as further amended by Amendment to Agreement of Lease and Right of First Refusal, dated November 18, 1974, and as further amended by Second Amendment to Agreement of Lease and Right of First Refusal and Assignment of Lease, dated July 10, 1979, by which National Accommodations, Inc. (now SHL) is substituted as lessee(+), assigned to Summit Care Corporation by Assignment of Lease, dated March 9, 1992, between SHL and Summit Care Corporation.(+)
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.11 Bay Crest Convalescent Hospital: Lease, dated March 1, 1980, between South Bay Sanitarium and Convalescent Hospital and Garnet Convalescent Hospital, Inc. (now Summit Care-California, Inc.),(+) and Amendment to Lease dated March 1, 1994.(+) 10.12 Brier Oak Convalescent Center: Lease Agreement, dated February 18, 1985, between Bernard Bubman, Arnold Friedman, Irene Weiss and Sunset Motel and Development Co. (collectively, as lessors), and Summit Care-California, Inc.(+) 10.13 Valley Palms Convalescent Hospital: Lease, dated March 16, 1982, between Uni-Cal Associates and Valley Palms Convalescent, Inc. (now Summit Care-California, Inc.).(+) 10.14 Marina Care Center: Standard Industrial Lease--Net, dated March 1, 1989, between Summit Properties and Summit Care-California, Inc., as modified by Addendum to Standard Industrial Lease--Net.(+) 10.15 Phoenix Resident Hotel: Lease, dated July 29, 1977, between Sierra Land & Livestock, Inc. and Southwest Hotels, Inc., as modified by Addendum to Lease dated August 11, 1983, assigned to Summit Care Corporation by Assignment of Lease, dated July 1, 1982, between Southwest Hotels, Inc. and Summit Care Corporation.(+) 10.16 Sublease of Phoenix Retirement Hotel: Sublease, dated July 1, 1987, between Summit Care Corporation and Phoenix McDowell Properties, Inc.(+), as assigned by Assignment of Sublease, dated March 9, 1992, between Summit Care Corporation and Summit Health Ltd.(+) 10.17 Sublease of Marina Care Center: Nursing Home Sublease Agreement, dated March 7, 1989, between Summit Care-California, Inc. and 5240 Sepulveda, Inc.(+), as assigned by Assignment of Sublease, dated March 9, 1992, between Summit Care-California, Inc. and Summit Health Ltd.(+) 10.18 Sublease of Valley Palms Care Center: Nursing Home Sublease Agreement, dated May 11, 1989, between Summit Care-California, Inc. and Trinity Health Systems(+), as assigned by Assignment of Sublease, dated March 9, 1992, between Summit Care-California, Inc. and Summit Health Ltd.(+) 10.19 Sublease of Brier Oak Terrace Care Center: Nursing Home Sublease Agreement, dated April 1, 1989, between Summit Care-California, Inc. and Brier Oak Hospital, Inc.(+), as assigned by Assignment of Sublease, dated March 9, 1992, between Summit Care-California, Inc. and Summit Health Ltd.(+) 10.20 Sublease of Pharmacy: Standard Sublease, dated August 1, 1989, between St. Luke Medical Center and Mediscript, Inc., as modified by Addendum of the same date.(+) 10.21 Hemet Resident Hotel: Ground Lease dated June 25, 1980, between Genes, Ltd., and SHL, assigned to Summit Care Corporation by Assignment of Lease dated March 9, 1992, between SHL and Summit Care Corporation.(+) 10.22 Seller Note for purchase of The Woodlands.(+) 10.23 HUD Note for purchase of The Woodlands.(+) 10.24 Sublease with Summit Health Ltd., for Phoenix Living Center dated January 1994.(+) 10.25 Real Estate Lien Note--$3,000,000 dated September 30, 1994 and Security Agreement dated September 30, 1994.(+) 10.26 Live Oak Nursing Center, George West, Texas Lease Agreement dated July 19, 1991; Assignment of Lease With Option to Purchase dated September 30, 1994 and Consent To Assignment Of Leasehold Estate of Live Oak Nursing Center, George West, Texas dated August 15, 1994.(+)
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.27 Guadalupe Valley Nursing Center, Sequin, Texas Lease Agreement dated February 28, 1989; Assignment Of Lease With Option To Purchase dated September 30, 1994 and Consent To Assignment Of leasehold Estate Of Guadalupe Valley Nursing Center, Sequin, Texas dated August 15, 1994.(+) 10.28 Omitted 10.29 Oak Crest Nursing Center, Rockport, Texas Nursing Home Lease Agreement dated October 18, 1990 and Consent To Assignment And Assumption Agreement dated October 5, 1994.(+) 10.30 Omitted 10.31 Summit Care Corporation 401(k) Savings Plan.(+) 10.32 Limited Liability Company Agreement of APS-Summit Care Pharmacy, L.L.C., dated November 30, 1996. 10.33 Robert Crone-South Texas Health Care, Inc. Agreement of Purchase and Sale of Assets of Briarcliff Nursing and Rehabilitation Center dated November 24, 1997.(+) 10.34 Agreement and Plan of Merger Among Summit Care Corporation, Fountain View, Inc., FV-SCC Acquisition Corporation and Heritage Fund II, L.P., dated February 6, 1998.(1) 10.35 Summit Care Corporation Special Severance Pay Plan dated February 6, 1998.(1) 10.36 Investment Agreement dated as of March 27, 1998 among Fountain View and certain investors. 10.37 Stockholders Agreement dated as of March 27, 1998 among Fountain View, the existing stockholders of Fountain View and certain investors. 10.38 Registration Rights Agreement dated as of March 27, 1998 among Fountain View, certain stockholders of Fountain View and certain investors. 10.39 Employment Agreement between Fountain View and Robert Snukal dated March 27, 1998. 10.40 Employment Agreement between Fountain View and Sheila Snukal dated March 27, 1998. 10.41 Employment Agreement between Fountain View and William Scott dated March 27, 1998. 10.42 Promissory Note and Pledge Agreement dated April 16, 1998 issued by William Scott to Fountain View relating to purchase of 20,000 Shares of Series A Common Stock. 10.43 Supplemental Signature Page to Investment Agreement dated as of May 4, 1998 among Fountain View, Heritage Fund II, L.P., Baylor Health Care System ("Baylor") and Buckner Foundation ("Buckner"). 10.44 Amendment No. 1 to Stockholders Agreement dated as of May 4, 1998 among Fountain View, Heritage, Baylor, Buckner and certain other parties. 10.45 Amendment No. 1 to Registration Rights Agreement dated as of May 4, 1998 among Fountain View, Heritage, Baylor, Buckner and certain other parties. 10.46 Warrants to purchase Series C Common Stock of Fountain View issued by Fountain View to Heritage, Baylor, Buckner and certain of Baylor's brokers. 10.47 Credit Agreement Dated as of April 16, 1998 by and among Fountain View, The Banks party thereto and the Bank of Montreal, as agent.
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.48 Guaranty Agreement Dated as of April 16, 1998 by and among Fountain View, the Guarantors, the Banks party thereto and Bank of Montreal. 10.49 Pledge Agreement Dated as of April 16, 1998 by and among Fountain View, the Guarantors, the Banks party thereto and Bank of Montreal. 10.50 Security Agreement Dated as of April 16, 1998 by and among Fountain View, the Guarantors, the Banks party thereto and Bank of Montreal. 10.51 Form of Revolving Note. 10.52 Form of Term Note. 12.1 Statement Re: Computation of Ratio of Earnings to Fixed Charges. 21.1 List of Subsidiaries 23.1 Consent of Ernst & Young LLP. 23.2 Consent of Choate, Hall & Stewart (included as part of Exhibit 5.1).(+) 24.1 Powers of Attorney.* 25.1 Statement of eligibility of State Street Bank and Trust Company of California, N.A., as trustee.* 99.1 Letter of Transmittal with respect to the Exchange Offer. 99.2 Notice of Guaranteed Delivery with respect to the Exchange Offer. 99.3 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. 99.4 Letter Regarding Eligibility for use of Form S-4. 99.5 Report of Ernst & Young LLP on Schedule II.*
- -------- + To be filed by amendment. * Previously filed. (1) Incorporated by reference to the Company's Schedule 14D-1, filed with the Commission on February 13, 1998. (B)FINANCIAL STATEMENT SCHEDULES Schedule II--Valuation and Qualifying Account II-7 ITEM 22. UNDERTAKINGS (a) Each of the undersigned registrants hereby undertakes that insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended ("the Act"), may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, such Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim of indemnification against such liabilities (other than the payment by the registrant of expenses incurred or the registrant in the successful defense of any action, suit paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, such Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) Each of the undersigned registrants hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. (c) Each of the undersigned registrants hereby undertakes: (1) To file, during any period which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1993; (ii) To reflect in the prospectus and facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) of the Securities Act of 1933 if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-8 SCHEDULE II FOUNTAIN VIEW, INC. VALUATION AND QUALIFYING ACCOUNT
ADDITIONS -------------------- BALANCE AT CHARGED CHARGED BALANCE AT BEGINNING TO COST AND TO OTHER END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD - ----------- ---------- ----------- -------- ---------- ---------- Year ended December 31, 1995 Allowance for doubtful accounts.............. $528,000 $427,000 -- $(229,000)(1) $ 726,000 ======== ======== === ========= ========== Year ended December 31, 1996 Allowance for doubtful accounts.............. $726,000 $430,000 -- $(377,000)(1) $ 779,000 ======== ======== === ========= ========== Year ended December 31, 1997 Allowance for doubtful accounts.............. $779,000 $395,000 -- $ (22,000)(1) $1,152,000 ======== ======== === ========= ==========
- -------- (1) Deductions relate to uncollectible accounts written off. 1 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Fountain View, Inc. has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. FOUNTAIN VIEW, INC. /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal President, Chief Executive August 5, 1998 ____________________________________ Officer and Director Robert M. Snukal (Principal Executive Officer) /s/ Derwin L. Williams* Chief Financial Officer and August 5, 1998 ____________________________________ Treasurer (Principal Derwin L. Williams Financial and Accounting Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Sheila S. Snukal* Executive Vice President and August 5, 1998 ____________________________________ Director Sheila S. Snukal /s/ Michel Reichert* Director August 5, 1998 ____________________________________ Michel Reichert
S-1
SIGNATURE TITLE DATE --------- ----- ---- /s/ Michael F. Gilligan* Director August 5, 1998 ____________________________________ Michael F. Gilligan /s/ Peter Z. Hermann* Director August 5, 1998 ____________________________________ Peter Z. Hermann /s/ Mark J. Jrolf* Director August 5, 1998 ____________________________________ Mark J. Jrolf /s/ Robert M. Snukal *By ________________________________ Robert M. Snukal Attorney-in-fact
S-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Summit Care Corporation has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. SUMMIT CARE CORPORATION /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal President, Chief Executive August 5, 1998 ____________________________________ Officer and Director Robert M. Snukal (Principal Executive Officer) /s/ Derwin L. Williams* Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Sheila S. Snukal* Vice President and Director August 5, 1998 ____________________________________ Sheila S. Snukal /s/ Robert M. Snukal *By ________________________________ Robert M. Snukal Attorney-in-fact
S-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Summit Care-California, Inc. has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. SUMMIT CARE-CALIFORNIA, INC. /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal President, Chief Executive August 5, 1998 ____________________________________ Officer and Director Robert M. Snukal (Principal Executive Officer) /s/ Derwin L. Williams* Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Sheila S. Snukal* Vice President and Director August 5, 1998 ____________________________________ Sheila S. Snukal
/s/ Robert M. Snukal *By ___________________________ Robert M. Snukal Attorney-in-fact S-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Summit Care Pharmacy, Inc. has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. SUMMIT CARE PHARMACY, INC. /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal President, Chief Executive August 5, 1998 ____________________________________ Officer and Director Robert M. Snukal (Principal Executive Officer) /s/ Derwin L. Williams* Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Sheila S. Snukal* Vice President and Director August 5, 1998 ____________________________________ Sheila S. Snukal
/s/ Robert M. Snukal *By ___________________________ Robert M. Snukal Attorney-in-fact S-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Summit Care Texas Equity, Inc. has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. SUMMIT CARE TEXAS EQUITY, INC. /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal President, Chief Executive August 5, 1998 ____________________________________ Officer and Director Robert M. Snukal (Principal Executive Officer) /s/ Derwin L. Williams* Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Sheila S. Snukal* Vice President and Director August 5, 1998 ____________________________________ Sheila S. Snukal
/s/ Robert M. Snukal *By ___________________________ Robert M. Snukal Attorney-in-fact S-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Summit Care Texas No. 2, Inc. has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. SUMMIT CARE TEXAS NO. 2, INC. /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal President, Chief Executive August 5, 1998 ____________________________________ Officer and Director Robert M. Snukal (Principal Executive Officer) /s/ Derwin L. Williams* - Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* - Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Sheila S. Snukal* - Vice President and Director August 5, 1998 ____________________________________ Sheila S. Snukal
/s/ Robert M. Snukal *By ___________________________ Robert M. Snukal Attorney-in-fact S-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Summit Care Texas No. 3, Inc. has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. SUMMIT CARE TEXAS NO. 3, INC. /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal President, Chief Executive August 5, 1998 ____________________________________ Officer and Director Robert M. Snukal (Principal Executive Officer) /s/ Derwin L. Williams* Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Sheila S. Snukal* Vice President and Director August 5, 1998 ____________________________________ Sheila S. Snukal
/s/ Robert M. Snukal *By ___________________________ Robert M. Snukal Attorney-in-fact S-8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Summit Care Management Texas, Inc. has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. SUMMIT CARE MANAGEMENT TEXAS, INC. /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal President, Chief Executive August 5, 1998 ____________________________________ Officer and Director Robert M. Snukal (Principal Executive Officer) /s/ Derwin L. Williams* Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Sheila S. Snukal* Vice President and Director August 5, 1998 ____________________________________ Sheila S. Snukal
/s/ Robert M. Snukal *By ___________________________ Robert M. Snukal Attorney-in-fact S-9 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Summit Care Texas, L.P. has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. SUMMIT CARE TEXAS, L.P. By: ____Summit Care Management Texas, Inc. Its: General Partner /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal President Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal President, Chief Executive August 5, 1998 ____________________________________ Officer and Director Robert M. Snukal of Summit Care Management Texas, Inc. (Principal Executive Officer) /s/ Derwin L. Williams* Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ of Summit Care Management William C. Scott Texas, Inc. /s/ Sheila S. Snukal* Vice President and Director August 5, 1998 ____________________________________ of Summit Care Management Sheila S. Snukal Texas, Inc.
/s/ Robert M. Snukal *By ___________________________ Robert M. Snukal Attorney-in-fact S-10 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Fountain View Holdings, Inc. has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. FOUNTAIN VIEW HOLDINGS, INC. /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal President, Chief Executive August 5, 1998 ____________________________________ Officer and Director Robert M. Snukal (Principal Executive Officer) /s/ Derwin L. Williams* Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Sheila S. Snukal* Vice President and Director August 5, 1998 ____________________________________ Sheila S. Snukal
/s/ Robert M. Snukal *By ___________________________ Robert M. Snukal Attorney-in-fact S-11 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, AIB Corp. has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. AIB CORP. /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal President, Chief Executive August 5, 1998 ____________________________________ Officer and Director Robert M. Snukal (Principal Executive Officer) /s/ Derwin L. Williams* Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Sheila S. Snukal* Vice President and Director August 5, 1998 ____________________________________ Sheila S. Snukal
/s/ Robert M. Snukal *By ___________________________ Robert M. Snukal Attorney-in-fact S-12 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Alexandria Convalescent Hospital, Inc. has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. ALEXANDRIA CONVALESCENT HOSPITAL, INC. /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal President, Chief Executive August 5, 1998 ____________________________________ Officer and Director Robert M. Snukal (Principal Executive Officer) /s/ Derwin L. Williams* Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Sheila S. Snukal* Vice President and Director August 5, 1998 ____________________________________ Sheila S. Snukal
/s/ Robert M. Snukal *By ___________________________ Robert M. Snukal Attorney-in-fact S-13 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, BIA Hotel Corp. has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. BIA HOTEL CORP. /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal President, Chief Executive August 5, 1998 ____________________________________ Officer and Director Robert M. Snukal (Principal Executive Officer) /s/ Derwin L. Williams* Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Sheila S. Snukal* Vice President and Director August 5, 1998 ____________________________________ Sheila S. Snukal
/s/ Robert M. Snukal *By ___________________________ Robert M. Snukal Attorney-in-fact S-14 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Brier Oak Convalescent, Inc. has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. BRIER OAK CONVALESCENT, INC. /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal President, Chief Executive August 5, 1998 ____________________________________ Officer and Director Robert M. Snukal (Principal Executive Officer) /s/ Derwin L. Williams* Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Sheila S. Snukal* Vice President and Director August 5, 1998 ____________________________________ Sheila S. Snukal
/s/ Robert M. Snukal *By ___________________________ Robert M. Snukal Attorney-in-fact S-15 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Elmcrest Convalescent Hospital has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. ELMCREST CONVALESCENT HOSPITAL /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal President, Chief Executive August 5, 1998 ____________________________________ Officer and Director Robert M. Snukal (Principal Executive Officer) /s/ Derwin L. Williams* Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Sheila S. Snukal* Vice President and Director August 5, 1998 ____________________________________ Sheila S. Snukal
/s/ Robert M. Snukal *By ___________________________ Robert M. Snukal Attorney-in-fact S-16 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Fountainview Convalescent Hospital has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. FOUNTAINVIEW CONVALESCENT HOSPITAL /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal President, Chief Executive August 5, 1998 ____________________________________ Officer and Director Robert M. Snukal (Principal Executive Officer) /s/ Derwin L. Williams* Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Sheila S. Snukal* Vice President and Director August 5, 1998 ____________________________________ Sheila S. Snukal
/s/ Robert M. Snukal *By ___________________________ Robert M. Snukal Attorney-in-fact S-17 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Fountain View Management, Inc. has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. FOUNTAIN VIEW MANAGEMENT, INC. /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal President, Chief Executive August 5, 1998 ____________________________________ Officer and Director Robert M. Snukal (Principal Executive Officer) /s/ Derwin L. Williams* Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Sheila S. Snukal* Vice President and Director August 5, 1998 ____________________________________ Sheila S. Snukal
/s/ Robert M. Snukal *By ___________________________ Robert M. Snukal Attorney-in-fact S-18 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Rio Hondo Nursing Center has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. RIO HONDO NURSING CENTER /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal President, Chief Executive August 5, 1998 ____________________________________ Officer and Director Robert M. Snukal (Principal Executive Officer) /s/ Derwin L. Williams* Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Sheila S. Snukal* Vice President and Director August 5, 1998 ____________________________________ Sheila S. Snukal
/s/ Robert M. Snukal *By ___________________________ Robert M. Snukal Attorney-in-fact S-19 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Locomotion Holdings, Inc. has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. LOCOMOTION HOLDINGS, INC. /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal President, Chief Executive August 5, 1998 ____________________________________ Officer and Director Robert M. Snukal (Principal Executive Officer) /s/ Derwin L. Williams* Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Sheila S. Snukal* Vice President and Director August 5, 1998 ____________________________________ Sheila S. Snukal
/s/ Robert M. Snukal *By ___________________________ Robert M. Snukal Attorney-in-fact S-20 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Locomotion Therapy, Inc. has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. LOCOMOTION THERAPY, INC. /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal Chief Executive Officer and August 5, 1998 ____________________________________ Director (Principal Robert M. Snukal Executive Officer) /s/ Derwin L. Williams* Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Keith Abrahams* President and Director August 5, 1998 ____________________________________ Keith Abrahams /s/ Sheila S. Snukal* Vice President and Director August 5, 1998 ____________________________________ Sheila S. Snukal
/s/ Robert M. Snukal *By ___________________________ Robert M. Snukal Attorney-in-fact S-21 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, On- Track Therapy Center has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. ON-TRACK THERAPY CENTER /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal Chief Executive Officer and August 5, 1998 ____________________________________ Director (Principal Robert M. Snukal Executive Officer) /s/ Derwin L. Williams* Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Keith Abrahams* President and Director August 5, 1998 ____________________________________ Keith Abrahams /s/ Sheila S. Snukal* Vice President and Director August 5, 1998 ____________________________________ Sheila S. Snukal
/s/ Robert M. Snukal *By ___________________________ Robert M. Snukal Attorney-in-fact S-22 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, I.'NO, Inc. has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. I.'NO, INC. /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal President, Chief Executive August 5, 1998 ____________________________________ Officer and Director Robert M. Snukal (Principal Executive Officer) /s/ Derwin L. Williams* Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Sheila S. Snukal* Vice President and Director August 5, 1998 ____________________________________ Sheila S. Snukal
/s/ Robert M. Snukal *By ___________________________ Robert M. Snukal Attorney-in-fact S-23 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Sycamore Park Convalescent Hospital has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 5, 1998. SYCAMORE PARK CONVALESCENT HOSPITAL /s/ Robert M. Snukal By: _________________________________ Robert M. Snukal President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Snukal President, Chief Executive August 5, 1998 ____________________________________ Officer and Director Robert M. Snukal (Principal Executive Officer) /s/ Derwin L. Williams* Treasurer (Principal August 5, 1998 ____________________________________ Financial and Accounting Derwin L. Williams Officer) /s/ William C. Scott* Director and Chairman August 5, 1998 ____________________________________ William C. Scott /s/ Sheila S. Snukal* Vice President and Director August 5, 1998 ____________________________________ Sheila S. Snukal
/s/ Robert M. Snukal *By ___________________________ Robert M. Snukal Attorney-in-fact S-24 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 1.1 Purchase Agreement dated as of April 16, 1998 by and among Fountain View and the Initial Purchasers named therein relating to the 11 1/4% Senior Subordinated Notes due 2008. 3.1 Certificate of Incorporation of Fountain View. 3.1(a) Certificate of Amendment amending Certificate of Incorporation of Fountain View filed March 27, 1998. 3.1(b) Certificate of Amendment amending Certificate of Incorporation of Fountain View filed May 6, 1998. 3.2 By-laws of Fountain View. 3.3 Articles of Incorporation of Summit Care Corporation. 3.4 By-laws of Summit Care Corporation. 3.5 Articles of Incorporation of Summit Care-California, Inc. 3.6 By-laws of Summit Care-California, Inc. 3.7 Articles of Incorporation of Summit Care Pharmacy, Inc. 3.8 By-laws of Summit Care Pharmacy, Inc. 3.9 Omitted 3.10 Omitted 3.11 Articles of Incorporation of Summit Care Texas Equity, Inc. 3.12 By-laws of Summit Care Texas Equity, Inc. 3.13 Articles of Organization of Summit Care Texas, No. 2, Inc. 3.14 By-laws of Summit Care Texas, No. 2, Inc. 3.15 Articles of Organization of Summit Care Texas, No. 3, Inc. 3.16 By-laws of Summit Care Texas, No. 3, Inc. 3.17 Articles of Organization of Summit Care Texas Management, Inc. 3.18 By-laws of Summit Care Texas Management, Inc. 3.19 Certificate of Limited Partnership of Summit Care Texas, L.P. 3.20 Omitted 3.21 Certificate of Incorporation of Fountain View Holdings, Inc. 3.22 By-laws of Fountain View Holdings, Inc. 3.23 Articles of Incorporation of AIB Corp. 3.24 By-laws of AIB Corp. 3.25 Articles of Incorporation of Alexandria Convalescent Hospital, Inc. 3.26 By-laws of Alexandria Convalescent Hospital, Inc. 3.27 Articles of Incorporation of BIA Hotel Corp. 3.28 By-laws of BIA Hotel Corp. 3.29 Articles of Incorporation of Brier Oak Convalescent, Inc. 3.30 By-laws of Brier Oak Convalescent, Inc. 3.31 Articles of Incorporation of Elmcrest Convalescent Hospital
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.32 By-laws of Elmcrest Convalescent Hospital 3.33 Articles of Incorporation of Fountainview Convalescent Hospital 3.34 By-laws of Fountainview Convalescent Hospital 3.35 Articles of Incorporation of Fountain View Management, Inc. 3.36 By-laws of Fountain View Management, Inc. 3.37 Articles of Incorporation of Rio Hondo Nursing Center 3.38 By-laws of Rio Hondo Nursing Center 3.39 Certificate of Incorporation of Locomotion Holdings, Inc. 3.40 By-laws of Locomotion Holdings, Inc. 3.41 Certificate of Incorporation of Locomotion Therapy, Inc. 3.42 By-laws of Locomotion Therapy, Inc. 3.43 Articles of Incorporation of On-Track Therapy Center, Inc. 3.44 By-laws of On-Track Therapy Center, Inc. 3.45 Articles of Incorporation of I.' NO, Inc. 3.46 By-laws of I.' NO, Inc. 3.47 Articles of Incorporation of Sycamore Park Convalescent Hospital 3.48 By-laws of Sycamore Park Convalescent Hospital 4.1 Indenture dated as of April 16, 1998 by and among Fountain View, certain subsidiaries of Fountain View, and State Street Bank and Trust Company of California, N.A., as trustee, for the 11 1/4% Senior Subordinated Notes due 2008. 4.2 Form of the Company's 11 1/4% Senior Subordinated Notes due 2008 (see Exhibit A-1 to Exhibit 4.1). 5.1 Opinion of Choate, Hall & Stewart.(+) 10.1 Omitted 10.2 Omitted 10.3 Omitted 10.4 Omitted 10.5 Omitted 10.7 Palmcrest Convalescent Home (now known as Palm Grove Convalescent Center): Convalescent Hospital Lease, dated November 20, 1969, between Palmcrest Associates, Ltd., and Century Convalescent Centers, as amended by Lease of Convalescent Hospital Facility (as amended), dated September 1, 1979, by which SHL and its appointed nominee Royalwood Convalescent Hospital, Inc. (now Summit Care- California, Inc.) are substituted as lessees.(+) 10.8 Anaheim Care Center: Lease, dated June 1, 1995, between Sam Menlo, Trustee of the Menlo Trust U/T/I 5/22/83 and Summit Care-California, Inc., doing business as Anaheim Care Center.(+)
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.9 Sharon Care Center: Lease, dated May 1, 1987, between Jozef Nabel and Marie Gabrielle Nabel, as tenants in common, and Summit Care- California, Inc.(+) 10.10 Royalwood Convalescent Hospital: Lease dated August 18, 1964, between Jack H. Cramer and Walter Lee Brown (together, as lessors) and Albert J. Allasandra, as amended by Amendment to Lease and Right of First Refusal to Purchase, dated May 23, 1969, by which Alaric Corporation is substituted as lessee, and as further amended by Amendment to Agreement of Lease and Right of First Refusal, dated November 18, 1974, and as further amended by Second Amendment to Agreement of Lease and Right of First Refusal and Assignment of Lease, dated July 10, 1979, by which National Accommodations, Inc. (now SHL) is substituted as lessee(+), assigned to Summit Care Corporation by Assignment of Lease, dated March 9, 1992, between SHL and Summit Care Corporation.(+) 10.11 Bay Crest Convalescent Hospital: Lease, dated March 1, 1980, between South Bay Sanitarium and Convalescent Hospital and Garnet Convalescent Hospital, Inc. (now Summit Care-California, Inc.),(+) and Amendment to Lease dated March 1, 1994.(+) 10.12 Brier Oak Convalescent Center: Lease Agreement, dated February 18, 1985, between Bernard Bubman, Arnold Friedman, Irene Weiss and Sunset Motel and Development Co. (collectively, as lessors), and Summit Care-California, Inc.(+) 10.13 Valley Palms Convalescent Hospital: Lease, dated March 16, 1982, between Uni-Cal Associates and Valley Palms Convalescent, Inc. (now Summit Care-California, Inc.).(+) 10.14 Marina Care Center: Standard Industrial Lease--Net, dated March 1, 1989, between Summit Properties and Summit Care-California, Inc., as modified by Addendum to Standard Industrial Lease--Net.(+) 10.15 Phoenix Resident Hotel: Lease, dated July 29, 1977, between Sierra Land & Livestock, Inc. and Southwest Hotels, Inc., as modified by Addendum to Lease dated August 11, 1983, assigned to Summit Care Corporation by Assignment of Lease, dated July 1, 1982, between Southwest Hotels, Inc. and Summit Care Corporation.(+) 10.16 Sublease of Phoenix Retirement Hotel: Sublease, dated July 1, 1987, between Summit Care Corporation and Phoenix McDowell Properties, Inc.(+), as assigned by Assignment of Sublease, dated March 9, 1992, between Summit Care Corporation and Summit Health Ltd.(+) 10.17 Sublease of Marina Care Center: Nursing Home Sublease Agreement, dated March 7, 1989, between Summit Care-California, Inc. and 5240 Sepulveda, Inc.(+), as assigned by Assignment of Sublease, dated March 9, 1992, between Summit Care-California, Inc. and Summit Health Ltd.(+) 10.18 Sublease of Valley Palms Care Center: Nursing Home Sublease Agreement, dated May 11, 1989, between Summit Care-California, Inc. and Trinity Health Systems(+), as assigned by Assignment of Sublease, dated March 9, 1992, between Summit Care-California, Inc. and Summit Health Ltd.(+) 10.19 Sublease of Brier Oak Terrace Care Center: Nursing Home Sublease Agreement, dated April 1, 1989, between Summit Care-California, Inc. and Brier Oak Hospital, Inc.(+), as assigned by Assignment of Sublease, dated March 9, 1992, between Summit Care-California, Inc. and Summit Health Ltd.(+) 10.20 Sublease of Pharmacy: Standard Sublease, dated August 1, 1989, between St. Luke Medical Center and Mediscript, Inc., as modified by Addendum of the same date.(+) 10.21 Hemet Resident Hotel: Ground Lease dated June 25, 1980, between Genes, Ltd., and SHL, assigned to Summit Care Corporation by Assignment of Lease dated March 9, 1992, between SHL and Summit Care Corporation.(+)
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.22 Seller Note for purchase of The Woodlands.(+) 10.23 HUD Note for purchase of The Woodlands.(+) 10.24 Sublease with Summit Health Ltd., for Phoenix Living Center dated January 1994.(+) 10.25 Real Estate Lien Note--$3,000,000 dated September 30, 1994 and Security Agreement dated September 30, 1994.(+) 10.26 Live Oak Nursing Center, George West, Texas Lease Agreement dated July 19, 1991; Assignment of Lease With Option to Purchase dated September 30, 1994 and Consent To Assignment Of Leasehold Estate of Live Oak Nursing Center, George West, Texas dated August 15, 1994.(+) 10.27 Guadalupe Valley Nursing Center, Sequin, Texas Lease Agreement dated February 28, 1989; Assignment Of Lease With Option To Purchase dated September 30, 1994 and Consent To Assignment Of leasehold Estate Of Guadalupe Valley Nursing Center, Sequin, Texas dated August 15, 1994.(+) 10.28 Omitted 10.29 Oak Crest Nursing Center, Rockport, Texas Nursing Home Lease Agreement dated October 18, 1990 and Consent To Assignment And Assumption Agreement dated October 5, 1994.(+) 10.30 Omitted 10.31 Summit Care Corporation 401(k) Savings Plan.(+) 10.32 Limited Liability Company Agreement of APS-Summit Care Pharmacy, L.L.C., dated November 30, 1996. 10.33 Robert Crone-South Texas Health Care, Inc. Agreement of Purchase and Sale of Assets of Briarcliff Nursing and Rehabilitation Center dated November 24, 1997.(+) 10.34 Agreement and Plan of Merger Among Summit Care Corporation, Fountain View, Inc., FV-SCC Acquisition Corporation and Heritage Fund II, L.P., dated February 6, 1998.(1) 10.35 Summit Care Corporation Special Severance Pay Plan dated February 6, 1998.(1) 10.36 Investment Agreement dated as of March 27, 1998 among Fountain View and certain investors. 10.37 Stockholders Agreement dated as of March 27, 1998 among Fountain View, the existing stockholders of Fountain View and certain investors. 10.38 Registration Rights Agreement dated as of March 27, 1998 among Fountain View, certain stockholders of Fountain View and certain investors. 10.39 Employment Agreement between Fountain View and Robert Snukal dated March 27, 1998. 10.40 Employment Agreement between Fountain View and Sheila Snukal dated March 27, 1998. 10.41 Employment Agreement between Fountain View and William Scott dated March 27, 1998. 10.42 Promissory Note and Pledge Agreement dated April 16, 1998 issued by William Scott to Fountain View relating to purchase of 20,000 Shares of Series A Common Stock.
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.43 Supplemental Signature Page to Investment Agreement dated as of May 4, 1998 among Fountain View, Heritage Fund II, L.P., Baylor Health Care System ("Baylor") and Buckner Foundation ("Buckner"). 10.44 Amendment No. 1 to Stockholders Agreement dated as of May 4, 1998 among Fountain View, Heritage, Baylor, Buckner and certain other parties. 10.45 Amendment No. 1 to Registration Rights Agreement dated as of May 4, 1998 among Fountain View, Heritage, Baylor, Buckner and certain other parties. 10.46 Warrants to purchase Series C Common Stock of Fountain View issued by Fountain View to Heritage, Baylor, Buckner and certain of Baylor's brokers. 10.47 Credit Agreement Dated as of April 16, 1998 by and among Fountain View, The Banks party thereto and the Bank of Montreal, as agent. 10.48 Guaranty Agreement Dated as of April 16, 1998 by and among Fountain View, the Guarantors, the Banks party thereto and Bank of Montreal. 10.49 Pledge Agreement Dated as of April 16, 1998 by and among Fountain View, the Guarantors, the Banks party thereto and Bank of Montreal. 10.50 Security Agreement Dated as of April 16, 1998 by and among Fountain View, the Guarantors, the Banks party thereto and Bank of Montreal. 10.51 Form of Revolving Note. 10.52 Form of Term Note. 12.1 Statement Re: Computation of Ratio of Earnings to Fixed Charges. 21.1 List of Subsidiaries 23.1 Consent of Ernst & Young LLP. 23.2 Consent of Choate, Hall & Stewart (included as part of Exhibit 5.1). 24.1 Powers of Attorney.* 25.1 Statement of eligibility of State Street Bank and Trust Company of California, N.A., as trustee.* 99.1 Letter of Transmittal with respect to the Exchange Offer. 99.2 Notice of Guaranteed Delivery with respect to the Exchange Offer. 99.3 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. 99.4 Letter Regarding Eligibility for use of Form S-4. 99.5 Report of Ernst & Young LLP on Schedule.*
- -------- + To be filed by amendment. * Previously filed (1) Incorporated by reference to the Company's Schedule 14D-1, filed with the Commission on February 13, 1998. EX-1.1 2 PURCHASE AGREEMENT DATED 4/16/98 EXHIBIT 1.1 FOUNTAIN VIEW, INC. 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008 PURCHASE AGREEMENT ------------------ April 9, 1998 Goldman, Sachs & Co. Nesbitt Burns Securities Inc. Paribas Corporation Sutro & Co. Incorporated c/o Goldman, Sachs & Co. 85 Broad Street New York, New York 10004 Ladies and Gentlemen: Fountain View, Inc., a Delaware corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the Purchasers named in Schedule I hereto (the "Purchasers") an aggregate of $120,000,000 principal amount of the 11 1/4% Senior Subordinated Notes due 2008 of the Company specified above (the "Notes"). The Notes will be fully and unconditionally guaranteed (the "Guarantees", and together with the Notes, the "Securities") as to payment of principal, interest, liquidated damages, if any, and premium, if any, on a senior subordinated basis, jointly and severally, by each of the Company's current subsidiaries, which are set forth in Schedule II attached hereto, and specified future subsidiaries (each a "Guarantor", and collectively, the "Guarantors"). All references to "subsidiaries" contained herein, assume the consummation of all transactions contemplated by the Acquisition Documents (as defined herein) as of the date hereof. 1. The Company and each of the Guarantors, jointly and severally, represents and warrants to, and agrees with, each of the Purchasers that: (a) A preliminary offering circular, dated March 27, 1998 (the "Preliminary Offering Circular") and an offering circular, dated April 9, 1998 (the "Offering Circular"), in each case including the international supplement thereto, have been prepared in connection with the offering of the Securities. Any reference to the Preliminary Offering Circular or the Offering Circular shall be deemed to refer to and include any Additional Issuer Information (as defined in Section 5(f)) furnished by the Company prior to the completion of the distribution of the Securities. The Preliminary Offering Circular or the Offering Circular and any amendments or supplements thereto did not and will not, as of their respective dates, and in the case of the Offering Circular, as of the Time of Delivery (as defined below), contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, 1 that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by a Purchaser through Goldman, Sachs & Co. expressly for use therein; (b) No registration of the Securities under the Securities Act of 1933, as amended (the "Act"), and no qualification of an indenture under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") with respect thereto, is required for the offer, sale and initial resale of the Notes by the Purchasers in the manner contemplated by this Agreement; (c) Neither the Company nor any of its subsidiaries has sustained since the date of the latest audited financial statements included in the Offering Circular any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Offering Circular which would have a material adverse effect on the current or future financial position or prospects, stockholders' equity or results of operations of the Company and its subsidiaries, taken as a whole (a "Material Adverse Effect"); and, since the respective dates as of which information is given in the Offering Circular, there has not been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Offering Circular; (d) The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Offering Circular or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries; (e) Each of the Company and its subsidiaries has been duly incorporated or organized as a limited partnership and is validly existing as a corporation or limited partnership in good standing under the laws of its jurisdiction of incorporation or organization, with corporate or partnership power and authority to own its properties and conduct its business as described in the Offering Circular, and has been duly qualified as a foreign corporation or partnership for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction; 2 (f) The Company and each of the Guarantors has all requisite corporate or partnership power and authority to execute, deliver and perform its respective obligations under this Agreement, the Indenture (as defined below), the Notes, the Guarantees, the Registration Rights Agreement (as defined below), the Exchange Notes (as defined below) and the Exchange Guarantees (as defined below) (collectively, the "Operative Documents") to which they are, or will be, a party and to consummate the transactions contemplated hereby and thereby, including, without limitation, the corporate or partnership power and authority to issue, sell and deliver the Notes and the Exchange Notes and to issue the Guarantees and the Exchange Guarantees, as applicable, as provided herein and therein; (g) Each of the Preliminary Offering Circular and the Offering Circular, as of their respective dates, contains the information specified in Rule 144A(d)(4) under the Act; (h) The Company has an authorized capitalization as set forth in the Offering Circular, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable; all of the issued shares of capital stock or other equity interests of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non- assessable and (except for directors' qualifying shares) are owned, or upon consummation of the Transactions will be owned, directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims except such as are described in the Offering Circular; and the Company has no subsidiaries other than the Guarantors listed on the signature pages hereto; (i) This Agreement has been duly authorized, executed and delivered by the Company and each of the Guarantors; (j) The registration rights agreement in the form attached hereto as Annex II (the "Registration Rights Agreement"), has been duly authorized by the Company and each of the Guarantors and, when duly executed and delivered by the Company and each of the Guarantors, will be the valid and legally binding obligation of the Company and each of the Guarantors, enforceable against the Company and each of the Guarantors in accordance with its terms, subject as to enforcement, bankruptcy, reorganization, insolvency or other similar laws affecting creditors' rights generally or by general principles of equity and, as to rights of indemnification or contribution, to principles of public policy or federal or state securities laws relating thereto; pursuant to the Registration Rights Agreement, the Company will agree to file with the Securities and Exchange Commission (the "Commission"), under the circumstances set forth therein a registration statement under the Act relating to another series of debt securities and Guarantees of the Company and the Guarantors, respectively, with terms identical to the Notes (the "Exchange Notes") and the Guarantees (the "Exchange Guarantees" and together with the Exchange Notes, the "Exchange Securities") to be offered in exchange for the Securities (the "Exchange Offer"), and to the extent required by the Registration Rights Agreement, a shelf registration statement pursuant to Rule 415 under the Act relating to the resale of the Securities by holders thereof, and, as provided in the Registration Rights Agreement, to use commercially reasonable efforts to 3 cause such applicable registration statement or registration statements to be declared effective; and the Registration Rights Agreement will conform to the description thereof in the Offering Circular; (k) The Notes have been duly authorized and, when issued and delivered pursuant to this Agreement, will have been duly executed, authenticated, issued and delivered and will constitute valid and legally binding obligations of the Company entitled to the benefits provided by the Indenture among the Company, the Guarantors and State Street Bank and Trust Company of California, N.A., as Trustee (the "Trustee"), under which they are to be issued (the "Indenture"), which will be substantially in the form previously delivered to you; the Indenture has been duly authorized and, when executed and delivered by the Company and the Trustee, the Indenture will constitute a valid and legally binding instrument, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, reorganization, insolvency and other similar laws relating to or affecting creditors' rights generally and to general principles of equity; and the Notes and the Indenture will conform to the descriptions thereof in the Offering Circular and will be in substantially the form previously delivered to you; (l) The Exchange Notes have been duly authorized for issuance by the Company, and when issued and authenticated in accordance with the terms of the Indenture and the Registration Rights Agreement, will be the valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms and entitled to the benefits of the Indenture, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws of general applicability relating to or affecting creditors' rights and to general principles of equity (whether considered in a proceeding in equity or at law); and the Exchange Notes, when issued, will conform to the description thereof in the Offering Circular; (m) The Guarantees have been duly authorized by each of the Guarantors and, when executed and delivered in accordance with the terms of the Indenture and when the Notes have been issued and authenticated in accordance with the terms of the Indenture and delivered to and paid for by the Purchasers in accordance with the terms of this Agreement, will be the valid and legally binding obligations of the Guarantors, enforceable against the Guarantors in accordance with their terms, except as the enforcement thereof may be limited by applicable bankruptcy, reorganization, insolvency or other similar laws affecting creditors' rights generally or by general principles of equity; and the Guarantees, when issued, will conform to the description thereof in the Offering Circular; (n) The Exchange Guarantees have been duly authorized by each of the Guarantors and, when executed and delivered in accordance with the terms of the Indenture and when the Exchange Notes are issued and authenticated in accordance with the terms of the Indenture and the Registration Rights Agreement, will be the valid and legally binding obligation of the Guarantors, enforceable against the Guarantors in accordance with their terms, except as the enforcement thereof may be limited by applicable bankruptcy, reorganization, insolvency or other similar laws affecting creditors' rights generally or by general principles of 4 equity; and the Exchange Guarantees, when issued, will conform to the description thereof in the Offering Circular; (o) The Company and each of its subsidiaries, as applicable, has all requisite corporate or partnership power and authority to execute, deliver and perform its respective obligations under (i) the credit agreement (the "New Credit Facility") by and among the Company, Bank of Montreal and the various other lenders named therein, and (ii) any and all other agreements and instruments ancillary to or entered into in connection with the transactions contemplated by the New Credit Facility (items (i) and (ii) are referred to collectively as the "Credit Documents"). Each of the Credit Documents has been, or will prior to the Time of Delivery (as defined in Section 4(a) below) be, duly authorized by the Company and each of its subsidiaries named therein and, when duly executed and delivered by the Company and each of its subsidiaries named therein will be the valid and legally binding obligation of the Company and each of its subsidiaries named therein, enforceable against each of them in accordance with its terms, subject, as to enforcement, to bankruptcy, reorganization, insolvency and other similar laws relating to or affecting creditors' rights generally and to general principles of equity. The Company will have at least $11.0 million of borrowings available to it under the New Credit Facility after giving effect to the Transactions. All representations and warranties to be made by the Company or any of its subsidiaries under any of the Credit Documents will be true and correct in all material respects as of the Time of Delivery as if made at the Time of Delivery; provided, that any such representations and warranties that speak as of a specific date shall be deemed to be made as of such date; (p) The Company and each of its subsidiaries, as applicable, has all requisite corporate power and authority to execute, deliver and perform its respective obligations under (i) the Investment Agreement (the "Investment Agreement"), dated as of March 27, 1998, by and among the Company, Robert M. Snukal, Sheila S. Snukal, William C. Scott, Heritage Fund II, L.P., Heritage Investors II, L.L.C., Heritage Fund II Investment Corporation, HFV Holdings, LLC, Nassau Capital Partners II, L.P., NAS Partners I LLC, Paribas North America, Inc., Phoenix Home Life Mutual Insurance Company, PMI Mezzanine Fund, L.P., GS Private Equity Partners, L.P., GS Private Equity Partners Offshore, L.P., and Sutro Investment Partners V, LLC, (ii) the Agreement and Plan of Merger, dated as of February 6, 1998 (the "Merger Agreement"), by and among the Company, FV-SCC Acquisition Corp., Summit Care Corporation and Heritage Fund II, L.P. and (iii) any and all other agreements and side letters ancillary to or entered into in connection with the transactions contemplated by any of the foregoing (items (i), (ii) and (iii) are referred to collectively as the "Acquisition Documents"). Each of the Acquisition Documents has been duly authorized, and has been, or prior to the Time of Delivery of any such Acquisition Document will be, executed and delivered by the Company and each of its subsidiaries named therein, and, constitutes or will constitute the valid and legally binding obligation of the Company and each of its subsidiaries named therein, enforceable against each of them in accordance with its terms, subject, as to enforcement, to bankruptcy, reorganization, insolvency and other similar laws relating to or affecting creditors' rights generally and to general principles of equity and except that certain indemnification and contribution 5 provisions may be limited by considerations of public policy or federal or state securities laws relating thereto. All representations and warranties made by any party under any of the Acquisition Documents, dated and delivered prior to this Agreement, are true and correct in all material respects as of the date hereof (except to the extent that any such representations and warranties are expressly made with respect to a specific date) and all of the representations and warranties made by any party under any of the Acquisition Documents to be dated and delivered after the date of this Agreement will be true and correct in all material respects as of the date of such Acquisition Documents; (q) The Company has delivered to the Purchasers true and correct, executed copies of each of the Acquisition Documents that have been executed and delivered to date and there have not been, and prior to the Time of Delivery will not be, any amendments, alterations, modifications or waivers to any of the Acquisition Documents or the exhibits or schedules thereto other than those as to which the Purchasers shall previously have been advised and shall not have reasonably objected in writing after being furnished a copy thereof. The Company has delivered to the Purchasers true and correct executed copies of the Credit Documents, and there have been and prior to the Time of Delivery will not be any alterations, modifications or waivers to any of such Credit Documents or the exhibits or schedules thereto other than those as to which the Purchasers shall previously have been advised and shall not have reasonably objected in writing after being furnished a copy thereof. The Acquisition Documents and Credit Documents will conform in all material respects to the descriptions thereof in the Offering Circular; (r) Except as disclosed in the Preliminary Offering Circular and the Offering Circular, and after giving effect to the transactions contemplated by the Acquisition Documents, there are no outstanding (i) securities or obligations of the Company or any of the Guarantors convertible into or exchangeable for any capital stock of the Company or any such Guarantor, (ii) warrants, rights or options to subscribe for or purchase from the Company or any of the Guarantors any such capital stock or any such convertible or exchangeable securities or obligations, or (iii) obligations of the Company or any of the Guarantors to issue any shares of capital stock, any such convertible or exchangeable securities or obligations, or any such warrants, rights or options; (s) There are no holders of securities of the Company or any of the Guarantors who, by reason of the execution of this Agreement or any other Operative Document by the Company or the Guarantors, as the case may be, or the consummation of the transactions contemplated hereby and thereby, have the right to request or demand that the Company or any of the Guarantors register under the Act or analogous foreign laws and regulations any securities held by them (other than pursuant to the Registration Rights Agreement or the Investor Registration Rights Agreement, as defined in the Offering Circular); (t) None of the transactions contemplated by this Agreement (including, without limitation, the use of the proceeds from the sale of the Securities) will violate or result in a violation of Section 7 of the Securities Exchange Act of 1934, 6 as amended (the "Exchange Act"), or any regulation promulgated thereunder, including, without limitation, Regulations T, U, and X of the Board of Governors of the Federal Reserve System; (u) Prior to the date hereof, neither the Company nor any of its affiliates has taken any action which is designed to or which has constituted or which might have been expected to cause or result in stabilization or manipulation of the price of any security of the Company in connection with the offering of the Securities; (v) Except for certain consents required in connection with the transactions contemplated by the Acquisition Documents, which will either be obtained prior to the Time of Delivery or are not material, the issue and sale of the Securities and the compliance by the Company and each of the Guarantors with all of the provisions of this Agreement, each of the other Operative Documents, the Credit Documents and the Acquisition Documents and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such action result in any violation of the provisions of the Certificate of Incorporation, Articles of Incorporation, Bylaws, or other governing documents, as applicable, of the Company or any of the Guarantors or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties; no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Securities or the consummation by the Company or any of its subsidiaries of the other transactions contemplated by this Agreement, the other Operative Documents, the Credit Documents and the Acquisition Documents, except for the filing of a registration statement pertaining to the Exchange Securities by the Company and each of the Guarantors with the Commission pursuant to the Act, the Registration Rights Agreement and Section 5(k) hereof, such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Securities by the Purchasers and such filings (all of which have been made) as may be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "Hart-Scott-Rodino Act"); and the applicable waiting period under the Hart-Scott-Rodino Act has expired or been terminated in accordance with the provisions thereof without any action by the United States Department of Justice or Federal Trade Commission to prevent consummation of any of the foregoing transactions; (w) Neither the Company nor any of its subsidiaries is in violation of its Certificate of Incorporation, Articles of Incorporation, Bylaws or other governing documents or in default in any material respect in the performance or observance of any obligation, covenant or condition contained in any indenture, mortgage, deed 7 of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound; (x) The statements set forth in the Offering Circular under the caption "Description of Notes", insofar as they purport to constitute a summary of the terms of the Securities, and under the captions "Offering Circular Summary--The Transactions", "Certain Relationships and Related Transactions", "Certain Federal Income Tax Consequences", "Description of Other Indebtedness" and "Underwriting", insofar as they purport to describe the provisions of the laws and documents referred to therein, are accurate, complete and fair in all material respects; (y) Other than as set forth in the Offering Circular, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect; and, to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (z) Neither the Company nor any of the Guarantors is, or after giving effect to the offering and sale of the Securities will be, an "investment company", or an entity "controlled" by an "investment company", as such terms are defined in the United States Investment Company Act of 1940, as amended (the "Investment Company Act"); (aa) When the Securities are issued and delivered pursuant to this Agreement, the Securities will not be of the same class (within the meaning of Rule 144A under the Act ("Rule 144A")) as securities which are listed on a national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system; (bb) None of the Company, the Guarantors, or any person acting on its or their behalf has offered or sold the Securities by means of any general solicitation or general advertising within the meaning of Rule 502(c) under the Act or, with respect to Securities sold outside the United States to non-U.S. persons (as defined in Rule 902 under the Act), by means of any directed selling efforts within the meaning of Rule 902 under the Act and the Company, the Guarantors, any affiliate of the Company and the Guarantors, and any person acting on its or their behalf has complied with and will implement the "offering restriction" within the meaning of such Rule 902; (cc) Within the preceding six months, none of the Company, the Guarantors or any other person acting on its or their behalf has offered or sold to any person any Securities, or any securities of the same or a similar class as the Securities, other than Securities offered or sold to the Purchasers hereunder. The Company and the Guarantors will take reasonable precautions designed to insure that any offer or sale, direct or indirect, in the United States or to any U.S. person (as defined in Rule 902 under the Act) of any Securities or any substantially similar 8 security issued by the Company and the Guarantors, within six months subsequent to the date on which the distribution of the Securities has been completed (as notified to the Company by Goldman, Sachs & Co.), is made under restrictions and other circumstances reasonably designed not to affect the status of the offer and sale of the Securities in the United States and to U.S. persons contemplated by this Agreement as transactions exempt from the registration provisions of the Act. None of the Company, the Guarantors or any of its or their affiliates or any person acting on its or their behalf (other than the Purchasers, as to whom the Company and the Guarantors make no representation) has engaged or will engage in any directed selling efforts within the meaning of Regulation S under the Act with respect to the Notes or the Guarantees; (dd) The Company and each of the Guarantors maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect thereto; (ee) The consolidated historical financial statements of the Company and Summit Care Corporation, together with the notes thereto, set forth in the Preliminary Offering Circular and the Offering Circular comply as to form in all material respects with the requirements under Regulation S-X of the Commission and fairly present the consolidated financial position of the Company and its subsidiaries and Summit Care Corporation and its subsidiaries as of the dates indicated and the results of their operations and their cash flows for the periods indicated, in accordance with generally accepted accounting principles consistently applied throughout such periods (except as otherwise disclosed therein). The pro forma financial statements contained in the Preliminary Offering Circular and the Offering Circular comply as to form in all material respects with the requirements of the rules promulgated under the Act and have been prepared on a basis consistent with the historical statements, except for the pro forma adjustments specified therein, and give effect to assumptions made on a reasonable basis and present fairly the historical and proposed transactions contemplated by this Agreement, the other Operative Documents, the Credit Documents and the Acquisition Documents. The other financial and statistical information and data included in the Preliminary Offering Circular and the Offering Circular, historical and pro forma, are, in all material respects, accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Company and the Guarantors. The statistical and market-related data included in the Preliminary Offering Circular and the Offering Circular are based on or derived from sources which the Company and the Guarantors believe to be reliable and accurate in all material respects; (ff) Ernst & Young LLP, who have certified certain financial statements of the Company and its subsidiaries, and of Summit Care Corporation and its 9 subsidiaries, are independent public accountants as required by the Act and the rules and regulations of the Commission thereunder; (gg) The Company and each of the Guarantors has complied in all respects with all laws, regulations and orders applicable to them or their businesses the violation of which would have a Material Adverse Effect; (hh) Except as would not, individually or in the aggregate, have a Material Adverse Effect, (i) the Company and each of the Guarantors has all certificates, consents, exemptions, orders, permits, licenses, authorizations, or other approvals (each, an "Authorization") of and from, and has made all declarations and filings with, all federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals, necessary or required to engage in the business currently conducted by it in the manner described in the Offering Circular; (ii) all such Authorizations are valid and in full force and effect; and (iii) the Company and each of the Guarantors is in compliance in all material respects with the terms and conditions of all such Authorizations and with the rules and regulations of the regulatory authorities and governing bodies having jurisdiction with respect thereto; (ii) The Company and each of the Guarantors owns or possesses or has the right to use the patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names (collectively, the "Intellectual Property") presently employed by it in connection with, and material to, individually or in the aggregate, the operation of the businesses now operated by it, and neither the Company nor any of the Guarantors has received any notice of infringement of or conflict with asserted rights of others with respect to the foregoing which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect. To the best knowledge of the Company and the Guarantors, the use of such Intellectual Property in connection with the business and operations of the Company and the Guarantors does not infringe on the rights of any person, except as would not, individually or in the aggregate, result in a Material Adverse Effect; (jj) All tax returns required to be filed by the Company or any of the Guarantors in all jurisdictions have been timely and duly filed, other than those filings being contested in good faith, except where the failure to so file any such returns could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. There are no tax returns of the Company or any of the Guarantors that are currently being audited by state, local or federal taxing authorities or agencies (and with respect to which the Company or any of the Guarantors has received notice), where the findings of such audit, if adversely determined, would result in a Material Adverse Effect. All taxes, including withholding taxes, penalties and interest, assessments, fees and other charges due or claimed to be due from such entities have been paid, other than those being contested in good faith and for which adequate reserves have been provided or those currently payable without penalty or interest; 10 (kk) The Company and each of the Guarantors maintains insurance covering their properties, operations, personnel and businesses which insures against such losses and risks as is adequate in accordance with its reasonable business judgment to protect the Company and the Guarantors and their businesses. Neither the Company nor the Guarantors has received notice from any insurer or agent of such insurer that substantial capital improvements or other expenditures will have to be made in order to continue such insurance. All such insurance is outstanding and duly in force on the date hereof and will be outstanding and duly in force at the Time of Delivery; (ll) Except as disclosed in the Preliminary Offering Circular and the Offering Circular, there are no business relationships or related party transactions which would be required to be disclosed therein by Item 404 of Regulation S-K promulgated under the Act and each business relationship or related party transaction described therein is a fair and accurate description of the relationships and transactions so described in all material respects; (mm) The Company and each of the Guarantors is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company or any Guarantor would have any liability; neither the Company nor any of the Guarantors has incurred or expects to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Section 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"); and each "pension plan" for which the Company or any Guarantor would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification, except, in each case, as would not have a Material Adverse Effect; (nn) There is (i) no material unfair labor practice complaint pending against the Company or any of the Guarantors, or, to the best knowledge of the Company, threatened against any of them, before the National Labor Relations Board or any state or local labor relations board, and no significant grievance or significant arbitration proceeding arising out of or under any collective bargaining agreement is so pending against the Company or any of the Guarantors, or, to the best knowledge of the Company, threatened against any of them, (ii) no material strike, labor dispute, slowdown or stoppage pending against the Company or any of the Guarantors nor, to the best knowledge of the Company and the Guarantors, threatened against the Company or any of the Guarantors and (iii) to the best knowledge of the Company and the Guarantors, no union representation question existing with respect to the employees of the Company or any of the Guarantors and, to the best knowledge of the Company and the Guarantors, no union organizing activities are taking place, except, in each case, as would not have a Material Adverse Effect; 11 (oo) The Company and each of the Guarantors has reviewed the effect of Environmental Laws (as defined below) and the disposal of hazardous or toxic substances, wastes, pollutants and contaminants on the business, assets, operations and properties of the Company and each of the Guarantors, and identified and evaluated associated costs and liabilities (including, without limitation, any material capital and operating expenditures required for clean-up, closure of properties and compliance with environmental, safety or similar laws or regulations applicable to it or its business or property relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), all permits, licenses and approvals, all related constraints on operating activities and all potential liabilities to third parties). On the basis of such reviews, the Company and the Guarantors have reasonably concluded that such associated costs and liabilities would not have a Material Adverse Effect. Neither the Company nor any of the Guarantors (i) has violated any Environmental Laws, (ii) lacks any permit, license or other approval required of it under applicable Environmental Laws or (iii) is violating any term or condition of such permit, license or approval, which could reasonably be expected to, either individually or in the aggregate, have a Material Adverse Effect; (pp) None of the Company, the Guarantors or, to the Company's and the Guarantors' knowledge, any director, officer, agent, employee or other person associated with or acting on behalf of the Company or any of the Guarantors, has used any corporate funds during the last five years for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; made any unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment, except, in each case, such as would not have a Material Adverse Effect; (qq) Neither the Company nor any of its affiliates does business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Section 517.075, Florida Statutes; (rr) Other than as contemplated by or described in this Agreement, there is no broker, finder or other party that is entitled to receive from the Company or any of the Guarantors any brokerage or finder's fee or other fee or commission as a result of any of the transactions contemplated by this Agreement or any of the Operative Documents; and (ss) Each certificate signed by any officer of the Company or any Guarantor and delivered at the Time of Delivery to the Purchasers or counsel for the Purchasers shall be deemed to be a representation and warranty by the Company or such Guarantor, as the case may be, to the Purchasers as to the matters covered thereby. 2. Subject to the terms and conditions herein set forth, the Company agrees to issue and sell to each of the Purchasers, and each of the Purchasers agrees, severally and not 12 jointly, to purchase from the Company, at a purchase price of 97.0% of the principal amount thereof, the principal amount of Notes (together with the Guarantees thereof) set forth opposite the name of such Purchaser in Schedule I hereto. 3. Upon the authorization by you of the release of the Securities, the several Purchasers propose to offer the Securities for sale upon the terms and conditions set forth in this Agreement and the Offering Circular and each Purchaser hereby represents and warrants to, and agrees with the Company and the Guarantors that: (a) It will offer and sell the Securities only to: (i) persons who it reasonably believes are "qualified institutional buyers" ("QIBs") within the meaning of Rule 144A in transactions meeting the requirements of Rule 144A or (ii) upon the terms and conditions set forth in Annex I to this Agreement; (b) It is an institutional "accredited investor" (within the meaning of Rule 501 of the Act); and (c) It will not offer or sell the Securities by any form of general solicitation or general advertising, including but not limited to the methods described in Rule 502(c) under the Act. 4. (a) The Securities to be purchased by each Purchaser hereunder will be represented by one or more definitive global Securities in book-entry form which will be deposited by or on behalf of the Company with The Depository Trust Company ("DTC") or its designated custodian. The Company will deliver the Securities to Goldman, Sachs & Co., for the account of each Purchaser, against payment by or on behalf of such Purchaser of the purchase price therefor by certified or official bank check or checks, payable to the order of the Company in Federal (same day) funds, by causing DTC to credit the Securities to the account of Goldman, Sachs & Co. at DTC. The Company will cause the certificates representing the Securities to be made available to Goldman, Sachs & Co. for checking at least twenty-four hours prior to the Time of Delivery (as defined below) at the office of DTC or its designated custodian (the "Designated Office"). The time and date of such delivery and payment shall be 9:30 a.m., New York City time, on April 16, 1998 or such other time and date as Goldman, Sachs & Co. and the Company may agree upon in writing. Such time and date are herein called the "Time of Delivery". (b) The documents to be delivered at the Time of Delivery by or on behalf of the parties hereto pursuant to Section 7 hereof, including the cross-receipt for the Securities and any additional documents requested by the Purchasers pursuant to Section 7 hereof, will be delivered at such time and date at the offices of Latham & Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, California 90071 (the "Closing Location"), and the Securities will be delivered at the Designated Office, all at the Time of Delivery. A meeting will be held at the Closing Location at 1:00 p.m., New York City time, on the New York Business Day next preceding the Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. For the purposes of this Section 4, "New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close. 13 5. Each of the Company and the Guarantors party hereto, jointly and severally, agrees with each of the Purchasers: (a) To prepare the Offering Circular in a form approved by you; to make no amendment or any supplement to the Offering Circular which shall be disapproved by you promptly after reasonable notice thereof; and to furnish you with copies thereof; (b) Promptly from time to time to take such action as you may reasonably request to qualify the Securities for offering and sale under the securities laws of such jurisdictions as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Securities, provided that in connection therewith neither the Company nor any Guarantor shall be required to qualify as a foreign corporation or to file a general consent to service of process or become subject to taxation in any jurisdiction; (c) To furnish the Purchasers with six copies of the Offering Circular and each amendment or supplement thereto signed by an authorized officer of the Company with the independent accountants' reports in the Offering Circular, and any amendment or supplement containing amendments to the financial statements covered by such reports, signed by the accountants, and additional copies thereof in such quantities as you may from time to time reasonably request, and if, at any time prior to the expiration of nine months after the date of the Offering Circular, any event shall have occurred as a result of which the Offering Circular as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Offering Circular is delivered, not misleading, or, if for any other reason it shall be necessary or desirable during such same period to amend or supplement the Offering Circular, to notify you and upon your request to prepare and furnish without charge to each Purchaser and to any dealer in securities as many copies as you may from time to time reasonably request of an amended Offering Circular or a supplement to the Offering Circular which will correct such statement or omission or effect such compliance; (d) During the period beginning from the date hereof and continuing until the date six months after the Time of Delivery, not to offer, sell contract to sell or otherwise dispose of, except as provided hereunder any securities of the Company or any of its subsidiaries that are substantially similar to the Securities (other than the Exchange Securities pursuant to the Exchange Offer); (e) Not to be or become, at any time prior to the expiration of three years after the Time of Delivery, an open-end investment company, unit investment trust, closed-end investment company or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act; (f) At any time when the Company and the Guarantors are not subject to Section 13 or 15(d) of the Exchange Act, for the benefit of holders from time to time of Securities, to furnish at its expense, upon request, to holders of Securities and prospective purchasers of securities information (the "Additional Issuer Information") satisfying the requirements of subsection (d)(4)(i) of Rule 144A under the Act; 14 (g) If requested by you, to use its best efforts to cause the Securities to be eligible for the PORTAL trading system of the National Association of Securities Dealers, Inc.; (h) To furnish to the holders of the Securities as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders' equity and cash flows of the Company and its consolidated subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the date of the Offering Circular), consolidated summary financial information of the Company and its subsidiaries for such quarter in reasonable detail (the foregoing shall be deemed satisfied by the delivery of Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q); (i) During a period of five years from the date of the Offering Circular, to furnish to you copies of all reports or other communications (financial or other) of the type that would be customarily furnished to public stockholders of the Company, and to deliver to you (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any securities exchange on which the Securities or any class of securities of the Company are listed; and (ii) such additional information concerning the business and financial condition of the Company and its subsidiaries as you may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission); (j) During the period of two years after the Time of Delivery, the Company will not, and will not permit any of its "affiliates" (as defined in Rule 144 under the Act ("Rule 144")) to, resell any of the Securities which constitute "restricted securities" under Rule 144 that have been reacquired by any of them; (k) To comply with all terms of the Registration Rights Agreement, including, without limitation, filing on or prior to 90 days after the Time of Delivery and using commercially reasonable efforts to cause to be declared or become effective under the Act, on or prior to 150 days after the Time of Delivery, a registration statement on Form S-4 providing for the registration of the Exchange Securities, and the exchange of the Securities for the Exchange Securities, all in a manner which will permit persons who acquire the Exchange Securities to resell the Exchange Securities pursuant to Section 4(1) of the Act; and (l) To use the net proceeds received by them from the sale of the Securities pursuant to this Agreement in the manner specified in the Offering Circular under the caption "Use of Proceeds". 6. Each of the Company and the Guarantors party hereto, jointly and severally, covenant and agree with the several Purchasers that the Company and/or the Guarantors will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company's and the Guarantors' counsel and accountants in connection with the issue of the Securities and all other expenses in connection with the preparation, printing and filing of the Preliminary Offering Circular and the Offering Circular and any amendments and supplements thereto and the mailing and delivering of copies thereof to the Purchasers and dealers; (ii) the cost of printing or producing any agreement among Purchasers, this Agreement, the Registration Rights Agreement, the Indenture, the Blue Sky Memoranda, closing documents 15 (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Securities; (iii) all expenses in connection with the qualification of the Securities for offering and sale under state securities laws as provided in Section 5(b) hereof, including the reasonable and customary fees and disbursements of counsel for the Purchasers in connection with such qualification and in connection with the Blue Sky and legal investment surveys; (iv) any fees charged by securities rating services for rating the Securities; (v) the cost of preparing the Securities; (vi) the fees and expenses of the Trustee and any agent of the Trustee and the fees and disbursements of counsel for the Trustee in connection with the Indenture and the Securities; (vii) any cost incurred in connection with the designation of the Securities for trading in PORTAL; and (viii) all other costs and expenses incident to the performance of their obligations hereunder which are not otherwise specifically provided for in this Section. It is understood, however, that, except as provided in this Section, and Sections 8 and 11 hereof, the Purchasers will pay all of their own costs and expenses, including the fees of their counsel, and transfer taxes on resale of any of the Securities by them. 7. The obligations of the Purchasers hereunder shall be subject, in their discretion, to the condition that all representations and warranties and other statements of the Company and the Guarantors herein are, at and as of the Time of Delivery, true and correct, the condition that the Company and the Guarantors shall have performed all of their obligations hereunder theretofore to be performed, and the following additional conditions: (a) Latham & Watkins, counsel for the Purchasers, shall have furnished to you such opinion or opinions, dated the Time of Delivery, with respect to such matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (b) Counsel for the Company shall have furnished to you their written opinions, dated the Time of Delivery, in form and substance satisfactory to you, to substantially the effect set forth below, with the opinions as to federal and Delaware law to be provided by Choate, Hall & Stewart and the opinions as to California, Texas and New York Law to be provided by Brobeck, Phleger & Harrison LLP, subject in the case of each such opinion to reasonable and customary qualifications and assumptions: (i) The Company and each of the Guarantors is validly existing as a corporation or limited partnership in good standing under the laws of its jurisdiction of organization, with corporate or partnership power and authority to own its properties and conduct its business as described in the Offering Circular; (ii) The Company has an authorized capitalization as set forth in the Offering Circular, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable; (iii) The Company has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction (such counsel being entitled to 16 rely in respect of the opinion in this clause upon certificates provided by the relevant officers of the Secretaries of State in specified jurisdictions); (iv) All of the issued shares of capital stock or other equity interests of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable, and (except for directors' qualifying shares) are owned directly or indirectly by the Company; (v) To the best of such counsel's knowledge and other than as set forth in the Offering Circular, there are no legal or governmental proceedings pending or threatened to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject, which would, individually or in the aggregate, reasonably be expected to have a material adverse effect on the business, financial condition or results of operations of the Company and its subsidiaries, taken as a whole; (vi) This Agreement has been duly authorized, executed and delivered by the Company and the Guarantors; (vii) The Notes have been duly authorized, executed and delivered by the Company, and constitute valid and legally binding obligations of the Company entitled to the benefits provided by the Indenture; (viii) The Exchange Notes have been duly authorized by the Company, and when executed, authenticated and delivered in accordance with the terms of the Indenture, will constitute valid and legally binding obligations of the Company entitled to the benefits provided by the Indenture; (ix) The Guarantees have been duly authorized, executed and delivered by each of the Guarantors, and constitute valid and legally binding obligations of the Guarantors; (x) The Exchange Guarantees have been duly authorized by each of the Guarantors, and when issued and delivered and the Exchange Notes have been executed, authenticated and delivered in accordance with the terms of the Indenture, will constitute valid and legally binding obligations of the Guarantors; (xi) The Indenture has been duly authorized, executed and delivered by the Company and the Guarantors and constitutes a valid and legally binding instrument of the Company and the Guarantors, enforceable in accordance with its terms; (xii) The issue and sale of the Securities and the compliance by the Company and the Guarantors with all of the provisions of the Securities, the Indenture, the Registration Rights Agreement and this Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument identified to such counsel as material to the Company or any of its subsidiaries, nor will such actions result in any violation of the provisions of the respective Certificate of 17 Incorporation, Articles of Incorporation, Bylaws or other governing documents of the Company or its subsidiaries or any statute or any order, rule or regulation of any court or governmental agency or body known to be applicable to the Company or any of its subsidiaries or any of their properties; (xiii) No consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Securities by the Company and the Guarantors or the consummation by the Company or the Guarantors of the transactions contemplated by this Agreement or the Indenture or the Registration Rights Agreement, except such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Securities by the Purchasers, and except for authorizations required to be obtained from the Commission under the Registration Rights Agreement; (xiv) The statements set forth in the Offering Circular under the caption "Description of Notes", insofar as they purport to constitute a summary of the terms of the Securities, and under the captions "Offering Circular Summary--The Transactions", "Certain Relationships and Related Transactions", "Certain Federal Income Tax Consequences", "Description of Other Indebtedness" and "Underwriting", insofar as they purport to describe the provisions of the laws and documents referred to therein, are true and accurate summaries thereof in all material respects; (xv) No registration of the Securities under the Act, and no qualification of an indenture under the Trust Indenture Act, with respect thereto, is required for the offer, sale and initial resale of the Securities by the Purchasers in the manner contemplated by this Agreement assuming (i) the accuracy of, and compliance with, the Purchasers' representations and agreements contained in Section 3 and Annex I of this Agreement, and (ii) the accuracy of, and compliance with, the representations and agreements of the Company and the Guarantors set forth in Sections 1(g), 1(aa), 1(bb), 1(cc) and 5 of this Agreement; (xvi) Neither the Company nor any of its subsidiaries is an "investment company" or an entity "controlled" by an "investment company", as such terms are defined in the Investment Company Act. In addition, the opinion of Choate, Hall & Stewart shall state that such counsel have participated in conferences with officers and other representatives of the Company and the Guarantors, representatives of the independent public accountants for the Company and the Guarantors, representatives of the Purchasers and their counsel in connection with the preparation of the Offering Circular and have considered the matters required to be stated therein and the statements contained therein and, although such counsel have not independently verified and are not passing upon and assume no responsibility for the accuracy, completeness or fairness of such statements (except as indicated in clause (xiv) above), on the basis of the foregoing, such counsel shall confirm that no facts came to their attention that caused them to believe that the Offering Circular, as of its date or as of the Time of Delivery, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood 18 that such counsel express no view as to any of the financial statements, the notes thereto and schedules and other financial and statistical data included in the Offering Circular); (c) On the date of the Offering Circular prior to the execution of this Agreement and also at the Time of Delivery, Ernst & Young LLP shall have furnished to you a letter or letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you; (d) (i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements included in the Offering Circular any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Offering Circular, and (ii) since the respective dates as of which information is given in the Offering Circular there shall not have been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Offering Circular, the effect of which, in any such case described in clause (i) or (ii), is in the judgment of the Purchasers so material and adverse as to make it impracticable or inadvisable to proceed with the offering or the delivery of the Securities on the terms and in the manner contemplated in this Agreement and in the Offering Circular; (e) On or after the date hereof (i) no downgrading shall have occurred in the rating accorded the Company's debt securities by any "nationally recognized statistical rating organization", as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company's debt securities; (f) On or after the date hereof there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange or on the Nasdaq National Market ("NASDAQ"); (ii) a general moratorium on commercial banking activities declared by either Federal or New York State authorities; (iii) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war, if the effect of any such event specified in this clause (iii) in the judgment of the Representatives makes it impracticable or inadvisable to proceed with the offering or the delivery of the Securities on the terms and in the manner contemplated in the Offering Circular; or (iv) the occurrence of any material adverse change in the existing, financial, political or economic conditions in the United States or elsewhere which, in the judgment of the Representatives, would materially and adversely affect the financial markets or the markets for Securities and other debt securities; (g) The Securities shall have been designated for trading on PORTAL; (h) The Company shall have complied with the provisions of Section 5(c) hereof with respect to the furnishing of Offering Circulars on the New York Business Day next succeeding the date of this Agreement; 19 (i) The Company, the Guarantors and the Trustee shall have entered into the Indenture and the Purchasers shall have received counterparts, conformed as executed, thereof. (j) The Company, the Guarantors and the Purchasers shall have entered into the Registration Rights Agreement in the form attached hereto as Annex II and the Purchasers shall have received counterparts, conformed as executed, thereof. (k) Prior to or simultaneously with the closing of the transactions contemplated by Section 2 hereof, the Company and the Guarantors shall have consummated the Merger (as defined in the Offering Circular) and the other transactions contemplated by the Acquisition Documents to be effective on or prior to such date, and shall have entered into the New Credit Facility. (l) Prior to or simultaneously with the closing of the transactions contemplated by Section 2 hereof, the Company shall have entered into each of the Employment Agreements (as defined in the Offering Circular) and each of such Employment Agreements shall be in the form previously agreed to by the Purchasers and described in the Offering Circular. (m) Latham & Watkins, counsel for the Purchasers, shall have been furnished with final, executed copies of each of the documents set forth above and such other documents, in addition to those set forth above, as they may reasonably require for the purpose of enabling them to review or pass upon the matters referred to in this Section 7 and in order to evidence the accuracy, completeness or satisfaction in all material respects of any of the representations, warranties or conditions herein contained. (n) Choate, Hall & Stewart, and each other counsel for the Company or the Guarantors, shall have furnished to you copies of all of their opinions, along with reliance letters addressed to you and dated the Time of Delivery, delivered in connection with the Credit Documents and the transactions contemplated thereby; (o) The Company shall have furnished or caused to be furnished to you at the Time of Delivery certificates of officers of the Company and the Guarantors satisfactory to you as to the accuracy of the representations and warranties of the Company and the Guarantors herein at and as of such Time of Delivery, as to the performance by the Company and the Guarantors of all of their obligations hereunder to be performed at or prior to such Time of Delivery, as to the matters set forth in this Section and as to such other matters as you may reasonably request. 8. (a) The Company and the Guarantors will, jointly and severally, indemnify and hold harmless each Purchaser against any losses, claims, damages or liabilities, joint or several, to which such Purchaser may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Offering Circular or the Offering Circular, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, and will reimburse each Purchaser for any legal or other expenses reasonably incurred by such Purchaser in connection with investigating or defending any such action or claim as such expenses are 20 incurred; provided, however, that the Company and the Guarantors shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Offering Circular or the Offering Circular or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by any Purchaser through Goldman, Sachs & Co. expressly for use therein. (b) Each Purchaser will, severally and not jointly, indemnify and hold harmless the Company and the Guarantors against any losses, claims, damages or liabilities to which the Company or the Guarantors may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Offering Circular or the Offering Circular, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Offering Circular or the Offering Circular or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Purchaser through Goldman, Sachs & Co. expressly for use therein; and will reimburse the Company and the Guarantors for any legal or other expenses reasonably incurred by the Company or the Guarantors in connection with investigating or defending any such action or claim as such expenses are incurred. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act, by or on behalf of any indemnified party. (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any 21 losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Guarantors on the one hand and the Purchasers on the other from the offering of the Securities. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (c) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and the Guarantors on the one hand and the Purchasers on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Guarantors on the one hand and the Purchasers on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Purchasers, in each case as set forth in the Offering Circular. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Guarantors on the one hand or the Purchasers on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Guarantors and the Purchasers agree that it would not be just and equitable if contribution pursuant to this subsection (d) were determined by pro rata allocation (even if the Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), no Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to investors were offered to investors exceeds the amount of any damages which such Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. The Purchasers' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) The obligations of the Company and the Guarantors under this Section 8 shall be in addition to any liability which the Company and the Guarantors may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Purchaser within the meaning of the Act; and the obligations of the Purchasers under this Section 8 shall be in addition to any liability which the respective Purchasers may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company and the Guarantors and to each person, if any, who controls the Company within the meaning of the Act. 9. (a) If any Purchaser shall default in its obligation to purchase the Securities which it has agreed to purchase hereunder, you may in your discretion arrange for you or another party or other parties to purchase such Securities on the terms contained herein. If 22 within thirty-six hours after such default by any Purchaser you do not arrange for the purchase of such Securities, then the Company shall be entitled to a further period of thirty-six hours within which to procure another party or other parties satisfactory to you to purchase such Securities on such terms. In the event that, within the respective prescribed periods, you notify the Company that you have so arranged for the purchase of such Securities, or the Company notifies you that it has so arranged for the purchase of such Securities, you or the Company shall have the right to postpone the Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Offering Circular, or in any other documents or arrangements, and the Company agrees to prepare promptly any amendments to the Offering Circular which in your opinion may thereby be made necessary. The term "Purchaser" as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Securities. (b) If, after giving effect to any arrangements for the purchase of the Securities of a defaulting Purchaser or Purchasers by you and the Company as provided in subsection (a) above, the aggregate principal amount of such Securities which remains unpurchased does not exceed one-eleventh of the aggregate principal amount of all the Securities, then the Company shall have the right to require each non-defaulting Purchaser to purchase the principal amount of Securities which such Purchaser agreed to purchase hereunder and, in addition, to require each non-defaulting Purchaser to purchase its pro rata share (based on the principal amount of Securities which such Purchaser agreed to purchase hereunder) of the Securities of such defaulting Purchaser or Purchasers for which such arrangements have not been made; but nothing herein shall relieve a defaulting Purchaser from liability for its default. (c) If, after giving effect to any arrangements for the purchase of the Securities of a defaulting Purchaser or Purchasers by you and the Company as provided in subsection (a) above, the aggregate principal amount of Securities which remains unpurchased exceeds one-eleventh of the aggregate principal amount of all the Securities, or if the Company shall not exercise the right described in subsection (b) above to require non-defaulting Purchasers to purchase Securities of a defaulting Purchaser or Purchasers, then this Agreement shall thereupon terminate, without liability on the part of any non-defaulting Purchaser or the Company, except for the expenses to be borne by the Company and the Purchasers as provided in Section 6 hereof and the indemnity and contribution agreements in Section 8 hereof; but nothing herein shall relieve a defaulting Purchaser from liability for its default. 10. The respective indemnities, agreements, representations, warranties and other statements of the Company, the Guarantors and the several Purchasers, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Purchaser or any controlling person of any Purchaser, or the Company, the Guarantors or any officer or director or controlling person of the Company or the Guarantors, and shall survive delivery of and payment for the Securities. 11. If this Agreement shall be terminated pursuant to Section 9 hereof, the Company shall not then be under any liability to any Purchaser except as provided in Sections 6 and 8 hereof; but, if for any other reason, the Securities are not delivered by or on behalf of the Company and the Guarantors as provided herein, the Company and the Guarantors will reimburse the Purchasers through you for all reasonable out-of-pocket expenses approved in 23 writing by you, including fees and disbursements of counsel, reasonably incurred by the Purchasers in making preparations for the purchase, sale and delivery of the Securities, but the Company and the Guarantors shall then be under no further liability to any Purchaser except as provided in Sections 6 and 8 hereof. 12. In all dealings hereunder, Goldman, Sachs & Co. shall act on behalf of each of the Purchasers, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Purchaser made or given by Goldman, Sachs & Co. All statements, requests, notices and agreements hereunder shall be in writing, and if to the Purchasers shall be delivered or sent by mail, telex or facsimile transmission to you in care of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004, Attention: Registration Department, with a copy to Greg Pettigrew, Latham & Watkins, 633 West Fifth Street, Suite 4000, Los Angeles 90071; and if to the Company or any of the Guarantors shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Offering Circular, Attention: Secretary, with a copy to Stephen M.L. Cohen, Esq., Choate Hall & Stewart, Exchange Place, 53 State Street, Boston, Massachusetts 02109; provided, however, that any notice to a Purchaser pursuant to Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Purchaser at its address set forth in its Purchasers' Questionnaire, or telex constituting such Questionnaire, which address will be supplied to the Company by you upon request. Any such statements, requests, notices or agreements shall take effect upon receipt thereof. 13. This Agreement shall be binding upon, and inure solely to the benefit of, the Purchasers, the Company, the Guarantors and, to the extent provided in Sections 8 and 10 hereof, the officers and directors of the Company and the Guarantors and each person who controls the Company, the Guarantors or any Purchaser, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Securities from any Purchaser shall be deemed a successor or assign by reason merely of such purchase. 14. Time shall be of the essence of this Agreement. 15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 16. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument. 24 If the foregoing is in accordance with your understanding, please sign and return to us five counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Purchasers, this letter and such acceptance hereof shall constitute a binding agreement between each of the Purchasers, the Company and each of the Guarantors named below. It is understood that your acceptance of this letter on behalf of each of the Purchasers is pursuant to the authority set forth in a form of Agreement among Purchasers, the form of which shall be submitted to the Company for examination upon request, but without warranty on your part as to the authority of the signers thereof. Very truly yours, FOUNTAIN VIEW, INC. By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman SUMMIT CARE CORPORATION By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman SUMMIT CARE CALIFORNIA, INC. By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman SUMMIT CARE PHARMACY, INC. By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman SKILLED CARE NETWORK By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman SNF PHARMACY, INC. By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman S-1 SUMMIT CARE TEXAS EQUITY, INC. By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman SUMMIT CARE-TEXAS NO. 2, INC. By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman SUMMIT CARE-TEXAS NO. 3, INC. By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman SUMMIT CARE MANAGEMENT TEXAS, INC. By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman SUMMIT CARE TEXAS, L.P. By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman FOUNTAIN VIEW HOLDINGS, INC. By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman AIB CORP. By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman S-2 ALEXANDRIA CONVALESCENT HOSPITAL, INC. By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman BIA HOTEL CORP. By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman BRIER OAK CONVALESCENT, INC. By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman ELMCREST CONVALESCENT HOSPITAL By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman FOUNTAINVIEW CONVALESCENT HOSPITAL By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman FOUNTAIN VIEW MANAGEMENT, INC. By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman RIO HONDO NURSING CENTER By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman S-3 LOCOMOTION HOLDINGS, INC. By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman LOCOMOTION THERAPY, INC. By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman ON-TRACK THERAPY CENTER, INC. By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman I.'N O., INC. By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman SYCAMORE PARK CONVALESCENT CENTER By: /s/ William C. Scott ----------------------- Name: William C. Scott Title: Chairman Accepted as of the date hereof: Goldman, Sachs & Co. Nesbitt Burns Securities Inc. Paribas Corporation Sutro & Co. Incorporated By:________________________________________ (Goldman, Sachs & Co.) S-4 LOCOMOTION HOLDINGS, INC. By:______________________________ Name: Title: LOCOMOTION THERAPY, INC. By: _____________________________ Name: Title: ON-TRACK THERAPY CENTER, INC. By: _____________________________ Name: Title: I.'N O., INC. By: _____________________________ Name: Title: SYCAMORE PARK CONVALESCENT CENTER By:______________________________ Name: Title: Accepted as of the date hereof: Goldman, Sachs & Co. Nesbitt Burns Securities Inc. Paribas Corporation Sutro & Co. Incorporated By: /s/ Goldman, Sachs & Co. ------------------------------------ (Goldman, Sachs & Co.) SCHEDULE I
PRINCIPAL AMOUNT OF SECURITIES TO BE PURCHASER PURCHASED --------- -------------- Goldman, Sachs & Co........................................ $ 71,667,000 Nesbitt Burns Securities Inc............................... 29,667,000 Paribas Corporation........................................ 17,666,000 Sutro & Co. Incorporated................................... 1,000,000 -------------- Total................................................... $120,000,000
SCHEDULE II GUARANTORS Summit Care Corporation, a California corporation Summit Care-California, Inc., a California corporation Summit Care Pharmacy, Inc., a California corporation Skilled Care Network, a California corporation Summit Care Texas Equity, Inc., a California corporation AIB Corp., a California corporation Alexandria Convalescent Hospital, Inc., a California corporation BIA Hotel Corp., a California corporation Brier Oak Convalescent, Inc., a California corporation Elmcrest Convalescent Hospital, a California corporation Fountainview Convalescent Hospital, a California corporation Fountain View Management, Inc., a California corporation Rio Honda Nursing Center, a California corporation On-Track Therapy Center, Inc., a California corporation I.'N O., Inc., a California corporation Sycamore Park Convalescent Hospital, a California corporation SNF Pharmacy, Inc., a California corporation Summit Care-Texas No. 2, Inc., a Texas corporation Summit Care-Texas No. 3, Inc., a Texas corporation Summit Care Management Texas, Inc., a Texas corporation Summit Care Texas, L.P., a Texas limited partnership Fountain View Holdings, Inc., a Delaware corporation Locomotion Holdings, Inc., a Delaware corporation Locomotion Therapy, Inc., a Delaware corporation ANNEX I TERMS AND CONDITIONS OF SALES UNDER REGULATION S UNDER THE ACT (1) The Securities have not been and will not be registered under the Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S under the Act or pursuant to an exemption from the registration requirements of the Act. Each Purchaser represents that it has offered and sold the Securities, and will offer and sell the Securities (i) as part of their distribution at any time and (ii) otherwise until 40 days after the later of the commencement of the offering and the Time of Delivery, only in accordance with Rule 903 of Regulation S or Rule 144A or pursuant to Paragraph 2 of this Annex I under the Act. Accordingly, each Purchaser agrees that neither it, its affiliates nor any persons acting on its or their behalf has engaged or will engage in any directed selling efforts with respect to the Securities, and it and they have complied and will comply with the offering restrictions requirement of Regulation S. Each Purchaser agrees that, at or prior to confirmation of sale of Securities (other than a sale pursuant to Rule 144A) or pursuant to Paragraph 2 of this Annex I, it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Securities from it during the restricted period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933, as amended (the "Act") and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the closing date, except in either case in accordance with Regulation S (or Rule 144A if available) under the Act. Terms used above have the meaning given to them by Regulation S." Terms used in this paragraph have the meanings given to them by Regulation S. Each Purchaser further agrees that it has not entered and will not enter into any contractual arrangement with respect to the distribution or delivery of the Securities, except with its affiliates or with the prior written consent of the Company. (2) Notwithstanding the foregoing, Securities in registered form may be offered, sold and delivered by the Purchasers in the United States and to U.S. persons pursuant to Section 3 of this Agreement without delivery of the written statement required by paragraph (1) above. (3) Each Purchaser further represents and agrees that (i) it has not offered or sold and will not offer or sell any Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995, (b) it has complied, and will comply, with all applicable provisions of the Financial Services Act of 1986 of Great Britain with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom, and (c) it has only issued or passed on and will only Annex I-1 issue or pass on in the United Kingdom any document received by it in connection with the issuance of the Securities to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 of Great Britain or is a person to whom the document may otherwise lawfully be issued or passed on. (4) Each Purchaser agrees that it will not offer, sell or deliver any of the Securities in any jurisdiction outside the United States except under circumstances that will result in compliance with the applicable laws thereof, and that it will take at its own expense whatever action is required to permit its purchase and resale of the Securities in such jurisdictions. Each Purchaser understands that no action has been taken to permit a public offering in any jurisdiction outside the United States where action would be required for such purpose. Each Purchaser agrees not to cause any advertisement of the Securities to be published in any newspaper or periodical or posted in any public place and not to issue any circular relating to the Securities, except in any such case with Goldman, Sachs & Co.'s express written consent and then only at its own risk and expense. Annex I-2 EX-3.1 3 CERTIFICATE OF INCORPORATION OF FOUNTAIN VIEW EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF Fountain View Management, Inc. ------------------------------ THE UNDERSIGNED, for the purpose of forming a corporation pursuant to the provisions of the General Corporation Law of the State of Delaware, does hereby certify as follows: FIRST: The name of the Corporation is Fountain View Management, Inc. (the "Corporation"). SECOND: The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, 19801 and the name of the Corporation's registered agent at such address is The Corporation Trust Company. THIRD: The purpose for which the Corporation is organized is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is 3,000 shares of Class A Common Stock, $.01 par value. FIFTH: The name and the mailing address of the incorporator is as follows: NAME MAILING ADDRESS ---- --------------- Kathleen M. Sablone Choate, Hall & Stewart Exchange Place 53 State Street Boston, MA 02109 SIXTH: The Directors shall have power to adopt, amend, or repeal the By- Laws of the Corporation. SEVENTH: Election of Directors need not be by written ballot unless the By-Laws of the Corporation so provide. EIGHTH: The Corporation shall indemnify and hold harmless any director, officer employee or agent of the Corporation from and against any and all expenses and liabilities that may be imposed upon or incurred in connection with, or as a result of, any proceeding in which he or she may become involved, as a party or otherwise, by reason of the fact that he or she is or was such a director, officer, employee or agent, whether or not he or she continues to be such at the time such expenses and liabilities shall have been imposed or incurred, to the fullest extent permitted by the laws of the State of Delaware as they may be amended from time to time. NINTH: No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of Title 8 of the General Corporation Law of the State of Delaware or (iv) for any transaction from which the director derived an improper personal benefit. TENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. The undersigned incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, does make this certificate, hereby declaring and certifying that this is her act and deed and the facts stated herein are true and accordingly has hereunto set her hand this 14th day of July, 1997. /s/ Kathleen M. Sablone ----------------------------------------------- Kathleen M. Sablone, Incorporator PAGE 1 State of Delaware Office of the Secretary of State ________________________________ I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "FOUNTAIN VIEW MANAGEMENT, INC.", CHANGING ITS NAME FROM "FOUNTAIN VIEW MANAGEMENT, INC." TO "FOUNTAIN VIEW, INC.", FILED IN THIS OFFICE ON THE FIRST DAY OF AUGUST, A.D. 1997, AT 2:30 O'CLOCK P.M. [SEAL] /s/ Edward J. Freel ----------------------------------- Edward J. Freel, Secretary of State 2772638 8100 AUTHENTICATION: 9027443 DATE: 981143230 04-15-98 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF FOUNTAIN VIEW MANAGEMENT, INC. IT IS HEREBY CERTIFIED THAT: 1. The name of the Corporation (hereinafter, the "Corporation") is ----------- Fountain View Management, Inc. 2. The Certificate of Incorporation of the Corporation is hereby amended by deleting ARTICLE 1 thereof and by substituting in lieu thereof the following new ARTICLE 1: ARTICLE 1. The name of the Corporation is Fountain View, Inc. (the "Corporation"). 3. The Certificate of Incorporation of the Corporation is hereby amended by deleting ARTICLE 4 thereof and by substituting in lieu thereof the following new ARTICLE 4: ARTICLE 4. A description of each class and series of stock of the Corporation and the voting rights, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof is as follows: Section 1. Capital Stock. --------- ------------- 1.1 General. The Corporation shall have two classes of capital stock (the ------- "Capital Stock"): Common Stock, $.01 par value per share (the "Common Stock"), ------------- ------------ and Preferred Stock, $.01 par value per share (the "Preferred Stock"). --------------- 1.2 Number of Shares. The total authorized number of shares of each class ---------------- of Capital Stock is (a) 200,000 shares of Common Stock and (b) 7,000 shares of Preferred Stock. 1.3 Series of Preferred Stock. The shares of Preferred Stock shall be ------------------------- designated "Series A Preferred Stock" (the "Series A Preferred Stock"). ------------------------ 1.4 Series of Common Stock. 53,850 shares of the Common Stock shall be ---------------------- designated "Series A-1 Common Stock" (the "Series A-1 Common Stock"). 99,950 ----------------------- shares of the Common Stock shall be designated "Series A-2 Common Stock" (the "Series A-2 Common Stock"). 46,200 shares of the Common Stock shall be - ------------------------ designated "Series A-3 Common Stock" (the "Series A-3 Common Stock"). ----------------------- Section 2. Dividends and Other Distributions and Benefits. --------- ---------------------------------------------- 2.1 Dividends on the Series A Preferred Stock. ----------------------------------------- (a) The holders of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board, out of funds legally available therefor, a dividend at the annual rate of 10% of the Base Amount (as hereinafter defined) of each share of Series A Preferred Stock from and including the date of issuance of such share to and including the day on which the Liquidation Value (as hereinafter defined) of such share is paid. Such dividends shall accrue from day to day, whether or not earned or declared, on each issued and outstanding share of Series A Preferred Stock, and shall be cumulative. The date on which the Corporation initially issues any share of Series A Preferred Stock will be deemed to be its "date of issuance" regardless of the number of times transfer of such share is made on the stock records of the Corporation and regardless of the number of certificates which may be issued to evidence such share. (b) If declared by the Board of Directors, dividends on each share of Series A Preferred Stock shall be paid on each July 1 while such share is outstanding (the "Dividend Reference Date"). ----------------------- (c) Any dividends that accrue on any share of Series A Preferred Stock during the one-year period (or lesser period in the case of the first Dividend Reference Date) ending upon such Dividend Reference Date, and are not paid on such Dividend Reference Date, shall automatically be added to the Base Amount of such share and will remain a part thereof until such dividends are paid, at which time the Base Amount shall be reduced by such payment. (d) The "Base Amount" of any share of Series A Preferred Stock as of a ----------- particular date shall be an amount equal to the sum of $1,000 plus any unpaid dividends on such share added to the Base Amount of such share as provided above and not thereafter paid. 2.2 Other Dividends and Distributions on Capital Stock. Any dividend -------------------------------------------------- payable in shares of the Corporation's Common Stock, and any split or other subdivision of such Common Stock, shall not be deemed to be a distribution of property pursuant to this paragraph 2.2. Dividends on the Common Stock shall be made among the holders thereof pro rata to the number of shares of Common Stock held by each holder (but, in the case of a stock dividend, shall be made only in shares of the respective series of Common Stock held by each holder). -5- Section 3. Voting Rights. --------- ------------- At every meeting of the stockholders (or for actions by written consent of stockholders), except as otherwise required by law or specified in this Certificate of Incorporation, on all matters to be voted on by the stockholders of the Corporation, the following provisions shall apply: 3.1 Voting by Series A Preferred Stock. The Preferred Stock shall be non- ---------------------------------- voting, and the holders thereof, as such, shall not be entitled to vote on matters to be voted upon by the stockholders of the Corporation, provided that as long as any Series A Preferred Stock is outstanding, the Corporation shall not, without the affirmative vote or written consent of the then holders of a majority of the outstanding shares of Series A Preferred Stock, alter or change the powers, preferences or rights of the Series A Preferred Stock or the qualifications, limitations or restrictions thereof. 3.2 Class Voting by Common Stock. Subject to the following paragraphs of ---------------------------- this Section 3, the holders of all series of Common Stock shall vote together as a single class on all matters to be voted on by the holders of the Common Stock. 3.3 Voting by Series A-1 Common Stock. In any matter to be voted on by --------------------------------- the holders of the Common Stock, each holder of shares of Series A-1 Common Stock shall have three votes for each such share held by such holder. 3.4 Voting by Series A-2 Common Stock. In any matter to be voted on by --------------------------------- the holders of the Common Stock, each holder of shares of Series A-2 Common Stock shall have one vote for each such share held by such holder. 3.5 Voting by Series A-3 Common Stock. The Series A-3 Common Stock shall --------------------------------- be non-voting, and the holders thereof, as such, shall not be entitled to vote on matters to be voted upon by the stockholders of the Corporation. Section 4. Liquidation. --------- ----------- 4.1 Preference of Series A Preferred Stock. Upon any liquidation, -------------------------------------- dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of Series A Preferred Stock shall be entitled, before any distribution or payment is made upon any shares of Common Stock, to be paid in cash, in respect of each share of Series A Preferred Stock held by such holder, an amount equal to the Base Amount of such share on such date, plus all unpaid dividends accrued on such share through the close of business on such date and not previously added to such Base Amount (the "Liquidation Value"). If upon ----------------- such liquidation, dissolution or winding up, the assets to be -6- distributed among the holders of the shares of Series A Preferred Stock shall be insufficient to permit payment to the holders thereof of such amounts, then all of the assets of the Corporation then remaining shall be distributed ratably among the holders of the shares of Series A Preferred Stock. 4.2 Preference of Series A-1 Common Stock and Series A-2 Common Stock. ----------------------------------------------------------------- Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment in full of the Liquidation Value of the Series A Preferred Stock, the holders of Series A-1 Common Stock and Series A-2 Common Stock shall be entitled, before any distribution or payment is made upon any other shares of Common Stock, to be paid in cash, in respect of each share of Series A-1 Common Stock and Series A-2 Common Stock held by such holder, an amount equal to $130 (the "Common Stock Preference"). If upon such liquidation, ----------------------- dissolution or winding up, the assets to be distributed among the holders of the shares of Series A-1 Common Stock and Series A-2 Common Stock shall be insufficient to permit payment to the holders thereof of such amounts, then all of the assets of the Corporation then remaining shall be distributed ratably among the holders of the shares of Series A-1 Common Stock and Series A-2 Common Stock. 4.3 Preference of Series A-3 Common Stock. Upon any liquidation, ------------------------------------- dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment in full of the Liquidation Value of the Series A Preferred Stock and the Common Stock Preference of the Series A-1 Common Stock and Series A-2 Common Stock, the holders of Series A-3 Common Stock shall be entitled, before any distribution or payment is made upon any other shares of Common Stock, to be paid in cash, in respect of each share of Series A-3 Common Stock held by such holder, an amount equal to the Common Stock Preference. If upon such liquidation, dissolution or winding up, the assets to be distributed among the holders of the shares of Series A-3 Common Stock shall be insufficient to permit payment to the holders thereof of such amounts, then all of the assets of the Corporation then remaining shall be distributed ratably among the holders of the shares of Series A-3 Common Stock. 4.4 Distribution of Remaining Assets. Upon any liquidation, dissolution -------------------------------- or winding up of the Corporation, whether voluntary or involuntary, after provision is made for holders of Series A Preferred Stock and Common Stock as provided in the preceding paragraphs, the holders of Common Stock shall be entitled to receive ratably all remaining assets of the Corporation to be distributed, based on the number of shares of Common Stock held by each such holder. -7- 4.5 Treatment of Certain Transactions. The occurrence of a "Trigger --------------------------------- Event", as such term is defined in the Stockholders Agreement dated as of August 1, 1997 among the Company, Robert Snukal, Sheila Snukal and Heritage Fund II Investment Corporation, as amended from time to time, shall be deemed to be a liquidation, dissolution or winding up of the affairs of the Corporation within the meaning of Section 4.1, and shall be subject to all of the provisions thereof, and no such transaction shall be consummated unless the Corporation has received (or upon the consummation of such transaction will receive) payment in cash of the Liquidation Value as provided in Section 4.1. 4. That such amendment has been duly adopted in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. The foregoing Certificate of Amendment has been signed and attested as of August __, 1997. /s/ Robert Snukal -------------------------------- Robert Snukal, President ATTEST: /s/ Sheila Snukal - ---------------------------- Sheila Snukal, Secretary -8- EX-3.1(A) 4 CERTIFICATE OF AMENDMENT FILED 3/27/98 EXHIBIT 3.1(A) FORM OF AMENDMENT TO -------------------- CERTIFICATE OF INCORPORATION ---------------------------- OF -- FOUNTAIN VIEW, INC. ------------------- CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF FOUNTAIN VIEW, INC. IT IS HEREBY CERTIFIED THAT: 1. The name of the Corporation is Fountain View, Inc. (hereinafter, the "Corporation"). ----------- 2. The Certificate of Incorporation of the Corporation is hereby amended by deleting Article 4 thereof and substituting in lieu thereof the following new Article 4: ARTICLE 4. A description of each class and series of stock of the Corporation and the voting rights, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof is as follows: Section 1. Capital Stock. --------- ------------- 1.1 General. The Corporation shall have two classes of capital stock (the ------- "Capital Stock"): Common Stock, $.01 par value per share (the "Common Stock"), ------------- ------------ and Preferred Stock, $.01 par value per share (the "Preferred Stock"). --------------- 1.2 Number of Shares. The total authorized number of shares of each class ---------------- of Capital Stock is (a) 3,000,000 shares of Common Stock and (b) 1,000,000 shares of Preferred Stock. 1.3 Preferred Stock. The Preferred Stock may be issued from time to time --------------- in one or more series. The Board of Directors of the Corporation (the "Board") ----- is hereby authorized, within the limitations and restrictions stated in this Certificate of Incorporation, to determine or alter the rights, preferences, powers, privileges and the restrictions, qualifications and limitations granted to or imposed upon any wholly unissued series of Preferred Stock, and the number of shares constituting any such series and the designation thereof; to increase or decrease the number of shares constituting any such series; and to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series as are then issued and outstanding, and if any series shall be so decreased, the shares then constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. 1.4 Series of Preferred Stock. 200,000 shares of the Preferred Stock ------------------------- shall be designated "Series A Preferred Stock" (the "Series A Preferred Stock"). ------------------------ 1.5 Series of Common Stock. 1,500,000 shares of the Common Stock shall be ---------------------- designated "Series A Common Stock" (the "Series A Common Stock"). 200,000 --------------------- shares of the Common Stock shall be designated "Series B Non-Voting Common Stock" (the "Series B Common Stock"). 1,300,000 shares of the Common Stock --------------------- shall be designated "Series C Common Stock" (the "Series C Common Stock"). --------------------- Section 2. Dividends and Other Distributions. --------- --------------------------------- 2.1 Dividends on the Series A Preferred Stock. ----------------------------------------- (a) Subject to the rights of series of Preferred Stock which may from time to time come into existence, the holders of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board, out of funds legally available therefor, a dividend at the annual rate of 12% of the Base Amount (as hereinafter defined) of each share of Series A Preferred Stock from and including the date of issuance of such share to and including the day on which the Liquidation Value (as hereinafter defined) of such share is paid. Such dividends shall accrue from day to day, whether or not earned or declared, on each issued and outstanding share of Series A Preferred Stock, and shall be cumulative. The date on which the Corporation initially issues any share of Series A Preferred Stock will be deemed to be its "date of issuance" regardless ---------------- of the number of times transfer of such share is made on the stock records of the Corporation and regardless of the number of certificates which may be issued to evidence such share, provided however that all shares of Series A Preferred Stock issued prior to the first Dividend Reference Date (as hereinafter defined) shall be deemed, for purposes of this Subsection (a), to have been issued on March 27, 1998. (b) If declared by the Board, dividends on each share of Series A Preferred Stock shall be paid on each March 31, -2- commencing March 31, 1999 (the "Dividend Reference Dates"), while such share is ------------------------ outstanding. (c) Any dividends that accrue on any share of Series A Preferred Stock during the period ending upon such Dividend Reference Date that are not paid on such Dividend Reference Date shall automatically be added to the Base Amount of such share and will remain a part thereof until such dividends are paid, at which time the Base Amount shall be reduced by such payment. (d) The "Base Amount" of any share of Series A Preferred Stock as of ----------- a particular date shall be an amount equal to the sum of $1,000.00 plus any unpaid dividends on such share added to the Base Amount of such share as provided above and not thereafter paid. 2.2 Other Dividends. Dividends on any series of Preferred Stock shall be --------------- determined by the Board. Dividends on the Common Stock shall be made among the holders thereof pro rata to the number of shares of Common Stock held by each holder (but, in the case of a stock dividend, shall be made only in shares of the respective series of Common Stock held by each holder), unless otherwise specified by the Company's Board of Directors. Section 3. Voting Rights. Subject to the rights of series of Preferred --------- ------------- Stock which may from time to time come into existence, at every meeting of the stockholders (or for actions by written consent of stockholders), except as otherwise required by law, on all matters to be voted on by the stockholders of the Corporation, the following provisions shall apply: 3.1 Voting by Series A Preferred Stock. The Series A Preferred Stock ---------------------------------- shall be non-voting, and the holders thereof, as such, shall not be entitled to vote on matters to be voted upon by the stockholders of the Corporation. 3.2 Voting by Series A Common Stock. In any matter to be voted on by the ------------------------------- holders of the Common Stock, each holder of shares of Series A Common Stock shall have one vote for each such share held by such holder. 3.3 Voting by Series B Common Stock. The Series B Common Stock shall be ------------------------------- non-voting, and the holders thereof, as such, shall not be entitled to vote on matters to be voted upon by the stockholders of the Corporation. 3.4 Voting by Series C Common Stock. In any matter to be voted on by the ------------------------------- holders of the Common Stock, each holder of shares of Series C Common Stock shall have one vote for each such share held by such holder. -3- Section 4. Liquidation. --------- ----------- 4.1 Series A Preferred Stock. Subject to the rights of any series of ------------------------ Preferred Stock which may from time to time come into existence, upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of Series A Preferred Stock shall be entitled, before any distribution or payment is made upon any shares of Common Stock, to be paid in cash, in respect of each share of Series A Preferred Stock held by such holder, an amount equal to the Base Amount of such share on such date, plus all unpaid dividends accrued on such share from the previous Dividend Reference Date through the close of business on the date of payment (the "Liquidation Value"). ----------------- If upon such liquidation, dissolution or winding up, the assets to be distributed among the holders of the shares of Series A Preferred Stock shall be insufficient to permit payment to the holders thereof of such amounts, then all of the assets of the Corporation then remaining and legally available for distribution shall be distributed ratably among the holders of the shares of Series A Preferred Stock. 4.2 Common Stock. Upon any liquidation, dissolution or winding up of the ------------ Corporation, whether voluntary or involuntary, after payment in full of the Liquidation Value of the Series A Preferred Stock and the liquidation value of any other series of Preferred Stock which may from time to time come into existence, the assets available for distribution to the holders of Common Stock shall be distributed ratably among the holders of (a) the Series A Common Stock and the Series B Common Stock, on the one hand, and (b) the holders of the Series C Common Stock, on the other, based on the relative number of shares of Common Stock outstanding and held by such holders, provided that for all purposes of this Section 4.2 the aggregate number of outstanding shares of Series A Common Stock and Series B Common Stock shall be deemed to be 1,114,202 (appropriately adjusted for stock splits, stock dividends, combinations and similar transactions), regardless of the number of shares actually outstanding. 4.3 Distribution among the Holders of Series A Common Stock and Series B -------------------------------------------------------------------- Common Stock. All amounts distributable in respect of the Series A Common Stock - ------------ and the Series B Common Stock shall be divided among such shares in the following proportions: (a) Preference of Series A Common Stock. Upon any liquidation, ----------------------------------- dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of Series A Common Stock shall be entitled, before any distribution or payment is made upon any Series B Common Stock, to be paid in cash, in respect of each share of Series A Common Stock an amount equal to $126.53 plus a 22% internal rate of return thereon calculated from the date of initial issuance of such share (without regard for any prior transfers of such share) and taking into account -4- any prior dividends or other distributions thereon (the "Series A Common Stock --------------------- Preference"). If upon such liquidation, dissolution or winding up, the assets to - ---------- be distributed among the holders of the shares of Series A Common Stock and the Series B Common Stock shall be insufficient to permit payment to the holders of the Series A Common Stock of the Series A Common Stock Preference, then all of the assets of the Corporation to be distributed among the Series A Common Stock and the Series B Common Stock pursuant to Section 4.2 shall be distributed ratably among the holders of the shares of Series A Common Stock. (b) Preference of Series B Common Stock. Upon any liquidation, ----------------------------------- dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment in full of the Series A Common Stock Preference, the holders of Series B Common Stock shall be entitled, before any other distribution or payment is made upon any shares of Series A Common Stock, to be paid in cash, in respect of each share of Series B Common Stock held by such holder, an amount equal to the Series A Common Stock Preference. If upon such liquidation, dissolution or winding up, after payment in full of the Series A Common Stock Preference to the holders of the Series A Common Stock, the remaining assets to be distributed among the holders of the Series A Common Stock and the Series B Common Stock shall be insufficient to permit payment of an amount to the holders of the Series B Common Stock equal to the Series A Common Stock Preference, then all of the assets of the Corporation then remaining and which are to be distributed among the Series A Common Stock and Series B Common Stock shall be distributed ratably among the holders of the shares of Series B Common Stock. (c) Distribution of Remaining Assets. Upon any liquidation, -------------------------------- dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment is made to the holders of the Series A Common Stock and the Series B Common Stock as provided in the preceding Sections, the holders of the Series A Common Stock and the Series B Common Stock shall be entitled to receive ratably all remaining assets of the Corporation to be distributed among them pursuant to Section 4.2, based on the number of shares of Series A Common Stock and Series B Common Stock held by each such holder. Section 5. Redemption of Series A Preferred Stock. --------- -------------------------------------- 5.1 Redemption Upon Initial Public Offering. --------------------------------------- (a) Promptly after the closing of an underwritten, initial public offering of the Corporation's Common Stock for cash pursuant to a registration statement under the Securities Act of 1933, as amended, the Corporation shall redeem, out of funds legally available therefor, all outstanding shares of the Series A Preferred Stock by paying in cash to the holders thereof -5- an amount equal to the Liquidation Value thereof. Such payment shall be made to the record holders of the Series A Preferred Stock and shall be accompanied by written notice specifying the number of shares that are being redeemed from each holder. (b) If the funds legally available to redeem shares of Series A Preferred Stock under this Section 5.1 are insufficient to redeem all of the outstanding shares of Series A Preferred Stock at any time, the Corporation shall redeem the maximum number of shares of Series A Preferred Stock that the Corporation has funds legally available therefor on a pro rata basis among all of the holders of Series A Preferred Stock according to the number of shares of Series A Preferred Stock owned by each holder, and shall quarterly thereafter redeem the maximum number of shares of Series A Preferred Stock that the Corporation has funds legally available therefor on a pro rata basis among all of the holders of Series A Preferred Stock according to the number of shares of Series A Preferred Stock then owned by each holder. (c) Promptly after each holder of Series A Preferred Stock has received payment of the Liquidation Value thereof, such holder shall surrender certificates evidencing the Series A Preferred Stock so redeemed, and shall thereupon be entitled to receive a replacement certificate for any shares not redeemed. (d) After any payment under this Section, the redeemed shares shall be canceled on the Corporation's records and shall cease to be outstanding. 5.2 Redemption at Corporation's Option. ---------------------------------- (a) The Corporation may at any time, at its option, redeem some or all shares of Series A Preferred Stock, out of funds legally available therefor, at a price per share equal to the Liquidation Value as of the date of redemption. Such redemption shall be made by paying such amount to the record holders of the Series A Preferred Stock and shall be accompanied by written notice specifying the number of shares that are being redeemed from each holder. All such redemptions shall be pro rata among the holders of Series A Preferred Stock. (b) Promptly after each record holder of Series A Preferred Stock has received payment of the Liquidation Value thereof pursuant to this Section 5.2, such holder shall surrender certificates evidencing the Series A Preferred Stock so redeemed, and shall thereupon be entitled to receive a replacement certificate for any shares not redeemed. (c) After any payment under this Section, the redeemed shares shall be canceled on the Corporation's records and shall cease to be outstanding. -6- 3. At the time this amendment becomes effective, (a) each share of (i) prior Series A-1 Common Stock, (ii) prior Series A-2 Common Stock and (iii) prior Series A-3 Common Stock then issued and outstanding shall be reclassified and converted into 1.3824 fully paid and nonassessable shares of the authorized Series A Common Stock of the Corporation, rounded to the nearest whole share, and (b) each share of prior Series A Preferred Stock then issued and outstanding shall be reclassified and converted into 7.9226 fully paid and nonassessable shares of the authorized Series A Common Stock of the Corporation, rounded to the nearest whole share, all without any further act of this Corporation or its shareholders. 4. That such amendment has been duly adopted in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. The foregoing Certificate of Amendment has been signed and attested as of March 27, 1998. /s/ Robert Snukal --------------------------- Robert Snukal, President ATTEST: /s/ Sheila Snukal - ---------------------------- Sheila Snukal, Secretary -7- PAGE 1 State of Delaware Office of the Secretary of State ________________________________ I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY "FOUNTAIN VIEW, INC." IS DULY INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE AND IS IN GOOD STANDING AND HAS A LEGAL CORPORATE EXISTENCE SO FAR AS THE RECORDS OF THIS OFFICE SHOW, AS OF THE TWENTY-SEVENTH DAY OF MARCH, A.D. 1998. AND I DO HEREBY FURTHER CERTIFY THAT THE FRANCHISE TAXES HAVE BEEN PAID TO DATE. [CORPORATE SEAL /s/ Edward J. Freel APPEARS HERE] ----------------------------------- Edward J. Freel, Secretary of State 2772638 8300 AUTHENTICATION: 8998994 DATE: 981119858 03-27-98 EX-3.1(B) 5 CERTIFICATE OF AMENDMENT FILED 5/6/98 EXHIBIT 3.1(B) CERTIFICATE OF AMENDMENT ------------------------ TO -- CERTIFICATE OF INCORPORATION ---------------------------- OF -- FOUNTAIN VIEW, INC. ------------------- IT IS HEREBY CERTIFIED THAT: 1. The name of the Corporation is Fountain View, Inc. (hereinafter, the "Corporation"). - ------------ 2. The Certificate of Incorporation of the Corporation is hereby amended as follows: 2.1. Section 4.2 of Article 4 is hereby amended by deleting the text thereof in its entirety and inserting in lieu thereof the following: "4.2 Common Stock. Upon any liquidation, dissolution or winding up ------------ of the Corporation, whether voluntary or involuntary, after payment in full of the Liquidation Value of the Series A Preferred Stock and the liquidation value of any other series of Preferred Stock which may from time to time come into existence, the assets available for distribution to the holders of Common Stock shall be distributed ratably among the holders of (a) the Series A Common Stock and the Series B Common Stock, on the one hand, and (b) the holders of the Series C Common Stock, on the other, based on the relative number of shares of Common Stock outstanding and held by such holders, provided that for all purposes of this Section 4.2 the aggregate number of outstanding shares of Series A Common Stock and Series B Common Stock shall be deemed to be the number of shares of Series A Common Stock -------- and Series B Common Stock then outstanding plus the number of shares ---- of Series B Common Stock previously outstanding but forfeited pursuant to Article II of the Stockholders Agreement dated as of March 27, 1998 by and among the Corporation, Robert Snukal, Sheila Snukal, William Scott, Heritage Fund II, L.P. and certain other parties, as amended from time to time." 2.2. Section 5 of Article 4 is hereby amended by inserting after Section 5.2 a new Section 5.3, as follows: "5.3 Mandatory Redemption. -------------------- (a) The Corporation shall, on the first business day following May 1, 2010 (or, if the Corporation's 11 1/4% Senior Subordinated Notes due 2008 have not then been paid in full, immediately after the date on which such Notes have been paid in full), redeem all shares of Series A Preferred Stock then outstanding, out of funds legally available therefor, at a price per share equal to the Liquidation Value as of the date of redemption. Such redemption shall be made by paying such amount to the record holders of the Series A Preferred Stock and shall be accompanied by written notice specifying the number of shares that are being redeemed from each holder. In the event the funds legally available to redeem shares of Series A Preferred Stock are insufficient to redeem all of the outstanding shares of Series A Preferred Stock, the Corporation shall redeem the maximum number of shares of Series A Preferred Stock that the Corporation has funds legally available therefor on a pro rata basis among the holders of Series A Preferred Stock and shall quarterly thereafter redeem the maximum number of shares of Series A Preferred Stock that the Corporation has funds legally available therefor on a pro rata basis among the holders of Series A Preferred Stock, at the then applicable Liquidation Value. All such redemptions shall be pro rata among the holders of Series A Preferred Stock. (b) Promptly after each record holder of Series A Preferred Stock has received payment of the Liquidation Value thereof pursuant to this Section 5.3, such holder shall surrender certificates evidencing the Series A Preferred Stock so redeemed, and shall thereupon be entitled to receive a replacement certificate for any shares not redeemed. (c) After any payment under this Section, the redeemed shares shall be canceled on the Corporation's records and shall cease to be outstanding." 3. That such amendment has been duly adopted in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. -2- The foregoing Certificate of Amendment has been signed and attested as of April 30, 1998. /s/ Robert Snukal --------------------------- Robert Snukal, President ATTEST: /s/ Sheila Snukal - ------------------------- Sheila Snukal, Secretary -3- EX-3.2 6 BY-LAWS OF FOUNTAIN VIEW EXHIBIT 3.2 BY - LAWS --------- OF -- FOUNTAIN VIEW, INC. (formerly known as -------------------------------------- FOUNTAIN VIEW MANAGEMENT, INC.) ------------------------------- (A Delaware Corporation) ---------------- ARTICLE I --------- STOCKHOLDERS ------------ l. CERTIFICATES REPRESENTING STOCK. Every holder of stock in the ------------------------------- corporation shall be entitled to have a certificate signed by, or in the name of, the corporation by the Chairman or Vice-Chairman of the Board of Directors, if any, or by the President or a Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the corporation certifying the number of shares owned by him in the corporation. Any and all signatures on any such certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Whenever the corporation shall be authorized to issue more than one class of stock or more than one series of any class of stock, and whenever the corporation shall issue any shares of its stock as partly paid stock, the certificates representing shares of any such class or series or of any such partly paid stock shall set forth thereon the statements prescribed by the General Corporation Law. Any restrictions on the transfer or registration of transfer of any shares of stock of any class or series shall be noted conspicuously on the certificate representing such shares. The corporation may issue a new certificate of stock in place of any certificate theretofore issued by it, alleged to have been lost, stolen, or destroyed, and the Board of Directors may require the owner of any lost, stolen, or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify the corporation against any claim that may be made against it on account of the alleged loss, theft, or destruction of any such certificate or the issuance of any such new certificate. 2. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not -------------------------- be required to, issue fractions of a share. If the corporation does not issue fractions of a share, it shall (l) arrange for the disposition of fractional interests by those entitled thereto, (2) pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, or (3) issue scrip or warrants in registered or bearer form which shall entitle the holder to receive a certificate for a full share upon the surrender of such scrip or warrants aggregating a full share. A certificate for a fractional share shall, but scrip or warrants shall not unless otherwise provided therein, entitle the holder to exercise voting rights, to receive dividends thereon, and to participate in any of the assets of the corporation in the event of liquidation. The Board of Directors may cause scrip or warrants to be issued subject to the conditions that they shall become void if not exchanged for certificates representing full shares before a specified date, or subject to the conditions that the shares for which scrip or warrants are exchangeable may be sold by the corporation and the proceeds thereof distributed to the holders of scrip or warrants, or subject to any other conditions which the Board of Directors may impose. 3. STOCK TRANSFERS. Upon compliance with provisions restricting the --------------- transfer or registration of transfer of shares of stock, if any, transfers or registration of transfers of shares of stock of the corporation shall be made only on the stock ledger of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation or with a transfer agent or a registrar, if any, and on surrender of the certificate or certificates for such shares of stock properly endorsed and the payment of all taxes due thereon. 4. RECORD DATE FOR STOCKHOLDERS. For the purpose of determining 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 the 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 directors may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. For the purpose of determining the stockholders entitled to express consent to corporate action in writing without a meeting, the directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed; and the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at any 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. -2- 5. MEANING OF CERTAIN TERMS. As used herein in respect of the right ------------------------ to notice of a meeting of stockholders or a waiver thereof or to participate or vote thereat or to consent or dissent in writing in lieu of a meeting, as the case may be, the term "share" or "shares" or "share of stock" or "shares of stock" or "stockholder" or "stockholders" refers to an outstanding share or shares of stock and to a holder or holders of record of outstanding shares of stock when the corporation is authorized to issue only one class of shares of stock, and said reference is also intended to include any outstanding share or shares of stock and any holder or holders of record of outstanding shares of stock of any class upon which or upon whom the certificate of incorporation confers such rights where there are two or more classes or series of shares of stock or upon which or upon whom the General Corporation Law confers such right notwithstanding that the certificate of incorporation may provide for more than one class or series of shares of stock, one or more of which are limited or denied such rights thereunder; provided, however, that no such right shall vest in the event of an increase or a decrease in the authorized number of shares of stock of any class or series which is otherwise denied voting rights under the provisions of the certificate of incorporation. 6. STOCKHOLDER MEETINGS. -------------------- - TIME. The annual meeting shall be held on the date and at the time ---- fixed, from time to time, by the directors, provided, that the first annual meeting shall be held on a date within thirteen months after the organization of the corporation, and each successive annual meeting shall be held on a date within thirteen months after the date of the preceding annual meeting. A special meeting shall be held on the date and at the time fixed by the directors. - PLACE. Annual meetings and special meetings shall be held at such ----- place, within or without the State of Delaware, as the directors may, from time to time fix. Whenever the directors shall fail to fix such place, the meeting shall be held at the registered office of the corporation in the State of Delaware. - CALL. Annual meetings and special meetings may be called by the ---- directors or by any officer instructed by the directors to call the meeting. - NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be -------------------------- given, stating the place, date and hour of the meeting and stating the place within the city or other municipality or community at which the list of stockholders of the corporation may be examined. The notice of an annual meeting shall state that the meeting is called for the election of directors and for the transaction of other business which may properly come before the meeting, and shall, (if any other action which could be taken at a special meeting is to be taken at such annual meeting) state the purpose or purposes. The notice of a special meeting shall in all instances state the purpose or purposes for which the meeting is called. The notice of any meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the General Corporation Law. Except as otherwise provided by the General Corporation Law, a copy of the notice of any meeting shall be given, personally or by mail, not less than ten days nor more than sixty days before the date of the meeting, unless the -3- lapse of the prescribed period of time shall have been waived, and directed to each stockholder at his record address or at such other address which he may have furnished by request in writing to the Secretary of the corporation. Notice by mail shall be deemed to be given when deposited, with postage thereon prepaid, in the United States mail. If a meeting is adjourned to another time, not more than thirty days hence, and/or to another place, and if an announcement of the adjourned time and/or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the directors, after adjournment, fix a new record date for the adjourned meeting. Notice need not be given to any stockholder who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of a stockholder at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends the 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. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice. - STOCKHOLDER LIST. The officer who has charge of the stock ledger of ---------------- the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of 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 days prior to the meeting, either at a place within the city or other municipality or community 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. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the corporation, or to vote at any meeting of stockholders. - CONDUCT OF MEETING. Meetings of the stockholders shall be presided ------------------ over by one of the following officers in the order of seniority and if present and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the President, a Vice-President, or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the stockholders. The Secretary of the corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present the Chairman of the meeting shall appoint a secretary of the meeting. - PROXY REPRESENTATION. Every stockholder may authorize another -------------------- person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in -4- law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. - INSPECTORS. The directors, in advance of any meeting, may, but need ---------- not, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall make a report in writing of any challenge, question or matter determined by him or them and execute a certificate of any fact found by him or them. - QUORUM. The holders of a majority of the outstanding shares of ------ stock shall constitute a quorum at a meeting of stockholders for the transaction of any business. The stockholders present may adjourn the meeting despite the absence of a quorum. - VOTING. Each share of stock shall entitle the holder thereof to one ------ vote. In the election of directors, a plurality of the votes cast shall elect. Any other action shall be authorized by a majority of the votes cast except where the General Corporation Law prescribes a different percentage of votes and/or a different exercise of voting power, and except as may be otherwise prescribed by the provisions of the certificate of incorporation and these By- Laws. In the election of directors, and for any other action, voting need not be by ballot. 7. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the ----------------------------------- General Corporation Law to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meetings of stockholders, 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 outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. 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. -5- ARTICLE II ---------- DIRECTORS --------- l. FUNCTIONS AND DEFINITION. The business and affairs of the ------------------------ corporation shall be managed by or under the direction of the Board of Directors of the corporation. The Board of Directors shall have the authority to fix the compensation of the members thereof. The use of the phrase "whole board" herein refers to the total number of directors which the corporation would have if there were no vacancies. 2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, ------------------------- a citizen of the United States, or a resident of the State of Delaware. The property, affairs and business of the corporation shall be managed by its Board of Directors. The number of directors may be fixed from time to time by action of the stockholders or of the directors and may be increased or decreased by action of the stockholders or of the directors. 3. ELECTION AND TERM. The first Board of Directors, unless the ----------------- members thereof shall have been named in the certificate of incorporation, shall be elected by the incorporator or incorporators and shall hold office until the first annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. Any director may resign at any time upon written notice to the corporation. Thereafter, directors who are elected at an annual meeting of stockholders, and directors who are elected in the interim to fill vacancies and newly created directorships, shall hold office until the next annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. In the interim between annual meetings of stockholders or of special meetings of stockholders called for the election of directors and/or for the removal of one or more directors and for the filling of any vacancy in that connection, newly created directorships and any vacancies in the Board of Directors, including vacancies resulting from the removal of directors for cause or without cause, may be filled by the vote of a majority of the remaining directors then in office, although less than a quorum, or by the sole remaining director. 4. MEETINGS. -------- - TIME. Meetings shall be held at such time as the Board shall fix, ---- except that the first meeting of a newly elected Board shall be held as soon after its election as the directors may conveniently assemble. - PLACE. Meetings shall be held at such place within or without the ----- State of Delaware as shall be fixed by the Board. - CALL. No call shall be required for regular meetings for which the ---- time and place have been fixed. Special meetings may be called by or at the direction of the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, of the President, or of a majority of the directors in office. -6- - NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be --------------------------------------- required for regular meetings for which the time and place have been fixed. Written, oral, or any other mode of notice of the time and place shall be given for special meetings in sufficient time for the convenient assembly of the directors thereat. Notice need not be given to any director or to any member of a committee of directors who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of any such person at a meeting shall constitute a waiver of notice of such meeting, except when he 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. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors need be specified in any written waiver of notice. - QUORUM AND ACTION. A majority of the whole Board shall constitute a ----------------- quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided, that such majority shall constitute at least one-third of the whole Board. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting to another time and place. Except as herein otherwise provided, and except as otherwise provided by the General Corporation Law, the vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. The quorum and voting provisions herein stated shall not be construed as conflicting with any provisions of the General Corporation Law and these By-Laws which govern a meeting of directors held to fill vacancies and newly created directorships in the Board or action of disinterested directors. Any member or members of the Board of Directors or of any committee designated by the Board, may participate in a meeting of the Board, or any such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. - CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if ----------------------- present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman of the Board, if any and if present and acting, or the President, if present and acting, or any other director chosen by the Board, shall preside. 5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the -------------------- General Corporation Law, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. 6. COMMITTEES. Whenever its number consists of three or more, 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 two 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. In the absence or disqualification of any member of any such committee or committees, the member or -7- members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise the powers and authority of the Board of Directors in the management of the business and affairs of the corporation with the exception of any authority the delegation of which is prohibited by Section l4l of the General Corporation Law, and may authorize the seal of the corporation to be affixed to all papers which may require it. 7. WRITTEN ACTION. Any action required or permitted to be taken at -------------- any meeting of the Board of Directors or any committee thereof may be taken without a meeting, without prior notice and without a vote if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. ARTICLE III ----------- OFFICERS -------- The officers of the corporation shall consist of a President, a Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an Executive Vice-President, one or more other Vice-Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers with such titles as the resolution of the Board of Directors choosing them shall designate. Except as may otherwise be provided in the resolution of the Board of Directors choosing him, no officer other than the Chairman or Vice-Chairman of the Board, if any, need be a director. Any number of officers may be held by the same person, as the directors may determine, except that no person may hold the offices of President and Secretary simultaneously. Unless otherwise provided in the resolution choosing him, each officer shall be chosen for a term which shall continue until the meeting of the Board of Directors following the next annual meeting of stockholders and until his successor shall have been chosen and qualified. All officers of the corporation shall have such authority and perform such duties in the management and operation of the corporation as shall be prescribed in the resolutions of the Board of Directors designating and choosing such officers and prescribing their authority and duties, and shall have such additional authority and duties as are incident to their office except to the extent that such resolutions may be inconsistent therewith. The Secretary or an Assistant Secretary of the corporation shall record all of the proceedings of all meetings and actions in writing of stockholders, directors, and committees of directors, and shall exercise such additional authority and perform such additional duties as the Board shall assign to him. Any officer may -8- be removed, with or without cause, by the Board of Directors. Any vacancy in any office may be filled by the Board of Directors. ARTICLE IV ---------- CORPORATE SEAL -------------- The corporate seal shall be in such form as the Board of Directors shall prescribe. ARTICLE V --------- FISCAL YEAR ----------- The fiscal year of the corporation shall be fixed, and shall be subject to change, by the Board of Directors. ARTICLE VI ---------- CONTROL OVER BY-LAWS -------------------- Subject to the provisions of the certificate of incorporation and the provisions of the General Corporation Law, the power to amend, alter or repeal these By-Laws and to adopt new By-Laws may be exercised by the Board of Directors or by the stockholders. I HEREBY CERTIFY that the foregoing is a full, true and correct copy of the By-Laws of Fountain View, Inc., a Delaware corporation, as in effect on the date hereof. IN WITNESS WHEREOF, I set my hand this 14th day of July, 1997. /s/ Sheila Snukal ------------------------------------------ Secretary of Fountain View Management, Inc. -9- EX-3.3 7 ARTICLES OF INCORPORATION OF SUMMIT CARE CORP. Exhibit 3.3 FILED In the office of the Secretary of State of the State of California AMENDED AND RESTATED MAY 15 1991 ARTICLES OF INCORPORATION OF SUMMIT CARE CORPORATION /s/ March Fong Eu ----------------------- MARCH FONG EU, Secretary of State William C. Scott and Frank S. Osen certify that: 1. They are the President and the Secretary, respectively, of Summit Care Corporation, a California corporation. 2. The Articles of Incorporation of this corporation are amended and restated to read in their entirety as follows: One: The name of this corporation is Summit Care Corporation. --- Two: The purpose of this corporation is to engage in any lawful act --- or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated under the California Corporations Code. Three: This corporation is authorized to issue two classes of shares ----- designated, respectively, "Common Stock" and "Preferred Stock." The number of shares of Common Stock is 100,000,000 and the number of shares of Preferred Stock is 2,000,000. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized to fix the number of shares of any series of Preferred Stock and to determine the designation of any such series. The Board of Directors is also authorized to determine or alter the rights, preferences, privileges, voting and other powers, and restrictions granted to or imposed upon any wholly unissued series or Preferred Stock and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series. Upon the amendment and restatement of this Article Three to read as set forth herein, each issued and outstanding share of the corporation shall be reclassified and converted into and become 2,500 shares of Common Stock of this corporation. Four: The liability of the directors of the corporation for ---- monetary damages shall be eliminated to the fullest extent permissible under California law. Five: The corporation is authorized to provide indemnification ---- of agents (as defined in Section 317 of the General Corporation Law of California) for breach of duty to the corporation and its shareholders through bylaw provisions or through agreements with the agents, or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the General Corporation Law of California, subject to any limitations on indemnification under the General Corporation Law of California which cannot be waived. Six: The number of directors of the corporation shall be six. --- The following provisions shall become effective only when the corporation becomes a listed corporation within the meaning of Section 301.5 of the California Corporations Code. The Board of Directors shall be divided into two classes to serve for terms of two years, with one-half of the directors (or as close an approximation as possible) to be elected at each annual meeting of shareholders. In addition, cumulative voting shall be eliminated. 3. The foregoing amendment and restatement of the Articles of Incorporation has been duly approved by the Board of Directors. 4. The foregoing amendment and restatement of the Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the California Corporations Code. The total number of outstanding shares of this corporation is 1,000. The number of shares voting in - 2 - favor of the amendment and the restatement equaled or exceeded the vote required. The percentage vote required was more than 50%. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true are true and correct of our own knowledge. Date: May 15, 1991 /s/ William C. Scott ------------------------------------ William C. Scott, President /s/ Frank S. Osen ------------------------------------ Frank S. Osen, Secretary -3- A404444 F I L E D In the office of the Secretary of State of CERTIFICATE OF AMENDMENT the State of California TO ARTICLES OF INCORPORATION JUN 13 1991 OF SUMMIT CARE CORPORATION MARCH FONG EU, SECRETARY ----------------------- OF STATE Melodye Stok and Frank S. Osen certify that: 1. They are the Vice President-Finance and the Secretary, respectively, of Summit Care Corporation, a California corporation. 2. That Article Three of the Articles of Incorporation of this ----- corporation is amended to read in its entirety as follows: Three: This corporation is authorized to issue two classes of shares ----- designated, respectively, "Common Stock" and "Preferred Stock." The number of shares of Common Stock is 100,000,000 and the number of shares of Preferred Stock is 2,000,000. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized to fix the number of shares of any series of Preferred Stock and to determine the designation of any such series. The Board of Directors is also authorized to determine or alter the rights, preferences, privileges, voting and other powers and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series. Upon the amendment of this Article Three to read as set forth herein, each issued and outstanding share of the corporation shall be reclassified and converted into and become 1.08 shares of Common Stock of this corporation. 3. The foregoing amendment of the Articles of Incorporation has been duly approved by the Board of Directors. 4. The foregoing amendment of the Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the California Corporations Code. The total number of outstanding shares of this corporation is 2,500,000. The number of shares voting in favor of the amendment and the restatement equaled or exceeded the vote required. The percentage vote required was more than 50%. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of our own knowledge. Date: June 6, 1991 /s/ Melodye Stok ------------------------------------ Melodye Stok, Vice President-Finance /s/ Frank S. Osen ------------------------------------ Frank S. Osen, Secretary -2- EX-3.4 8 BY-LAWS OF SUMMIT CARE CORP. Exhibit 3.4 AMENDED AND RESTATED BYLAWS OF SUMMIT CARE CORPORATION Article 1 Offices --------- 1.1 Principal Office. The board of directors shall fix the ---------------- location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside the State of California, and the corporation has one or more business offices in the State of California, the board of directors shall likewise fix and designate a principal business office in the State of California. 1.2 Other Offices. The corporation may also establish ------------- offices at such other places, both within and outside the State of California, as the board of directors may from time to time determine or the business of the corporation may require. Article 2 Meetings of Shareholders ------------------------ 2.1 Place of Meetings. Meetings of shareholders shall be held ----------------- at any place within or outside the State of California designated by the board of directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation. 2.2 Annual Meetings. The annual meeting of shareholders shall --------------- be held on the 15th day of November in each year at 10:00 o'c1ock, a.m., or such other date or time as may be fixed by the board of directors; provided, however, that should said day fall upon a legal holiday, such annual meeting of shareholders shall be held at the same time on the next succeeding day which is a full business day. At such meeting, directors shall be elected and any other proper business may be transacted. 2.3 Special Meetings. A special meeting of the shareholders ---------------- may be called at any time by the board of directors, the chairman of the board, the president, or one or more shareholders holding in the aggregate shares entitled to cast not less than ten percent of the votes at any such meeting. If a special meeting is called by any one other than the board of directors, the request shall be in writing, specifying the time of the meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the -1- corporation. The officer receiving such request forthwith shall cause notice to be given to the shareholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than 35 nor more than 60 days after the receipt of the request. If the notice is not given within 20 days after receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this Section 2.3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board of directors may be held. 2.4 Notice of Meetings. All notices of meetings of ------------------ shareholders shall be sent or otherwise given in accordance with Section 2.5 not 1ess than ten nor more than 60 days before the date of the meeting being noticed. The notice shall specify the place, date and hour of the meeting and (a) in the case of a special meeting, the general nature of the business to be transacted, or (b) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the shareholders. The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees whom, at the time of the notice, the board intends to present for election If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the California Corporations Code (the "Code"), (ii) an amendment of the articles of incorporation, pursuant to Section 902 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of the Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, the notice shall also state the general nature of such proposal. 2.5 Manner of Giving Notice. Notice of any meeting of ----------------------- shareholders shall be given personally or by first-class mail or telegraphic or other written communication, charges prepaid, addressed to the shareholder at the shareholder's address appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by first-class mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county in which the principal executive office is located. Notice shall be deemed to have been given when delivered personally or deposited in the mail or sent by telegram or other means of written communication. -2- If any notice addressed to a shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the Service is unable to deliver the notice to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the shareholder upon written demand at the principal executive office of the corporation for a period of one year from the date of the giving of such notice or report to all other shareholders. An affidavit of the mailing or other means of giving any notice of any shareholders' meeting may be executed by the secretary, assistant secretary or any transfer agent of the corporation, and shall be filed and maintained in the minute book of the corporation. 2.6 Quorum. Unless otherwise provided in the articles of ------ incorporation, the presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting of shareholders shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. 2.7 Adjournment. Any shareholders' meeting, annual or ----------- special, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares represented at such meeting, either in person or by proxy, but, in the absence of a quorum, no other business may be transacted at such meeting, except as provided in Section 2.6. When any meeting of shareholders, annual or special, 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 a meeting at which the adjournment is taken, unless a new record date for the adjourned meeting is fixed, or unless the adjournment is for more than 45 days from the date set for the original meeting, in which case the board of directors shall set a new record date. Notice of any such adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 2.4 and 2.5. At any adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. 2.8 Voting. The shareholders entitled to notice of and to ------ vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 2.11, subject to the provisions of Sections 702 to 704 of the Code (relating to voting shares held by a fiduciary, in the name of a corporation, or in -3- the names of two or more persons). The vote may be by voice vote or by ballot; provided, however, that any election for directors must be by ballot if demanded by a shareholder at the meeting and before the voting begins. Any shareholder entitled to vote on any matter (other than elections of directors) may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares such shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on any matter (other than the election of directors) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the Code or the articles of incorporation. At a shareholders' meeting involving the election of directors, no shareholder shall be entitled to cumulate votes on behalf of any candidate for director (i.e., cast for any candidate a number of votes greater ---- than the number of votes which such shareholder normally is entitled to cast) unless such candidate or candidates' names have been placed in nomination prior to the voting and the shareholder has given notice prior to the voting of the shareholder's intention to cumulate votes. If any shareholder has given such notice, every shareholder entitled to vote may cumulate votes for candidates in nomination and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such share- holder's shares are normally entitled, or distribute the shareholder's votes on the same principle among as many candidates as the shareholder thinks fit. The candidates receiving the highest number of affirmative votes, up to the number of directors to be elected, shall be elected; votes against the director and votes withheld shall have no legal effect. 2.9 Waiver of Notice and Consent. The transactions of any ---------------------------- meeting of shareholders, annual or special, however called and noticed, and wherever held, shall be as valid as though they had occurred at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice, or a consent to a holding of the meeting, or an approval of the minutes thereof. Neither the waiver of notice nor the consent to holding of the meeting nor the approval of the minutes thereof need specify either the business to be transacted or the purpose of any annual or special meeting of shareholders, except that if action is taken or proposed to be taken for approval of any matters specified in the second paragraph of section 2.4, the waiver of notice or the consent to the holding of the meeting and the approval of the minutes thereof shall state the general nature -4- of the proposal. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall also constitute a waiver of notice of and presence at such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not included in the notice of such meeting if such objection is expressly made at the meeting. 2.10 Action Without Meeting. Unless otherwise provided in the ---------------------- articles of incorporation, any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. In the case of election of directors, such consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors; provided, however, that a director may be elected at any time to fill a vacancy on the board of directors not filled by the directors, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. All such consents shall be filed with the secretary of the corporation and shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder's proxy holder, or a transferee of the shares or a personal representative of the shareholder or their respective proxy holders, may revoke the consent by a writing received by the secretary of the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the secretary. Unless the consents of all shareholders entitled to vote have been solicited in writing, the secretary shall give prompt notice of any corporate action approved by the shareholders without a meeting by less than unanimous written consent to those shareholders entitled to vote who have not consented in writing. Such notice shall be given in the manner specified in Section 2.5. In the case of approval of (a) contracts or transactions in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Code, (b) indemnification of agents of the corporation, pursuant to Section 317 of the Code, (c) a reorganization of the corporation, pursuant to Section 1201 of the Code, or (d) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, such notice shall be given at least ten days before the consummation of the action authorized by any such approval. -5- 2.11 Record Data. For purposes of determining the ----------- shareholders entitled to notice or any meeting or to vote or entitled to give consent to corporate action without a meeting the board of directors may fix, in advance, a record date, which shall not be more than 60 days nor less than ten days prior to the date of the meeting nor more than 60 days prior to the action without a meeting, and in such case only shareholders of record at the close of business on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the California General corporation Law. If the board of directors does not so fix a record date: (a) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. (b) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action of the board has been taken, shall be at the close of business on the day on which the board adopts the resolution relating thereto, or the sixtieth day prior to the date of such other action, whichever is later. 2.12 Proxies. Every person entitled to vote for directors ------- or on any other matter shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the shareholder or the shareholder's attorney in fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (a) revoked by the person executing it, prior to the vote pursuant thereto, by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy which is executed by the person executing the prior proxy and is presented to the meeting, or as to any meeting by attendance at such meeting and voting in person by the person executing the proxy; or (b) written notice of the death or incapacity of the maker of the proxy is received by the corporation before the vote pursuant thereto is counted; provided, however, that no such proxy shall be valid after the expiration of eleven months from the date of the proxy, unless otherwise provided in the proxy. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 705(e) and (f) of the Code. -6- 2.13 Inspectors of Election. Before any meeting of ---------------------- shareholders, the board of directors may appoint any persons (other than nominees for office) to act as inspectors of election at the meeting or any adjournments thereof. If inspectors of election are not so appointed, the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one or three. If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one or three inspectors are to be appointed. If any person appointed as inspector fails to appear or refuses to act, the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to replace the one who so failed or refused. If there are three inspectors of election, the decision, act or certificate of a majority of them is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein. Article 3 Directors 3.1 Powers. Subject to the provisions of the California ------ General Corporation Law and any limitations in the articles of incorporation and these bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 Number. The authorized number of directors shall be six ------ until changed by an amendment to the articles of incorporation or, if permitted by section 212 of the Code, by an amendment to this bylaw, duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the number of directors to a number less than five cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of action by written consent, are equal to more than 16-2/3% of the outstanding shares entitled to vote. 3.3 Election and Term of Office. Directors shall be elected --------------------------- at each annual meeting of the shareholders to hold office until the next annual meeting. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. 3.4 Removal. Any or all of the directors may be removed by ------- order of court pursuant to Section 304 of the Code, or by the shareholders pursuant to the provisions of Section 303 of the Code. -7- 3.5 Vacancies. Vacancies in the board of directors may be --------- filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, except that a vacancy created by the removal of a director may be filled only by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of holders of a majority of the outstanding shares entitled to vote. Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected and qualified. A vacancy or vacancies in the board of directors shall be deemed to exist in the case of the death, resignation or removal of any director, or if the board of directors by resolution declares vacant the office of a director who had been declared of unsound mind by an order of court or who has been convicted of a felony, or if the authorized number of directors is increased, or if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the number of directors to be voted for at that meeting The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election by written consent other than to fill a vacancy created by removal shall require the consent of a majority of the outstanding shares entitled to vote. Any director may resign effective upon giving written notice to the chairman of the board, the president, the secretary or the board of directors, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his or her term of office. 3.6 Place of Meetings and Meetings by Telephone. Regular ------------------------------------------- meetings of the board of directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the board. In the absence of such designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board shall be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating can hear one another, and all such directors shall be deemed to be present in person at such meeting. -8- 3.7 Regular Meetings. Immediately following each annual ---------------- meeting of shareholders, the board of directors shall hold a regular meeting for the purpose of organization any, desired election of officers and the transaction of other business. Other regular meetings of the board of directors shall be held without call at such time as shall from time to time be fixed by the board of directors. Notice of regular meetings shall not be required. 3.8 Special Meetings. Special meetings of the board of ---------------- directors for any purpose or purposes may be called at any time by the chairman of the board or the president or any vice president or the secretary or any two directors. Notice of the time and place of special meetings shall be delivered to each director personally or by telephone or sent by first-class mail or telegram, charges prepaid, addressed to each director at his or her address as it is shown on the records of the corporation. In case the notice is mailed, it shall be deposited in the United States mail at least four days prior to the time of the holding of the meeting. In case such notice is delivered personally or by telephone or telegraph, it shall be delivered personally or by telephone or to the telegraph company at least 48 hours prior to the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting and it need not specify the place if the meeting is to be held at the principal executive office of the corporation. 3.9 Quorum. A majority of the authorized number of directors ------ shall constitute a quorum for the transaction of business, except to adjourn as hereinafter provided. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of Section 310 of the Code (approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of the Code (appointment of committees), and Section 317(e) of the Code (indemnification of directors). A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting. 3.10 Contents of Notice and Waiver of Notice. The waiver of --------------------------------------- notice or consent need not specify the purpose of the meeting nor the business to be transacted thereat. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Notice of a meeting need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval of the -9- minutes thereof, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to that director. 3.11 Adjournment. A majority of the directors present, whether ----------- or not constituting a quorum, may adjourn any meeting to another time and place. Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than 24 hours, in which case notice of such time and place shall be given prior to the time of the adjourned meeting, in the manner specified in Section 3.8, to the directors who were not present at the time of the adjournment. 3.12 Action Without Meeting. Any action required or ---------------------- permitted to be taken by the board of directors may be taken without a meeting, if all members of the board shall individually or collectively consent in writing to such action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. The written consent or consents shall be filed with the minutes of the proceedings of the board. 3.13 Fees and Compensation. Directors and members of --------------------- committees may receive such, compensation, if any, for their services, and such reimbursement of expenses, as may be fixed or determined by resolution of the board of directors. Nothing contained herein shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation for such service. Article 4 Committees ---------- 4.1 Committees of Directors. The board of directors may, by ----------------------- resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any such committee, to the extent provided in the resolution of the board, may have all the authority of the board, except with respect to: (a) the approval of any action which, under the California General Corporation Law, also requires shareholders' approval or approval of the outstanding shares; (b) the filling of vacancies on the board of directors or in any committee -10- (c) the fixing of compensation of the directors for serving on the board or an any committee; (d) the amendment or repeal of bylaws or the adoption of new bylaws; (e) the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable; (f) a distribution to the shareholders of the corporation, except at a rate, in a periodic amount or within a price range set forth in the articles of incorporation or determined by the board of directors; or (g) the appointment of any other committees of the board of directors or the members thereof. 4.2 Meetings and Action. Meetings and action of committees shall be ------------------- governed by, and held and taken in accordance with, the provisions of Sections 3.6 (place of meetings and meetings by telephone), 3.7 (regular meetings), 3.8 (special meetings), 3.9 (quorum), 3.10 (contents of notice and waiver of notice), 3.11 (adjournment) and 3.12 (action without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members, except that: the time of regular meetings of committees may be determined by resolution of the board of directors as well as the committee; special meetings of committees may also be called by resolution of the board of directors; and notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. Article 5 Officers -------- 5.1 Officers. The officers of the corporation shall be a president, a -------- secretary and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 5.3. Any number of offices may be held by the same person. 5.2 Election. The officers of the corporation, except such officers as may -------- be appointed in accordance with the provisions of Section 5.3 or 5.5, shall be chosen by the board of directors, and each shall serve at the pleasure of the board, subject to the rights, if any, of an officer under any contract of employment. -11- 5.3 Other Officers. The board of directors may appoint, and may empower the -------------- president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the bylaws or as the board of directors may from time to time determine. 5.4 Removal and Resignation. Subject to the rights, if any, of any officer ----------------------- under any contract of employment, any officer may be removed, either with or without cause, by the board of directors or, except in case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any such resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 Vacancies. A vacancy in any office because of death, resignation, --------- removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to such office. 5.6 Chairman of the Board. The chairman of the board, if such an officer be --------------------- elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may be from time to time assigned to him or her by the board of directors or prescribed by the bylaws. If there is no president, the chairman of the board shall in addition be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.9. 5.7 Vice Chairman of the Board. The vice chairman of the board, if such an -------------------------- officer be elected, shall exercise and perform such powers and duties as may be from time to time assigned to him or her by the board of directors or prescribed by the bylaws. 5.8 Chief executive Officer. The chief executive officer, if such an ----------------------- officer be elected, shall exercise and perform such powers and duties as may be from time to time assigned to him or her by the board of directors or prescribed by the bylaws. 5.9 President. Subject to such supervisory powers, if any, as may be given --------- by the board of directors to the chairman of the board or the chief executive officer, if there be such officers, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction and control of the -12- business and the officers of the corporation. He or she shall preside at all meetings of the shareholders and, in the absence of the chairman of the board, or if there be none, at all meetings of the board of directors. He or she shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the board of directors. 5.10 Vice Presidents. In the absence or disability of the president, the --------------- vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors and the president or the chairman of the board. 5.11 Secretary. The secretary shall keep, or cause to be kept, at the --------- principal executive office or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors and shareholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' and committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office or at the office of the corporation's transfer agent or registrar, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required by the bylaws or by law to be given, and he or she shall keep the seal of the corporation, if one be adopted, in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the board of directors. 5.12 Chief Financial Officer. The chief financial officer shall keep and ----------------------- maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities receipts, disbursements, gains, losses, capital, retained earnings and shares. The chief financial officer shall deposit, or cause to be deposited, all moneys and other valuables in the name and to -13- the credit of the corporation with such depositaries as may be designated by the board of directors. He or she shall disburse, or cause to be disbursed, the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all financial transactions and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors. Article 6 Indemnification of Directors, Officers, Employees and Other Agents -------------------------------------- 6.1 Indemnification. The corporation shall, to the maximum extent permitted --------------- by the California General Corporation Law, have power to indemnify each of its agents against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact any such person is or was an agent of the corporation. For purposes of this Article 6, an "agent" of the corporation includes any person who is or was a director, officer, employee or other agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2 Advance of Expenses. Expenses incurred in defending any proceeding may ------------------- be advanced by this corporation prior to the final disposition of such proceeding upon receipt of an undertaking by or on behalf of the agent to repay such amount unless it shall be determined ultimately that the agent is entitled to be indemnified as authorized in this Article 6. 6.3 Other Contractual Rights. Nothing contained in this Article shall ------------------------ affect any right to indemnification to which persons other than directors and officers of this corporation or of any subsidiary of this corporation may be entitled by contract or otherwise. 6.4 Insurance. Upon and in the event of a determination by the board of --------- directors of this corporation to purchase such insurance, this corporation shall purchase and maintain insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such whether or not this corporation would have the power to indemnify the agent against such liability. -14- Article 7 Certain Loans and Guarantees ---------------------------- 7.1. Shareholder Approval. Except as otherwise provided in this Article 7, -------------------- the corporation shall not make any loan of money or property to, or guarantee the obligation of, any director or officer of the corporation or of its parent corporation, if any, unless the transaction, or an employee benefit plan authorizing the loan or guarantee after disclosure of the right under such a plan to include officers or directors, is approved by a majority of the shareholders entitled to act thereon (without counting any shares owned by any officer or director eligible to participate in the plan or transaction that is subject to approval). 7.2 Security. The corporation shall not make any loan of money or property -------- to, or guarantee the obligation of, any person upon the security of shares of the corporation or of its parent corporation, if any, if the corporation's recourse in the event of default is limited to the security for the loan or guarantee, unless (a) the loan or guarantee is adequately secured without considering such shares, or (b) the loan or guarantee is approved by a majority of the shareholders entitled to act thereon (without counting any shares owned by any officer or director eligible to participate in the plan or transaction that is subject to approval). 7.3 Exceptions. The provisions of Section 7.1 do not apply to: ---------- (a) Any advance of money to a director or officer of the corporation or of its parent corporation, if any, for any expenses reasonably anticipated to be incurred in the performance of the duties of the director or officer, provided that in the absence of the advance the director or officer would be entitled to be reimbursed for the expenses by the corporation, its parent corporation, if any, or any subsidiary corporation; (b) The payment of premiums in whole or in part by the corporation on a life insurance policy on the life of a director or officer, so long as repayment to the corporation of the amount of premiums so paid is secured by the proceeds of the policy and its cash surrender value; or (c) Any transaction, plan, or agreement permitted under Section 408 of the Code. Article 8 Records and Reports ------------------- 8.1 Maintenance and Inspection of Share Register. The corporation shall -------------------------------------------- keep at its principal executive office, or at the office of its transfer agent or registrar, if either be appointed, a record of its shareholders, giving the names and -15- addresses of all shareholders and the number and class of shares held by each shareholder. A shareholder or shareholders of the corporation holding at least five percent in the aggregate of the outstanding voting shares of the corporation may (a) inspect and copy the records of shareholders' names and addresses and shareholdings during usual business hours upon five days' prior written demand upon the corporation, or (b) obtain from the transfer agent of the corporation, upon written demand and upon the tender of the transfer agent's usual charges for such list, a list of the shareholders' names and addresses, who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which such list has been compiled or as of a date specified by the shareholder subsequent to the date of demand. The list shall be made available to that shareholder on or before the later of five days after the demand is received or the date specified therein as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any time during usual business hours, for a purpose reasonably related to such holder's interests as a shareholder or as the holder of a voting trust certificate. Any inspection and copying under this Section 8.1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making such demand. 8.2 Maintenance and Inspection of Bylaws. The corporation shall keep at its ------------------------------------ principal executive office, or if its principal executive office is not in the State of California, at its principal business office in that State, the original or a copy of the bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in that State, the Secretary shall, upon the written request of any shareholder, furnish to such shareholder a copy of the bylaws as amended to date. 8.3 Maintenance and Inspection of Other Corporate Records. The accounting ----------------------------------------------------- books and records and minutes of proceedings of the shareholders and the board of directors and any committee or committees of the board of directors shall be kept at such place or places designated by the board of directors or, in the absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. Such minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. The inspection may be made in person or by an agent or -16- attorney, and shall include the right to copy and make extracts. The foregoing rights of inspection shall extend to the records of each subsidiary of the corporation. 8.4 Inspection by Directors. Every director shall have the absolute right ----------------------- at any reasonable time to inspect all books, records and documents of every kind and the physical properties of the corporation and each subsidiary corporation. Such inspection by a director may be made in person or by agent or attorney and the right of inspection includes the right to copy and make extracts. 8.5 Annual Reports. The annual report to shareholders referred to in -------------- Section 1501 of the Code is expressly dispensed with, but nothing herein shall be interpreted as prohibiting the board of directors from issuing annual or other periodic reports to the shareholders of the corporation as they may deem appropriate. If no annual report meeting the requirements of Section 1501(a) of the Code has been delivered or mailed by the corporation to the shareholders covering the immediately preceding fiscal year, the corporation shall deliver or mail such financial statements and other information requested by a shareholder relating to the immediately preceding fiscal year as such shareholder may be entitled to receive pursuant to Section 1501(c) or other provisions of the Code. 8.6 Financial Statements. A copy of any annual financial statement and any -------------------- income statement of the corporation for each quarterly period of each fiscal year, and any accompanying balance sheet of the corporation as of the end of each such period, that has been prepared by the corporation shall be kept on file in the principal executive office of the corporation for 12 months. If a shareholder or shareholders holding at least five percent of the outstanding shares of any class of stock of the corporation makes a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the then current fiscal year ended more than 30 days prior to the date of the request, and a balance sheet of the corporation as of the end of such period, the chief financial officer shall cause such statement or statements to be prepared, if not already prepared, and shall deliver personally or mail such statement or statements to the person making the request within 30 days after the receipt of such request. If the corporation has not sent to the shareholders its annual report for the last fiscal year, this report shall likewise be delivered or mailed to such shareholder or shareholders within 30 days after such request. -17- Article 9 General Matters --------------- 9.1 Record Date for Purposes Other Than Notice and Voting. For purposes of ----------------------------------------------------- determining the shareholders 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 other lawful action (other than action by shareholders by written consent without a meeting), the board of directors may fix, in advance, a record date, which shall not be more than 60 days prior to any such action, and in such case only shareholders of record on the date so fixed are entitled to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the California General Corporation Law. If the board of directors does not so fix a record date, the record date for determining shareholders for any such purpose shall be at the close of business on the date on which the board adopts the resolution relating thereto, or the sixtieth day prior to the date of such action, whichever is later. 9.2 Checks, Drafts, Evidences of Indebtedness. All checks, drafts or other ----------------------------------------- orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the board of directors. 9.3 Corporate Contracts and Instruments; How Executed. The board of ------------------------------------------------- directors, except as otherwise provided in these bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances; and, unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 9.4 Certificates for Shares. A certificate or certificates for shares of ----------------------- the capital stock of the corporation shall be issued to each shareholder when any such shares are fully paid, and the board of directors may authorize the issuance of certificates or shares as partly paid provided that such certificates shall state the amount of the consideration to be paid therefor and the amount paid thereon. All certificates shall be signed in the name of the corporation by the chairman of the board or vice chairman of the board or the president or vice president and by the chief financial officer or an assistant treasurer or the secretary or any assistant secretary, certifying the number of -18- shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. 9.5 Lost Certificates. Except as provided in this Section 9.5, no new ----------------- certificates for shares shall be issued in lieu of an old certificate unless the latter is surrendered to the corporation and cancelled. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of a new certificate in lieu thereof, upon such terms and conditions as the board may require, including provision for indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of such certificate or the issuance of a replacement certificate. 9.6 Representation of Shares of Other Corporations. The chairman of the ---------------------------------------------- board, the president, or any vice president, or any other person authorized by resolution of the board of directors or by any of the foregoing designated officers, is authorized to vote on behalf of the corporation any and all shares of any other corporation or corporations, foreign or domestic, standing in the name of the corporation. The authority granted to said officers to vote or represent on behalf of the corporation any and all shares held by the corporation in any other corporation or corporations may be exercised by any such officer in person or by any person authorized to do so by a proxy duly executed by said officer. 9.7 Construction and Definitions. Unless the context requires otherwise, ---------------------------- the general provisions, rules of construction, and definitions in the California General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of the foregoing, the singular number includes the plural, the plural number included the singular, and the term "person" includes both a corporation and a natural person. All references in these bylaws to the California General Corporation Law or to sections of the Code shall be deemed to be to such Law or sections as they may be amended and in effect and, if renumbered, to such renumbered provisions at the time of any action taken under the bylaws. References to Articles and Sections are to Articles and Sections of these bylaws unless the context expressly indicates otherwise. -19- Article 10 Amendments ---------- 10.1 Shareholders. New bylaws may be adopted or these bylaws may be amended ------------ or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the articles of incorporation set forth the number of authorized directors of the corporation, the authorized number of directors may be changed only by an amendment of the articles of incorporation. 10.2 Board of Directors. Subject to the rights of the shareholders to ------------------ adopt, amend or repeal bylaws as provided in Section 10.1, bylaws, other than a bylaw amendment changing the authorized number of directors, may be adopted, amended or repealed by the board of directors. * * * * -20- EX-3.5 9 ARTICLES OF INCORPORATION OF SUMMIT CARE-CAL. INC. Exhibit 3.5 NAME CHG. TO: SUMMIT CARE - CALIFORNIA, INC. 443151 FILED A276830 In the office of the Secretary of State of the State of California JAN 27 1984 RESTATED MARCH EU, Secretary of State ARTICLES OF INCORPORATION /s/ James E. Harris ------------------- Deputy THOMAS KONIG and DOROTHY CRAWFORD certify that: 1. They are the President and the Secretary, respectively, of Fountain Convalescent Hospital, Inc., a California corporation. 2. The articles of incorporation of this corporation are amended and restated to read in full as follows: One: The name of this corporation is: --- Summit Care - California, Inc. Two: The purpose of this corporation is to engage in any lawful act or --- activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. Three: This corporation is authorized to issue only one class of ----- shares of stock. The total number of such authorized shares shall be twenty-five thousand (25,000); each of such shares shall have a par value of One Dollar ($1.00); and the aggregate par value of all such shares shall be Twenty-five Thousand Dollars ($25,000). Four: This corporation elects to be governed by all of the provisions ---- of Division 1 of Title 1 of the California corporations Code (as amended by act of the California Legislature, 1975-1976 regular session, effective January 1, 1977, as defined in Section 2300 of the California General Corporation Law), as amended from time to time, not otherwise applicable to this corporation under Chapter 23 of said Division 1. 3. The foregoing amendment and restatement of articles of incorporation has been duly approved by the board of directors. 4. The foregoing amendment and restatement of articles of incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the Corporations Code. The total number of outstanding shares of the corporation is 1,798.64. The number of shares -2- voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50%. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. DATED: January 3, 1984 /s/ Thomas Konig ----------------------------- Thomas Konig, President /s/ Dorothy Crawford ----------------------------- Dorothy Crawford, Secretary -3- [LOGO OF SUMMIT CARE CORPORATION APPEARS HERE] January 9, 1984 Secretary of State State of California Suite 4001 107 South Broadway Los Angeles, CA 90012 Gentlemen: The undersigned, a California Corporation, hereby consents to use the name Summit Care-California, Inc. as a Corporate name and agrees and acknowledges that such name is not confusingly similar to the name Summit Care Corporation. Very truly yours, SUMMIT CARE CORPORATION /s/ Thomas Konig Thomas Konig, President and Chief Operating Officer TK/he EX-3.6 10 BY-LAWS OF SUMMIT CARE-CALIFORNIA, INC. Exhibit 3.6 RESTATED BY-LAWS OF SUMMIT CARE - CALIFORNIA, INC. a California corporation ARTICLE I OFFICES ------- Section 1. Principle Office. The principal executive office of the corporation is hereby fixed and located at: 1800 Avenue of the Stars, 12th Floor, Los Angeles, California. The Board of Directors (hereinafter the "Board") is hereby granted full power and authority to change said principal executive office from one location to another. Section 2. Other Offices. Branch or subordinate office may be established at any time by the Board at any other place or places. ARTICLE II SHAREHOLDERS ------------ Section 1. Place of Meetings. Meetings of the Shareholders of this corporation shall be held either at the principal executive office of the corporation, or at any other place which may be designated either by the Board or by the written consent of the Shareholders, given either before or after the meeting and filed with the Secretary of the corporation. Section 2. Annual Meetings. The annual meeting of the Shareholders shall be held on such date and at such time as may be fixed by the Board or the Shareholders. Section 3. Special Meetings. Special meetings of the Shareholders, for any purpose or purposes whatsoever, may be called at any time by the Board, the President, or by a Shareholder. Section 4. Action Without a Meeting. Any action(s) which may be taken at a meeting of the Shareholders may be taken without a meeting by a written consent to such action(s) signed by all the Shareholders, which document shall be inserted in the Minute Book of the corporation. ARTICLE III DIRECTORS --------- Section 1. Powers. Subject to limitations of the Articles, these Restated By-laws, and the laws of the State of California as to action required to be approved by the Shareholders, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board. 1. Section 2. Number of Qualification. The authorized number of directors shall be not less than two (2) nor more than the maximum authorized by law. The exact number of directors may be fixed, from time to time to time, by the Board or the Shareholders. The number of directors shall be two (2) until changed by action of the Board or the Shareholders as permitted by law. Section 3. Vacancies. Vacancies in the Board may be filled by a majority of the remaining directors, though less than a quorum, or by the Shareholders. Each director so elected shall hold office until his successor is elected at an annual meeting of the Shareholders or a special meeting called for that purpose. Section 4. Action by Directors Without a Meeting. Any action(s) which may be taken at a meeting of the Board may be taken without a meeting if authorized by a writing signed by all of the members of the Board, which document shall be inserted in the Minute Book of the corporation. ARTICLE IV OFFICERS -------- Section 1. Officers. The officers of the corporation shall be selected and removed by the Board in its discretion and shall consist of a President, any appropriate number of Vice Presidents, a Secretary, and a Chief Financial Officer who shall hold the office of Treasurer. The corporation may also have, at the discretion of the Board, such other officers as the corporation may require; all such officers shall hold their respective office for such period, have authority, and perform such duties as the Board may from time to time determine. Section 2. Authority of Certain Officers. Anything herein to the contrary notwithstanding, the following described officers shall have the authority set forth after their respective designation: A. President. The President shall be the general manager and chief executive officer of the corporation and shall have responsibility for, subject to the control of the Board, general supervision, direction, and control of the business and affairs of the corporation. The President shall preside at all meeting of the Shareholders and at all meetings of the Board. The President shall have the general powers and duties of management usually vesting in the office of president and general manager of a corporation and such other powers and duties as may be prescribed by the Board. B. Vice President. In the absence or disability of the President, any Vice President so designated by the Board or the President shall perform all the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions upon the President. All Vice Presidents, if any, shall have such powers and perform such duties as from time to time may be prescribed by the Board or delegated by the President. 2. C. Secretary. The Secretary shall keep or cause to be kept, at the principal executive office or such other place as the Board may order, (i) a book containing minutes of all meetings of the Shareholders and the Board, and (ii) a share register or a duplicate share register. The Secretary shall give, or cause to be given, notice of all the meetings of the Shareholders and of the Board required by these Restated By-laws or by law to be given, shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board. D. Chief Financial Officer and Treasurer. The Chief Financial Officer of the Corporation shall hold the office of Treasurer and shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the corporation. Such officer shall send or cause to be sent to the Shareholders such financial statements and reports as are by law or these Restated By-laws required to be sent to said Shareholders. The books of account shall at all times be open to inspection by any director. Such officer shall cause all moneys and other valuables to be deposited in the name and to the credit of the corporation. Such officer shall (i) disburse or cause to be disbursed the funds of the corporation as may be ordered by the Board, (ii) render to the President and the directors, whenever they request it, an account of all transactions and of the financial condition of the corporation, and (iii) have such other powers and perform such other duties as may be prescribed by the Board. ARTICLE V OTHER PROVISIONS ---------------- Section 1. Checks and Drafts. All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as shall be determined from time to time by resolution of the Board. Section 2. Execution of Contracts. The Board may authorize any officers or agents to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board, no officers, agent, employee or other person shall have any other person shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit, or to render it liable for any purpose or amount. Section 3. Annual Report to Shareholders. Annual reports to the Shareholders are expressly waived, but nothing herein shall be interpreted as precluding the issuance of annual or other periodic reports to the Shareholders. ARTICLE VI AMENDMENTS ---------- These Restated By-laws may be amended or repealed either by the Shareholders or otherwise as authorized under the laws of the State of California. 3. EX-3.7 11 ARTICLES OF INCORPORATION OF SUMMIT CARE PHARMACY Exhibit 3.7 FILED In the office of the Secretary of State of the State of California JUNE 29 1982 MARCH FONG EU. Secretary of State by [SIGNATURE APPEARS HERE] ---------------------------- Deputy ARTICLES OF INCORPORATION OF SUMMIT CARE PHARMACY,INC. ------------------------ One: The name of this corporation is; --- Summit Care Pharmacy, Inc. Two: The purpose of this corporation is to engage in any --- lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. Three: The name and address in the State of California of ----- this corporation's initial agent for service of process are: William L. Pierpoint 4070 Laurel Canyon Boulevard Studio City, California 91604 Four: This corporation is authorized to issue 100,000 ---- shares, all of which shall be of one class. IN WITNESS WHEREOF, for the purpose of forming this corporation under the General Corporation Law of the State of California, the undersigned has executed these Articles of Incorporation this 29th day of June, 1982. /s/ Jeffrey S. Allen ----------------------------- JEFFREY S. ALLEN I declare that I am the person who executed the foregoing Articles of Incorporation, which execution is my act and deed. /s/ Jeffrey S. Allen ----------------------------- JEFFREY S. ALLEN [LOGO OF SUMMIT PHARMACY, INC. APPEARS HERE] June 21, 1982 TO WHOM IT MAY CONCERN: I hereby authorize the use of the name SUMMIT CARE PHARMACY by Summit Care Corporation, a California Corporation, 2600 W. Magnolia Burbank, California 91305. /s/ William L. Pierpoint ------------------------------------- William L. Pierpoint President, SUMMIT PHARMACY INC. 6/23/82 ------------------------------------- Date [SEAL OF OFFICE OF THE SECRETARY OF STATE APPEARS HERE] EX-3.8 12 BY-LAWS OF SUMMIT CARE PHARMACY, INC. Exhibit 3.8 RESTATED BY-LAWS OF SUMMIT CARE PHARMACY, INC. a California corporation ARTICLE I OFFICES ------- Section 1. Principle Office. The principal executive office of the corporation is hereby fixed and located at: 1800 Avenue of the Stars, 12th Floor, Los Angeles, California. The Board of Directors (hereinafter the "Board") is hereby granted full power and authority to change said principal executive office from one location to another. Section 2. Other Offices. Branch or subordinate office may be established at any time by the Board at any other place or places. ARTICLE II SHAREHOLDERS ------------ Section 1. Place of Meetings. Meetings of the Shareholders of this corporation shall be held either at the principal executive office of the corporation, or at any other place which may be designated either by the Board or by the written consent of the Shareholders, given either before or after the meeting and filed with the Secretary of the corporation. Section 2. Other Offices. Branch or subordinate office may be established at any time by the Board at any other place or places. ARTICLE II SHAREHOLDERS ------------ Section 1. Place of Meetings. Meetings of the Shareholders of this corporation shall be held either at the principal executive office of the corporation, or at any other place which may be designated either by the Board or by the written consent of the Shareholders, given either before or after the meeting and filed with the Secretary of the corporation. Section 2. Annual Meetings. The annual meeting of the Shareholders shall be held on such date and at such time as may be fixed by the Board or the Shareholders. Section 3. Special Meetings. Special meetings of the Shareholders, for any purpose or purposes whatsoever, may be called at any time by the Board, the President, or by a Shareholder. Section 4. Action Without a Meeting. Any action(s) which may be taken at a meeting of the Shareholders may be taken without a meeting by a written consent to such action(s) signed by all the Shareholders, which document shall be inserted in the Minute Book of the corporation. ARTICLE III DIRECTORS --------- Section 1. Powers. Subject to limitations of the Articles, these Restated By-laws, and the laws of the State of California as to action required to be approved by the Shareholders, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board. Section 2. Number and Qualification. The authorized number of directors shall be not less than two (2) nor more than the maximum authorized by law. The exact number of directors may be fixed, from time to time to time, by the Board or the Shareholders. The number of directors shall be two (2) until changed by action of the Board or the Shareholders as permitted by law. Section 3. Vacancies. Vacancies in the Board may be filled by a majority of the remaining directors, though less than a quorum, or by the Shareholders. Each director so elected shall hold office until his successor is elected at an annual meeting of the Shareholders or a special meeting called for that purpose. Section 4. Action by Directors Without a Meeting. Any action(s) which may be taken at a meeting of the Board may be taken without a meeting if authorized by a writing signed by all of the members of the Board, which document shall be inserted in the Minute Book of the corporation. ARTICLE IV OFFICERS -------- Section 1. Officers. The officers of the corporation shall be selected and removed by the Board in its discretion and shall consist of a President, any appropriate number of Vice Presidents, a Secretary, and a Chief Financial Officer who shall hold the office of Treasurer. The corporation may also have, at the discretion of the Board, such other officers as the corporation may require; all such officers shall hold their respective office for such period, have authority, and perform such duties as the Board may from time to time determine. Section 2. Authority of Certain Officers. Anything herein to the contrary notwithstanding, the following described officers shall have the authority set forth after their respective designation: A. President. The President shall be the general manager and chief executive officer of the corporation and shall have responsibility for, subject to the control of the Board, general supervision, direction, and control of the business and affairs of the corporation. The President shall preside at all meeting of the Shareholders and at all meetings of the Board. The President shall have the general powers and duties of management usually vested in the office of president and general manager of a corporation and such other powers and duties as may be prescribed by the Board. B. Vice President. In the absence or disability of the President, any Vice President so designated by the Board or the President shall perform all the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions upon the President. All Vice Presidents, if any, shall have such powers and perform such duties as from time to time may be prescribed by the Board or delegated by the President. 2. C. Secretary. The Secretary shall keep or cause to be kept, at the principal executive office or such other place as the Board may order, (i) a book containing minutes of all meetings of the Shareholders and the Board, and (ii) a share register or a duplicate share register. The Secretary shall give, or cause to be given, notice of all the meetings of the Shareholders and of the Board required by these Restated By-laws or by law to be given, shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board. D. Chief Financial Officer and Treasurer. The Chief Financial Officer of the Corporation shall hold the office of Treasurer and shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the corporation. Such officer shall send or cause to be sent to the Shareholders such financial statements and reports as are by law or these Restated By-laws required to be sent to said Shareholders. The books of account shall at all times be open to inspection by any director. Such officer shall cause all moneys and other valuable to be deposited in the name and to the credit of the corporation. Such officer shall (i) disburse or cause to be disbursed the funds of the corporation as may be ordered by the Board, (ii) render to the President and the directors, whenever they request it, an account of all transactions and of the financial condition of the corporation, and (iii) have such other powers and perform such other duties as may be prescribed by the Board. ARTICLE V OTHER PROVISIONS ---------------- Section 1. Checks and Drafts. All checks, drafts or other orders for payment of money, notes or other evidences of Indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as shall be determined from time to time by resolution of the Board. Section 2. Execution of Contracts. The Board may authorize any officers or agents to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board, no officers, agent, employee or other person shall have any other person shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit, or to render it liable for any purpose or amount. Section 3. Annual Report to Shareholders. Annual reports to the Shareholders are expressly waived, but nothing herein shall be interpreted as precluding the issuance of annual or other periodic reports to the Shareholders. ARTICLE VI AMENDMENTS ---------- These Restated By-laws may be amended or repealed either by the Shareholders or otherwise as authorized under the laws of the State of California. 3. EX-3.11 13 ARTICLES OF INCORP. OF SUMMIT CARE TEXAS EQUITY Exhibit 3.11 ARTICLES OF INCORPORATION OF SUMMIT CARE TEXAS EQUITY, INC. I The name of this corporation is Summit Care Texas Equity, Inc. II The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. III The name and address in the State of California of this corporation's initial agent for service of process is: Stephanie Brooks CT CORPORATION SYSTEMS 818 W. Seventh Street Los Angeles, California 90017 IV This corporation is authorized to issue only one class of shares of stock; and the total number of shares which this corporation is authorized to issue is one million (1,000,000) shares. V The liability of the directors of this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. -1- VI This corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) for breach of duty to this corporation and its stockholders through bylaw provisions, through agreements with agents, by vote of shareholders or disinterested directors, or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject to the limits of such excess indemnification as set forth in Section 204 of the California Corporations Code. Dated: January 26, 1996 /s/ Frank S. Osen ------------------------------------- Frank S. Osen Incorporator -2- EX-3.12 14 BY-LAWS OF SUMMIT CARE TEXAS EQUITY, INC. Exhibit 3.12 BYLAWS OF SUMMIT CARE TEXAS EQUITY, INC. ARTICLE I OFFICES ------- Section 1. PRINCIPAL EXECUTIVE OFFICE. The principal -------------------------- executive office for the transaction of business of the above-named corporation is hereby fixed and located in the County of Los Angeles, State of California. The location may be changed by approval of a majority of the authorized Directors, and additional offices may be established and maintained at such other place or places, either within or without California, as the Board of Directors ("Board") may from time to time designate. Section 2. OTHER OFFICES. Branch or subordinate offices may ------------- at any time be established by the Board of Directors at any place or places where the Corporation is qualified to do business. ARTICLE II DIRECTORS - MANAGEMENT ---------------------- Section 1. PRIMARY PURPOSE OF THIS CORPORATION. Subject to ----------------------------------- the provisions of Article II of the Articles of Incorporation of the corporation relating to purpose, the primary purpose of this corporation is to engage in any lawful acts or act or activity for which incorporation may be organized under the General Corporation Law of California other than the banking business, the trust company business, or the practice of a profession permitted to be incorporated by the California Corporations Code. Section 2. RESPONSIBILITY OF BOARD OF DIRECTORS. Subject to ------------------------------------ the provisions of the California General Corporation Law and to any limitations in the Articles of Incorporation of the corporation relating to action required to be approved by the Shareholders, as that term is defined in Section 153 of the California Corporations Code, or by the outstanding shares, as that term is defined in Section 152 of the California Corporations Code, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board. The Board may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person, provided that the business and affairs of -1- the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board. Section 3. STANDARD OF CARE. Each Director shall perform the ---------------- duties of a Director, including the duties as a member of any committee of the Board upon which the Director may serve, in good faith, in a manner such Director believes to be in the best interests of the corporation, and with such care, including reasonable inquiry, as an ordinary prudent person in a like position would use under similar circumstances. Section 4. NUMBER AND QUALIFICATION OF DIRECTORS. The ------------------------------------- authorized number of Directors shall be three (3) until changed by a duly adopted amendment to the Articles of Incorporation or by an amendment to this Bylaw adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote, as provided in Section 212 of the California Corporations Code. Section 5. ELECTION AND TERM OF OFFICE OF DIRECTORS. ---------------------------------------- Directors shall be elected at each annual meeting of the Shareholders to hold office until the next annual meeting. Each Director, including a Director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. Section 6. VACANCIES. Vacancies in the Board may be filled by --------- a majority of the remaining Directors, though less than a quorum, or by a sole remaining Director, except that a vacancy created by the removal of a Director by the vote or written consent of the Shareholders or by a court order may be filled only by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of holders or a majority of the outstanding shares entitled to vote. Each Director so elected shall hold office until the next annual meeting of the Shareholders and until a successor has been elected and qualified. A vacancy or vacancies in the Board shall be deemed to exist in the event of death, resignation, or removal of any Director, or if a Director has been declared of unsound mind by an order of court or convicted of a felony, or if the authorized number of Directors is increased, or if the Shareholders fail at any meeting of Shareholders at which any Director or Directors are elected, to elect a number of Directors to be voted for at that meeting. The Shareholders may elect a Director or Directors at any time to fill any vacancy or vacancies not filled by the Directors, -2- but any such election by written consent shall require the consent of a majority of the outstanding shares entitled to vote. No reduction of the authorized number of Directors shall have the effect of removing any Director before that Director's term of office expires. Section 7. REMOVAL OF DIRECTORS. The entire Board or any -------------------- individual Director may be removed from office as provided in Sections 302, 303 and 304 of the California Corporations Code. In such case, the remaining Board Members may elect a successor Director to fill such vacancy for the remaining unexpired term of the Director so removed. Section 8. PLACE AND MANNER OF MEETINGS. Meetings of the Board ---------------------------- may be called by the Chairman or any Member of the Board, or the President, or the Secretary, and shall be held at the principal executive office of the corporation, unless some other place is designated in the notice of the meeting. Members of the Board may participate in a meeting through use of a conference telephone or similar communications equipment so long as all Members participating in such a meeting can hear one another. Accurate minutes of any meeting of the Board or any committee thereof, shall be maintained as required by Section 312 of the California Corporations Code by the Secretary or other Officer designated for that purpose. Section 9. ORGANIZATION MEETINGS. The organization meetings --------------------- of the Board shall be held immediately following the adjournment of the annual meetings of the Shareholders. Section 10. NOTICE AND WAIVER OF MEETINGS. At least forty- ----------------------------- eight (48) hours' notice of the time and place of meetings shall be delivered personally to the Directors or personally communicated to them by a corporate Officer by telephone or telegraph. If the notice is sent to a Director by letter, it shall be addressed to the Director at the Director's address as it is shown upon the records of the corporation, or if it is not so shown on such records or is not readily ascertainable, at the place in which the meetings of the Directors are regularly held. In case such notice is mailed, it shall be deposited in the United States mail, postage prepaid, in the place in which the principal executive office of the corporation is located at least four (4) days prior to the time of the holding of a meeting. Such mailing, telegraphing, telephoning or delivery as above provided shall be due, legal and personal notice to such Director. When all of the Directors are present at any Directors' meeting, however called or noticed, and either (i) sign a written -3- consent thereto on the records of such meeting, or, (ii) sign a waiver of notice of such meeting or a consent to holding the meeting or an approval of the minutes thereof, whether prior to or after the holding of such meeting, which said waiver, consent or approval shall be filed with the Secretary of the corporation, or, (iii) if a Director attends a meeting without notice but without protesting, prior thereto or at its commencement, the lack of notice, then the transactions thereof are as valid as if had at a meeting regularly called and noticed. Section 11. SOLE DIRECTOR PROVIDED BY ARTICLES OF ------------------------------------- INCORPORATION OR BYLAWS. In the event only one (1) Director is required by - ----------------------- these Bylaws or Articles of Incorporation, then any reference herein to notices, waivers, consents, meetings, or other actions by a majority or quorum of the Directors shall be deemed to refer to such notice, waiver, etc., by such sole Director, who shall have the rights and duties and shall be entitled to exercise all of the powers and shall assume all the responsibilities otherwise herein described as given to a Board. Section 12. DIRECTORS ACTION BY UNANIMOUS WRITTEN CONSENT. --------------------------------------------- Any action required or permitted to be taken by the Board may be taken without a meeting and with the same force and effect as if taken by a unanimous vote of Directors, if authorized by a writing signed individually or collectively by all Members of the Board. Such consent shall be filed with regular minutes of the Board. Section 13. QUORUM. A majority of the number of Directors as ------ fixed by the Articles of Incorporation or Bylaws shall be necessary to constitute a quorum for the transaction of business, and the action of a majority of the Directors present at any meeting at which there is a quorum, when duly assembled, is valid as a corporate act; provided that a majority of the Directors, in the absence of a quorum, may adjourn from time to time, but may not transact any business, notwithstanding the withdrawal of Directors, if any action taken is approved by a majority of the required quorum for such meetings. Section 14. NOTICE OF ADJOURNMENT. Notice of the time and --------------------- place of holding an adjourned meeting need not be given to absent Directors if the time and place be fixed at the meeting adjourned and held within twenty-four (24) hours, but if adjourned more than twenty-four (24) hours, notice shall be given to all Directors not present at the time of the adjournment. Section 15. COMPENSATION OF DIRECTORS. Directors, as such, ------------------------- shall not receive any stated salary for their services, but by resolution of the Board a fixed sum, and expense of attendance, if any, may be allowed for attendance at each regular and special -4- meeting of the Board; provided that nothing herein contained shall be construed to preclude any Director from serving the corporation in any other capacity and receiving compensation therefor. Section 16. COMMITTEES. Committees of the Board may be ---------- appointed By resolution passed by a majority of the whole Board. Committees shall be composed of two (2) or more Members of the Board, and shall have such powers of the Board as may be expressly delegated to it by resolution of the Board, except those powers expressly made non-delegable by Section 311 of the California Corporations Code. Section 17. ADVISORY DIRECTORS. The Board from time to time ------------------ may elect one or more persons to be Advisory Directors who shall not by such appointment be a Member of the Board. Advisory Directors shall be available from time to time to perform special assignments specified by the President, to attend meetings of the Board upon invitation and to furnish consultation to the Board. The period during which the title shall be held may be prescribed by the Board. If no period is prescribed, the title shall be held at the pleasure of the Board. Section 18. RESIGNATIONS. Any Director may resign effective ------------ upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. ARTICLE III OFFICERS -------- Section 1. OFFICERS. The Officers of the corporation shall be -------- a President, a Secretary, and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Chief Financial officers, and such other Officers as may be appointed in accordance with the provisions of Section 3 of this Article III. Any number of offices may be held by the same person. Section 2. ELECTION. The Officers of the corporation, except -------- such Officers as may be appointed in accordance with the provisions of Section 3 or Section 6 of this Article, shall be chosen annually by the Board, and each shall hold office until the Officer shall resign or shall be removed or otherwise disqualified to serve, or a successor shall be elected and qualified. -5- Section 3. SUBORDINATE OFFICER, ETC. The Board may appoint such other ------------------------ Officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in these Bylaws or as the Board may form time to time determine. Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the ----------------------------------- rights, if any, of any Officer under any contract of employment, any Officer may be removed, either with or without cause, upon the affirmative vote of two- thirds (2/3) majority of the members of the Board, at regular or special meeting of the Board, or, except in case of an Officer chosen by the Board, by any Officer upon whom such power of removal may be conferred by the Board. Any Officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. Section 5. VACANCIES. A vacancy in any office because of death, --------- resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the Bylaws regular appointments to that office. Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such --------------------- an Officer be elected, shall, if present, beside at meetings of the Board and exercise and perform such other powers and duties as may be from time to time assigned by the Board or prescribed by the Bylaws. If there is no President, the Chairman of the Board shall in addition be the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article III. Section 7. PRESIDENT. Subject to such supervisory powers, if any, as --------- may be given by the Board to the Chairman of the Board, if there be an Officer, the President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board, have general supervision, direction and control of the business and Officers of the corporation. The President shall preside at all meetings of the Shareholders and in the absence of the Chairman of the Board, or it there be none, at all meetings of the Board. The President shall be ex-officio a member of all the standing committees, including the Executive Committee, if any and shall have the general powers and duties of management usually vested in the office of President of a -6- corporation, and shall have such other powers and duties as may be prescribed by the Board or the Bylaws. Section 8. VICE PRESIDENT. In the absence or disability of the -------------- President, the Vice Presidents, if any, in order of their rank as fixed by the Board, or if not ranked, the vice President designated by the Board, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to, all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board or the Bylaws. Section 9. SECRETARY. The Secretary shall keep, or cause to be --------- kept, a book of minutes at the principal office or such other place as the Board may order, of all meetings of Directors and Shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Directors' meetings, the number of shares present or represented at Shareholder's meetings and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or duplicate share register, showing the names of the Shareholders and their addresses; the number and classes of shares held by each; the number and date of certificates issued for the same; and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all the meetings of the Shareholders and of the Board required by the Bylaws or by law to be given. The Secretary shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board or by the Bylaws. Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial ----------------------- Officer shall keep and maintain, or cause to be kept and maintained in accordance with generally accepted accounting principles, adequate and correct accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, earning (or surplus) and shares. The books of account shall at all reasonable times be open to inspection by any Director . This Office shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board. The Chief -7- Financial Officer shall disburse the funds of the corporation as may be ordered by the Board, shall render to the President and Directors, whenever they request it, an account of all of his or her transactions and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board or the Bylaws. ARTICLE IV SHAREHOLDERS' MEETINGS ---------------------- Section 1. PLACE OF MEETINGS. All meetings of the ----------------- Shareholders shall be held at the principal executive office of the corporation unless some other appropriate or convenient location be designated for that purpose from time to time by the Board. Section 2. ANNUAL MEETINGS. The annual meetings of the --------------- Shareholders shall be held each year on a date and at a time designated by the Board of Directors. The date so designated shall be within five (5) months after the end of the fiscal year of the corporation and within fifteen (15) months after the last annual meeting. At the annual meeting, the Shareholders shall elect a Board, consider reports of the affairs of the corporation and transact such other business as may be properly brought before the meeting. Section 3. SPECIAL MEETINGS. Special meetings of the ---------------- Shareholders may be called at any time by the Board, the Chairman of the Board, the President, a Vice President, the Secretary, or by one or more Shareholders holding not less than one-tenth (1/10) of the voting power of the corporation. Except as next provided, notice shall be given as for the annual meeting. Upon receipt of a written request addressed to the Chairman, President, Vice President, or Secretary, mailed or delivered personally to such Officer by any person (other than the Board) entitled to call a special meeting of Shareholders, such Officer shall cause notice to be given, to the Shareholders entitled to vote, that a meeting will be held at a time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of such request. If such notice is not given within twenty (20) days after receipt of such request, the persons calling the meeting may give notice thereof in the manner provided by these Bylaws or apply to the Superior Court as provided in Section 305(c) of the California Corporations Code. Section 4. NOTICE OF MEETINGS - REPORTS. Notice of meetings, ---------------------------- annual or special, shall be given in writing not less -8- than ten (10) nor more than sixty (60) days before the date of the meeting to Shareholders entitled to vote thereat. Such notice shall be given by the Secretary or the Assistant Secretary, or if there be no such Officer, or in the case of his or her neglect or refusal, by any Director or Shareholder. Such notices or any reports shall be given personally or by mail or other means of written communication as provided in Section 601 of the California Corporations Code and shall be sent to the Shareholder's address appearing on the books of the corporation, or supplied by him or her to the corporation for the purpose of notice, and in the absence thereof, as provided in Section 601 of the California Corporations Code. Notice of any meeting of Shareholders shall specify the place, the day and the hour of meeting, and (1) in case of a special meeting, the general nature of the business to be transacted and no other business may be transacted, or (2) in the case of an annual meeting, those matters which the Board at date of mailing, intends to present for action by the Shareholders. At any meetings where Directors are to be elected, notice shall include the names of the nominees, if any, intended at date of notice to be presented by management for election. If a Shareholder supplies no address, notice shall be deemed to have been given if mailed to the place where the principal executive office of the corporation, in California, is situated, or published at least once in some newspaper or general circulation in the County of said principal executive office. Notice shall be deemed given at the time it is delivered personally or deposited in the mail or sent by other means of written communication. The Officer giving such notice or report shall prepare and file an affidavit or declaration thereof. When a meeting is adjourned for forty-five (45) days or more, notice of the adjourned meeting shall be given as in case of an original meeting. Save, as aforesaid, it shall not be necessary to give any notice of adjournment or of the business to be transacted at an adjourned meeting other than by announcement at the meeting at which such adjournment is taken. Section 5. WAIVER OF NOTICE OR CONSENT BY ABSENT ------------------------------------- SHAREHOLDERS. The transactions of any meeting of Shareholders, however, called - ------------ or noticed, shall be valid as though had at a meeting duly held after regular call and notice, if a quorum, be present either in person or by proxy, and if, either before or after the meeting, each of the Shareholders entitled to vote, not present in person or by proxy, sign a written waiver of notice, or a consent to the holding of such meeting or an approval of the -9- minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance shall constitute a waiver of notice, unless objection shall be made as provided in section 601(e) of the California Corporations Code. Section 6. SHAREHOLDERS ACTING WITHOUT A MEETING - ---------------------------------------- DIRECTORS. Any action which may be taken at a meeting of the Shareholders, may - --------- be taken without a meeting or notice of meeting if authorized by a writing signed by all of the Shareholders entitled to vote at a meeting for such purpose, and filed with the Secretary of the corporation, provided, further, that while ordinarily Directors can only be elected by unanimous written consent under Section 603(d) of the California Corporations Code, if the Directors fail to fill a vacancy, then a Director to fill that vacancy may be elected by the written consent of persons holding a majority of shares entitled to vote for the election of Directors. Section 7. OTHER ACTIONS WITHOUT A MEETING. Unless otherwise ------------------------------- provided in the California Corporations Code or the Articles, any action which may be taken at any annual or special meeting of Shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Unless the consents of all Shareholders entitled to vote have been solicited in writing, (1) Notice of any Shareholder approval pursuant to Sections 310, 317, 1201 or 2007 of the California Corporations Code without a meeting by less than unanimous written consent shall be given at least ten (10) days before the consummation of the action authorized by such approval, and (2) Prompt notice shall be given of the taking of any other corporate action approved by Shareholders without a meeting by less than unanimous written consent, to each of those Shareholders entitled to vote who have not consented in writing. Any Shareholder giving a written consent, or the Shareholder's proxyholders, or a transferee of the shares of a personal representative of the Shareholder or their respective -10- proxyholders, may revoke the consent by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary of the corporation. Section 8. QUORUM. The holders of a majority of the shares ------ entitled to vote thereat, present in person, or represented by proxy shall constitute a quorum at all meetings of the Shareholders of the transaction of business except as otherwise provided by law, by the Articles of Incorporation, or by these Bylaws. If, however, such majority shall not be present or represented at any meeting of the Shareholders, the Shareholders entitled to vote thereat, present in person, or by proxy, shall have the power to adjourn the meeting from time to time, until the requisite amount of voting shares shall be present. At such adjourned meeting at which the requisite amount of voting shares shall be represented, any business may be transacted which might have been transacted at a meeting as originally notified. If a quorum be initially present, the Shareholders may continue to transact business until adjournment, notwithstanding the withdrawal of enough Shareholders to leave less than a quorum, if any action taken is approved by a majority of the Shareholders required to initially constitute a quorum. Section 9. VOTING. Only persons in whose names shares ------ entitled to vote stand on the stock records of the corporation on the date of any meeting of Shareholders, unless some other day be fixed by the Board for the determination of Shareholders of record, and then such other day, shall be entitled to vote at such meeting. Provided the candidate's name has been placed in nomination prior to the voting and one or more Shareholders has given notice at the meeting prior to the voting of the Shareholder's intent to cumulate the Shareholder's votes, every Shareholder entitled to vote at any election for Directors of any corporation for profit may cumulate their votes and give one candidate a number of votes equal to the number of Directors to be elected multiplied by the number of votes to which his or her shares are entitled, or distribute his or her votes on the same principle among as many candidates as he or she thinks fit. The candidates receiving the highest number of votes up to the number of Directors to be elected are elected. The Board may fix a time in the future not exceeding thirty (30) days preceding the date of any meeting of Shareholders -11- or the date fixed for the payment of any dividend or distribution, or for the allotment of rights, or when any change or conversion or exchange of shares shall go into effect, as a record date for the determination of the Shareholders entitled to notice of and to vote at any such meeting, or entitled to receive any such dividend or distribution, or any allotment of conversion or exchange of shares. In such case only Shareholders of record on the date so fixed shall be entitled to notice of and to vote at such meeting, or to receive such dividends, distribution or allotment of rights, or to exercise such rights, as the case may be notwithstanding any transfer of any share on the books of the corporation after any record date fixed as aforesaid. The Board may close the books of the corporation against transfers of shares during the whole or any part of such period. Section 10. PROXIES. Every Shareholder entitled to vote, or ------- to execute consents, may do so, either in person or by written proxy, executed in accordance with the provisions of Section 604 and 705 of the California Corporations Code and filed with the Secretary of the corporation. Section 11. ORGANIZATION. The President, or in the absence ------------ of the President, any Vice President, shall call the meeting of the Shareholders to order, and shall act as chairman of the meeting. In the absence of the President and all of the Vice Presidents, Shareholders shall appoint a chairman for such meeting. The Secretary of the corporation shall act as Secretary of all meetings of the Shareholders, but in the absence of the Secretary at any meeting of the Shareholders, the presiding Officer may appoint any person to act as Secretary of the meeting. Section 12. INSPECTORS OF ELECTION. In advance of any ---------------------- meeting of Shareholders the Board may, if they so elect, appoint inspectors of election to act at such meeting or any adjournment thereof. If inspectors of election be not so appointed, or if any persons so appointed fail to appear or refuse to act, the chairman of any such meeting, may, and on the request of any Shareholder or his or her proxy shall, make such appointment at the meeting in which case the number of inspectors shall be either one (1) or three (3) as determined by the majority of the Shareholders represented at the meeting. ARTICLE V CERTIFICATES AND TRANSFER OF SHARES ----------------------------------- Section 1. CERTIFICATES FOR SHARES. Certificates for shares ----------------------- shall be of such form and device as the Board may designate and shall state the name of the record holder of the shares represented thereby; its number; the date of issuance; the number of shares for which it is issued; a statement of the rights, -12- privileges, preferences and restrictions, if any; a statement as to the redemption or conversion, if any; a statement of liens or restrictions upon transfer or voting, if any; if the shares are assessable or, if assessments are collectible by personal action, a plain statement of such facts. All certificates shall be signed in the name of the corporation by the Chairman of the Board or Vice Chairman of the Board or the President or Vice President and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or any Assistant Secretary, certifying the number of shares and the class or series of shares owned by the Shareholder. Any or all of the signatures on the certificate may be facsimile. In case any Officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on a certificate shall have ceased to be that Officer, transfer agent, or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an Officer, transfer agent, or registrar at the date of issue. Section 2. TRANSFER ON THE BOOKS. Upon surrender to the --------------------- Secretary or transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 3. TRANSFER AGENTS AND REGISTRARS. The Board may ------------------------------ appoint one or more transfer agents or transfer clerks, and one or more registrars, which shall be an incorporated bank or trust company, either domestic or foreign, who shall be appointed at such times and places as the requirements of the corporation may necessitate and the Board may designate. Section 4. LOST OR DESTROYED CERTIFICATES. Any person ------------------------------ claiming a certificate of stock to be lost or destroyed shall make an affidavit or affirmation of that fact and shall, if the Directors so require, give the corporation a bond of indemnity, in form and with one or more sureties satisfactory to the Board, in at least double the value of the stock represented by said certificate, whereupon a new certificate may be issued in the same tenor and for the same number of shares as the one alleged to be lost or destroyed. Section 5. CLOSING STOCK TRANSFER BOOKS - RECORD DATE. In ------------------------------------------ order that the corporation may determine the Shareholders entitled to notice of any meeting or to vote or entitled to receive payment of any dividend or other distribution or allotment of any -13- rights or entitled to exercise any rights in respect of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days prior to the date of such meeting nor more than sixty (60) days prior to any other action. If no record date is fixed; the record date for determining Shareholders entitled to notice of or to vote at a meeting of Shareholders shall be at the close of business on the business day next preceding the date on which notice is given, or if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. The record date for determining Shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is given. The record date for determining Shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereat, or the sixtieth (60th) day prior to the date of such other action, whichever is later. Section 6. LEGEND CONDITION. In the event any shares of this ---------------- corporation are issued pursuant to a permit or exemption therefrom requiring the imposition of a legend condition, the person or persons issuing or transferring said shares shall make sure said legend appears on the certificate and shall not be required to transfer any shares free of such legend unless an amendment to such permit or a new permit be first issued so authorizing such a deletion. ARTICLE VI RECORDS - REPORTS - INSPECTION Section 1. RECORDS. The corporation shall maintain, in ------- accordance with generally accepted accounting principles, adequate and correct accounts, books and records of its business and properties. All of such books, records and accounts shall be kept at its principal executive office in the State of California, as fixed by the Board from time to time. Section 2. INSPECTION OF BOOKS AND RECORDS. All books and ------------------------------- records provided for in Section 1500 of the California Corporations Code shall be open to inspection of the Directors and Shareholders from time to time and in the manner provided in said Sections 1600 - 1602 of the California. Corporations Code. Section 3. CERTIFICATION AND INSPECTION OF BYLAWS. -------------------------------------- The original or a copy of these Bylaws, as amended or otherwise -14- altered to date, certified by the Secretary, shall be kept at the corporation's principal executive office and shall be open to inspection by the Shareholders of the corporation at all reasonable times during office hours, as provided in Section 213 of the California Corporations Code. Section 4. CHECKS, DRAFTS, ETC. All checks, drafts or other ------------------- orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as shall be determined from time to time by resolution of the Board. Section 5. CONTRACT, ETC., -- HOW EXECUTED. The Board, except ------------------------------- as in the Bylaws otherwise provided, may authorize any Officer or Officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board, no Officer, agent or employee shall have any power or authority to bind the corporation by any contract or agreement, or to pledge its credit, or to render it liable for any purpose or to any amount, except as provided in Section 313 of the California Corporation Code. ARTICLE VII REPORTS ------- Section 1. FINANCIAL STATEMENTS. A copy of any annual -------------------- financial statement and any income statement of the corporation for each quarterly period of each fiscal year, and any accompanying balance sheet of the corporation as of the end of each such period, that has been prepared by the corporation shall be kept on file in the principal executive office of the corporation for twelve (12) months and each such statement shall be exhibited at all reasonable times to any shareholder demanding an examination of any such statement or a copy shall be mailed to any such shareholder. Section 2. WAIVER. The annual report to Shareholders referred ------ to in Section 1501 of the California Corporations Code is expressly dispensed with so long as this corporation shall have less than one hundred (100) Shareholders. However, nothing herein shall be interpreted as prohibiting the Board from issuing annual or other periodic reports to the Shareholders of the corporation as they consider appropriate. ARTICLE VIII AMENDMENTS TO BYLAWS -------------------- -15- Section 1. AMENDMENT BY SHAREHOLDERS. New Bylaws may be ------------------------- adopted or these Bylaws way be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the Articles of Incorporation of the corporation set forth the number of authorized Directors of the corporation, the authorized number of Directors may be changed only by an amendment of the Articles of Incorporation. Section 2. POWERS OF DIRECTORS. Subject to the right of the ------------------- Shareholders to adopt, amend or repeal Bylaws, as provided in Section 1 of this Article VIII, the affirmative vote of two-thirds (2/3) majority of the members of the Board may adopt, amend or repeal any of these Bylaws other than a Bylaw or amendment thereof changing the authorized number of Directors. Section 3. RECORDS OF AMENDMENTS. Whenever an amendment or --------------------- new Bylaw is adopted, it shall be copied in the book of Bylaws, in the appropriate place. If any Bylaw is repealed, the fact or repeal with the date of the meeting at which the repeal was enacted or written assent was filed shall be stated in said book. ARTICLE IX CORPORATE SEAL -------------- The corporate seal shall be circular in form, and shall have inscribed thereon the name of the corporation, the date of its incorporation, and the word "California". ARTICLE X IDEMINFICATION OF DIRECTORS, OFFICERS, -------------------------------------- EMPLOYEES AND OTHER AGENTS -------------------------- Except with respect to professional malpractice, the corporation shall to the maximum extent permitted by the California General Corporation Law, indemnify each of its agents against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact that any such person is or was an agent of the corporation. For purposes of this Section, an "agent" of the corporation includes any person who is or was a director, officer, employee, or other agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, or was a director, officer, employee, or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. -16- ARTICLE XI MISCELLANEOUS ------------- Section 1. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. ---------------------------------------------- Shares of other corporations standing in the name of this corporation may be voted or represented and all incidents thereto may be exercised on behalf of the corporation by the Chairman of the Board, the President or any Vice President and the Secretary or an Assistant Secretary. Section 2. SUBSIDIARY CORPORATIONS. Shares of this ----------------------- corporation owned by a subsidiary shall not be entitled to vote on any matter. A subsidiary for these purposes is defined as a corporation, the shares of which possessing more than twenty-five percent (25%) of the total combined voting power of all classes of shares entitled to vote, are owned directly or indirectly through one (1) or more subsidiaries. Section 3. ACCOUNTING YEAR. The accounting year of the --------------- corporation shall be fixed by resolution of the Board of Directors. -17- CERTIFICATION ------------- I, John Farber, the Secretary of Summit Care Texas Equity, Inc., a California corporation, do hereby certify that the Bylaws attached hereto, comprising seventeen (17) pages, constitute the Bylaws of said corporation which were adopted by the Board of Directors of said corporation on the 29th day of January, 1996. [SIGNATURE APPEARS HERE] -------------------------------------- -18- EX-3.13 15 ARTICLES OF ORG. OF SUMMIT CARE TEXAS, NO. 2 INC. Exhibit 3.13 ARTICLES OF INCORPORATION OF ---------------------------- SUMMIT CARE - TEXAS NO. 2, INC. ------------------------------- The undersigned natural person of the age of eighteen (18) years or more acting as incorporator of a corporation under the Texas Business Corporation Act, hereby adopts the following Articles of Incorporation for the corporation. I. The name of the corporation is Summit Care - Texas - No. 2, Inc. II. The period of its duration is perpetual. III. The purpose for which the corporation is organized is to transact any or all business for which corporations may be incorporated under the Texas Business Corporation. IV. The aggregate number of shares that the corporation shall have authority to issue is one thousand (1000) shares of the no par value stock. V. The corporation will not commence business until it has received for the issuance of its shares consideration of the value of $1,000 consisting of money, labor done, or property actually received. VI. The street address of its initial registered office is 707 West 10th Street, Austin, Texas 78701, and the name of its initial registered agent at such address is Carla J. Cox. -1- VII. The number of Directors constituting the initial Board of Directors is three (3), and the names and addresses of the persons who are to serve as Directors until the first annual meeting of the Shareholders or until their successors are elected and qualified are: William Pierpoint 1800 Avenue of the Stars, 12th Floor Los Angeles, California 90067 William Scott 1800 Avenue of the Stars, 12th Floor Los Angeles, California 90067 Darrel Neuenschwander 1800 Avenue of the Stars, 12th Floor Los Angeles, California 90067 VIII. The name and address of the Incorporator is: Brian E. Riewe 707 West Tenth Street Austin, Texas 78701 In witness thereof, the undersigned has executed these Articles of Incorporation on June 30, 1986. /s/ Brian E. Riewe --------------------------- Brian E. Riewe -2- STATE OF TEXAS COUNTY OF TRAVIS I, a Notary Public, do hereby certify that on this 30th day of June, 1986, personally appeared before me, Brian E. Riewe, being by me duly sworn, and declared that she is the person who signed for the foregoing document as incorporator, and that the statements therein contained are true. Given under my hand and seal of office, this 30th day of June, 1986. /s/ Melinda Goff ---------------------------------- Notary Public, State of Texas /s/ Melinda Goff ---------------------------------- Printed Name of Notary My commission expires: 11/1/89 ---------------------------------- -3- STATE OF CALIFORNIA COUNTY OF LOS ANGELES BEFORE ME, the undersigned notary public, on this 27th day of June, 1986, personally appeared Darrel Neuenschwander, Secretary of Summit Care - Texas, Inc., a Texas corporation, and being by me duly sworn, executed the foregoing statement in his capacity as officer of said corporation. /s/ Rochelle Krugler ------------------------------- Notary Public in and for OFFICIAL SEAL The State of California ROCHELLE KRUGLER Notary Public-California LOS ANGELES COUNTY /s/ Rochelle Krugler My Comm. Exp. May 14, 1990 ------------------------------- Printed Name of Notary Public My commission expires: 5-14-90 BER009-7 CERTIFICATE ----------- STATE OF CALIFORNIA (S) (S) COUNTY OF LOS ANGELES (S) I, Darrel Neuenschwander, Secretary of Summit Care - Texas, Inc., a Texas corporation, do hereby certify that the following resolution was adopted by unanimous written consent of the Board of Directors of the corporation on June 27, 1996. RESOLVED, that the corporation give its consent and does hereby give its consent to Summit Care - Texas No. 2, Inc., to incorporate and to transact business in the state of Texas under the name of Summit Care - Texas No. 2, Inc. I do further certify that the foregoing resolution has not been modified or rescinded and is still in full force and effect. I further certify that the corporation is duly organized, validly existing and in good standing under the laws of the state of Texas, and has all requisite corporate power and requisite consent certificates of authority, licenses, permits, qualifications and documents to own and operate its properties and to carry on its business now being and as proposed to be conducted in the state of Texas. I do also certify that the officers of the corporation are as follows: President William Pierpoint Vice President William Scott Secretary Darrel Neuenschwander Treasurer Darrel Neuenschwander EXECUTED this 27th day of June, 1986. ---- ---- /s/ Darrel Neuenschwander ---------------------------------------- Darrel Neuenschwander, Secretary STATE OF CALIFORNIA * * COUNTY OF LOS ANGELES * BEFORE ME, the undersigned notary public, on this 27th day of June, 1986, ---- ---- personally appeared Darrel Neuenschwander, Secretary of Summit Care - Texas, Inc., a Texas corporation, and being by me duly sworn, executed the foregoing statement in his capacity as officer of said corporation. /s/ Rochelle Krugler ---------------------------------------- Notary Public in and for The State of California [OFFICIAL SEAL ROCHELLE KRUGLER Rochelle Krugler NOTARY PUBLIC-CALIFORNIA --------------------------------------- APPEARS HERE] Printed Name of Notary Public My commission expires: 5-14-90 ----------------- BER009-7 TO THE SECRETARY * * THE STATE OF TEXAS * We, the undersigned, being the duly elected and authorized President and Secretary of Summit Care - Texas, Inc., and pursuant to a resolution passed by the unanimous written consent of the Board of Directors of Summit Care - Texas, Inc., a certified copy of which is attached hereto, hereby give our consent to Summit Care - Texas No. 2, Inc., to incorporate and to transact business in the State of Texas under the name of Summit Care - Texas No. 2, Inc. SUMMIT CARE - TEXAS, INC. By: /s/ William Pierpoint ------------------------------------- William Pierpoint, President By: /s/ Darrel Neuenschwander ------------------------------------- Darrel Neuenschwander, Secretary STATE OF CALIFORNIA * * COUNTY OF Los Angeles * BEFORE ME, the undersigned notary public, on this 27th day of June, 1986, personally appeared William Pierpoint, President of Summit Care - Texas, Inc., a Texas corporation, and being by me duly sworn, executed the foregoing statement in his capacity as officer of said corporation. /s/ Rochelle Krugler ---------------------------------------- Notary Public in and for The State of California [OFFICIAL SEAL ROCHELLE KRUGLER Rochelle Krugler NOTARY PUBLIC-CALIFORNIA --------------------------------------- APPEARS HERE] Printed Name of Notary Public My commission expires: 5-14-90 ----------------- BER009-7 PROFIT FILED In the Office of the Secretary of State of Texas JAN 12 1987 Clerk II-G Corporations Section STATEMENT OF CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT, OR BOTH BY A DOMESTIC PROFIT CORPORATION Pursuant to the provisions of the Texas Business Corporation Act, the undersigned corporation, organized under the laws of the State of Texas submits the following statement for the purpose of changing its registered office or its registered agent, or both, in the State of Texas: 1. The name of the corporation is SUMMIT CARE-TEXAS NO. II, INC. Charter No. 1002422-0 2. The post office address of its present registered office is 707 West 10th Street, Austin, Texas 78701. 3. The post office address, including street and number, to which its registered office is to be changed is c/o C T Corporation System, 1601 Elm Street, Dallas, Texas 75201. 4. The name of its present registered agent is Carla J. Cox. 5. The name of its successor registered agent is C T CORPORATION SYSTEM. 6. The post office address of its registered office and the post office address of the business office of its registered agent, as changed, will be identical. 7. Such change was authorized by: (Check one) X A. The Board of Directors ----- B. An officer of the corporation so authorized by the Board of ----- Directors. Dated 3 NOVEMBER, 1986. /s/ Judd F. Osten -------------------------------------- An Authorized Officer Judd F. Osten, Vice President-Legal Affairs In the Office of the Secretary of State of Texas Oct 19 1987 Clerk I-F Corporations Section ASSUMED NAME CERTIFICATE FOR AN INCORPORATED BUSINESS OR PROFESSION 1. The assumed name under which the business or professional service as or is to be conducted or rendered is LAKESIDE CARE CENTER _________________________________________________. 2. The name of the incorporated business or profession as stated in its Articles of Incorporation or comparable document is SUMMIT CARE-TEXAS NO. 2, INC. __________________________, and the charter number or certificate of authority number, if any, is ______________. 3. The state, country, or other jurisdiction under the laws of which it was incorporated is Texas, and the address of its registered or similar office in that jurisdiction is 1601 Elm St., Dallas, TX 75201 ___________________. 4. The period, not to exceed ten years, during which the assumed name will be used is 10 Years. 5. The corporation is a (circle one) business corporation, non-profit corporation, professional corporation, professional association or other type of corporation (specify) ___________________________________________, or other type of incorporated business, professional or other association or legal entity (specify) ____________________________________________________. 6. If the corporation is required to maintain a registered office in Texas, the address of the registered office is _______________________________, 1601 Elm St., Dallas, TX 75201, and the name of its registered agent at such address is C T CORPORATION SYSTEM. The address of the principal office (if not the same as the registered office) is ___________________ _______________. 7. If the corporation is not required to or does not maintain a registered office in Texas, the office address in Texas is ___________________________ ________________________; and if the corporation is not incorporated, organized or associated under the laws of Texas, the address of its place of business in Texas is ____________________________________________ and the office address elsewhere is _______________________________________________ _____________________________. 8. The county or counties where business or professional services are being or are to be conducted or rendered under such assumed name are (if applicable, use the designation "all" or "all except _______________________________"): DALLAS Judd F. Osten, Vice-President /s/ Judd F. Osten --------------------------------------- Signature of officer, representative or attorney-in-fact of the corporation Before me on this 23rd day of September, 1987, personally appeared JUDD F. OSTEN, VICE PRESIDENT and acknowledged to me that he executed the foregoing certificate for the purposes therein expressed. /s/ Caroline R. Lienau ------------------------------------- Notary Public Los Angeles County (Notary seal) - ------------------------------ NOTE: A certificate executed and OFFICIAL SEAL acknowledged by an attorney-in-fact CAROLINE R. LIENAU shall include a statement that the NOTARY PUBLIC - CALIFORNIA attorney-in-fact has been duly LOS ANGELES COUNTY authorized in writing by his principal My comm. expires AUG 17, 1991 to execute and acknowledge the same. - ------------------------------ Filed In the Office of the Secretary of State of Texas OCT. 19 1987 Clerk I-F Corporations Section ASSUMED NAME CERTIFICATE FOR AN INCORPORATED BUSINESS OR PROFESSION 1. The assumed name under which the business or professional service is or is to be conducted or rendered is CORONADO CARE CENTER. _____________________________________________. 2. The name of the incorporated business or profession as stated in its Articles of Incorporation or comparable document is SUMMIT CARE-TEXAS No. 2, Inc., and the charter number or certificate of authority number, if any, is_____________________________________. 3. The state, country, or other jurisdiction under the laws of which it was incorporated is Texas, and the address of its registered or similar office in that jurisdiction is 1601 Elm St., Dallas, TX 75201. 4. The period, not to exceed ten years, during which the assumed name will be used is 10 Years. 5. The corporation is a (circle one) business corporation, non-profit corporation, professional corporation, professional association or other type of corporation (specify)__________________________________________, or other type of incorporated business, professional or other association or legal entity (specify)__________________________________. 6. If the corporation is required to maintain a registered office in Texas, the address of the registered office is _____________________________, 1601 Elm St., Dallas, TX 75201, and the name of its registered agent at such address is C T CORPORATION SYSTEM. The address of the principal office (if not the same as the registered office) is __________________________________________________. 7. If the corporation is not required to or does not maintain a registered office in Texas, the office address in Texas is________________________: and if the corporation is not incorporated, organized or associated under the laws of Texas, the address of its place of business in Texas is_________________________________________ and the office address elsewhere is___________________________________________________________. 8. The county or counties where business or professional services are being or are to be conducted or rendered under such assumed name are (if applicable, use the designation "all" except_________________________"): DALLAS Judd F. Osten, Vice President /s/ Judd F. Osten -------------------------------------- Signature of officer, representative or attorney-in-fact of the corporation Before me on this 23rd day of September, 1987, personally appeared Judd F. Osten, Vice President and acknowledged to me that he executed the foregoing certificate for the purposes therein expressed. [SIGNATURE APPEARS HERE] -------------------------------- (Notary Seal) Notary Public Los Angeles County - ------------------------------- OFFICIAL SEAL NOTE: A certificate executed and acknowledged CAROLINE R. LIENAU by an attorney-in-fact shall include NOTARY PUBLIC-CALIFORNIA a statement that the attorney-in-fact has LOS ANGELES COUNTY been duly authorized in writing by his My comm. expires: Aug. 17, 1991 principal to execute and acknowledge the - ------------------------------- same. In the Office of the Secretary of State of Texas OCT 19 1987 Clark I-F Corporations Section ASSUMED NAME CERTIFICATE FOR AN INCORPORATED BUSINESS OR PROFESSION 1. The assumed name under which the business or professional service is or is to be conducted or rendered is COLONIAL MANOR CARE CENTER. -------------------------- 2. The name of the incorporated business or profession as stated in its Articles of Incorporation or comparable document is SUMMIT CARE-TEXAS NO. 2, ------------------------ INC., and the charter number or certificate of authority number, if any, ----- is _______________________. 3. The state, country, or other jurisdiction under the laws of which it was incorporated is Texas, and the address of its registered or similar office ------ in that jurisdiction is 1601 Elm St., Dallas, TX 75201. ------------------------------- 4. The period, not to exceed ten years, during which the assumed name will be used is 10 Years. --------- 5. The corporation is a (circle one) business corporation, non-profit corporation, professional corporation, professional association or other type of corporation (specify) _______________________________________, or other type of incorporated business, professional or other association or legal entity (specify) _____________________________________. 6. If the corporation is required to maintain a registered office in Texas, the address of the registered office is _________________________, 1601 Elm St., ------------- Dallas, TX 75201, and the name of its registered agent at such address is CT ----------------- -- CORPORATION SYSTEM. The address of the principal office (if not the same as ------------------ the registered office) is ___________________________________________. 7. If the corporation is not required to or does not maintain a registered office in Texas the office address in Texas is __________________________, and if the corporation is not incorporated, organized or associated under the laws of Texas, the address of its place of business in Texas is _________________________________ and the office address elsewhere is ___________________________________________. 8. The county or counties where business or professional services are being or are to be conducted or rendered under such assumed name are (if applicable, use the designation "all" or "all" except _________________________"): DALLAS Judd F. Osten, Vice President /s/ Judd F. Osten --------------------------------------------- Signature of officer, representative or attorney-in-fact of the corporation Before me on this 23rd day of SEPTEMBER, 1987, personally appeared JUDD F. OSTEN, VICE PRESIDENT and acknowledged to me that _he executed the foregoing certificate for the purposes therein expressed. /s/ Caroline R. Lienau --------------------------------------------- (Notary seal) Notary Public Los Angeles County [NOTARY SEAL APPEARS HERE] NOTE: A certificate executed and acknowledged by an attorney-in-fact shall include a statement that the attorney-in-fact has been duly authorized in writing by his principal to execute and acknowledge the same. In the Office of the Secretary of State of Texas Oct 19 1987 Clerk I-F Corporations Section ASSUMED NAME CERTIFICATE FOR AN INCORPORATED BUSINESS OR PROFESSION 1. The assumed name under which the business or professional service as or is to be conducted or rendered is SOUTHWOOD CARE CENTER _________________________________________________. 2. The name of the incorporated business or profession as stated in its Articles of Incorporation or comparable document is SUMMIT CARE-TEXAS NO. 2, INC. __________________________, and the charter number or certificate of authority number, if any, is ______________. 3. The state, country, or other jurisdiction under the laws of which it was incorporated is Texas, and the address of its registered or similar office in that jurisdiction is 1601 Elm St., Dallas, TX 75201 ___________________. 4. The period, not to exceed ten years, during which the assumed name will be used is 10 Years. 5. The corporation is a (circle one) business corporation, non-profit corporation, professional corporation, professional association or other type of corporation (specify) ___________________________________________, or other type of incorporated business, professional or other association or legal entity (specify) ____________________________________________________. 6. If the corporation is required to maintain a registered office in Texas, the address of the registered office is _______________________________, 1601 Elm St., Dallas, TX 75201, and the name of its registered agent at such address is C T CORPORATION SYSTEM. The address of the principal office (if not the same as the registered office) is ___________________ _______________. 7. If the corporation is not required to or does not maintain a registered office in Texas, the office address in Texas is ___________________________ ________________________; and if the corporation is not incorporated, organized or associated under the laws of Texas, the address of its place of business in Texas is ____________________________________________ and the office address elsewhere is _______________________________________________ _____________________________. 8. The county or counties where business or professional services are being or are to be conducted or rendered under such assumed name are (if applicable, use the designation "all" or "all except _______________________________"): DALLAS Judd F. Osten, Vice-President /s/ Judd F. Osten --------------------------------------- Signature of officer, representative or attorney-in-fact of the corporation Before me on this 23rd day of September, 1987, personally appeared JUDD F. OSTEN, VICE PRESIDENT and acknowledged to me that he executed the foregoing certificate for the purposes therein expressed. /s/ Caroline R. Lienau ------------------------------------- Notary Public Los Angeles County (Notary seal) - ------------------------------ NOTE: A certificate executed and OFFICIAL SEAL acknowledged by an attorney-in-fact CAROLINE R. LIENAU shall include a statement that the NOTARY PUBLIC - CALIFORNIA attorney-in-fact has been duly LOS ANGELES COUNTY authorized in writing by his principal My comm. expires AUG 17, 1991 to execute and acknowledge the same. - ------------------------------ FILED In the Office of the Secretary of State of Texas JUL 13 1990 Corporations Section To the Secretary of State of the State of Texas: C T Corporation System, as the registered agent for the domestic and foreign corporations named on the attached list submits the following statement for the purpose of changing the registered office for such corporations, in the State of Texas: 1. The name of the corporation is See attached list -------------------------------------------- 2. The post office address of its present registered office is c/o C T --------------- CORPORATION SYSTEM, 1601 ELM STREET, DALLAS, TEXAS 75201 --------------------------------------------------------------------------- 3. The post office address to which its registered office is to be changed is c/o C T CORPORATION SYSTEM, 350 N. ST. PAUL STREET, DALLAS, TEXAS 75201 --------------------------------------------------------------------------- 4. The name of its present registered agent is C T CORPORATION SYSTEM ------------------------------- 5. The name of its successor registered agent is C T CORPORATION SYSTEM ----------------------------- 6. The post office address of its registered office and the post office address of the business office of its registered agent, as changed, will be identical. 7. Notice of this change of address has been given in writing to each corporation named on the attached list 10 days prior to the date of filing of this certificate. Dated July 2, 1990. C T CORPORATION SYSTEM -------------------------------- By [SIGNATURE APPEARS HERE] -------------------------------- Its Vice President FILED In the Office of the Secretary of State of Texas OCT 23 1991 Corporations Section ARTICLES OF MERGER OF DOMESTIC CORPORATIONS INTO SUMMIT CARE-TEXAS NO. 2, INC. Pursuant to the provisions of Article 5.04 of the Texas Business Corporation Act, the undersigned corporations adopt the following Articles of Merger for the purpose of merging them into one of such corporations. 1. The following Plan of Merger was approved by the shareholders of each of the undersigned corporations in the manner prescribed by the Texas Business Corporation Act: FIRST: SUMMIT CARE-TEXAS NO. 2, INC., a corporation organized under the laws of the State of Texas, shall merge with and assume the liabilities and obligations of SUMMIT CARE-TEXAS, INC., a corporation organized under the laws of the State of Texas. The name of the surviving corporation is SUMMIT CARE-TEXAS NO. 2, INC. SECOND: Since all of the issued and outstanding shares of SUMMIT CARE-TEXAS NO. 2, INC., the surviving corporation, and all of the issued and outstanding shares of SUMMIT CARE-TEXAS, INC., the merging corporation, are owned by SUMMIT CARE CORPORATION, a California corporation, on the effective date of the merger all of the issued and outstanding shares of SUMMIT CARE- TEXAS, INC., the merging corporation, shall be cancelled and no shares of the surviving corporation shall be issued in exchange therefor. THIRD: The Articles of Incorporation of SUMMIT CARE-TEXAS NO. 2, INC., shall be the Articles of Incorporation of the corporation surviving the merger. No changes or amendments shall be made to the Articles of Incorporation because of the merger. FOURTH: The by-laws of SUMMIT CARE-TEXAS NO. 2, INC., shall be the by-laws of the corporation surviving the merger. FIFTH: the directors and officers of SUMMIT-CARE TEXAS NO. 2, INC., shall be the directors and officers of the corporation surviving the merger and shall serve until their successors are selected. SIXTH: The officer of each corporation party to the merger shall be and hereby are authorized to so all acts and things necessary and proper to effect the merger. 2. As to each of the undersigned corporations, the number of shares outstanding are as follows: NUMBER OF SHARES NAME OF CORPORATION OUTSTANDING - ------------------- ----------- Summit Care-Texas No. 2, Inc. 1,000 Summit Care-Texas, Inc. 1,000 3. As to each of the undersigned corporations, the total number of shares voted for and against such Plan, respectively, are as follows: TOTAL TOTAL VOTED VOTED NAME OF CORPORATION FOR AGAINST - ------------------- ----- ------- Summit Care-Texas No. 2, Inc. 1,000 0 Summit Care-Texas, Inc. 1,000 0 Dated September 30, 1991. SUMMIT CARE-TEXAS NO. 2, INC. By /s/ Donald J. Amaral ----------------------------- Donald J. Amaral, President SUMMIT CARE-TEXAS, INC. By /s/ Donald J. Amaral ----------------------------- Donald J. Amaral, President STATEMENT OF ABANDONMENT OF ASSUMED NAME 1. The name of the corporation as stated in its articles of incorporation is Summit Care - Texas No. 2, Inc. and the charter number is 01002422-0. 2. The assumed name being abandoned is Coronado Care Center. 3. The date on which the assumed name certificate was filed in the office of the secretary of state is October 19, 1987; an assumed name certificate has also been filed in the county clerk's office(s) in the following county or counties: Dallas and Taylor. 4. If the entity is required to maintain a registered office in Texas, the address of the registered office is and the name of its registered agent at such address is CT Corporation, 350 N. St. Paul, Dallas, Texas 75201. The address of the principal office is 2600 W. Magnolia Blvd., Burbank, CA 91505-3130. 5. If the entity is not required to or does not maintain a registered office in Texas, the office address in Texas is N/A, and if the entity is not incorporated, organized or associated under the laws of Texas, the address of its place of business in Texas is 13300 Old Blanco Road, Suite 150, San Antonio, Texas 78216, and the office address elsewhere is 2600 W. Magnolia Blvd., Burbank, CA 91505-3130. SUMMIT CARE-TEXAS, NO. 2, INC., a Texas Corporation By: /s/ John Farber ------------------------------- John Farber, Secretary THE STATE OF CALIFORNIA (S)(S) (S)(S) COUNTY OF LOS ANGELES (S)(S) Before me on the 15th of August, 1997, personally appeared John Farber, Secretary of Summit Care - Texas, No. 2, Inc., a Texas corporation, and acknowledged to me that he executed the foregoing certificate for the purposes therein expressed. /s/ Doris A. Spieker ---------------------------------- Notary Public, State of California [NOTARY SEAL APPEARS HERE] Notary's Name Printed: Doris A. Spieker ---------------------------------- My Commission Expires: 5-17-99 ------------ --------------------------------- FILED In the Office of the Secretary of State of Texas AUG 22 1997 Corporations Section --------------------------------- STATEMENT OF ABANDONMENT OF ASSUMED NAME 1. The name of the corporation as stated in its articles of incorporation is Summit Care - Texas No. 2, Inc. and the charter number is 010002422-0. 2. The assumed name being abandoned is Coronado Care Center. 3. The date on which the assumed name certificate was filed in the office of the secretary of state is October 19, 1987; an assumed name certificate has also been filed in the county clerk's office(s) in the following county or counties: Dallas and Taylor. 4. If the entity is required to maintain a registered office in Texas, the address of the registered office is and the name of its registered agent at such address is CT Corporation, 350 N. St. Paul, Dallas, Texas 75201. The address of the principal office at 2600 W. Magnolia Blvd., Burbank, CA 91505-3130. 5. If the entity is not required to or does not maintain a registered office in Texas, the office address in Texas is N/A, and if the entity is not incorporated, organized or associated under the laws of Texas, the address of its place of business in Texas is 13300 Old Blanco Road, Suite 150, San Antonio, Texas 78216, and the office address elsewhere is 2600 W. Magnolia Blvd., Burbank, CA 91505-3130. SUMMIT CARE - TEXAS, NO. 2, INC., a Texas Corporation By: /s/ John Farber ------------------------------------ John Farber, Secretary 116695 THE STATE OF CALIFORNIA ) ) COUNTY OF LOS ANGELES ) Before me on the 15th of August, 1997, personally appeared John Farber, Secretary of Summit Care - Texas, No. 2, Inc., a Texas corporation, and acknowledged to me that he executed the foregoing certificate for the purposes therein expressed. /s/ Doris A. Spieker --------------------------------------- Notary Public, State of California Notary's Name Printed: Doris A. Spieker --------------------------------------- My Commission Expires: 5-17-99 - ----------------------------------- DORIS A. SPIEKER COMM. # 1059118 Notary Public--California LOS ANGELES COUNTY My Comm. Expires May 17, 1999 - ----------------------------------- ------------------------------- FILED In the Office of the Secretary of State of Texas AUG 22 1997 Corporations Section ------------------------------- STATEMENT OF ABANDONMENT OF ASSUMED NAME 1. The name of the corporation as stated in its articles of incorporation is Summit Care - Texas No. 2, Inc. and the charter number is 01002422-0. 2. The assumed name being abandoned is Colonial Manor Care Center. 3. The date on which the assumed name certificate was filed in the office of the secretary of state is October 19, 1987; an assumed name certificate has also been filed in the county clerk's office(s) in the following county or counties: Dallas and Comal. 4. If the entity is required to maintain a registered office in Texas, the address of the registered office is and the name of its registered agent at such address is CT Corporation, 350 N. St. Paul, Dallas, Texas 75201. The address of the principal office is 2600 W. Magnolia Blvd., Burbank, CA 91505-3130. 5. If the entity is not required to or does not maintain a registered office in Texas, the office address in Texas is N/A, and if the entity is not incorporated, organized or associated under the laws of Texas, the address of its place of business in Texas is 13300 Old Blanco Road, Suite 150, San Antonio, Texas 78216, and the office address elsewhere is 2600 W. Magnolia Blvd., Burbank, CA 91505-3130. SUMMIT CARE - TEXAS, NO. 2, INC., a Texas Corporation By: /s/ John Farber ------------------------------- John Farber, Secretary THE STATE OF CALIFORNIA ) ) ss. COUNTY OF LOS ANGELES ) Before me on the 15th of August, 1997, personally appeared John Farber, Secretary of Summit Care - Texas, No. 2, Inc., a Texas corporation, and acknowledged to me that he executed the foregoing certificate for the purposes therein expressed. /s/ Doris A. Spieker -------------------------------------- Notary Public, State of California Notary's Name Printed: DORIS A. SPIEKER -------------------------------------- My Commission Expires: 5-17-99 ---------------- - --------------------------------------- DORIS A. SPIEKER COMM.# 1059118 Notary Public -- California LOS ANGELES COUNTY My Comm. Expire MAY 17, 1999 - --------------------------------------- ------------------------------- FILED In the Office of the Secretary of State of Texas AUG 22 1997 Corporations Section ------------------------------- STATEMENT OF ABANDONMENT OF ASSUMED NAME 1. The name of the corporation as stated in its articles of incorporation is Summit Care - Texas No. 2, Inc. and the charter number is 01002422-0. 2. The assumed name being abandoned is Southwood Care Center. 3. The date on which the assumed name certificate was filed in the office of the secretary of state is October 19, 1987; an assumed name certificate has also been filed in the county clerk's office(s) in the following county or counties: Dallas and Travis. 4. If the entity is required to maintain a registered office in Texas, the address of the registered office is and the name of its registered agent at such address is CT Corporation, 350 N. St. Paul, Dallas, Texas 75201. The address of the principal office is 2600 W. Magnolia Blvd., Burbank, CA 91505-3130. 5. If the entity is not required to or does not maintain a registered office in Texas, the office address in Texas is N/A, and if the entity is not incorporated, organized or associated under the laws of Texas, the address of its place of business in Texas is 13300 Old Blanco Road, Suite 150, San Antonio, Texas 78216, and the office address elsewhere is 2600 W. Magnolia Blvd., Burbank, CA 91505-3130. SUMMIT CARE - TEXAS, NO. 2, INC., a Texas Corporation By: /s/ John Farber ------------------------------- John Farber, Secretary THE STATE OF CALIFORNIA ) ) ss. COUNTY OF LOS ANGELES ) Before me on the 15th of August, 1997, personally appeared John Farber, Secretary of Summit Care - Texas, No. 2, Inc., a Texas corporation, and acknowledged to me that he executed the foregoing certificate for the purposes therein expressed. /s/ Doris A. Spieker -------------------------------------- Notary Public, State of California Notary's Name Printed: DORIS A. SPIEKER -------------------------------------- My Commission Expires: 5-17-99 ---------------- - --------------------------------------- DORIS A. SPIEKER COMM.# 1059118 Notary Public -- California LOS ANGELES COUNTY My Comm. Expire MAY 17, 1999 - --------------------------------------- EX-3.14 16 BY-LAWS OF SUMMIT CARE TEXAS, NO. 2 INC. Exhibit 3.14 BY-LAWS OF SUMMIT CARE - TEXAS NO. 2, INC. a Texas corporation ARTICLE I OFFICES ------- Section 1. Principle Office. The principal executive office of the corporation is hereby fixed and located at: 1800 Avenue of the Stars, 12th Floor, Los Angeles, California. The Board of Directors (hereinafter the "Board") is hereby granted full power and authority to change said principal executive office from one location to another. Section 2. Other Offices. Branch or subordinate office may be established at any time by the Board at any other place or places. ARTICLE II SHAREHOLDERS ------------ Section 1. Place of Meetings. Meetings of the Shareholders of this corporation shall be held either at the principal executive office of the corporation, or at any other place which may be designated either by the Board or by the written consent of the Shareholders, given either before or after the meeting and filed with the Secretary of the corporation. Section 2. Annual Meetings. The annual meeting of the Shareholders shall be held on such date and at such time as may be fixed by the Board or the Shareholders. Section 3. Special Meetings. Special meetings of the Shareholders, for any purpose or purposes whatsoever, may be called at any time by the Board, the President, or by a Shareholder. Section 4. Action Without a Meeting. Any action(s) which may be taken at a meeting of the Shareholders may be taken without a meeting by a written consent to such action(s) signed by all the Shareholders, which document shall be inserted in the Minute Book of the corporation. ARTICLE III DIRECTORS --------- Section 1. Powers. Subject to limitations of the Articles, these Restated By-laws, and the laws of the State of Texas as to action required to be approved by the Shareholders, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board. 1. Section 2. Number and Qualification. The authorized number of directors shall be not less than two (2) nor more than the maximum authorized by law. The exact number of directors may be fixed, from time to time, by the Board or the Shareholders. The number of directors shall be two (2) until changed by action of the Board or the Shareholders as permitted by law. Section 3. Vacancies. Vacancies in the Board may be filled by a majority of the remaining directors, though less than a quorum, or by the Shareholders. Each director so elected shall hold office until his successor is elected at an annual meeting of the Shareholders or a special meeting called for that purpose. Section 4. Action by Directors Without a Meeting. Any action(s) which may be taken at a meeting of the Board may be taken without a meeting if authorized by a writing signed by all of the members of the Board, which document shall be inserted in the Minute Book of the corporation. ARTICLE IV OFFICERS -------- Section 1. Officers. The officers of the corporation shall be selected and removed by the Board in its discretion and shall consist of a President, any appropriate number of Vice Presidents, a Secretary, and a Chief Financial Officer who shall hold the office of Treasurer. The corporation may also have, at the discretion of the Board, such other officers as the corporation may require; all such officers shall hold their respective office for such period, have authority, and perform such duties as the Board may from time to time determine. Section 2. Authority of Certain Officers. Anything herein to the contrary notwithstanding, the following described officers shall have the authority set forth after their respective designation: A. President. The President shall be the general manager and chief executive officer of the corporation and shall have responsibility for, subject to the control of the Board, general supervision, direction, and control of the business and affairs of the corporation. The President shall preside at all meeting of the Shareholders and at all meetings of the Board. The President shall have the general powers and duties of management usually vested in the office of president and general manager of a corporation and such other powers and duties as may be prescribed by the Board. B. Vice President. In the absence or disability of the President, any Vice President so designated by the Board or the President shall perform all the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions upon the President. All Vice Presidents, if any, shall have such powers and perform such duties as from time to time may be prescribed by the Board or delegated by the President. 2. C. Secretary. The Secretary shall keep or cause to be kept, at the principal executive office or such other place as the Board may order, (i) a book containing minutes of all meetings of the Shareholders and the Board, and (ii) a share register or a duplicate share register. The Secretary shall give, or cause to be given, notice of all the meetings of the Shareholders and of the Board required by these Restated By-laws or by law to be given, shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board. D. Chief Financial Officer and Treasurer. The Chief Financial Officer of the Corporation shall hold the office of Treasurer and shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the corporation. Such officer shall send or cause to be sent to the Shareholders such financial statements and reports as are by law or these Restated By-laws required to be sent to said Shareholders. The books of account shall at all times be open to inspection by any director. Such officer shall cause all moneys and other valuable to be deposited in the name and to the credit of the corporation. Such officer shall (i) disburse or cause to be disbursed the funds of the corporation as may be ordered by the Board, (ii) render to the President and the directors, whenever they request it, an account of all transactions and of the financial condition of the corporation, and (iii) have such other powers and perform such other duties as may be prescribed by the Board. ARTICLE V OTHER PROVISIONS ---------------- Section 1. Checks and Drafts. All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as shall be determined from time to time by resolution of the Board. Section 2. Execution of Contracts. The Board may authorize any officers or agents to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board, no officers, agent, employee or other person shall have any other person shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit, or to render it liable for any purpose or amount. Section 3. Annual Report to Shareholders. Annual reports to the Shareholders are expressly waived, but nothing herein shall be interpreted as precluding the issuance of annual or other periodic reports to the Shareholders. ARTICLE VI AMENDMENTS ---------- These Restated By-laws may be amended or repealed either by the Shareholders or otherwise as authorized under the laws of the State of Texas. 3. EX-3.15 17 ARTICLES OF ORG. OF SUMMIT CARE TEXAS, NO. 3 INC. Exhibit 3.15 ARTICLES OF INCORPORATION OF SUMMIT CARE-TEXAS NO. 3, INC. ***** We, the undersigned natural persons of the age of eighteen years or more, acting as incorporators of a corporation under the Texas Business Corporation Act, do hereby adopt the following Articles of Incorporation for such corporation: ARTICLE ONE The name of the corporation is SUMMIT CARE-TEXAS NO. 3, INC. ARTICLE TWO The period of its duration is perpetual. ARTICLE THREE The purpose or purposes for which the corporation is organized are: To engage in the transaction of any or all lawful business for which corporations may be incorporated under the Texas Business Corporation Act. ARTICLE FOUR The aggregate number of shares which the corporation shall have authority to issue is One Thousand (1,000) without par value. ARTICLE FIVE The corporation will not commence business until it has received for the issuance of its shares consideration of the value of One Thousand Dollars ($1,000), consisting of money, labor done or property actually received, which sum is not less than One Thousand Dollars ($1,000). ARTICLE SIX The street address of its initial registered office is c/o C T Corporation System, 350 N. St. Paul Street, Dallas, Texas 75201, and the name of its initial registered agent at such address is: C T CORPORATION SYSTEM. ARTICLE SEVEN The number of directors of the corporation may be fixed by the by-laws. The number of directors constituting the initial board of directors is Three (3), and the name and address of each person who is to serve as director until the first annual meeting of the shareholders or until a successor is elected and qualified are: NAME ADDRESS ---- ------- Donald J. Amaral 2600 W. Magnolia Blvd. Burbank, CA. 91507-2100 Frank S. Osen 2600 W. Magnolia Blvd. Burbank, CA. 91507-2100 William C. Scott 2600 W. Magnolia Blvd. Burbank, CA. 91507-2100 ARTICLE EIGHT The names and addresses of the incorporators are: NAMES ADDRESSES ----- --------- T. Cofer 818 W. Seventh St. Los Angeles, CA. 90017 D. Farber 818 W. Seventh St. Los Angeles, CA. 90117 T. Totaro 818 W. Seventh St. Los Angeles, CA. 90017 IN WITNESS WHEREOF, we have hereunto set our hands, this 27th day of August, 1993. /s/ T. Cofer ------------------------------ T. Cofer Incorporator /s/ D. Farber ------------------------------ D. Farber, Incorporator /s/ T. Totaro ------------------------------ T. Totaro, Incorporator STATE OF Los Angeles ) ) ss: COUNTY OF California ) I, Danilo A. Tiu, a notary public, do hereby certify that on this 27th day of August, 1994, personally appeared before me, T. Cofer, D. Farber, and T. Totaro, who each being by me first duly sworn, severally declared that they are the persons who signed the foregoing documents as incorporators, and that the statements therein contained are true. [OFFICIAL NOTARY SEAL OF /s/ Danilo Tiu DANILO A. TIU ------------------------------- NOTARY PUBLIC APPEARS HERE] Notary Public [LETTERHEAD OF SUMMIT CARE CORPORATION APPEARS HERE] CONSENT TO USE OF NAME Summit Care-Texas No. 2, Inc., a corporation organized under the laws of the State of Texas, hereby consents to the organization of Summit Care-Texas No. 3, Inc. in the State of Texas. IN WITNESS WHEREOF, the said Summit Care-Texas No. 2, Inc. has caused this consent to be executed by its Vice President and attested under its corporate seal by its secretary, this 27th day of August, 1993. SUMMIT CARE-TEXAS NO. 2, INC. By: /s/ Melodye Stok --------------------------- Melodye Stok Its: Vice President Attest: /s/ Frank S. Osen - -------------------- Frank S. Osen Its: Secretary FILED in the Office of the Secretary of State of Texas FEB 28 1994 Corporations Section ASSUMED NAME CERTIFICATE FOR AN INCORPORATED BUSINESS 1. The assumed name under which the business or professional service is to be conducted or rendered is The Woodlands Health Care Center. 2. The name of the incorporated business or profession as stated in its Articles of Incorporation or comparable document is Summit Care Texas No. 3, Inc. 3. The state, country, or other jurisdiction under the laws of which it was incorporated is Texas, and the address of its registered or similar office in that jurisdiction is 350 N. St. Paul Street, Dallas, Texas 75201. 4. The period, not to exceed ten years, during which the assumed name will be used is February 28, 1994 through February 27, 2004. ******************** 5. The corporation is a (circle one): [business corporation], non-profit ******************** corporation, professional corporation, professional association or other incorporated business or professional (please specify) . ------------------------- 6. If the corporation is required to maintain a registered office in Texas, the address of the registered office is 350 N. St. Paul Street, Dallas, Texas 75201 and the name of its registered agent at such address is C. T. Corporation System. The address of the principal office (if not the same as the registered office) is 2600 W. Magnolia, Burbank, California 91505. 7. If the corporation is not required to or does not maintain a registered office in Texas, the office address in Texas is N/A and if the corporation is not incorporated, organized or associated under the laws of Texas, the address of its place of business in Texas is N/A and its office address elsewhere is N/A. 8. The county or counties where business or professional services are being or are to be conducted or rendered under such assumed name are (If applicable, you may use the designation "ALL" or "ALL EXCEPT"): Montgomery /s/ Frank Osen ---------------------------------------- Frank Osen, Vice President and Secretary Before me on this 24th day of February, 1994, personally appeared Frank Osen and acknowledged to me that he executed the foregoing certificate for the purposes therein expressed. (Notary Seal) /s/ Robbie Fasching --------------------------------------- Notary Public in and for the State of California My Commission Expires: April 23, 1996 ----------------- [SEAL OF ROBBIE FASCHING, NOTARY PUBLIC APPEARS HERE] EX-3.16 18 BY-LAWS OF SUMMIT CARE TEXAS, NO. 3 INC. Exhibit 3.16 SUMMIT CARE-TEXAS NO. 3, INC. ***** BY-LAWS ***** ARTICLE I OFFICES Section 1. The registered office shall be located in Dallas, Texas. Section 2. The corporation may also have offices at such other places both within and without the State of Texas as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II ANNUAL MEETINGS OF SHAREHOLDERS Section 1. All meetings of shareholders for the election of directors shall be held in Burbank, State of California, at such place as may be fixed from time to time by the board of directors. Said meetings may also be held at such other place either within or without the State of Texas as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Section 2. Annual meetings of shareholders, commencing with the year 1993, shall be held on the 1st Monday of December if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 A.M., at which they shall elect by a plurality vote a board of directors, and transact such other business as may properly be brought before the meeting. Section 3. Written or printed notice of the annual meeting stating the place, day and hour of the meeting shall be delivered not less than ten nor more than fifty days before the date of the meeting, either personally or by mail, by or at the direction of the president, the secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. ARTICLE III SPECIAL MEETINGS OF SHAREHOLDERS Section 1. Special meetings of shareholders for any purpose other than the election of directors may be held at such time and place within or without the State of Texas as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute or by the articles of incorporation, may be called by the president, the board of directors, or the holders of not less than one-tenth of all the shares entitled to vote at the meeting. Section 3. Written or printed notice of a special meeting stating the place, day and hour of the meeting and the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than fifty days before the date of the meeting, either personally or by mail, by or at the direction 2 of the president, the secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. Section 4. The business transacted at any special meeting of shareholders shall be limited to the purposes stated in the notice. ARTICLE IV QUORUM AND VOTING OF STOCK Section 1. The holders of a majority of the shares of stock issued and outstanding and entitled to vote, represented in person or by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business except as otherwise provided by statute or by the articles of incorporation. If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders 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 present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. Section 2. If a quorum is present, the affirmative vote of a majority of the shares of stock represented at the meeting shall be the act of the shareholders unless the vote of a greater number of shares of stock is required by law or the articles of incorporation. 3 Section 3. Each outstanding share of stock, having voting power, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders. A shareholder may vote either in person or by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. In all elections for directors every shareholder entitled to vote shall have the right to vote, in person or by proxy, the number of shares of stock owned by him, for as many persons as there are directors to be elected, or to cumulate the vote of said shares, and give one candidate as many votes as the number of directors multiplied by the number of his shares of stock shall equal, or to distribute the votes on the same principle among as many candidates as he may see fit. Section 4. Any action required to be taken at a meeting of the shareholders may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. ARTICLE V DIRECTORS Section 1. The number of directors shall be one (1). Directors need not be residents of the State of Texas nor shareholders of the corporation. The directors, other than the first board of directors, shall be elected at the annual meeting of the shareholders, and each director elected shall serve until the next succeeding annual meeting and until his successor shall have been elected and qualified. The first board of directors shall hold office until the first annual 4 meeting of shareholders. Section 2. Any vacancy occurring in the board of directors may be filled by the shareholders at an annual or a special meeting or by the affirmative vote of a majority of the remaining directors though less than a quorum of the board of directors. A director elected to fill a vacancy shall be elected for the unexpired portion of the term of his predecessor in office. Any directorship to be filled by reason of an increase in the number of directors may be filled by election at an annual meeting or at a special meeting of shareholders called for that purpose. A director elected to fill a newly created directorship shall serve until the next succeeding annual meeting of shareholders and until his successor shall have been elected and qualified. Any directorship to be filled by reason of an increase in the number of directors may also be filled by the board of directors for a term of office until the next election of directors by shareholders; provided no more than two directorships may be so filled during a period between any two successive annual meetings of shareholders. Whenever the holders of any class or series of shares are entitled to elect one or more directors by the provisions of the articles of incorporation, any vacancies in such directorships and any newly created directorships of such class or series to be filled by reason of an increase in the number of such directors may be filled by the affirmative vote of a majority of the directors elected by such class or series then in office or by a sole remaining director so elected, or by the vote of the holders of the outstanding shares of such class or series, and such directorships shall not in any case be filled by the vote of the remaining directors or the holders of the outstanding shares as a whole unless 5 otherwise provided in the articles of incorporation. Section 3. The business affairs of the corporation shall be managed by its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the articles of incorporation or by these by-laws directed or required to be exercised or done by the shareholders. Section 4. The directors may keep the books of the corporation, except such as are required by law to be kept within the state, outside of the State of Texas, at such place or places as they may from time to time determine. Section 5. The board of directors, by the affirmative vote of a majority of the directors then in office, and irrespective of any personal interest of any of its members, shall have authority to establish reasonable compensation of all directors for services to the corporation as directors, officers or otherwise. ARTICLE VI MEETINGS OF THE BOARD OF DIRECTORS Section 1. Meetings of the board of directors, regular or special, may be held either within or without the State of Texas. Section 2. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the shareholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present, or it may convene at such place and time as shall be fixed by the consent in writing of all the directors. 6 Section 3. Regular meetings of the board of directors may be held upon such notice, or without notice, and at such time and at such place as shall from time to time be determined by the board. Section 4. Special meetings of the board of directors may be called by the president on two (2) days' notice to each director, either personally or by mail or by telegram; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two directors. Section 5. Attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. Section 6. A majority of the directors shall constitute a quorum for the transaction of business unless a greater number is required by law or by the articles of incorporation. The act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors, unless the act of a greater number is required by statute or by the articles of incorporation. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 7. Unless otherwise restricted by the articles of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken 7 without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing which shall set forth the action taken and be signed by all members of the board of directors or of the committee as the case may be. ARTICLE VII COMMITTEES OF DIRECTORS Section 1. The board of directors, by resolution adopted by a majority of the full board of directors, may designate from among its members an executive committee and one or more other committees, each of which shall be comprised of one or more members and, to the extent provided in the resolution, shall have and may exercise all of the authority of the board of directors, except that no such committee shall have the authority of the board of directors in reference to amending the articles of incorporation, approving a plan of merger or consolidation, recommending to the shareholders the sale, lease, or exchange of all or substantially all of the property and assets of the corporation otherwise than in the usual and regular course of its business, recommending to the shareholders a voluntary dissolution of the corporation or a revocation thereof, amending, altering, or repealing the by-laws of the corporation or adopting new by-laws for the corporation, filling vacancies in the board of directors or any committee, filling any directorship to be filled by reason of an increase in the number of directors, electing or removing officers or members of any committee, fixing the compensation of any member of a committee, or altering or repealing any resolution of the board of directors which by its terms 8 provides that it shall not be so amendable or repealable; and, unless the resolution expressly so provides, no committee shall have the power or authority to declare a dividend or to authorize the issuance of shares of the corporation. ARTICLE VIII NOTICES Section 1. Whenever, under the provisions of the statutes or of the articles of incorporation or of these by-laws, notice is required to be given to any director or shareholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or shareholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram. Section 2. Whenever any notice whatever is required to be given under the provisions of the statutes or under the provisions of the articles of incorporation or these by-laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE IX OFFICERS Section 1. The officers of the corporation shall be chosen by the board of directors and shall be a president and a secretary. The board of direc- 9 tors may also elect or appoint such other officers, including assistant officers and agents as may be deemed necessary. Section 2. The board of directors at its first meeting after each annual meeting of shareholders shall choose a president and a secretary neither of whom need be a member of the board. Section 3. The board of directors may also appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board of directors. Section 4. The salaries of all officers and agents of the corporation shall be fixed by the board of directors. Section 5. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. THE PRESIDENT Section 6. The president shall be the chief executive officer of the corporation, shall preside at all meetings of the shareholders and the board of directors, shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the board of directors are carried into effect. 10 Section 7. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. THE VICE-PRESIDENTS Section 8. The vice-president, if there is one, or if there shall be more than one, the vice-presidents in the order determined by the board of directors, shall, in the absence or disability of the president, perform the duties and exercise the powers of the president and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARIES Section 9. The secretary shall attend all meetings of the board of directors and all meetings of the shareholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or president, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix 11 the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 10. The assistant secretary, if there is one, or if there be more than one, the assistant secretaries in the order determined by the board of directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE TREASURER AND ASSISTANT TREASURERS Section 11. The treasurer, if there is one, shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. Section 12. He shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. Section 13. If required by the board of directors, he shall give the corporation a bond in such sum and with such surety or sureties as shall be 12 satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. Section 14. The assistant treasurer, if there is one, or, if there shall be more than one, the assistant treasurers in the order determined by the board of directors, shall, in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. ARTICLE X CERTIFICATES FOR SHARES Section 1. The shares of the corporation shall be represented by certificates signed by the president and secretary or such other officers as may be elected or appointed, and may be sealed with the seal of the corporation or a facsimile thereof. When the corporation is authorized to issue shares of more than one class there shall be set forth upon the face or back of the certificate, or the certificate shall have a statement that the corporation will furnish to any shareholder upon request and without charge, a full statement of the designations, preferences, limitations and relative rights of the shares of each class authorized to be issued and, if the corporation is authorized to issue any 13 preferred or special class in series, the variations in the relative rights and preferences between the shares of each such series so far as the same have been fixed and determined and the authority of the board of directors to fix and determine the relative rights and preferences of subsequent series. When the corporation is authorized to issue shares of more than one class, every certificate shall also set forth upon the face or the back of such certificate a statement that there is set forth in the articles of incorporation on file in the office of the Secretary of State a full statement of all the designations, preferences, limitations and relative rights, including voting rights, of the shares of each class authorized to be issued and the corporation will furnish a copy of such statement to the record holder of the certificate without charge on written request to the corporation at its principal place of business or registered office. Every certificate shall have noted thereon any information required to be set forth by the Texas Business Corporation Act and such information shall be set forth in the manner provided in said Act. Section 2. The signatures of the officers of the corporation upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent, or registered by a registrar, other than the corporation itself or an employee of the corporation. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of its issue. 14 LOST CERTIFICATES Section 3. The board of directors may direct a new certificate to be issued in place of any certificate theretofore issued by the corporation alleged to have been lost or destroyed. When authorizing such issue of a new certificate, the board of directors, in its discretion and as a condition precedent to the issuance thereof, may prescribe such terms and conditions as it deems expedient, and may require such indemnities as it deems adequate, to protect the corporation from any claim that may be made against it with respect to any such certificate alleged to have been lost or destroyed. TRANSFERS OF SHARES Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, a new certificate shall be issued to the person entitled thereto, and the old certificate cancelled and the transaction recorded upon the books of the corporation. CLOSING OF TRANSFER BOOKS Section 5. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or any adjournment thereof or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors may provide that the stock transfer books shall be closed for a stated 15 period but not to exceed, in any case, fifty days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten days immediately preceding such meeting. In lieu of closing the stock transfer books, the board of directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than fifty days and, in case of a meeting of shareholders, not less than ten days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the board of directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof. REGISTERED SHAREHOLDERS Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such 16 share or shares 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 Texas. LIST OF SHAREHOLDERS Section 7. The officer or agent having charge of the transfer books for shares shall make, at least ten days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting, arranged in alphabetical order, with the address of each and the number of shares held by each, which list, for a period of ten days prior to such meeting, shall be kept on file at the registered office of the corporation and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original share ledger or transfer book, or a duplicate thereof, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share ledger or transfer book or to vote at any meeting of the shareholders. ARTICLE Xl GENERAL PROVISIONS DIVIDENDS Section 1. Subject to the provisions of the articles of incorporation relating thereto, if any, dividends may be declared by the board of directors at 17 any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of the capital stock, subject to any provisions of the articles of incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, .or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. CHECKS Section 3. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time delegate. FISCAL YEAR Section 4. The fiscal year of the corporation shall be fixed by resolution of the board of directors. SEAL Section 5. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, 18 Texas". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced. ARTICLE XII AMENDMENTS Section 1. These by-laws may be altered, amended, or repealed or new by-laws may be adopted by the affirmative vote of a majority of the board of directors at any regular or special meeting of the board subject to repeal or change at any regular or special meeting of shareholders at which a quorum is present or represented, by the affirmative vote of a majority of the stock entitled to vote, provided notice of the proposed repeal or change be contained in the notice of such meeting. 19 EX-3.17 19 ARTICLES OF ORG. OF SUMMIT CARE TEXAS MANAGEMENT Exhibit 3.17 --------------------------- FILED In the Office of the Secretary of State of Texas JUL 03 1997 Corporations Section --------------------------- ARTICLES OF INCORPORATION OF SUMMIT CARE MANAGEMENT TEXAS, INC. ARTICLE ONE The name of the corporation is Summit Care Management Texas, Inc. ARTICLE TWO The period of its duration is perpetual. ARTICLE THREE The purpose for which the corporation is organized is the transaction of any or all lawful business for which a corporation may be incorporated under the Texas Business Corporation Act. ARTICLE FOUR The corporation is authorized to issue 1,000 shares of its common stock, par value of $.01 per share. The corporation will not commence business until it has received for the issuance of its shares consideration of the value of One Thousand Dollars ($1,000), consisting of money paid, labor done or property actually received. ARTICLE FIVE The number of directors constituting the initial Board of Directors is three and hereafter the number of directors shall be fixed by the Bylaws. The names and addresses of the persons who are to serve as directors until the first annual meeting of the shareholders, or until their successors are elected and qualified, are: Name Address ---- ------- William C. Scott 2600 West Magnolia Blvd. Burbank, CA 91505 Derwin Williams 2600 West Magnolia Blvd. Burbank, CA 91505 David G. Schumacher 2600 West Magnolia Blvd. Burbank, CA 91505 ARTICLE SIX The Board of Directors may, in its discretion, issue from time to time authorized but unissued shares or treasury shares of the corporation to such person or persons, and for such consideration, as the Board of Directors may determine. Shareholders shall have no preemptive rights to subscribe for or buy unissued or treasury shares of the corporation now or hereafter authorized. Cumulative voting of shares in the election of directors is hereby prohibited. The power to alter, amend or repeal the corporation's Bylaws and to adopt new Bylaws shall be vested in the Board of Directors, subject to repeal or change by action of the shareholders. ARTICLE SEVEN No director of the corporation shall be liable to the corporation or its shareholders for monetary damages for an act or omission in such director's capacity as a director, except for liability resulting from: (1) a breach of the director's duty of loyalty to the corporation or its shareholders; (2) an act or omission not in good faith that constitutes a breach of duty of the director to the corporation or an act or omission that involves intentional misconduct or a knowing violation of the law; (3) a transaction from which the director received an improper benefit, whether or not the benefit resulted from an action taken within the scope of the director's office; or (4) an act or omission for which the liability of a director is expressly provided by an applicable statute. Any amendment, repeal or modification of the foregoing provision shall not adversely affect any limitation on the liability of any director of the corporation existing or prior to the time of such amendment, repeal or modification. ARTICLE EIGHT The street address of the corporation's initial registered office is 13300 Old Blanco Road, Suite 150, San Antonio, Texas 78216, and the name of its registered agent at such address is Robert Gundling. 2 ARTICLE NINE The name and address of the incorporator is: Steven D. Moore, 100 Congress Avenue, Suite 1100, Austin, Texas 78701. IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of July, 1997. /s/ Steven D. Moore, Incorporator --------------------------------------- Steven D. Moore, Incorporator 3 SECRETARY OF STATE OF TEXAS CORPORATIONS DIVISION P.O. BOX 13697 AUSTIN, TEXAS 78711 DEAR SECRETARY OF STATE OF TEXAS: THE PURPOSE OF THIS LETTER IS TO CONFIRM THAT THE BUSINESS DESIRING TO FORM A LIMITED PARTNERSHIP UNDER, AND/OR USE, THE NAME "SUMMIT CARE TEXAS, L.P." HAS OUR CONSENT AND PERMISSION TO USE SUCH NAME FOR ITS LIMITED PARTNERSHIP AND THE BUSINESS DESIRING TO FORM A TEXAS CORPORATION USING THE NAME "SUMMIT CARE MANAGEMENT TEXAS, INC." HAS OUR CONSENT AND PERMISSION TO USE SUCH NAME FOR ITS CORPORATION. DATED: July 2, 1997 SUMMIT CARE TEXAS NO. 2, INC. SUMMIT CARE MANAGEMENT TEXAS, INC., A TEXAS CORPORATION A TEXAS CORPORATION By: /s/ John Farber By: /s/ John Farber ------------------------- --------------------------- Secretary, OFFICER Secretary, OFFICER --------- --------- SUMMIT, CARE TEXAS NO. 3, INC. SUMMIT CARE CORPORATION, INC., A TEXAS CORPORATION A CALIFORNIA CORPORATION By: /s/ John Farber By: /s/ John Farber ------------------------- --------------------------- Secretary, OFFICER Secretary, OFFICER --------- --------- EX-3.18 20 BY-LAWS OF SUMMIT CARE TEXAS MANAGEMENT, INC. Exhibit 3.18 BYLAWS OF SUMMIT CARE MANAGEMENT TEXAS, INC. ARTICLE I. OFFICES The principal office of the corporation in the State of Texas shall be located in the City of San Antonio, County of Bexar. The corporation may have such other offices, either within or without the State of Texas, as the Board of Directors may designate or as the business of the corporation may require from time to time. ARTICLE 2. SHAREHOLDERS SECTION 1. Annual Meetings. The annual meeting of the shareholders shall be --------------- held, beginning with the year 1997, upon the date and at the hour designated by the Board of Directors by notice to the shareholders, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the election of directors shall not be held on the day designated herein for any annual meeting of the shareholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as such special meeting can be conveniently scheduled. SECTION 2. Special Meetings. Special meetings of the shareholders, for any ---------------- purpose or purposes, unless otherwise prescribed by statute, may be called by the President or by the Board of Directors, and shall be called by the President at the request of the holders of not less than 10% of all the outstanding shares of the corporation entitled to vote at the meeting. SECTION 3. Place of Meetings. The Board of Directors may designate any ----------------- place, either within or without the State of Texas, as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. A waiver of notice signed by all shareholders entitled to vote at a meeting may designate any place, either within or without the State of Texas, unless otherwise prescribed by statute, as the place for the holding of such meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal office of the corporation in the State of Texas. SECTION 4. Notice of Meetings. Written or printed notice stating the place, ------------------ day and hour of the meeting and, in case of special meeting, the purpose or purposes for which the meeting is called, shall (unless otherwise prescribed by statute) be delivered not more than 60 days and not less than 10 days before the date of the meeting, either personally or by mail, by or at the direction of the President, the Secretary or the persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the Shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid. SECTION 5. Closing of Transfer Books or Fixing of Record Date. For the --------------------------------------------------- purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive a distribution by the corporation (other than a distribution involving a purchase or redemption by the corporation of any of its own shares) or a share dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, 60 days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least 10 days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholder, such date in any case to be not more than 60 days and, in case of a meeting of shareholders, not less than 10 days before the date on which the particular action, requiring such determination of shareholders, is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholder, or shareholders entitled to receive payment of a distribution (other than a distribution involving a purchase or redemption by the corporation of any of its own shares) or a share dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such distribution or share dividend is adopted, as the case may be, shall be the record date for such determination of shareholder. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section, such determination shall apply to any adjournment thereof. SECTION 6. Voting Lists. The officer or agent having charge of the stock ------------ transfer books for shares of the corporation shall make at least 10 days before each meeting of shareholders a complete list of the shareholders entitled to vote at each meeting, or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of 10 days before such meeting, shall be kept on file at the registered office of the corporation and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original stock transfer book shall be prima facie evidence as to who are the shareholders entitled to examine such list or transfer books or to vote at any meeting of the shareholders. SECTION 7. Quorum. A majority of the outstanding shares of the corporation ------ entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. The shareholder present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. 2 SECTION 8. Manner of Acting. The vote of the holders of a majority of the ---------------- shares entitled to vote and thus represented at such meeting at which a quorum is present shall be the act of the shareholder's meeting unless the vote of a greater number is required by law, the Articles of Incorporation or those Bylaws. SECTION 9. Proxies. At all meetings of shareholders, a shareholder may ------- vote in person or by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the Secretary of the corporation before or at the time of the meeting. No proxy shall be valid after 11 months from the date of its execution, unless provided in the proxy. Each proxy shall be revocable unless the proxy form conspicuously states that the proxy is irrevocable and the proxy is coupled with an interest. SECTION 10. Voting of Shares. Subject to the provisions of Section 13 of ---------------- this Article 2, each outstanding share entitled to vote shall be entitled to one vote upon each matter submitted to a vote at a meeting of the shareholders. SECTION 11. Voting of Shares by Certain Holders. Shares standing in the ----------------------------------- name of another corporation may be voted by such officer, agent or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into the name of the trust. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Shares of its own stock belonging to the corporation shall not be voted, directly or indirectly, at any meeting, and shall not be counted in determining the total number of outstanding shares at any given time. SECTION 12. Informal Action by Shareholders. Unless otherwise provided by ------------------------------- law, any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the 3 subject matter thereof. Meetings of shareholders by use of conference telephone or similar communications equipment may also be held as more specifically described in Section 9 of Article 3 of these Bylaws. SECTION 13. Cumulative Voting Prohibited. At each election for directors, ---------------------------- every shareholder entitled to vote at such election shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are directors to be elected and for whose election he has a right to vote. Cumulative voting is expressly prohibited. ARTICLE 3. BOARD OF DIRECTORS SECTION 1. General Powers. The business and affairs of the corporation -------------- shall be managed by its Board of Directors. Directors need not be residents of this state or shareholders of the corporation. SECTION 2. Number, Tenure and Qualifications. The number of directors of --------------------------------- the corporation shall be one or more, as determined from time to time at any meeting of the shareholders. No change in the number of directors may reduce the term of the then incumbent directors. Each director shall hold office until the next annual meeting of the shareholders and until his successor shall have been elected and qualified. SECTION 3. Resignation. Any director may resign by giving written notice to ----------- the President or the Secretary. The resignation shall take effect at the time specified therein. The acceptance of such resignation shall not be necessary to make it effective. SECTION 4. Regular Meetings. A regular meeting of the Board of Directors ---------------- shall be held (without other notice than this Bylaw) immediately after, and at the same place as, the annual meeting of shareholders. The Board of Directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution. SECTION 5. Special Meetings. Special meetings of the Board of Directors may ---------------- be called by or at the request of the President or any two directors. The person or persons authorized to call special meetings of the Board of Directors may fix the place for holding any special meeting of the Board of Directors called by them. SECTION 6. Notice. Notice of any special meeting shall be given at least 1 ------ day previously thereto by written notice delivered personally or mailed to each director at his business address, or by telegram or telephone. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Any director may waive notice of any meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the 4 express purpose of objecting to the transaction or any business because the meeting is not lawfully called or convened. SECTION 7. Quorum. A majority of the number of directors then fixed by the ------ shareholders shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. SECTION 8. Manner of Acting. The act of the majority of the directors ---------------- present at a meeting at which a quorum is present shall be the act of the Board of Directors. SECTION 9. Action Without a Meeting. Consent in Writing and Conference ----------------------------------------------------------- Telephone Call. Any action that may be taken by the Board of Directors at a - -------------- meeting may be taken without a meeting if consent in writing, setting forth the action so taken, shall be signed by all of the directors. Subject to the provisions of these Bylaws for notice of meetings, members of the Board of Directors, members of any committee designated by the Board or shareholders may participate in and hold a meeting of such Board, committee or shareholders 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 such a meeting shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. SECTION 10. Vacancies. Any vacancy occurring in the Board of Directors may --------- be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors, unless otherwise provided by law. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Any directorship to be filled by reason of an increase in the number of directors shall be filled by election at an annual meeting or at a special meeting of the shareholders called for that purpose. SECTION 11. 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 salary as director or a fixed sum for attendance at each meeting of the Board of Directors or both. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. SECTION 12. Presumption of Assent. A director of the corporation who is --------------------- present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action. 5 SECTION 13. Removal. Any director or the entire Board of Directors may be ------- removed, with or without cause, at any meeting of the shareholders called expressly for that purpose, by a vote of the holders of a majority of the shares then entitled to vote at an election of directors. In the event cumulative voting is permitted by these Bylaws at any time, if less than the entire Board is to be removed, no one of the directors may be removed if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors, or if there be classes of directors, at an election of the class of directors of which he is a part. SECTION 14. Committees. The Board of Directors, by resolution adopted by a ---------- majority of the full Board of Directors, may designate from among its members one or more committees, including an executive committee. Each committee shall have and may exercise such authority of the Board of Directors as is set forth in the resolution creating the committee, except that if an executive committee is appointed, it shall have and may exercise all of the authority of the Board of Directors, except as specifically prohibited in the resolution or in this Section of the Bylaws. In no event, however, shall any such committee have the authority of the Board of Directors in reference to amending the Articles of Incorporation, approving a plan of merger or consolidation, recommending to the shareholders the sale, lease or exchange of all or substantially all of the property and assets of the corporation otherwise than in the usual and regular course of its business, recommending to the shareholders a voluntary dissolution of the corporation or a revocation thereof, amending, altering or repealing the Bylaws or adopting new Bylaws, filling vacancies in or removing members of the Board of Directors or any such committee, electing or removing officers, fixing the compensation of any member of such committee or altering or repealing any resolution of the Board of Directors which by its terms provides that it shall not be so amendable or repealable; and, unless such resolution expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of shares of the corporation. Any resignation of such committee and the delegation to such committee of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed by law. SECTION 15. Interested Directors. -------------------- (A) If paragraph (B) of this Section 15 is satisfied, no contract or other transaction between the corporation and any of its directors (or any corporation or firm in which any of them are directly or indirectly interested) shall be invalid solely because of this relationship or because of the presence of such director, at the meeting authorizing such contract or transaction, or his participation in such meeting or authorization. (B) Paragraph (A) of this Section 15 shall apply only if: (1) The material facts of the relationship or interest of each such director are known or disclosed: (a) To the Board of Directors or a committee and the Board or committee nevertheless authorizes or ratifies the contract or transaction by a majority of the directors present, 6 each such interested director to be counted in determining whether a quorum is present but not in calculating the majority necessary to carry the vote; or (b) To the shareholders and they nevertheless authorize or ratify the contract or transaction by a majority of the shares present, each such interested person to be counted for quorum and voting purposes; or (2) The contract or transaction is fair to the corporation as of the time it is authorized or ratified by the Board of Directors, a committee of the Board, or the shareholders. (C) This provision shall not be construed to invalidate a contract or transaction which would be valid in the absence of this provision. ARTICLE 4. OFFICERS SECTION 1. Officers. The corporation shall have a President and a -------- Secretary. The corporation may have a Vice-President, a Treasurer and such other officers (including a Chairman of the Board and additional Vice-Presidents) and assistant officers and agents, as the Board of Directors may think necessary. Any two or more offices may be held by the same person. SECTION 2. Election and Term of Office. The officers of the corporation to --------------------------- be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held at a special meeting as soon as such meeting can be conveniently scheduled. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. SECTION 3. Removal. Any officer or agent may be removed by the Board of ------- Directors whenever, in its judgment, the best interests of the corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the, person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. SECTION 4. Resignation. Any officer may resign by giving written notice to ----------- the President or the Secretary. The resignation shall take effect at the time specified therein. The acceptance of such resignation shall not be necessary to make it effective. SECTION 5. Vacancies. A vacancy in any office because of death, --------- resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term. SECTION 6. Chairman of the Board. The Chairman of the Board, if such an --------------------- officer has been elected by the Board of Directors, shall, if present, preside at all meetings of the Board of 7 Directors and exercise and perform such other powers and duties as from time to time may be assigned to him by the Board of Directors or prescribed by these Bylaws. SECTION 7. President. Subject to such supervisory and executive powers, if --------- any, which may be given by the Board of Directors to the Chairman of the Board, if the Board of Directors has elected a Chairman of the Board, the President shall be the Chief Executive officer of the corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the corporation. The President shall, when present, preside at all meetings of the shareholders and the Board of Directors. The President may sign, with the Secretary or any other proper officer of the corporation thereunto authorized by the Board of Directors, certificates for shares 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 Bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of President and such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 8. Vice-President. In the absence of the President or in the event -------------- of his death, 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 by the Board, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of, and be subject to, all the restrictions upon the President. The Vice-Presidents shall perform such other duties as from time to time may be assigned to them by the Board of Directors or by the President. SECTION 9. Secretary and Assistant Secretaries. The Secretary shall attend ----------------------------------- all meetings of the Board and all meetings of the shareholders and shall record all votes and the minutes of all proceedings and shall perform like duties for the standing committees when required. He shall give or cause to be given notice of all meetings of the shareholders and all meetings of the Board of Directors and shall perform such other duties as may be prescribed by the Board. He shall keep in safe custody the seal, if any, of the corporation, and when authorized by the Board, affix the same to any instrument requiring it, and when so affixed, it shall be attested by his signature or by the signature of an Assistant Secretary. The Secretary shall perform such other duties as from time to time may be assigned by the Board of Directors or by the President. The Assistant Secretaries in the order of their seniority as determined by the order of their election shall, in the absence or disability of the Secretary, perform all the duties and exercise the powers of the Secretary, and they shall perform such other duties as from time to time may be assigned to them by the Board of Directors or by the President. In the absence of the Secretary or an Assistant Secretary, the minutes of all meetings of the Board and shareholders shall be recorded by such person as shall be designated by the Board of Directors or by the President. 8 SECTION 1O. Treasurer and Assistant Treasurers. The Treasurer shall ---------------------------------- have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all monies and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements. He shall keep and maintain the corporation's books of account and shall render to the President and directors an account of all of his transactions as Treasurer and of the financial condition of the corporation and exhibit his books, records and accounts to the President or directors at any time. He shall disburse funds for capital expenditures as authorized by the Board of Directors and in accordance with the orders of the President, and present to the President for his attention any requests for disbursing funds if in the judgment of the Treasurer any such request is not properly authorized. The Treasurer shall perform such other duties as from time to time may be assigned to him by the Board of Directors or by the President. If required by the Board of Directors, the Treasurer shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. The Assistant Treasurers in the order of their seniority as determined by the order of their election shall, in the absence or disability of the Treasurer, perform all the duties and exercise the powers of the Treasurer, and they shall perform such other duties as from time to time may be assigned to them by the Board of Directors or by the President. SECTION 11. Compensation. The salaries of the officers shall be determined ------------ from time to time by the Board of Directors, but no formal action of the directors shall be required in determining such salaries. No officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. ARTICLE 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS SECTION I. Indemnification. The corporation shall indemnify any director or --------------- officer or former director or officer of the corporation and any person who, while a director or officer of the corporation, is or was serving at the request of the corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against reasonable expenses incurred by him in connection with any action, suit or proceeding in which he is a named defendant or respondent if he has been wholly successful, on the merits or otherwise, in the defense of such action, suit or proceeding. The corporation may indemnify any director or officer or former director or officer of the corporation, and any person who, while a director or officer of the corporation. is or was serving at the request of the corporation 9 as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise who was, or is, threatened to be named a defendant or respondent in an action, suit or proceeding against judgments, penalties (including excise and similar taxes), fines, settlements and reasonable expenses actually incurred by him in connection with an action, suit or proceeding to the full extent permitted by Article 2.02-1 of the Texas Business Corporation Act. SECTION 2. Advancement of Expenses. The corporation may pay in advance any ----------------------- reasonable expenses which may become subject to indemnification subject to the provisions of Article 2.02-1 of the Texas Business Corporation Act. SECTION 3. Insurance. The corporation may purchase and maintain insurance --------- or another arrangement on behalf of any person who is or was a director or officer or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under these Bylaws or the laws of the State of Texas. SECTION 4. Other Indemnification. The protection and indemnification --------------------- provided hereunder shall not be deemed exclusive of any other rights to which such director or officer or former director or officer may be entitled, under any agreement, insurance policy, vote of the shareholders, or otherwise. ARTICLE 6. CONTRACTS, LOANS, CHECKS AND DEPOSITS SECTION 1. Contracts. The Board of Directors may authorize any officer or --------- officers or agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. SECTION 2. Loans. No loans shall be contracted on behalf of the corporation ----- and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. SECTION 3. Checks and Orders for Payment. All checks, drafts or other ----------------------------- orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers or agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. SECTION 4. Deposits. 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 select. 10 ARTICLE 7. CERTIFICATES FOR SHARES AND THEIR TRANSFERS SECTION 1. Certificates for Shares. Certificates representing shares of ----------------------- the corporation shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the President and by the Secretary or by such other officers authorized by law and by the Board of Directors so to do, and sealed with the corporate seal if the corporation has a corporate seal. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall be surrendered or cancelled, except that in a case of a lost, destroyed or mutilated certificate, a new one may be issued therefor upon such terms and indemnity to the corporation as the Board of Directors may prescribe. SECTION 2. Transfer of Shares. Transfer of shares of the corporation ------------------ shall be made only on the stock transfer books of the corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation, and on surrender for cancellation of the certificate or such shares. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. ARTICLE 8. BOOKS AND RECORDS The corporation shall keep correct and complete books and records of account and shall keep minutes of the proceedings of its shareholders and Board of Directors, and shall keep at its principal office, or at the office of its transfer agent or registrar, a record of its shareholders giving the names and addresses of all shareholders and the number and class of the shares held by each. ARTICLE 9. FISCAL YEAR The fiscal year of the corporation shall be determined and fixed by the Board of Directors of the corporation. ARTICLE 10. DISTRIBUTIONS The Board of Directors may from time to time declare, and the corporation may pay, distributions on its outstanding shares in the manner and upon the terms and conditions provided by law and the corporation's Articles of Incorporation. 11 ARTICLE 11. NO CORPORATE SEAL The corporation shall not have a corporate seal, but the Board of Directors may at any time provide for an appropriate seal, if deemed necessary or advisable. ARTICLE 12. WAIVER OF NOTICE Unless otherwise provided by law, whenever any notice is required to be given to any shareholder or director of the corporation under the provisions of these Bylaws or under the provisions of the Articles of Incorporation or under the provisions of the Texas Business Corporation Act, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE 13. AMENDMENTS Those Bylaws may be altered, amended or repealed, and new bylaws may be adopted, at any meeting of the Board of Directors of the corporation by a majority vote by the directors, subject to repeal or change by action of the shareholders. ARTICLE 14. GENERAL PROVISIONS SECTION 1. Construction. Whenever the context so requires, the masculine ------------ shall include the feminine and neuter, and the singular shall include the plural, and conversely. If any portion of these Bylaws shall be invalid or inoperative, then, so far as is reasonable and possible: (A) The remainder of these Bylaws shall be considered valid and operative, and (B) Effect shall be given to the intent manifested by the portion held invalid or inoperative. SECTION 2. Headings. The headings are for organization, convenience and -------- clarity. In interpreting these Bylaws, they shall be subordinated in importance to the other written material. CERTIFICATE OF SECRETARY ------------------------ The undersigned, Secretary or an Assistant Secretary of Summit Care Management Texas, Inc., does hereby certify that the foregoing Bylaws were duly adopted by the Board of Directors on _____________________, 1996. ___________________________________ 12 EX-3.19 21 CERT. OF LTD. PARTNERSHIP OF SUMMIT CARE TEXAS Exhibit 3.19 ---------------------------------- FILED In the Office of the Secretary of State of Texas July 08 1997 Corporations Section ---------------------------------- CERTIFICATE OF LIMITED PARTNERSHIP 1. Name of Partnership: Summit Care Texas, L.P. 2. Address of Principal Office: 13300 Old Blanco Road Suite 150 San Antonio, Texas 78216 3. Address if Registered Office: 13300 Old Blanco Road Suite 150 San Antonio, Texas 78216 4. Name and Address of Robert Gundling Registered Agent: 13300 Old Blanco Road Suite 150 San Antonio, Texas 78216 5. General Partner: Name: Summit Care Management Texas, Inc. Mailing Address and Street 13300 Old Blanco Road Address of Business: Suite 150 San Antonio, Texas 78216 EXECUTED, this 7th day of July, 1997. GENERAL PARTNER: Summit Care Management Texas, Inc., a Texas corporation By: /s/ John Farber ------------------------------------ Name: John Farber --------------------------------- Title: Secretary --------------------------------- SECRETARY OF STATE OF TEXAS CORPORATIONS DIVISION P.O. BOX 13697 AUSTIN, TEXAS 78711 DEAR SECRETARY OF STATE OF TEXAS: THE PURPOSE OF THIS LETTER IS TO CONFIRM THAT THE BUSINESS DESIRING TO FORM A LIMITED PARTNERSHIP UNDER, AND/OR USE, THE NAME "SUMMIT CARE TEXAS, L.P." HAS OUR CONSENT AND PERMISSION TO USE SUCH NAME FOR ITS LIMITED PARTNERSHIP, AND THE BUSINESS DESIRING TO FORM A TEXAS CORPORATION USING THE NAME "SUMMIT CARE MANAGEMENT TEXAS, INC." HAS OUR CONSENT AND PERMISSION TO USE SUCH NAME FOR ITS CORPORATION. DATED: July 2, 1997 SUMMIT CARE TEXAS NO. 2, INC. SUMMIT CARE MANAGEMENT TEXAS, INC., A TEXAS CORPORATION A TEXAS CORPORATION BY: /s/ John Z. Farber BY: /s/ John Z. Farber ---------------------------- ---------------------------- Secretary, OFFICER Secretary, OFFICER ---------- ---------- SUMMIT CARE TEXAS NO. 3, INC. SUMMIT CARE CORPORATION, INC. A TEXAS CORPORATION A CALIFORNIA CORPORATION BY: /s/ John Z. Farber BY: /s/ John Z. Farber ---------------------------- ---------------------------- Secretary, OFFICER Secretary, OFFICER ---------- ---------- SECRETARY OF STATE OF TEXAS CORPORATIONS DIVISION P.O. BOX 13697 AUSTIN, TEXAS 78711 DEAR SECRETARY OF STATE OF TEXAS: THE PURPOSE OF THIS LETTER IS TO CONFIRM THAT THE BUSINESS DESIRING TO FORM A LIMITED PARTNERSHIP UNDER, AND/OR USE, THE NAME "SUMMIT CARE TEXAS, L.P." HAS OUR CONSENT AND PERMISSION TO USE SUCH NAME FOR ITS LIMITED PARTNERSHIP, AND THE BUSINESS DESIRING TO FORM A TEXAS CORPORATION USING THE NAME "SUMMIT CARE MANAGEMENT TEXAS, INC." HAS OUR CONSENT AND PERMISSION TO USE SUCH NAME FOR ITS CORPORATION. DATED: July 2, 1997 SUMMIT CARE TEXAS NO. 2, INC. SUMMIT CARE MANAGEMENT TEXAS, INC., A TEXAS CORPORATION A TEXAS CORPORATION BY: /s/ John Z Farber BY: /s/ John Z Farber ---------------------------- ---------------------------- Secretary, OFFICER Secretary, OFFICER ---------- ---------- SUMMIT CARE TEXAS NO. 3, INC. SUMMIT CARE CORPORATION, INC. A TEXAS CORPORATION A CALIFORNIA CORPORATION BY: /s/ John Z Farber BY: /s/ John Z Farber ---------------------------- ---------------------------- Secretary, OFFICER Secretary, OFFICER ---------- ---------- EX-3.21 22 CERT. OF INCORP. OF FOUNTAIN VIEW HOLDINGS, INC. EXHIBIT 3.21 CERTIFICATION OF INCORPORATION OF Fountain View Holdings, Inc. ---------------------------- THE UNDERSIGNED, for the purpose of forming a corporation pursuant to the provisions of the General Corporation Law of the State of Delaware, does hereby certify as follows: FIRST: The name of the Corporation is Fountain View Holdings, Inc. (the "Corporation"). SECOND: The address of the Corporation's registered office in the State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, and the name of the Corporation's registered agent at such address is The Prentice Hall Corporation System, Inc. THIRD: The purpose for which the Corporation is organized is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is 3,000 shares of Class A Common Stock, $.01 par value. FIFTH: The name and the mailing address of the incorporator is as follows: NAME MAILING ADDRESS ---- --------------- Kathleen M. Sablone Choate, Hall & Stewart Exchange Place 53 State Street Boston, MA 02109 SIXTH: The Directors shall have power to adopt, amend, or repeal the By- Laws of the Corporation. SEVENTH: Election of Directors need not be by written ballot unless the By-Laws of the Corporation so provide. EIGHTH: The Corporation shall indemnify and hold harmless any director, officer employee or agent of the Corporation from and against any and all expenses and liabilities that may be imposed upon or incurred in connection with, or as a result of, any proceeding in which he or she may become involved, as a party or otherwise, by reason of the fact that he or she is or was such a director, officer, employee or agent, whether or not he or she continues to be such at the time such expenses and liabilities shall have been imposed or incurred, to the fullest extent permitted by the laws of the State of Delaware as they may be amended from time to time. NINTH: No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of Title 8 of the General Corporation Law of the State of Delaware or (iv) for any transaction from which the director derived an improper personal benefit. TENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. The undersigned incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, does make this certificate, hereby declaring and certifying that this is her act and deed and the facts stated herein are true and accordingly has hereunto set her hand this 8th day of July, 1997. /s/ Kathleen M. Sablone ----------------------------------------------- Kathleen M. Sablone, Incorporator EX-3.22 23 BY-LAWS OF FOUNTAIN VIEW HOLDINGS, INC. EXHIBIT 3.22 BY - LAWS --------- OF -- FOUNTAIN VIEW HOLDINGS, INC. ---------------------------- (A Delaware Corporation) ---------------- ARTICLE I --------- STOCKHOLDERS ------------ l. CERTIFICATES REPRESENTING STOCK. Every holder of stock in the ------------------------------- corporation shall be entitled to have a certificate signed by, or in the name of, the corporation by the Chairman or Vice-Chairman of the Board of Directors, if any, or by the President or a Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the corporation certifying the number of shares owned by him in the corporation. Any and all signatures on any such certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Whenever the corporation shall be authorized to issue more than one class of stock or more than one series of any class of stock, and whenever the corporation shall issue any shares of its stock as partly paid stock, the certificates representing shares of any such class or series or of any such partly paid stock shall set forth thereon the statements prescribed by the General Corporation Law. Any restrictions on the transfer or registration of transfer of any shares of stock of any class or series shall be noted conspicuously on the certificate representing such shares. The corporation may issue a new certificate of stock in place of any certificate theretofore issued by it, alleged to have been lost, stolen, or destroyed, and the Board of Directors may require the owner of any lost, stolen, or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify the corporation against any claim that may be made against it on account of the alleged loss, theft, or destruction of any such certificate or the issuance of any such new certificate. 2. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not -------------------------- be required to, issue fractions of a share. If the corporation does not issue fractions of a share, it shall (l) arrange for the disposition of fractional interests by those entitled thereto, (2) pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, or (3) issue scrip or warrants in registered or bearer form which shall entitle the holder to receive a certificate for a full share upon the surrender of such scrip or warrants aggregating a full share. A certificate for a fractional share shall, but scrip or warrants shall not unless otherwise provided therein, entitle the holder to exercise voting rights, to receive dividends thereon, and to participate in any of the assets of the corporation in the event of liquidation. The Board of Directors may cause scrip or warrants to be issued subject to the conditions that they shall become void if not exchanged for certificates representing full shares before a specified date, or subject to the conditions that the shares for which scrip or warrants are exchangeable may be sold by the corporation and the proceeds thereof distributed to the holders of scrip or warrants, or subject to any other conditions which the Board of Directors may impose. 3. STOCK TRANSFERS. Upon compliance with provisions restricting the --------------- transfer or registration of transfer of shares of stock, if any, transfers or registration of transfers of shares of stock of the corporation shall be made only on the stock ledger of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation or with a transfer agent or a registrar, if any, and on surrender of the certificate or certificates for such shares of stock properly endorsed and the payment of all taxes due thereon. 4. RECORD DATE FOR STOCKHOLDERS. For the purpose of determining 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 the 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 directors may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. For the purpose of determining the stockholders entitled to express consent to corporate action in writing without a meeting, the directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed; and the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at any 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. -2- 5. MEANING OF CERTAIN TERMS. As used herein in respect of the right ------------------------ to notice of a meeting of stockholders or a waiver thereof or to participate or vote thereat or to consent or dissent in writing in lieu of a meeting, as the case may be, the term "share" or "shares" or "share of stock" or "shares of stock" or "stockholder" or "stockholders" refers to an outstanding share or shares of stock and to a holder or holders of record of outstanding shares of stock when the corporation is authorized to issue only one class of shares of stock, and said reference is also intended to include any outstanding share or shares of stock and any holder or holders of record of outstanding shares of stock of any class upon which or upon whom the certificate of incorporation confers such rights where there are two or more classes or series of shares of stock or upon which or upon whom the General Corporation Law confers such right notwithstanding that the certificate of incorporation may provide for more than one class or series of shares of stock, one or more of which are limited or denied such rights thereunder; provided, however, that no such right shall vest in the event of an increase or a decrease in the authorized number of shares of stock of any class or series which is otherwise denied voting rights under the provisions of the certificate of incorporation. 6. STOCKHOLDER MEETINGS. -------------------- - TIME. The annual meeting shall be held on the date and at the time ---- fixed, from time to time, by the directors, provided, that the first annual meeting shall be held on a date within thirteen months after the organization of the corporation, and each successive annual meeting shall be held on a date within thirteen months after the date of the preceding annual meeting. A special meeting shall be held on the date and at the time fixed by the directors. - PLACE. Annual meetings and special meetings shall be held at such ----- place, within or without the State of Delaware, as the directors may, from time to time fix. Whenever the directors shall fail to fix such place, the meeting shall be held at the registered office of the corporation in the State of Delaware. - CALL. Annual meetings and special meetings may be called by the ---- directors or by any officer instructed by the directors to call the meeting. - NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be -------------------------- given, stating the place, date and hour of the meeting and stating the place within the city or other municipality or community at which the list of stockholders of the corporation may be examined. The notice of an annual meeting shall state that the meeting is called for the election of directors and for the transaction of other business which may properly come before the meeting, and shall, (if any other action which could be taken at a special meeting is to be taken at such annual meeting) state the purpose or purposes. The notice of a special meeting shall in all instances state the purpose or purposes for which the meeting is called. The notice of any meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the General Corporation Law. Except as otherwise provided by the General Corporation Law, a copy of the notice of any meeting shall be given, personally or by mail, not less than ten days nor more than sixty days before the date of the meeting, unless the -3- lapse of the prescribed period of time shall have been waived, and directed to each stockholder at his record address or at such other address which he may have furnished by request in writing to the Secretary of the corporation. Notice by mail shall be deemed to be given when deposited, with postage thereon prepaid, in the United States mail. If a meeting is adjourned to another time, not more than thirty days hence, and/or to another place, and if an announcement of the adjourned time and/or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the directors, after adjournment, fix a new record date for the adjourned meeting. Notice need not be given to any stockholder who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of a stockholder at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends the 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. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice. - STOCKHOLDER LIST. The officer who has charge of the stock ledger of ---------------- the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of 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 days prior to the meeting, either at a place within the city or other municipality or community 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. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the corporation, or to vote at any meeting of stockholders. - CONDUCT OF MEETING. Meetings of the stockholders shall be presided ------------------ over by one of the following officers in the order of seniority and if present and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the President, a Vice-President, or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the stockholders. The Secretary of the corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present the Chairman of the meeting shall appoint a secretary of the meeting. - PROXY REPRESENTATION. Every stockholder may authorize another -------------------- person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in -4- law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. - INSPECTORS. The directors, in advance of any meeting, may, but need ---------- not, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall make a report in writing of any challenge, question or matter determined by him or them and execute a certificate of any fact found by him or them. - QUORUM. The holders of a majority of the outstanding shares of ------ stock shall constitute a quorum at a meeting of stockholders for the transaction of any business. The stockholders present may adjourn the meeting despite the absence of a quorum. - VOTING. Each share of stock shall entitle the holder thereof to one ------ vote. In the election of directors, a plurality of the votes cast shall elect. Any other action shall be authorized by a majority of the votes cast except where the General Corporation Law prescribes a different percentage of votes and/or a different exercise of voting power, and except as may be otherwise prescribed by the provisions of the certificate of incorporation and these By- Laws. In the election of directors, and for any other action, voting need not be by ballot. 7. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the ----------------------------------- General Corporation Law to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meetings of stockholders, 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 outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. 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. -5- ARTICLE II ---------- DIRECTORS --------- l. FUNCTIONS AND DEFINITION. The business and affairs of the ------------------------ corporation shall be managed by or under the direction of the Board of Directors of the corporation. The Board of Directors shall have the authority to fix the compensation of the members thereof. The use of the phrase "whole board" herein refers to the total number of directors which the corporation would have if there were no vacancies. 2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, ------------------------- a citizen of the United States, or a resident of the State of Delaware. The property, affairs and business of the corporation shall be managed by its Board of Directors. The number of directors may be fixed from time to time by action of the stockholders or of the directors and may be increased or decreased by action of the stockholders or of the directors. 3. ELECTION AND TERM. The first Board of Directors, unless the ----------------- members thereof shall have been named in the certificate of incorporation, shall be elected by the incorporator or incorporators and shall hold office until the first annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. Any director may resign at any time upon written notice to the corporation. Thereafter, directors who are elected at an annual meeting of stockholders, and directors who are elected in the interim to fill vacancies and newly created directorships, shall hold office until the next annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. In the interim between annual meetings of stockholders or of special meetings of stockholders called for the election of directors and/or for the removal of one or more directors and for the filling of any vacancy in that connection, newly created directorships and any vacancies in the Board of Directors, including vacancies resulting from the removal of directors for cause or without cause, may be filled by the vote of a majority of the remaining directors then in office, although less than a quorum, or by the sole remaining director. 4. MEETINGS. -------- - TIME. Meetings shall be held at such time as the Board shall fix, ---- except that the first meeting of a newly elected Board shall be held as soon after its election as the directors may conveniently assemble. - PLACE. Meetings shall be held at such place within or without the ----- State of Delaware as shall be fixed by the Board. - CALL. No call shall be required for regular meetings for which the ---- time and place have been fixed. Special meetings may be called by or at the direction of the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, of the President, or of a majority of the directors in office. -6- - NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be --------------------------------------- required for regular meetings for which the time and place have been fixed. Written, oral, or any other mode of notice of the time and place shall be given for special meetings in sufficient time for the convenient assembly of the directors thereat. Notice need not be given to any director or to any member of a committee of directors who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of any such person at a meeting shall constitute a waiver of notice of such meeting, except when he 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. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors need be specified in any written waiver of notice. - QUORUM AND ACTION. A majority of the whole Board shall constitute a ----------------- quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided, that such majority shall constitute at least one-third of the whole Board. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting to another time and place. Except as herein otherwise provided, and except as otherwise provided by the General Corporation Law, the vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. The quorum and voting provisions herein stated shall not be construed as conflicting with any provisions of the General Corporation Law and these By-Laws which govern a meeting of directors held to fill vacancies and newly created directorships in the Board or action of disinterested directors. Any member or members of the Board of Directors or of any committee designated by the Board, may participate in a meeting of the Board, or any such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. - CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if ----------------------- present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman of the Board, if any and if present and acting, or the President, if present and acting, or any other director chosen by the Board, shall preside. 5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the -------------------- General Corporation Law, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. 6. COMMITTEES. Whenever its number consists of three or more, 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 two 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. In the absence or disqualification of any member of any such committee or committees, the member or -7- members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise the powers and authority of the Board of Directors in the management of the business and affairs of the corporation with the exception of any authority the delegation of which is prohibited by Section l4l of the General Corporation Law, and may authorize the seal of the corporation to be affixed to all papers which may require it. 7. WRITTEN ACTION. Any action required or permitted to be taken at -------------- any meeting of the Board of Directors or any committee thereof may be taken without a meeting, without prior notice and without a vote if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. ARTICLE III ----------- OFFICERS -------- The officers of the corporation shall consist of a President, a Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an Executive Vice-President, one or more other Vice-Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers with such titles as the resolution of the Board of Directors choosing them shall designate. Except as may otherwise be provided in the resolution of the Board of Directors choosing him, no officer other than the Chairman or Vice-Chairman of the Board, if any, need be a director. Any number of officers may be held by the same person, as the directors may determine, except that no person may hold the offices of President and Secretary simultaneously. Unless otherwise provided in the resolution choosing him, each officer shall be chosen for a term which shall continue until the meeting of the Board of Directors following the next annual meeting of stockholders and until his successor shall have been chosen and qualified. All officers of the corporation shall have such authority and perform such duties in the management and operation of the corporation as shall be prescribed in the resolutions of the Board of Directors designating and choosing such officers and prescribing their authority and duties, and shall have such additional authority and duties as are incident to their office except to the extent that such resolutions may be inconsistent therewith. The Secretary or an Assistant Secretary of the corporation shall record all of the proceedings of all meetings and actions in writing of stockholders, directors, and committees of directors, and shall exercise such additional authority and perform such additional duties as the Board shall assign to him. Any officer may -8- be removed, with or without cause, by the Board of Directors. Any vacancy in any office may be filled by the Board of Directors. ARTICLE IV ---------- CORPORATE SEAL -------------- The corporate seal shall be in such form as the Board of Directors shall prescribe. ARTICLE V --------- FISCAL YEAR ----------- The fiscal year of the corporation shall be fixed, and shall be subject to change, by the Board of Directors. ARTICLE VI ---------- CONTROL OVER BY-LAWS -------------------- Subject to the provisions of the certificate of incorporation and the provisions of the General Corporation Law, the power to amend, alter or repeal these By-Laws and to adopt new By-Laws may be exercised by the Board of Directors or by the stockholders. I HEREBY CERTIFY that the foregoing is a full, true and correct copy of the By-Laws of Fountain View Holdings, Inc., a Delaware corporation, as in effect on the date hereof. IN WITNESS WHEREOF, I set my hand this 8th day of July, 1997. /s/ Sheila Snukal ------------------------------------------- Secretary of Fountain View Holdings, Inc. -9- EX-3.23 24 ARTICLES OF INCORPORATION OF AIB CORP. Exhibit 3.23 ARTICLES OF INCORPORATION OF AIB CORP. FIRST: The name of the corporation is: AIB Corp. SECOND: The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. THIRD: The name and address in this state of the corporation's initial agent for service of process is Andrew Gardner, 333 North June Street, Los Angeles, California 90004. FOURTH: The corporation is authorized to issue 100,000 shares of common stock. IN WITNESS WHEREOF, the undersigned has executed these Articles of Incorporation this 26th day of January, 1984. /s/ Dennis A. Kahan ---------------------------- Dennis A. Kahan I, Dennis A. Kahan, hereby declare that I am the person who executed the foregoing Articles of Incorporation and that said Articles of Incorporation are my own act and deed. Executed at Los Angeles, California, this 26th day of January, 1984. /s/ Dennis A. Kahan ---------------------------- Dennis A. Kahan EX-3.24 25 BY-LAWS OF AIB CORP. Exhibit 3.24 BYLAWS OF AIB CORP A California Corporation ARTICLE I OFFICES Section 1. PRINCIPAL EXECUTIVE OFFICE. The board of directors shall fix the location of the principal executive office of the corporation at any place within or without the State of California. If the principal executive office is located outside the State of California, and the corporation has one or more business offices in the State of California, the board of directors shall fix and designate a principal business office in the State of California. Section 2. OTHER OFFICES. Other business offices may be established at any time by the board of directors at any place or places where the corporation is qualified to do business. ARTICLE II MEETING OF SHAREHOLDERS Section 1. PLACE OF MEETING. All meetings of shareholders shall be held at the principal executive office of the corporation, or at any other place within or without the State of California which may be designated either by the board of directors or by the written consent of all persons entitled to vote at such meeting who are not present thereat. Such consent may be given either before or after the meeting and shall be filed with the secretary of the corporation. Section 2. ANNUAL MEETINGS. (a) Annual meetings of shareholders shall be held on the 30th day of January, each year, at 10:00 o'clock A.M.; provided, however, that when such day falls upon a legal holiday, then the annual meeting shall be held at the same time and place on the next day thereafter ensuing which is a full business day. At such meetings directors shall be elected, reports of the affairs of the corporation shall be considered, and any other business may be transacted which is within the powers of the shareholders. (b) Written notice of each annual meeting shall be given to each shareholder entitled to vote, either personally or by mail or other means of written communication, charges prepaid, addressed to such shareholder at his address appearing on the books of the corporation or given by him to the corporation for the purpose of notice. (c) If any notice or report addressed to the shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice or report to all other shareholders. (d) If a shareholder gives no address, notice shall be deemed to have been given him if sent by mail or other means of written communication addressed to the place where the principal executive office of the corporation is situated, or if published at least once in a newspaper of general circulation in the county in which said principal executive office is located. (e) Any notice of an annual meeting shall be given to each shareholder entitled thereto not less than ten days nor more than sixty days before such meeting. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication. An affidavit of mailing of any such notice in accordance with the foregoing provisions, executed by the secretary, assistant secretary or any transfer agent of the corporation shall be prima facie evidence of the giving of ----- ----- the notice. (f) Notice of an annual meeting shall specify: (1) the place, the date, and the hour of such meeting; (2) those matters which the board, at the time of the mailing of the notice, intends to present for action by the shareholders; (3) if directors are to be elected, the names of nominees intended at the time of the notice to be presented by management for election; (4) the general nature of any proposal to approve (i) a contract or other transaction with an interested director, as described in Section 310 of the Corporations Code, (ii) an amendment to the articles of incorporation pursuant to Section 2. 902 thereof, (iii) a reorganization pursuant to Section 1201 thereof, (iv) a voluntary dissolution pursuant to Section 1900 thereof, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 thereof, and (5) such other matters, if any, as may be expressly required by a statute. Section 3. SPECIAL MEETINGS. (a) Special meetings of the shareholders may be called at any time by the chairman of the board or the president, or by the board of directors, or by one or more shareholders holding not less than ten percent of the votes at the meeting. (b) Upon receipt of a request in writing delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, president, any vice president or secretary by any person (other than the board) entitled to call a special meeting of shareholders that a special meeting of shareholders be called at the specified time for any proper purpose set forth in such request, the officer shall forthwith cause notice to be given to shareholders entitled to vote that a meeting will be held at the times requested by the person or persons calling the meeting, not less than thirty-five nor more than sixty days after receipt of the request. (c) If such notice shall not be given within twenty days after the date of receipt of such request, the person or persons entitled to call the meeting may give notice of the meeting. Except where other express provisions are made by statute, notice of such special meetings shall be given in the manner provided for in Sections 2(b), (c), (d) and (e) for annual meetings of shareholders. In addition to the requirements of items f(1) and, if applicable, f(3) of Section 2, notice of any special meeting shall specify the general nature of the business to be transacted. Section 4. QUORUM. Subject to the articles of incorporation, the presence in person or by proxy of the persons entitled to vote a majority of the voting shares at any meeting shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, but only if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. Section 5. ADJOURNED MEETING AND NOTICE THEREOF. (a) Any shareholders' meeting may be adjourned from time to time by the vote of a majority of the shares whose holders are either present in person or represented by proxy thereat. 3. (b) When any shareholders' meeting is adjourned for more than forty- five days, or if after adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given as in the case of an original meeting. Except as provided above, it shall not be necessary to give any notice of the time and place of the adjourned meeting or of the business to be transacted thereat, other than by announcement of the time and place thereof at the meeting at which such adjournment is taken. Section 6. VOTING. (a) Unless a record date for voting purposes is filed as provided in Section 1 of Article V of these bylaws then, subject to the provisions of Sections 702, 703 and 704 of the Corporations Code relating to voting of shares held by a fiduciary, in the name of a corporation, or in joint ownership, only persons in whose names shares entitled to vote stand on the stock records of the corporation at the close of business on the business day next preceding the day on which notice of the meeting is given or, if such notice is waived, at the close of business on the business day next preceding the day on which the meeting of shareholders is held, shall be entitled to vote at such meeting. Except with respect to the election of directors, each shareholder shall be entitled to one vote for each full share entitled to be voted by such shareholder and any fractional share held by such shareholder shall not be entitled to any voting rights whatsoever. On any matter other than the election of directors, any shareholder may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the shareholder fails to specify it will be conclusively presumed that the shareholder's approving vote is with respect to all shares that the shareholder is entitled to vote. (b) Voting may be by voice or by ballot; provided, however, that all elections for directors must be by ballot if a shareholder so demands before the voting begins. (c) Except as provided in Subsection (d) or as required by the Corporations Code or the articles of incorporation, if a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on any matter shall be the act of the shareholders. (d) Every shareholder entitled to vote at any election for directors shall have the right to cumulate his votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which his shares are entitled, or to distribute his votes on the same principal among as many candidates as he shall think fit, provided that no shareholder shall be entitled to cumulate votes unless the name of the candidate or candidates for whom such votes would be cast has been placed in nomination prior to the voting and a shareholder has given notice at the meeting prior to the voting of his intention 4. to cumulate his votes. The candidates receiving the highest number of votes of shares entitled to be voted for them, up to the number of directors to be elected, shall be elected. Section 7. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The transactions of any meeting of shareholders, The transactions of any meeting of shareholders, however called and noticed, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote not present in person or by proxy or who, though present, has, at the beginning of the meeting, properly objected to the transaction of any business because the meeting was not lawfully called or convened or because of the exclusion of particular matters of business legally required to be included in the notice, signs a written waiver of notice, or a consent to the holding of such meeting, or an approval of the minutes thereof. The waiver of notice or consent need not specify either the business to be transacted or the purpose of any meeting of shareholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in Section 2(f)(4) of this Article II, the waiver of notice or consent shall state the general nature of the action taken or proposed to be taken. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 8. ACTION WITHOUT A MEETING. (a) Directors may be elected without a meeting by a written consent, signed by all of the persons who would be entitled to vote for the election of directors, provided that a director may be elected without notice at any time to fill a vacancy other than one created by removal, not filled by the directors by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. (b) Any other action which may be taken at a meeting of the shareholders, may be taken without a meeting, and, except as provided in Subsection (c), without notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, (c) If the consents of all shareholders entitled to vote have not been solicited in writing, shareholders entitled to vote who have not given written consent shall be given the following: (1) Notice of any proposed shareholder approval of, (i) a contract or other transaction with an interested director as described in Section 310 of the Corporations Code, (ii) indemnification of an agent of the corporation as authorized by 5. Section 11 of Article V of these bylaws, (iii) a reorganization of the corporation pursuant to Section 1201 of the Corporations Code, or (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 thereof, at least ten days before the consummation of the action authorized by such approval; and (2) Prompt notice of the taking of any other corporate action approved by shareholders without a meeting by less than unanimous written consent. (d) Notices given pursuant to Subsection (c) of this Section shall be given in the manner provided in Section 2 of this Article. (e) Unless the board of directors has fixed a record date for the determination of shareholders entitled to receive such notice and to give such written consent pursuant to Section 1 of Article V hereof; the record date for such determination shall be the day on which the first written consent is given. All such written consents shall be filed with the secretary of the corporation. (f) Any shareholder, proxyholder, or a transferee of shares, personal representative of the shareholder or their respective proxyholders, giving a written consent, may revoke the consent by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the secretary of the corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the secretary of the corporation. Section 9. PROXIES. (a) Every person entitled to vote or execute consents shall have the right to do so either in person or by one or more agents authorized by a written proxy executed by such person or his duly authorized agent and filed with the secretary of the corporation. A proxy shall be deemed executed if the shareholder's name is placed on the proxy (either by manual signature, typewriting, telegraphic transmission or otherwise) by the shareholder or the shareholder's attorney in fact. A duly executed proxy which does not state that it is irrevocable shall continue in full force and effect until, (i) an instrument revoking it or a duly executed proxy bearing a later date is filed with the secretary of the corporation prior to the vote pursuant thereto, (ii) the person executing the proxy attends the meeting and votes in person, or (iii) written notice of the death or incapacity of the maker of such proxy is received by the corporation before the counting of the vote in which such proxy has been cast; provided that no such proxy shall be valid after the expiration of eleven months from the date of its execution, unless the person executing it specifies therein the length of time for which such proxy is to continue in force. 6. (b) The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Subsections 705(e) and 705(f) of the Corporations Code. (c) Executors, administrators, guardians, trustees or any fiduciary, may give proxies, waive notice of and consent to any meeting of shareholders, or authorize by a writing, any action which could be taken by shareholders. The manner of execution, revocation and use of proxies shall be governed by the provisions of the Corporations Code except that the board of directors may, in advance of any meeting of the shareholders, prescribe additional regulations concerning the manner of execution, filing and validation of proxies which are intended to be voted at any such meeting. (d) If any instrument of proxy designates two or more persons to act as proxy, in the absence of any provision in the proxy to the contrary, the persons designated may represent and vote the shares in accordance with the vote or consent of the majority of the persons named as such proxies. If only one such proxy is present, he may vote all the shares, and all the shares standing in the name of the principal or principals for whom such proxy acts shall be deemed represented for the purpose of obtaining a quorum. The foregoing provisions shall apply to the voting of shares by proxies for any two or more administrators, executors, trustees or other fiduciaries, unless an instrument or order of court appointing them otherwise directs. Section 10. INSPECTORS OF ELECTION. (a) In advance of any meeting of shareholders, the board of directors may appoint any persons other than nominees for office as inspectors of election to act at such meeting or any adjournment thereof. If inspectors of election are not so appointed, the chairman of any such meeting may, and on the request of any shareholder or his proxy shall, make such appointment at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one or three inspectors are to be appointed. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may, and on the request of any shareholder or his proxy shall, be filled by appointment by the board of directors in advance of the meeting, or at the meeting by the chairman of the meeting. (b) Such inspectors shall (1) determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies; (2) receive votes, ballots or consents; (3) hear and determine all challenges and questions in any way arising in connection with the right to vote; (4) count and tabulate all votes or consents; (5) determine when the 7. polls shall close; (6) determine the result; and (7) perform such acts as may be proper to conduct the election or vote with fairness to all shareholders. In determining the validity and effect of proxies, the dates contained on the forms of proxy shall presumptively determine the order of execution of the proxies, regardless of the postmark dates on the envelope in which they are mailed. (c) If there are three inspectors of election, the decision, act, or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein. ----- ----- Section 11. ORGANIZATION. At every meeting of the shareholders, the president, or in his absence any vice president designated by the president or the board of directors or a chairman chosen by a majority in interest of the shareholders of the corporation present in person or by proxy and entitled to vote, shall act as chairman. The secretary of the corporation, or in his absence an assistant secretary, shall act as secretary of all meetings of the shareholders. In the absence of the secretary and assistant secretary, the chairman may appoint another person to act as secretary of the meeting. ARTICLE III DIRECTORS Section 1. POWERS. Subject to limitations of the articles of incorporation and of the Corporations Code pertaining to action to be authorized or approved by the shareholders, and subject to the duties of directors as prescribed by the bylaws, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be controlled by, the board of directors. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the directors shall have the following powers: (a) To select and remove all the officers, agents and employees of the corporation, prescribe powers and duties for them not inconsistent with law, with the articles of incorporation or the bylaws, to fix their compensation, and to require from them security for faithful service; (b) To conduct, manage and control the affairs and business of the corporation, and to make such rules and regulations therefor not inconsistent with law, or with the articles of incorporation or the bylaws; 8. (c) To adopt, make and use a corporate seal, and to prescribe the forms of certificates of stock, and to alter the form of such seal and of such certificates from time to time, as in their judgment they may deem best, provided such seal and such certificates shall at all times comply with the provisions of the law; (d) To authorize, the issuance of shares of stock of the corporation from time to time, upon such terms as are lawful; (e) To borrow money and incur indebtedness for the purposes of the corporation, and to cause to be executed and delivered therefor in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations or other evidences of debt and securities; (f) By resolution adopted by a majority of the authorized number of directors, to designate an executive committee or other committees, each consisting of two or more directors to serve at the pleasure of the board, and to prescribe the manner in which proceedings of such committees shall be conducted. Unless the board of directors shall prescribe a different manner for such proceedings, meetings of such committees may be regularly scheduled in advance or may be called at any time by any two members thereof; otherwise, the provisions of these bylaws with respect to notice and conduct of meetings of the board shall govern. Any such committee, to the extent provided in a resolution of the board, shall have all of the authority of the board, except with respect to: (1) the approval of any action for which the Corporations Code or the articles of incorporation also requires shareholder approval; (2) the filling of vacancies on the board or in any committee; (3) the fixing of compensation of the directors for serving on the board or on any committee; (4) the adoption, amendment or repeal of bylaws; (5) the amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable; (6) any distribution to the shareholders, except at a rate or in a periodic amount or within a price range determined by the board; and (7) the appointment of other committees of the board or the members thereof. 9. Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. (a) The number of directors of the corporation shall be not less than 3 nor more than 5 until changed by amendment of the articles of incorporation or by a bylaw amending this Section 2 duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote, provided that a proposal to reduce the authorized number or the minimum number of directors below five cannot be adopted if the votes cast against its adoption at a meeting or the shares not consenting in the case of action by written consent, are equal to more than 16-2/3 percent of the outstanding shares entitled to vote. (b) The exact number of directors shall be fixed from time to time, within the limits specified in the articles of incorporation or in this Section 2, by a bylaw or amendment thereof duly adopted by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of the holders of a majority of the outstanding shares entitled to vote, or by the board of directors. The exact number of directors of this corporation shall be 3 until changed in compliance with this Subsection. No director need be a shareholder. Section 3. ELECTION AND TERM OF OFFICE. The directors shall be elected at each annual meeting of shareholders to hold office until the next annual meeting but, if any such annual meeting is not held or the directors are not elected thereat, the directors may be elected at any duly noticed special meeting of shareholders. All directors shall hold office until their respective successors are elected and qualified, subject to the provisions of the Corporations Code and of these bylaws with respect to vacancies on the board. Section 4. VACANCIES. (a) A vacancy on the board of directors shall be deemed to exist if a director has died, resigned or been removed, or if the authorized number of directors is increased, or if the shareholders fail, at any annual or special meeting of shareholders at which any director or directors are elected, to elect the full authorized number of directors to be voted for at that meeting. The board of directors may also declare vacant the office of a director who has been declared of unsound mind by an order of court or has been convicted of a felony. (b) Vacancies on the board of directors, except for a vacancy created by the removal of a director, may be filled by a majority of the remaining directors, though less than quorum, or by a sole remaining director, and each director so elected shall hold office until his successor is elected at an annual or a special meeting of the shareholders. A vacancy on the board created by the removal of a director may only be filled by the vote of a majority of 10. the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of the holders of a majority of the outstanding shares. (c) The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors. Any such election by written consent shall require the consent of holders of a majority of the outstanding shares entitled to vote. (d) Any director may resign effective upon giving written notice to the chairman of the board, the president, or the secretary of the board of directors of the corporation unless the notice specifies a later time for the effectiveness of such resignation. If the board of directors accepts the resignation of a director tendered to take effect at a future time, the board or the shareholders shall have power to elect a successor to take office when the resignation is to become effective. (e) No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his term of office. Section 5. PLACE OF MEETING. Regular meetings of the board of directors shall be held at any place within or without the State of California which has been designated from time to time by resolution of the board or by written consent of all members of the board. In the absence of such designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board may be held either at a place designated by resolution of the board or in the notice of meeting, or if not so designated, at the principal, executive office. Section 6. ORGANIZATION MEETING. Immediately following each annual meeting of shareholders, the board of directors shall hold a regular meeting at the place of said annual meeting or at such other place as shall be fixed by the board of directors, for the purpose of organization, election of officers, and the transaction of other business. Call and notice of such meetings are hereby dispensed with. Section 7. OTHER REGULAR MEETINGS. Other regular meetings of the board of directors shall be held without notice if the date and place of such meetings are fixed by the board. Should said date fall upon a legal holiday, then said meeting shall be held at the same time on the next day thereafter ensuing which is a full business day. Section 8. SPECIAL MEETINGS. (a) Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or by any two directors. 11. (b) Special meetings of the board of directors shall be held upon at least four days' notice by mail or upon forty-eight hours' notice delivered personally or by telephone or telegraph. (c) Notice by mail shall be deemed given at the time a written notice is deposited in the United States mail, first class postage prepaid, addressed to the recipient at his address as it is shown upon the records of the corporation, or, if it is not so shown on such records and is not readily ascertainable, at the principal executive office of the corporation. Notice by telegraph shall be deemed given when it is actually transmitted by the telegraph company. Notice by telephone shall be deemed given when it is communicated by telephone to the recipient or to a person at the office of the recipient, if the person giving the notice has reason to believe it will promptly be communicated to the recipient. (d) Any notice of a special meeting shall state the date, place and hour of the meeting. A notice need not specify the purpose of the meeting. Section 9. ACTION WITHOUT MEETING. Any action by the board of directors may be taken without a meeting if all members of the board shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the board and shall have the same force and effect as a unanimous vote of the directors. Section 10. ACTION AT A MEETING: QUORUM AND REQUIRED VOTE. (a) Presence of a majority of the authorized number of directors at a meeting of the board of directors constitutes a quorum for the transaction of business, except as hereinafter provided. Members of the board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Participation in a meeting as permitted in the preceding sentence constitutes presence in person at such meeting. (b) Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the board of directors, subject to the articles of incorporation and the provisions of Section 310 of the Corporations Code regarding transactions with interested directors, Section 311 thereof regarding the appointment of committees, and of Subsection 317(e) thereof regarding indemnification of corporate officers, directors and other agents. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, provided that any action taken is approved by at least a majority of the required quorum for such meeting. 12. Section 11. WAIVER OF NOTICE. The transactions of any meeting of the board of directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting, each of the directors who was not present or who, though present, had prior to the meeting or at its commencement, protested the lack of proper notice to him, signs a written waiver of notice or a consent to holding such meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 12. ADJOURNMENT. A majority of the directors present, whether or not constituting a quorum, may adjourn any directors' meeting to another time and place. Section 13. NOTICE OF ADJOURNMENT. If the meeting is adjourned for more than twenty-four hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of adjournment. Otherwise notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place be fixed at the original meeting. Section 14. CONDUCT OF MEETINGS. At every meeting of the board of directors the chairman of the board of directors, if there shall be such an officer, shall preside. If not, a chairman chosen by a majority of the directors present shall preside. The secretary of the corporation shall act as secretary of the board of directors. In case the secretary shall be absent from any meeting of the board, an assistant secretary shall perform the duties of the secretary at such meeting. In the absence from any such meetings of both the secretary and the assistant secretary, the chairman may appoint any person to act as secretary of the meeting. Section 15. FEES AND COMPENSATION. Directors and members of committees may receive such compensation for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the board. This Section shall not be construed as precluding any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation for those services. ARTICLE IV OFFICERS Section 1. OFFICERS. The corporation shall have a chairman of the board or a president, or both of such officers, a secretary, a chief financial officer and, if the board of directors 13. so determines, may have one or more vice presidents, assistant secretaries and assistant financial officers. The board of directors may from time to time also elect such other officers as it shall deem necessary and shall determine the terms of office, powers and duties of such officers. Any number of offices may be held by the same person. Section 2. ELECTION. The officers of the corporation except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article, shall be chosen annually by the board of directors, and each shall hold his office at the pleasure of the board, or until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified. Section 3. SUBORDINATE OFFICERS. The board of directors may appoint, and may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the bylaws or as the board of directors may from time to time determine. Section 4. REMOVAL AND RESIGNATION. (a) Any officer may be removed either with or without cause by a majority of the directors at the time in office, at any regular or special meeting of the board, or, except in case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. The corporation's right to remove any officer shall be subject to such officer's rights under any contract of employment. (b) Any officer may resign at any time by giving written notice to the board of directors or to the president, or to the secretary of the corporation, without prejudice, however, to any right which the corporation may have under any contract to which such officer is a party. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the bylaws for regular appointments to such office. Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if there shall be such an officer, shall, if present, preside at all meetings of the board of directors and exercise and perform such other powers and duties as may be assigned to him from time to time by the board of directors or prescribed by the bylaws. 14 Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there is such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction and control of the business and officers of the corporation. He shall preside at all meetings of the shareholders and in the absence of the chairman of the board, or if there is none, at all meetings of the board of directors. He shall be ex-officio a member of all the standing ---------- committees, including the executive committee, if any, and shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the board of directors or the bylaws. Section 8. VICE PRESIDENT. In the absence or disability of the president, the vice presidents in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors or the bylaws or by the chairman of the board or the president. Section 9. SECRETARY. (a) The secretary shall record or cause to be recorded, and shall keep or cause to be kept, written minutes of the proceedings of the shareholders, board of directors, and committees of the board. (b) The secretary shall keep, or cause to kept, at the principal executive efface or at the office of the corporation's transfer agent a record of its shareholders showing the names and addresses of shareholders and the number and all classes of shares held by each. (c) The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required by the bylaws or by law to be given, and he shall keep the seal of the corporation in safe custody and shall affix it to stock certificates prior to issuance and to such other instruments as the board of directors shall prescribe. He shall perform all other duties incident to the office of secretary and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by the bylaws. Section 10. ASSISTANT SECRETARY. At the request of the secretary, or in his absence or disability, the assistant secretary, designated by him shall perform all the duties of the secretary, and when so acting, he shall have all the powers of, and be subject to 15 all the restrictions upon, the secretary. The assistant secretary shall perform such other duties as from time to time may be assigned to him by the board of directors or the secretary. Section 11. CHIEF FINANCIAL OFFICER. (a) The chief financial officer of the corporation shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and of the business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital and shares. (b) The chief financial officer shall have charge and custody of, and be responsible for, all funds and securities of the corporation and shall open accounts at, and deposit all monies and other valuables in the name and to the credit of the corporation with, such depositories as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as chief financial officer and of the financial condition of the corporation. He shall perform all other duties incident to the office of chief financial officer and have such other powers and perform such other duties as may be prescribed by the board of directors or the bylaws. Section 12. SALARIES. The salaries of the officers shall be fixed from time to time by the board of directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. ARTICLE V MISCELLANEOUS Section 1. RECORD DATE. The board of directors may fix, in advance, a record date not more than sixty days nor less than ten days prior to the date of any meeting, nor more than sixty days prior to any other action for which it is fixed. Only shareholders of record on a record date so fixed are entitled to notice of and to vote at any such meeting, to give consent without a meeting, to receive any report, to receive a dividend or distribution or any allotment of rights or to exercise any other rights of shareholders, as the ease may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the articles of incorporation or bylaws. 16 Section 2. INSPECTION OF CORPORATE RECORDS. (a) The accounting books and records, the record of shareholders, and minutes of proceedings of the shareholders and the board and committees of the board of the corporation and any subsidiary of the corporation shall be open to inspection upon the written demand on the corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to such holder's interests as a shareholder or as the holder of such voting trust certificate. Such inspection by a shareholder or holder of a voting trust certificate may be made in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts. (b) A shareholder or shareholders holding at least five percent in the aggregate of the outstanding voting shares of the corporation or who hold at least one percent of such voting shares and have filed a Schedule 14B with the United States Securities and Exchange Commission relating to the election of directors of the corporation shall have the absolute right (in person, or by agent or attorney) to inspect and copy the record of shareholders' names and addresses and shareholdings during usual business hours upon five business days' prior written demand upon the corporation and to obtain from the transfer agent for the corporation, upon written demand and upon the tender of its usual charges, a list of names and addresses of the shareholders who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which it has been compiled or as of a date specified by the shareholder subsequent to the date of demand. The list shall be made available on or before the later of five business days after the date the demand is received or the date specified therein as the date of which the list is to be compiled. (c) Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation and any subsidiary corporation. Such inspection by a director may be made in person or by agent or attorney. Section 3. CHECKS, DRAFTS, ETC. (a) All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness issued in the name of or payable to the corporation shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the board of directors. (b) Endorsements for deposit to the credit of the corporation in any of its duly authorized depositories may be made without countersignature by the president or any vice president or the chief financial officer or by any other officer or agent of the 17. corporation to whom the board of directors, by resolution, shall have delegated such power, or by hand-stamped impression in the name of the corporation. Section 4. ANNUAL AND OTHER REPORTS. (a) The corporation shall not be required to send to its shareholders the annual report described in Section 1501 of the Corporations Code. (b) A shareholder or shareholders holding at least five percent of the outstanding shares of any class of the corporation may make a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the current fiscal year ended more than thirty days prior to the date of the request and a balance sheet of the corporation as of the end of such period. The statement shall be delivered or mailed to the person making the request within thirty days thereafter. A copy of the statements shall be kept on file in the principal executive office of the corporation for twelve months and they shall be exhibited at all reasonable times to any shareholder demanding an examination of them or a copy shall be mailed to such shareholder. (c) The corporation shall, upon the written request of any shareholder, mail to the shareholder a copy of the last annual, semi-annual or quarterly income statement which it has prepared and a balance sheet as of the end of the period. The quarterly income statements and balance sheets shall be accompanied by the report thereon; if any, of any independent accountants engaged by the corporation or by the certificate of an authorized officer of the corporation or by the certificate of an authorized officer of the corporation that such financial statements were prepared without audit from the books and records of the corporation. Section 5. CONTRACTS. Except as otherwise provided in the bylaws, the board of directors may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances; and, unless so authorized by the board of directors, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or to any amount, except as otherwise provided by law. Section 6. STOCK CERTIFICATES. (a) Every holder of shares in the corporation shall be entitled to have a certificate signed in the name of the corporation by the chairman or vice chairman of the board or the president or a vice president and by the chief financial officer or 18 the secretary or assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. (b) Any such certificate shall also contain any legend or other statement required by Sections 417 or 418 of the Corporations Code, by the Corporate Securities Law of 1968, and by the federal securities laws. This shall include, without limitation, any statement required by the existence of any agreement between the corporation and the proposed issuee of a certificate. (c) Certificates for shares may be issued prior to full payment under such restrictions and for such purposes as the board of directors or the bylaws may provide; provided, however, that any such certificate so issued prior to full payment shall state on the face thereof the amount remaining unpaid and the terms of payment thereof. Section 7. TRANSFER ON THE BOOKS. (a) Upon surrender to the secretary or transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the secretary or transfer agent shall issue a new certificate to the person entitled thereto. A person in whose name shares of stock stand on the books of the corporation shall be deemed the owner thereof as regards the corporation; provided that whenever any transfer of shares shall be made for collateral security, and not absolutely, and written notice thereof shall be given to the secretary of the corporation or its transfer agent, such fact shall be stated in the entry of the transfer. (b) When a transfer of shares is requested and there is reasonable doubt as to the right of the person seeking the transfer, the corporation or its transfer agent, before recording the transfer of the shares on its books or issuing any certificate therefor, may require from the person seeking the transfer reasonable proof of his right to the transfer, or may require adequate security or a bond of indemnity executed by a corporate surety or by two individual sureties satisfactory to the corporation as to form, amount, and responsibility of sureties. The bond shall be conditioned to protect the corporation, its officers, transfer agents, and registrars, or any of them, against any loss, damage, expense, or other liability to the owner of the shares by reason of the recordation of the transfer or the issuance of a new certificate for shares. 19 Section 8. LOST, STOLEN AND DESTROYED CERTIFICATES. The holder of any certificate for shares of the corporation shall immediately notify the corporation of any loss, theft or destruction of such certificate, and the corporation may issue a new certificate to replace such certificate alleged to have been lost, stolen or destroyed. The board of directors may, in its discretion, require the owner of the lost, stolen or destroyed certificate or his legal representative to give the corporation a bond in such sum and with such surety or sureties, as it may direct, to indemnify the corporation, its transfer agent and registrar against any claim that may be made against it on account of or arising out of the alleged loss, theft or destruction of any such certificate or the issuance of the new certificate. Section 9. COMPULSORY EXCHANGE OF CERTIFICATES. When the articles of incorporation are amended in any way affecting the statement contained in the certificates for outstanding shares, or when, in the discretion of the board of directors, it becomes desirable for any reason to cancel any outstanding certificate for shares and issue a new certificate therefor conforming to the rights of the holder, the board of directors may order any holder of outstanding certificates for shares to surrender and exchange them for new certificates within a reasonable time to be fixed by the board of directors. Such order may provide that a holder of any certificate so ordered to be surrendered is not entitled to vote or to receive dividends or to exercise any of the other rights of shareholders of record until he has complied with the order, but such order shall operate to suspend such rights only after notice and until compliance. Section 10. INSPECTION OF BY-LAWS. The secretary shall keep at the principal executive office in California, or if the principal executive office is not in California, then at the principal business office in California, the original or a copy of the bylaws as amended to date, certified by the secretary, which shall be available for inspection by the shareholders at all reasonable times during office hours. If the corporation has neither a principal executive office nor a principal business office in California, it shall furnish a copy of the bylaws as amended to date to any shareholder who makes a written request for such bylaws. Section 11. INDEMNIFICATION. The corporation shall indemnify any officer, director or other agent of the corporation who has been successful on the merits in defense of any proceeding referred to in Subsections 317(b) or (c) of the Corporations Code, or in defense of any claim, issue or matter in such proceeding, against expenses actually and reasonably incurred by the agent in connection therewith. The corporation may also indemnify, or purchase and maintain insurance for, any officer, director, or other agent, to the extent permitted by Section 317 of the Corporations Code. 20 Section 12. CONSTRUCTIONS AND DEFINITIONS. Unless the content otherwise requires, the general provisions, rules of construction and definitions contained in the California Corporations Code shall govern the construction of these bylaws. ARTICLE VI AMENDMENTS Section 1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the corporation's articles of incorporation set forth the number of its authorized directors, the authorized number of directors may be changed only by an amendment of the articles of incorporation. Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the shareholders as provided in Section 1 of this Article VI, new bylaws may be adopted or these bylaws amended or repealed by the board of directors, provided that no such bylaw may change the authorized number of directors of the corporation except that, if the corporation has a variable board of directors, such bylaw may fix the exact number of directors within the limits specified in the articles of incorporation or in Section 2 of Article III of the bylaws. CERTIFICATE OF SECRETARY THE UNDERSIGNED DOES HEREBY CERTIFY: That I am the duly elected, qualified and acting Secretary of AIB CORP., a California corporation, and that the above and foregoing Bylaws were adopted as the Bylaws of said corporation on April 15, 1984 by the directors of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of April, 1984. Fradelle Rosenberg --------------------------------------- Fradelle Rosenberg, Secretary 21. EX-3.25 26 ARTICLES OF INCORP OF ALEXANDRIA CONVALESCENT HOSP Exhibit 3.25 FILED in the office of the Secretary of State of the State of California OCT 15 1992 /s/ March Fong Eu MARCH FONG EU Secretary of State ARTICLES OF INCORPORATION OF ALEXANDRIA CONVALESCENT HOSPITAL, INC. I The name of this corporation is ALEXANDRIA CONVALESCENT HOSPITAL, INC. II The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the general corporation law of California other than the banking business, the trust business or the practice of a profession permitted to be incorporated by the California Corporations Code. III The name and address in the State of California of this corporation's initial agent for service of process is: Robert Snukal, c/o Fountain View Management, 4801 Wilshire Boulevard, Mezzanine Floor, Los Angeles, California 90010. IV This corporation is authorized to issue only one class of shares of stock; and the total number of shares which this corporation is authorized to issue is 500,000. DATED: October 15, 1992 /s/ David B. Bloom ------------------------------ DAVID B. BLOOM I hereby declare that I am the person who executed the foregoing Articles of Incorporation, which execution is my act and deed. /s/ David B. Bloom ------------------------------ DAVID B. BLOOM [SEAL OF THE OFFICE OF THE SECRETARY OF STATE APPEARS HERE] EX-3.26 27 BY-LAWS OF ALEXANDRIA CONVALESCENT HOSPITAL Exhibit 3.26 BY-LAWS OF ALEXANDRIA CONVALESCENT HOSPITAL, INC. (A California Corporation) ARTICLE I SHAREHOLDERS' MEETINGS SECTION 1. TIME. An annual meeting for the election of directors and for the - ---------- transaction of any other proper business and any special meeting shall be held on the date and at the time as the Board of Directors shall from time to time fix. Time of Meeting: 10 o'clock A.M. Date of Meeting: The l5th day october. SECTION 2. PLACE. Annual meetings and special meetings shall be held at such - ---------- place, within or without the State of California, as the Directors may, from time to time, fix. Whenever the Directors shall fail to fix such place, the meetings shall be held at the principal executive office of the corporation. SECTION 3. CALL. Annual meetings may be called by the Directors, by the - ---------- Chairman of the Board, if any, Vice Chairman of the Board, if any, the President, if any, the Secretary, or by any officer instructed by the Directors to call the meeting. Special meetings may be called in like manner and by the holders of shares entitled to cast not less than ten percent of the votes at the meeting being called. SECTION 4. NOTICE. Written notice stating the place, day and hour of each - ---------- meeting, and, in the case of a special meeting, the general nature of the business to be transacted or, in the case of an Annual Meeting, those matters which the Board of Directors, at the time of mailing of the notice, intends to present for action by the shareholders, shall by given not less than ten days (or not less than any such other minimum period of days as may be prescribed by the General Corporation Law) or more than sixty days (or more than any such maximum period of days as may be prescribed by the General Corporation Law) before the date of the meeting, by mail, personally, or by other means of written communication, charges prepaid by or at the direction of the Directors, the President, if any, the Secretary or the officer or persons calling the meeting, addressed to each shareholder at his address appearing on the books of the corporation or given by him to the corporation for the purpose of notice, or, if no such address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the said principal executive office is located. - 1 - Such notice shall be deemed to be delivered when deposited in the United States mail with first class postage therein prepaid, or sent by other means of written communication addressed to the shareholder at his address as it appears on the stock transfer books of the corporation. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of notice to be presented by management for election. At an annual meeting of shareholders, any matter relating to the affairs of the corporation, whether or not stated in the notice of the meeting, may be brought up for action except matters which the General Corporation Law requires to be stated in the notice of the meeting. The notice of any annual or special meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the General Corporation Law. When a meeting is adjourned to another time or place, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken; provided that, 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 shareholder. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. SECTION 5. CONSENT. The transaction of any meeting, however called and noticed, - ---------- and wherever held, shall be as valid as though had a meeting duly held after regular call and notice, if a quorum is present and if, either before, or after the meeting, each of the shareholders or his proxy signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting constitutes a waiver of notice of such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting shall not constitute a waiver of any right to object to the consideration of matters required by the General Corporation Law to be included in the notice if such objection is expressly made at the meeting. Except as otherwise provided in subdivision (f) of Section 601 of the General Corporation Law, neither the business to be transacted at nor the purpose of any regular or special meeting need be specified in any written waiver of notice. SECTION 6. CONDUCT OF MEETING. Meetings of the shareholders shall be presided - ---------- over by one of the following officers in the order of seniority and if present and acting -- the Chairman of the Board, if any, the Vice-chairman of the Board, if any, the President, if any, a Vice-President, or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the shareholders. The Secretary of the corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but, if neither the Secretary nor an Assistant Secretary is present, the Chairman of the meeting shall appoint a secretary of the meeting. - 2 - SECTION 7. PROXY REPRESENTATION. Every shareholder may authorize another - ---------- person or persons to act as his proxy at a meeting or by written action. No proxy shall be valid after the expiration of eleven months from the date of its execution unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the person executing it prior to the vote or written action pursuant thereto, except as otherwise provided by the General Corporation Law. As used herein, a "proxy" shall be deemed to mean a written authorization signed by a shareholder or a shareholder's attorney in fact giving another person or persons power to vote or consent in writing with respect to the shares of such shareholder, and "Signed" as used herein shall be deemed to me an the placing of such shareholder's name on the proxy, whether by manual signature, typewriting, telegraphic transmission or otherwise by such shareholder or such shareholder's attorney in fact. Where applicable, the form of any proxy shall comply with the provisions of Section 604 of the General Corporation Law. SECTION 8. INSPECTORS - APPOINTMENT. In advance of any meeting, the Board of - ---------- Directors may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or, if any persons so appointed fail to appear or refuse to act, the Chairman of any meeting of shareholders may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election, or persons to replace any of those who so -fail or refuse, at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented shall determine whether one or three inspectors are to be appointed. The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity, and effect of proxies, receive votes, ballots, if any, or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result, and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. If there are three inspectors of election, the decision, act, or certificate of a majority shall be effective in all respects as the decision, act, or certificate of all. SECTION 9. SUBSIDIARY CORPORATIONS. Shares of this corporation owned by a - ---------- subsidiary shall not be entitled to Vote on any matter. A subsidiary for these purposes is defined as a corporation, the shares of which possessing more than 25% of the total combined voting power of all classes of shares entitled to vote, are owned directly or indirectly through one or more subsidiaries. - 3 - SECTION 10. QUORUM; VOTE; WRITTEN CONSENT. The holders of a majority of the - ----------- voting shares shall constitute a quorum at a meeting of shareholders for the transaction of any business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum if any action taken, other than adjournment, is approved by at least a majority of the shares required to constitute a quorum. In the absence of a quorum, any meeting of shareholders may be adjourned from tine to time by the vote of a majority of the shares represented thereat, but no other business may be transacted except as hereinbefore provided. In the election of directors, a plurality of the votes cast shall elect. No shareholder shall be entitled to exercise the right of cumulative voting at a meeting for the election of directors unless the candidate's name or the candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder's intention to cumulate the shareholder's votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for such candidates in nomination. Except as otherwise provided by the General Corporation Law, the Articles of Incorporation or these By-Laws, any action required or permitted to be taken at a meeting at which a quorum is present shall be authorized by the affirmative vote of a majority of the shares represented at the meeting. Except in the election of directors by written consent in lieu of a meeting, and except as may otherwise be provided by the General Corporation Law, the Articles of Incorporation or these By-Laws, any action which may be taken at any annual or special meeting may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by holders of shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. Notice of any shareholder approval pursuant to Section 310, 317, 1201 or 2007 without a meeting by less than unanimous written consent shall be given at least ten days before the consummation of the action authorized by such approval, and prompt notice shall be given of the taking of any other corporate action approved by shareholders without a meeting by less than unanimous written consent to those shareholders entitled to vote who have not consented in writing. SECTION 11. BALLOT. Elections of directors at a meeting need not be by ballot - ----------- unless a shareholder demands election by ballot at the election and before the voting begins. In all other matters, voting need not be by ballot. SECTION 12. SHAREHOLDERS' AGREEMENTS. Notwithstanding the above provisions in - ----------- the event this corporation elects to become a close corporation, an agreement between two or more shareholders thereof, if in writing and signed by the parties thereof, may provide that in exercising any voting rights the shares held by - 4 - them shall be voted as provided therein or in Section 706, and may otherwise modify these provisions as to shareholders' meetings and actions. ARTICLE II BOARD OF DIRECTORS Section 1. FUNCTIONS. The business and affairs of the corporation shall be - ---------- managed and all corporate powers shall be exercised by or under the direction of its Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person, provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board of Directors. The Board of Directors shall have authority to fix the compensation of directors for services in any lawful capacity. Each director shall exercise such powers and otherwise perform such duties in good faith, in the manner such director believes to be in the best interests of the corporation, and with care, including reasonable inquiry, using ordinary prudence, as a person in a like position would use under similar circumstances. (Section 309). Section 2. EXCEPTION FOR CLOSE CORPORATION. Notwithstanding the provisions of - ---------- Section 1, in the event that this corporation shall elect to become a lose corporation as defined in Section 186, its shareholders may enter into a Shareholders' Agreement as provided in Section 300 (b). Said Agreement may provide for the exercise of corporate powers and the management of the business and affairs of this corporation by the shareholders, provided however such agreement shall, to the extent and so long as the discretion or the powers of the Board in its management of corporate affairs is controlled by such agreement, impose upon each shareholder who is a party thereof, liability for managerial acts performed or omitted by such person pursuant thereto otherwise imposed upon Directors as provided in Section 300 (d). Section 3. QUALIFICATIONS AND NUMBER. A director need not be a shareholder of - ---------- the corporation, a citizen, of the United States, or a resident of the State of California. The authorized number of directors constituting the Board of Directors until further changed shall be 4. Thereafter, the authorized number - of directors constituting the Board shall be at least three provided that, whenever the corporation shall have only two shareholders, the number of directors may be at least two, and, whenever the corporation shall have only one shareholder, the number of directors may be at least one. Subject to the foregoing provisions, the number of directors may be changed from time to time by an amendment of these By-Laws adopted by the shareholders. Any such amendment reducing the number of directors to fewer than five cannot be adopted if the votes cast against its adoption at a meeting or the shares not consenting in writing in the case of action by written consent are equal to more than sixteen and two-thirds percent of the outstanding - 5 - shares. No decrease in the authorized number of directors shall have the effect of shortening the term of any incumbent director. Section 4. ELECTION AND TERM. The initial Board of Directors shall consist of - ---------- the persons elected at the meeting of the incorporator, all of whom shall hold office until the first annual meeting of shareholders and until their successors have been elected and qualified, or until their earlier resignation or removal from office. Thereafter, directors who are elected to replace any or all of the members of the initial Board of Directors or who are elected at an annual meeting of shareholders, and directors who are elected in the interim to fill vacancies, shall hold office until the next annual meeting of shareholders and until their successors have been elected and qualified, or until their earlier resignation, removal from office, or death. In the interim between annual meetings of shareholders or of special meetings of shareholders called for the election of directors, any vacancies in the Board of Directors, including vacancies resulting from an increase in the authorized number of directors which have not been filled by the shareholders, including any other vacancies which the General Corporation Law authorizes directors to fill, and including vacancies resulting from the removal of directors which are not filled at the meeting of shareholders at which any such removal has been effected, if the Articles of Incorporation or a By-Law adopted by the shareholders so provides, may be filled by the vote of a majority of the directors then in office or of the sole remaining director, although less than a quorum exists. Any director may resign effective upon giving written notice to the Chairman of the Board, if any, the President, the Secretary or the Board of Directors, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to the office when the resignation becomes effective. The shareholders may elect a director at any time to fill any vacancy which the directors are entitled to fill, but which they have not filled. Any such election by written consent shall require the consent of a majority of the shares. Section 5. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The - ---------- corporation may indemnify any Director, Officer, agent or employee as to those liabilities and on those terms and conditions as are specified in Section 317. In any event, the corporation shall have the right to purchase and maintain insurance on behalf of any such persons whether or not the corporation would have the power to indemnify such person against the liability insured against. Section 6. MEETINGS. - ---------- TIME. Meetings shall be held at such time as the Board shall fix, except that the first meeting of a newly elected Board shall be held as soon after its election as the directors may conveniently assemble. PLACE. Meetings may be held at any place, within or without the State of California, which has been designated in any notice of the meeting, or, if not stated in said notice, or, if there is - 6 - no notice given, at the place designated by resolution of the Board of Directors. CALL. Meetings may be called by the Chairman of the Board, if any and acting, by the Vice Chairman of the Board, if any, by the President, if any, by any Vice President or Secretary, or by any two directors. NOTICE AND WAIVER THEREOF. No notice shall be required for regular meetings for which the time and place have been fixed by the Board of Directors. Special meetings shall be held upon at least four days' notice by mail or upon at least forty-eight hours' notice delivered personally or by telephone or telegraph. Notice of a meeting need not be given to any director who signs a waiver of notice, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. A notice or waiver of notice need not specify the purpose of any regular or special meeting of the Board of Directors. SECTION 7. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION. - ---------- In the event only one director is required by the By-Laws or Articles of Incorporation, then any reference herein to notices, waivers, consents, meetings or other actions by a majority or quorum of the directors shall be deemed to refer to such notice, waiver, etc., by such sole director, who shall have all the rights and duties and shall be entitled to exercise all of the powers and shall assume all the responsibilities otherwise herein described as given to a Board of Directors. SECTION 8. QUORUM AND ACTION. A majority of the authorized number of directors - ---------- shall constitute a quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided such majority shall constitute at least either one-third of the authorized number of directors or at least two directors, whichever is larger, or unless the authorized number of directors is only one. A majority of the directors present, whether or not a quorum is present, may adjourned any meeting to another time and place. If the meeting is adjourned for more than twenty-four hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors, if any, who were not present at the time of the adjournment. Except as the Articles of Incorporation, these By-Laws and the General Corporation Law may otherwise provide, the act or decision done or made by a majority of the Directors present at a meeting duly held at which a quorum is present shall be the act of the Board of Directors. Members of the Board of Directors may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another, and participation by such use shall be deemed to constitute presence in person at any such meeting. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, provided that any action which may be taken is - 7 - approved by at least a majority of the required quorum for such meeting. Section 9. CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if - ---------- present and acting, the Vice Chairman of the Board, if any and if present and acting, shall preside at all meetings. Otherwise, the President, if any and present and acting, or any director chosen by the Board, shall preside. Section 10. REMOVAL OF DIRECTORS. The entire Board of Directors or any - ----------- individual director may be removed from office without cause by approval of the holders of at least a majority of the shares provided, that unless the entire Board is removed, an individual director shall not be removed when the votes cast against such removal, or not consenting in writing to such removal, would be sufficient to elect such director if voted cumulatively at an election of directors at which the same total number of votes were cast, or, if such action is taken by written consent, in lieu of a meeting, all shares entitled to vote were voted, and the entire number of directors authorized at the time of the director's most recent election were then being elected. If any or all directors are so removed, new directors may be elected at the same meeting or by such written consent. The Board of Directors may declare vacant the office of any director who has been declared of unsound mind by an order of court or convicted of a felony. Section 11. Committees. The Board of Directors, by resolution adopted by a - ----------- majority of the authorized number of directors, may designate one or more committees, each consisting of two or more directors to serve at the pleasure of the Board of Directors. The Board of Directors may designate one or more directors as alternate members of any such committee, who may replace any absent member at any meeting of such committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have all the authority of the Board of Directors except such authority as may not be delegated by the provisions of the General Corporation Law. SECTION 12. INFORMAL ACTION. The transactions of any meeting of the Board of - ----------- Directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting each of the directors not present signs a written waiver of notice, a consent to holding the meeting, or an approval of the minutes thereof. All such waivers, consents, or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. SECTION 13. WRITTEN ACTION. Any action required or permitted to be taken may be - ----------- taken without a meeting if all of the members of the Board of Directors shall individually or collectively consent in writing to such action. Any such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. - 8 - ARTICLE III OFFICERS Section 1. OFFICERS. The officers of the corporation shall be a Chairman of the - --------- Board or a President or both, a Secretary and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, one or more Vice Presidents, one or more Assistant Secretaries and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. One person may hold two or more offices. Section 2. ELECTION. The officers of the corporation, except such officers as - ---------- may be appointed in accordance with the provisions of Section 3 or Sextion 5 of this Article shall be chosen annually by the Board of Directors, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified. Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint such - --------- other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the By-Laws or as the Board of Directors may from time to time determine. Section 4. REMOVAL AND RESIGNATION. Any officer may be removed, either with or - ---------- without cause, by a majority of the directors at the time in office, at any regular or special meeting of the Board, or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the Board of Directors, or to the President, or to the Secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. VACANCIES. A vacancy in any office because of death, resignation, - ---------- removal, disqualification or any other cause shall be filled in the manner prescribed in the By-Laws for regular appointments to such office. Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there s all be - ---------- such an officer, shall, if present, preside at all meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the By- Laws. Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be - ---------- given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board of Directors, have - 9 - general supervision, direction and control of the business and officers of the corporation. He shall preside at all meetings of the shareholders and in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. He shall be ex officio a member of all the standing committees, including the Executive Committee, if any, and shall have the general powers and duties of management usually vested in the office of President of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the By-Laws. Section 8. VICE PRESIDENT. In the absence or disability of the President, the - ---------- Vice Presidents, in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to, all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the By-Laws. Section 9. SECRETARY. The Secretary shall keep, or cause to be kept, a book of - ---------- minutes at the principal office or such other place as the Board of Directors may order, of all meetings of Directors and Shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Directors' meetings, the number of shares present or represented at Shareholders' meetings and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or duplicate share register, showing the names of the shareholders and their addresses; the number and classes of shares held by each; the number and date of certificates issued for the same; and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to by given, notice of all the meetings of the shareholders and of the Board of Directors required by the By-Laws or by law to be given, and he shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the By-Laws. Section 10. CHIEF FINANCIAL OFFICER. This officer shall keep and maintain, or - ----------- cause to be kept and maintained in accordance with generally accepted accounting principles, adequate and correct accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, earnings (or surplus) and shares. The books of account shall at all reasonable times be open to inspection by any director. This officer shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all his - 10 - transactions and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-Laws. ARTICLE IV CERTIFICATES AND TRANSFERS OF SHARES Section 1. CERTIFICATES FOR SHARES. Each certificate for shares of the - --------- corporation shall set forth therein the name of the record holder of the shares represented thereby, the number of shares and the class or series of shares owned by said holder, the par value, if any, of the shares represented thereby, and such other statements, as applicable, prescribed by Sections 416 - 419, inclusive, and other relevant Sections of the General Corporation Law of the State of California (the "General Corporation Law") and such other statements, as applicable, which may be prescribed by the Corporate Securities Law of the State of California and any other applicable provision of the law. Each such certificate issued shall be signed in the name of the corporation by the Chairman of the Board of Directors, if any, or the Vice Chairman of the Board of Directors, it any, the President, if any, or a Vice President, if any, and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or an Assistant Secretary. Any or all of the signatures on a certificate for shares may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate for shares shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. In the event that the corporation shall issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor, any such certificate for shares shall set forth thereon the statements prescribed by Section 409 of the General Corporation Law. Section 2. LOST OR DESTROYED CERTIFICATES FOR SHARES. The corporation may issue - --------- a new certificate for shares or for any other security in the place of any other certificate theretofore issued by it, which is alleged to have been lost, stolen or destroyed. As a condition to such issuance, the corporation may require any such owner of the allegedly lost, stolen or destroyed certificate or any such owner's legal representative to give the corporation a bond, or other adequate security, sufficient to indemnify it against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 3. SHARE TRANSFERS. Upon compliance with any provisions of the General - --------- Corporation Law and/or the Corporate Securities Law of 1968 which may restrict the transferability of shares, transfers of shares of the corporation shall be made only on the record of shareholders of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the - 11 - corporation or with a transfer agent or a registrar, if any, and on surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes, if any, due thereon. Section 4. RECORD DATE FOR SHAREHOLDERS. In order that the corporation may - --------- determine the shareholders entitled to notice of any meeting or to vote or be 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 other lawful action, the Board of Directors may fix, in advance a record date, which shall not be more than sixty days or fewer than ten days prior to the date of such meeting or more than sixty days prior to any other action. If the Board of Directors shall not have fixed a record date as aforesaid, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held: the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given: and the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth day prior to the day of such other action, whichever is later. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, but the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five days from the date set for the original meeting. Except as may be otherwise provided by the General Corporation Law, shareholders on the record date shall be entitled to notice and to vote or to receive any dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date. Section 5. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other - --------- corporations standing in the name of this corporation may be voted or represented and all incidents thereto may be exercised on behalf of the corporation by the Chairman of the Board, the President or any Vice President or any other person authorized by resolution of the Board of Directors, Section 6. MEANING OF CERTAIN TERMS. As used in these by-laws in respect of the - --------- right to notice of a meeting of shareholders or a waiver thereof or to participate or vote thereat or to assent or consent or dissent in writing in lieu of a meeting, as the case may be, the term "share" or "shares" or " shareholder" or "shareholders" refers to an outstanding share or shares and to a holder or holders record or outstanding shares when the - 12 - corporation is authorized to issue only one class of shares, and said reference is also intended to include any outstanding share or shares and any holder or holders of record of outstanding shares of any class upon which or upon whom the Articles of Incorporation confer such rights here there are two or more classes or series of shares or upon which or upon whom the General Corporation Law confers such rights notwithstanding that the Articles of Incorporation may provide for more than one class or series of shares, one or more of which are limited or denied such rights thereunder. Section 7. CLOSE CORPORATION CERTIFICATES. All certificates representing shares - --------- of this corporation, in the event it shall elect to become a close corporation, shall contain the legend required by Section 418(c). ARTICLE V EFFECT OF SHAREHOLDERS' AGREEMENT-CLOSE CORPORATION Any Shareholders' Agreement authorized by Section 300(b) shall only be effective to modify the terms of these By-Laws if this corporation elects to become a close corporation with appropriate filing of or amendment to its Articles as required by Section 202 and shall terminate when this corporation ceases to be a close corporation. Such an agreement cannot waive or alter Sections 158 (defining close corporations), 202 (requirements of Articles of Incorporation), 500 and 501 relative to distributions, ill (merger), 1201(e) (reorganization) or Chapters 15 (Records and Reports, 16 (Rights of Inspection), 18 (Involuntary Dissolution) or 2 (Crimes and Penalties). Any other provisions of the Code or these By-laws may be altered or waived thereby, but to the extent they are not so altered or waived, these By-Laws shall be applicable. ARTICLE VI CORPORATE CONTRACTS AND INSTRUMENTS-HOW EXECUTED The Board of Directors, except as in the By-Laws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board of Directors, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or agreement, or to pledge its credit, or to render it liable for any purposes or any amount, except as provided in Section 313 of the Corporations Code. ARTICLE VII CONTROL OVER BY LAWS After the initial By-Laws of the corporation shall have been adopted by the incorporator or incorporators of the corporation, the By-Law say be amended or repealed or new By-Laws may be adopted by the share-holders entitled to exercise a majority of the voting power or by the Board of Directors; provided, however, that the Board of Directors shall have no control over - 13 - any By-Law which fixes or changes the authorized number of directors of the corporation; provided, further, than any control over the By-Laws herein vested in the Board of Directors shall be subject to the authority of the aforesaid shareholders to amend or repeal the By-Laws or to adopt new By-Laws; and provided further that any By-Law amendment or new By-Law which changes the minimum number of directors to fewer than five shall require authorization by the greater proportion of voting power of the shareholders as hereinbefore set forth. ARTICLE VIII BOOKS AND RECORDS Section 1. RECORDS: STORAGE AND INSPECTION. The corporation shall keep at its - ---------- principal executive office in the State of California, or, if its principal executive office is not in the State of California, the original or a copy of the By-Laws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California, and, if the corporation has no principal business office in the State of California, it shall upon request of any shareholder furnish a copy of the By-Laws as amended to date. The corporation shall keep adequate and correct books and records of account and shall keep minutes of the proceedings of its shareholders, Board of Directors and committees, if any, of the Board of Directors. The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each. Such minutes shall be in written form. Such other books and records shall be kept either in written form or in any other form capable of being converted into written form. Section 2. RECORD OF PAYMENTS. All checks, drafts or other orders or payment of - ---------- money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as shall be determined from time to time by resolution of the Board of Directors. Section 3. ANNUAL REPORT. Whenever the corporation shall have fewer than one - ---------- hundred shareholders, the Board of Directors shall not be required to cause to be sent to the shareholders of the corporation the annual report prescribed by Section 1501 of the General Corporation Law unless it shall determine that a useful purpose would be served by causing the same to be sent or unless the Department of Corporations, pursuant to the provisions of the Corporate Securities Law of 1968, shall direct the sending of the same. - 14 - CERTIFICATE OF ADOPTION OF BY-LAWS ADOPTION BY INCORPORATOR(S) OR FIRST DIRECTOR(S). The undersigned person(s) appointed in the Articles of Incorporation to act as the Incorporator(s) or First Director(s) of the above-named corporation hereby adopt the same as the By-Laws of said corporation. Executed this 21 day of October, 1992. [SIGNATURE APPEARS HERE] -------------------------------------- Name THIS IS TO CERTIFY: That I am the duly-elected, qualified and acting Secretary of the above- named corporation; that the foregoing By-Laws were adopted as the By-Laws of said corporation on the date set forth above by the person(s) appointed in the Articles of Incorporation to act as the Incorporator(s) or First Director(s) of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal this 21 day of October, 1992. /s/ Claire Palama ---------------------------------------- Secretary (SEAL) CERTIFICATE BY SECRETARY OF ADOPTION BY SHAREHOLDERS' VOTE. THIS IS TO CERTIFY: That I am the duly-elected, qualified and acting Secretary of the above- named corporation and that the above and foregoing Code of By-Laws was submitted to the shareholders at their first meeting held on the date set forth in the By-Laws and recorded in the minutes thereof, was ratified by the vote of shareholders entitled to exercise the majority of the voting power of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand this 21 day of October, 1992. /s/ Claire Palama -------------------------------------- Secretary EX-3.27 28 ARTICLES OF INCORP. OF BIA HOTEL CORP. Exhibit 3.27 ARTICLES OF INCORPORATION OF BIA HOTEL CORP. FIRST: The name of the corporation is: BIA HOTEL CORP. SECOND: The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. THIRD: The name and address in this state of the corporation's initial agent for service of process is Andrew Gardner, 333 North June Street, Los Angeles, California 90004. FOURTH: The corporation is authorized to issue 100,000 shares of common stock. IN WITNESS WHEREOF, the undersigned has executed these Articles of Incorporation this 26th day of January, 1984. /s/ Dennis A. Kahan ------------------------------ Dennis A. Kahan I, Dennis A. Kahan, hereby declare that I am the person who executed the foregoing Articles of Incorporation and that said Articles of Incorporation are my own act and deed. Executed at Los Angeles, California, this 26th day of January, 1984. /s/ Dennis A. Kahan ------------------------------ Dennis A. Kahan [SEAL OF OFFICE OF THE SECRETARY OF STATE APPEARS HERE] EX-3.28 29 BY-LAWS OF BIA HOTEL CORP. Exhibit 3.28 Bylaws OF BIA HOTEL CORP. A California Corporation ARTICLE I OFFICES Section 1. PRINCIPAL EXECUTIVE OFFICE. The board of directors shall fix the location of the principal executive office of the corporation at any place within or without the State of California. If the principal executive office is located outside the State of California, and the corporation has one or more business offices in the State of California, the board of directors shall fix and designate a principal business office in the State of California. Section 2. OTHER OFFICES. Other business offices may be established at any time by the board of directors at any place or places where the corporation is qualified to do business. ARTICLE II MEETING OF SHAREHOLDERS Section. 1. PLACE OF MEETING. All meetings of shareholders shall be held at the principal executive office of the corporation, or at any other place within or without the State of California which may be designated either by the board of directors or by the written consent of all persons entitled to vote at such meeting who are not present thereat. Such consent may be given either before or after the meeting and shall be filed with the secretary of the corporation. Section 2. ANNUAL MEETINGS. (a) Annual meetings of shareholders shall be held on the 30th day of January, each year, at 10 o'clock a.m.; provided, however, that when such day falls upon a legal holiday, then the annual meeting shall be held at the same time and place on the next day thereafter ensuing which is a full business day. At such meetings directors shall be elected, reports of the affairs of the corporation shall be considered, and any other business may be transacted which is within the powers of the shareholders. (b) Written notice of each annual meeting shall be given to each shareholder entitled to vote, either personally or by mail or other means of written communication, charges prepaid, addressed to such shareholder at his address appearing on the books of the corporation or given by him to the corporation for the purpose of notice. (c) If any notice or report addressed to the shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice or report to all other shareholders. (d) If a shareholder gives no address, notice shall be deemed to have been given him if sent by mail or other means of written communication addressed to the place where the principal executive office of the corporation is situated, or if published at least once in a newspaper of general circulation in the county in which said principal executive office is located. (e) Any notice of an annual meeting shall be given to each shareholder entitled thereto not less than ten days nor more than sixty days before such meeting. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication. An affidavit of mailing of any such notice in accordance with the foregoing provisions, executed by the secretary, assistant secretary or any transfer agent of the corporation shall be prima facie evidence of the giving of ----- ----- the notice. (f) Notice of an annual meeting shall specify: (1) the place, the date, and the hour of such meeting; (2) those matters which the board, at the time of the mailing of the notice, intends to present for action by the shareholders; (3) if directors are to be elected, the names of nominees intended at the time of the notice to be presented by management for election; (4) the general nature of any proposal to approve (i) a contract or other transaction with an interested director, as described in Section 310 of the Corporations Code, (ii) an amendment to the articles of incorporation pursuant to Section 2 902 thereof, (iii) a reorganization pursuant to Section 1201 thereof, (iv) a voluntary dissolution pursuant to Section 1900 thereof, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 thereof, and (5) such other matters, if any, as may be expressly required by a statute. Section 3. SPECIAL MEETINGS. (a) Special meetings of the shareholders may be called at any time by the chairman of the board or the president, or by the board of directors, or by one or more shareholders holding not less than ten percent of the votes at the meeting. (b) Upon receipt of a request in writing delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, president, any vice president or secretary by any person (other than the board) entitled to call a special meeting of shareholders that a special meeting of shareholders be called at the specified time for any proper purpose set forth in such request, the officer shall forthwith cause notice to be given to shareholders entitled to vote that a meeting will be held at the times requested by the person or persons calling the meeting, not less than thirty-five nor more than sixty days after receipt of the request. (c) If such notice shall not be given within twenty days after the date of receipt of such request, the person or persons entitled to call the meeting may give notice of the meeting. Except where other express provisions are made by statute, notice of such special meetings shall be given in the manner provided for in Sections 2(b), (c), (d) and (e) for annual meetings of shareholders. In addition to the requirements of items f(1) and, if applicable, f(3) of Section 2, notice of any special meeting shall specify the general nature of the business to be transacted. Section 4. QUORUM. Subject to the articles of incorporation, the presence in person or by proxy of the persons entitled to vote a majority of the voting shares at any meeting shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, but only if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. Section 5. ADJOURNED MEETING AND NOTICE THEREOF. (a) Any shareholders' meeting may be adjourned from time to time by the vote of a majority of the shares whose holders are either present in person or represented by proxy thereat. 3 (b) When any shareholders' meeting is adjourned for more than forty- five days, or if after adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given as in the case of an original meeting. Except as provided above, it shall not be necessary to give any notice of the time and place of the adjourned meeting or of the business to be transacted thereat, other than by announcement of the time and place thereof at the meeting at which such adjournment is taken. Section 6. VOTING. (a) Unless a record date for voting purposes is filed as provided in Section 1 of Article V of these bylaws then, subject to the provisions of Sections 702, 703 and 704 of the Corporations Code relating to voting of shares held by a fiduciary, in the name of a corporation, or in joint ownership, only persons in whose names shares entitled to vote stand on the stock records of the corporation at the close of business on the business day next preceding the day on which notice of the meeting is given or, if such notice is waived, at the close of business on the business day next preceding the day on which the meeting of shareholders is held, shall be entitled to vote at such meeting. Except with respect to the election of directors, each shareholder shall be entitled to one vote for each full share entitled to be voted by such shareholder and any fractional share held by such shareholder shall not be entitled to any voting rights whatsoever. On any matter other than the election of directors, any shareholder may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the shareholder fails to specify it will be conclusively presumed that the shareholder's approving vote is with respect to all shares that the shareholder is entitled to vote. (b) Voting may be by voice or by ballot; provided, however, that all elections for directors must be by ballot if a shareholder so demands before the voting begins. (c) Except as provided in Subsection (d) or as required by the Corporations Code or the articles of incorporation, if a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on any matter shall be the act of the shareholders. (d) Every shareholder entitled to vote at any election for directors shall have the right to cumulate his votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which his shares are entitled, or to distribute his votes on the same principal among as many candidates as he shall think fit, provided that no shareholder shall be entitled to cumulate votes unless the name of the candidate or candidates for whom such votes would be cast has been placed in nomination prior to the voting and a shareholder has given notice at the meeting prior to the voting of his intention 4 to cumulate his votes. The candidates receiving the highest number of votes of shares entitled to be voted for them, up to the number of directors to be elected, shall be elected. Section 7. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The transactions of any meeting of shareholders, however called and noticed, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote not present in person or by proxy or who, though present, has, at the beginning of the meeting, properly objected to the transaction of any business because the meeting was not lawfully called or convened or because of the exclusion of particular matters of business legally required to be included in the notice, signs a written waiver of notice, or a consent to the holding of such meeting, or an approval of the minutes thereof. The waiver of notice or consent need not specify either the business to be transacted or the purpose of any meeting of shareholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in Section 2(f)(4) of this Article II, the waiver of notice or consent shall state the general nature of the action taken or proposed to be taken. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 8. ACTION WITHOUT A MEETING. (a) Directors may be elected without a meeting by a written consent, signed by all of the persons who would be entitled to vote for the election of directors, provided that a director may be elected without notice at any time to fill a vacancy other than one created by removal, not filled by the directors by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. (b) Any other action which may be taken at a meeting of the shareholders, may be taken without a meeting, and, except as provided in Subsection (c), without notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. (c) If the consents of all shareholders entitled to vote have not been solicited in writing, shareholders entitled to vote who have not given written consent shall be given the following: (1) Notice of any proposed shareholder approval of, (i) a contract or other transaction with an interested director as described in Section 310 of the Corporations Code, (ii) indemnification of an agent of the corporation as authorized by 5 Section 11 of Article V of these bylaws, (iii) a reorganization of the corporation pursuant to Section 1201 of the Corporations Code, or (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 thereof, at least ten days before the consummation of the action authorized by such approval; and (2) Prompt notice of the taking of any other corporate action approved by shareholders without a meeting by Less than unanimous written consent. (d) Notices given pursuant to Subsection (c) of this Section shall be given in the manner provided in. Section 2 of this Article. (e) Unless the board of directors has fixed a record date for the determination of shareholders entitled to receive such notice and to give such written consent pursuant to Section 1. of Article V hereof, the record date for such determination shall be the day on which the first written consent is given. All such written consents shall be filed with the secretary of the corporation. (f) Any shareholder, proxyholder, or a transferee of shares, personal representative of the shareholder or their respective proxyholders, giving a written consent, may revoke the consent by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the secretary of the corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the secretary of the corporation. Section 9. PROXIES. (a) Every person entitled to vote or execute consents shall have the right to do so either in person or by one or more agents authorized by a written proxy executed by such person or his duly authorized agent and filed with the secretary of the corporation. A proxy shall be deemed executed if the shareholder's name is placed on the proxy (either by manual signature, typewriting, telegraphic transmission or otherwise) by the shareholder or the shareholder's attorney in fact. A duly executed proxy which does not state that it is irrevocable shall continue in full force and effect until, (i) an instrument revoking it or a duly executed proxy bearing a later date is filed with the secretary of the corporation prior to the vote pursuant thereto, (ii) the person executing the proxy attends the meeting and votes in person, or (iii) written notice of the death or incapacity of the maker of such proxy is received by the corporation before the counting of the vote in which such proxy has been cast; provided that no such proxy shall be valid after the expiration of eleven months from the date of its execution, unless the person executing it specifies therein the length of time for which such proxy is to continue in force. 6 (b) The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Subsections 703(e) and 705(f) of the Corporations Code. (c) Executors, administrators, guardians, trustees or any fiduciary, may give proxies, waive notice of and consent to any meeting of shareholders, or authorize by a writing, any action which could be taken by shareholders. The manner of execution, revocation and use of proxies shall be governed by the provisions of the Corporations Code except that the board of directors may, in advance of any meeting of the shareholders, prescribe additional regulations concerning the manner of execution, filing and validation of proxies which are intended to be voted at any such meeting. (d) If any instrument of proxy designates two or more persons to act as proxy, in the absence of any provision in the proxy to the contrary, the persons designated may represent and vote the shares in accordance with the vote or consent of the majority of the persons named as such proxies. If only one such proxy is present, he may vote all the shares, and all the shares standing in the name of the principal or principals for whom such proxy acts shall be deemed represented for the purpose of obtaining a quorum. The foregoing provisions shall apply to the voting of shares by proxies for any two or more administrators, executors, trustees or other fiduciaries, unless an instrument or order of court appointing them otherwise directs. Section 10. INSPECTORS OF ELECTION. (a) In advance of any meeting of shareholders, the board of directors may appoint any persons other than nominees for office as inspectors of election to act at such meeting or any adjournment thereof. If inspectors of election are not so appointed, the chairman of any such meeting may, and on the request of any shareholder or his proxy shall, make such appointment at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one or three inspectors are to be appointed. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may, and on the request of any shareholder or his proxy shall, be filled by appointment by the board of directors in advance of the meeting, or at the meeting by the chairman of the meeting. (b) Such inspectors shall (1) determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies; (2) receive votes, ballots or consents; (3) hear and determine all challenges and questions in any way arising in connection with the right to vote; (4) count and tabulate all votes or consents; (5) determine when the 7 polls shall close; (6) determine the result; and (7) perform such acts as may be proper to conduct the election or vote with fairness to all shareholders. In determining the validity and effect of proxies, the dates contained on the forms of proxy shall presumptively determine the order of execution of the proxies, regardless of the postmark dates on the envelope in which they are mailed. (c) If there are three inspectors of election, the decision, act, or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein. ----- ----- Section 11. ORGANIZATION. At every meeting of the shareholders, the president, or in his absence any vice president designated by the president or the board of directors or a chairman chosen by a majority in interest of the shareholders of the corporation present in person or by proxy and entitled to vote, shall act as chairman. The secretary of the corporation, or in his absence an assistant secretary, shall act as secretary of all meetings of the shareholders. In the absence of the secretary and assistant secretary, the chairman may appoint another person to act as secretary of the meeting. ARTICLE III DIRECTORS Section 1. POWERS. Subject to limitations of the articles of incorporation and of the Corporations Code pertaining to action to be authorized or approved by the shareholders, and subject to the duties of directors as prescribed by the bylaws, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be controlled by, the board of directors. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the directors shall have the following powers: (a) To select and remove all the officers, agents and employees of the corporation, prescribe powers and duties for them not inconsistent with law, with the articles of incorporation or the bylaws, to fix their compensation, and to require from them security for faithful service; (b) To conduct, manage and control the affairs and business of the corporation, and to make such rules and regulations therefor not inconsistent with law, or with the articles of incorporation or the bylaws; 8 (c) To adopt, make and use a corporate seal, and to prescribe the forms of certificates of stock, and to alter the form of such seal and of such certificates from time to time, as in their judgment they may deem best, provided such seal and such certificates shall at all times comply with the provisions of the law; (d) To authorize the issuance of shares of stock of the corporation from time to time, upon such terms as are lawful; (e) To borrow money and incur indebtedness for the purposes of the corporation, and to cause to be executed and delivered therefor in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations or other evidences of debt and securities; (f) By resolution adopted by a majority of the authorized number of directors, to designate an executive committee or other committees, each consisting of two or more directors to serve at the pleasure of the board, and to prescribe the manner in which proceedings of such committees shall be conducted. Unless the board of directors shall prescribe a different manner for such proceedings, meetings of such committees may be regularly scheduled in advance or may be called at any time by any two members thereof; otherwise, the provisions of these bylaws with respect to notice and conduct of meetings of the board shall govern. Any such committee, to the extent provided in a resolution of the board, shall have all of the authority of the board, except with respect to: (1) the approval of any action for which the Corporations Code or the articles of incorporation also requires shareholder approval; (2) the filling of vacancies on the board or in any committee; (3) the fixing of compensation of the directors for serving on the board or on any committee; (4) the adoption, amendment or repeal of bylaws; (5) the amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable; (6) any distribution to the shareholders, except at a rate or in a periodic amount or within a price range determined by the board; and (7) the appointment of other committees of the board or the members thereof. 9 Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. (a) The number of directors of the corporation shall be not less than 3 nor more than 5 until changed by amendment of the articles of incorporation or by a bylaw amending this Section 2 duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote, provided that a proposal to reduce the authorized number or the minimum number of directors below five cannot be adopted if the votes cast against its adoption at a meeting or the shares not consenting in the case of action by written consent, are equal to more than 16-2/3 percent of the outstanding shares entitled to vote. (b) The exact number of directors shall be fixed from time to time, within the limits specified in the articles of incorporation or in this Section 2, by a bylaw or amendment thereof duly adopted by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of the holders of a majority of the outstanding shares entitled to vote, or by the board of directors. The exact number of directors of this corporation shall be 3 until changed in compliance with this Subsection. No director need be a shareholder. Section 3. ELECTION AND TERM OF OFFICE. The directors shall be elected at each annual meeting of shareholders to hold office until the next annual meeting but, if any such annual meeting is not held or the directors are not elected thereat, the directors may be elected at any duly noticed special meeting of shareholders. All directors shall hold office until their respective successors are elected and qualified, subject to the provisions of the Corporations Code and of these bylaws with respect to vacancies on the board. Section 4. VACANCIES. (a) A vacancy on the board of directors shall be deemed to exist if a director has died, resigned or been removed, or if the authorized number of directors is increased, or if the shareholders fail, at any annual or special meeting of shareholders at which any director or directors are elected, to elect the full authorized number of directors to be voted for at that meeting. The board of directors may also declare vacant the office of a director who has been declared of unsound mind by an order of court or has been convicted of a felony. (b) Vacancies on the board of directors, except for a vacancy created by the removal of a director, may be filled by a majority of the remaining directors, though less than quorum, or by a sole remaining director, and each director so elected shall hold office until his successor is elected at an annual or a special meeting of the shareholders. A vacancy on the board created by the removal of a director may only be filled by the vote of a majority of 10 the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of the holders of a majority of the outstanding shares. (C) The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors. Any such election by written consent shall require the consent of holders of a majority of the outstanding shares entitled to vote. (d) Any director may resign effective upon giving written notice to the chairman of the board, the president, or the secretary of the board of directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the board of directors accepts the resignation of a director tendered to take effect at a future time, the board or the shareholders shall have power to elect a successor to take office when the resignation is to become effective. (e) No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his term of office. Section 5. PLACE OF MEETING. Regular meetings of the board of directors shall be held at any place within or without the State of California which has been designated from time to time by resolution of the board or by written consent of all members of the board. In the absence of such designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board may be held either at a place designated by resolution of the board or in the notice of meeting, or if not so designated, at the principal executive office. Section 6. ORGANIZATION MEETING. Immediately following each annual meeting of shareholders, the board of directors shall hold a regular meeting at the place of said annual meeting or at such other place as shall be fixed by the board of directors, for the purpose of organization, election of officers, and the transaction of other business. Call and notice of such meetings are hereby dispensed with. Section 7. OTHER REGULAR MEETINGS. Other regular meetings of the board of directors shall be held without notice if the date and place of such meetings are fixed by the board. Should said date fall upon a legal holiday, then said meeting shall be held at the same time on the next day thereafter ensuing which is a full business day. Section 8. SPECIAL MEETINGS. (a) Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or by any two directors. 11. (b) Special meetings of the board of directors shall be held upon at least four days' notice by mail or upon forty-eight hours' notice delivered personally or by telephone or telegraph. (c) Notice by mail shall be deemed given at the time a written notice is deposited in the United States mail, first class postage prepaid, addressed to the recipient at his address as it is shown upon the records of the corporation, or, if it is not so shown on such records and is not readily ascertainable, at the principal executive office of the corporation. Notice by telegraph shall be deemed given when it is actually transmitted by the telegraph company. Notice by telephone shall be deemed given when it is communicated by telephone to the recipient or to a person at the office of the recipient, if the person giving the notice has reason to believe it will promptly be communicated to the recipient. (d) Any notice of a special meeting shall state the date, place and hour of the meeting. A notice need not specify the purpose of the meeting. Section 9. ACTION WITHOUT MEETING. Any action by the board of directors may be taken without a meeting if all members of the board shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the board and shall have the same force and effect as a unanimous vote of the directors. Section 10. ACTION AT A MEETING: QUORUM AND REQUIRED VOTE. (a) Presence of a majority of the authorized number of directors at a meeting of the board of directors constitutes a quorum for the transaction of business, except as hereinafter provided. Members of the board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Participation in a meeting as permitted in the preceding sentence constitutes presence in person at such meeting. (b) Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the board of directors, subject to the articles of incorporation and the provisions of Section 310 of the Corporations Code regarding transactions with interested directors, Section 311 thereof regarding the appointment of committees, and of Subsection 317(e) thereof regarding indemnification of corporate officers, directors and other agents. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, provided that any action taken is approved by at least a majority of the required quorum for such meeting. 12. Section 11. WAIVER OF NOTICE. The transactions of any meeting of the board of directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting, each of the directors who was not present or who, though present, had prior to the meeting or at its commencement, protested the lack of proper notice to him, signs a written waiver of notice or a consent to holding such meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 12. ADJOURNMENT. A majority of the directors present, whether or not constituting a quorum, may adjourn any directors' meeting to another time and place. Section 13. NOTICE OF ADJOURNMENT. If the meeting is adjourned for more than twenty-four hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of adjournment. Otherwise notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place be fixed at the original meeting. Section 14. CONDUCT OF MEETINGS. At every meeting of the board of directors the chairman of the board of directors, if there shall be such an officer, shall preside. If not, a chairman chosen by a majority of the directors present shall preside. The secretary of the corporation shall act as secretary of the board of directors. In case the secretary shall be absent from any meeting of the board, an assistant secretary shall perform the duties of the secretary at such meeting. In the absence from any such meetings of both the secretary and the assistant secretary, the chairman may appoint any person to act as secretary of the meeting. Section 15. FEES AND COMPENSATION. Directors and members of committees may receive such compensation for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the board. This Section shall not be construed as precluding any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation for those services. ARTICLE IV OFFICERS Section 1. OFFICERS. The corporation shall have a chairman of the board or a president, or both of such officers, a secretary, a chief financial officer and, if the board of directors 13. so determines, may have one or more vice presidents, assistant secretaries and assistant financial officers. The board of directors may from time to time also elect such other officers as it shall deem necessary and shall determine the terms of office, powers and duties of such officers. Any number of offices may be held by the same person. Section 2. ELECTION. The officers of the corporation except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article, shall be chosen annually by the board of directors, and each shall hold his office at the pleasure of the board, or until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified. Section 3. SUBORDINATE OFFICERS. The board of directors may appoint, and may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the bylaws or as the board of directors may from time to time determine. Section 4. REMOVAL AND RESIGNATION. (a) Any officer may be removed either with or without cause by a majority of the directors at the time in office, at any regular or special meeting of the board, or, except in case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. The corporation's right to remove any officer shall be subject to such officer's rights under any contract of employment. (b) Any officer may resign at any time by giving written notice to the board of directors or to the president, or to the secretary of the corporation, without prejudice, however, to any right which the corporation may have under any contract to which such officer is a party. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the bylaws for regular appointments to such office. Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if there shall be such an officer, shall, if present, preside at all meetings of the board of directors and exercise and perform such other powers and duties as may be assigned to him from time to time by the board of directors or prescribed by the bylaws. 14. Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there is such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction and control of the business and officers of the corporation. He shall preside at all meetings of the shareholders and in the absence of the chairman of the board, or if there is none, at all meetings of the board of directors. He shall be ex-officio a member of all the standing ---------- committees, including the executive committee, if any, and shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the board of directors or the bylaws. Section 8. VICE PRESIDENT. In the absence or disability of the president, the vice presidents in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors or the bylaws or by the chairman of the board or the president. Section 9. SECRETARY. (a) The secretary shall record or cause to be recorded, and shall keep or cause to be kept, written minutes of the proceedings of the shareholders, board of directors, and committees of the board. (b) The secretary shall keep, or cause to kept, at the principal executive office or at the office of the corporation's transfer agent a record of its shareholders showing the names and addresses of shareholders and the number and all classes of shares held by each. (c) The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required by the bylaws or by law to be given, and he shall keep the seal of the corporation in safe custody and shall affix it to stock certificates prior to issuance and to such other instruments as the board of directors shall prescribe. He shall perform all other duties incident to the office of secretary and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by the bylaws. Section 10. ASSISTANT SECRETARY. At the request of the secretary, or in his absence or disability, the assistant secretary, designated by him shall perform all the duties of the secretary, and when so acting, he shall have all the powers of, and be subject to 15. all the restrictions upon, the secretary. The assistant secretary shall perform such other duties as from time to time may be assigned to him by the board of directors or the secretary. Section 11. CHIEF FINANCIAL OFFICER. (a) The chief financial officer of the corporation shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and of the business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital and shares. (b) The chief financial officer shall have charge and custody of, and be responsible for, all funds and securities of the corporation and shall open accounts at, and deposit all monies and other valuables in the name and to the credit of the corporation with, such depositories as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as chief financial officer and of the financial condition of the corporation. He shall perform all other duties incident to the office of chief financial officer and have such other powers and perform such other duties as may be prescribed by the board of directors or the bylaws. Section 12. SALARIES. The salaries of the officers shall be fixed from time to time by the board of directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. ARTICLE V MISCELLANEOUS Section 1. RECORD DATE. The board of directors may fix, in advance, a record date not more than sixty days nor less than ten days prior to the date of any meeting, nor more than sixty days prior to any other action for which it is fixed. Only shareholders of record on a record date so fixed are entitled to notice of and to vote at any such meeting, to give consent without a meeting, to receive any report, to receive a dividend or distribution or any allotment of rights or to exercise any other rights of shareholders, as the case may be notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the articles of incorporation or bylaws. 16. Section 2. INSPECTION OF CORPORATE RECORDS. (a) The accounting books and records, the record of shareholders, and minutes of proceedings of the shareholders and the board and committees of the board of the corporation and any subsidiary of the corporation shall be open to inspection upon the written demand on the corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to such holder's interests as a shareholder or as the holder of such voting trust certificate. Such inspection by a shareholder or holder of a voting trust certificate may be made in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts. (b) A shareholder or shareholders holding at least five percent in the aggregate of the outstanding voting shares of the corporation or who hold at least one percent of such voting shares and have filed a Schedule 14B with the United States Securities and Exchange Commission relating to the election of directors of the corporation shall have the absolute right (in person, or by agent or attorney) to inspect and copy the record of shareholders' names and addresses and shareholdings during usual business hours upon five business days' prior written demand upon the corporation and to obtain from the transfer agent for the corporation, upon written demand and upon the render of its usual charges, a list of names and addresses of the shareholders who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which it has been compiled or as of a date specified by the shareholder subsequent to the date of demand. The list shall be made available on or before the later of five business days after the date the demand is received or the date specified therein as the date of which the list is to be compiled. (c) Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation and any subsidiary corporation. Such inspection by a director may be made in person or by agent or attorney. Section 3. CHECKS, DRAFTS, ETC. (a) All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness issued in the name of or payable to the corporation shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the board of directors. (b) Endorsements for deposit to the credit of the corporation in any of its duly authorized depositories may be made without countersignature by the president or any vice president or the chief financial officer or by any other officer or agent of the 17. corporation to whom the board of directors, by resolution, shall have delegated such power, or by hand-stamped impression in the name of the corporation. Section 4. ANNUAL AND OTHER REPORTS. (a) The corporation shall not be required to send to its shareholders the annual report described in Section 1501 of the Corporations Code. (b) A shareholder or shareholders holding at least five percent of the outstanding shares of any class of the corporation may make a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the current fiscal year ended more than thirty days prior to the date of the request and a balance sheet of the corporation as of the end of such period. The statement shall be delivered or mailed to the person making the request within thirty days thereafter. A copy of the statements shall be kept on file in the principal executive office of the corporation for twelve months and they shall be exhibited at all reasonable times to any shareholder demanding an examination of them or a copy shall be mailed to such shareholder. (c) The corporation shall; upon the written request of any shareholder, mail to the shareholder a copy of the last annual, semi-annual or quarterly income statement which it has prepared and a balance sheet as of the end of the period. The quarterly income statements and balance sheets shall be accompanied by the report thereon, if any, of any independent accountants engaged by the corporation or by the certificate of an authorized officer of the corporation or by the certificate of an authorized officer of the corporation that such financial statements were prepared without audit from the books and records of the corporation. Section 5. CONTRACTS. Except as otherwise provided in the bylaws, the board of directors may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances; and, unless so authorized by the board of directors, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or to any amount, except as otherwise provided by law. Section 6. STOCK CERTIFICATES. (a) Every holder of shares in the corporation shall be entitled to have a certificate signed in the name of the corporation by the chairman or vice chairman of the board or the president or a vice president and by the chief financial officer or 18. the secretary or assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any of the signatures on the certificate may be facsimile. in case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. (b) Any such certificate shall also contain any legend or other statement required by Sections 417 or 418 of the Corporations Code, by the Corporate Securities Law of 1968, and by the federal securities laws. This shall include, without limitation any statement required by the existence of any agreement between the corporation and the proposed issues of a certificate. (c) Certificates for shares may be issued prior to full payment under such restrictions and for such purposes as the board of directors or the bylaws may provide; provided, however, that any such certificate so issued prior to full payment shall state on the face thereof the amount remaining unpaid and the terms of payment thereof. Section 7. TRANSFER ON THE BOOKS. (a) Upon surrender to the secretary or transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the secretary or transfer agent shall issue a new certificate to the person entitled thereto. A person in whose name shares of stock stand on the books of the corporation shall be deemed the owner thereof as regards the corporation; provided that whenever any transfer of shares shall be made for collateral security, and not absolutely, and written notice thereof shall be given to the secretary of the corporation or its transfer agent, such fact shall be stated in the entry of the transfer. (b) when a transfer of shares is requested and there is reasonable doubt as to the right of the person seeking the transfer, the corporation or its transfer agent, before recording the transfer of the shares on its books or issuing any certificate therefor, may require from the person seeking the transfer reasonable proof of his right to the transfer, or may require adequate security or a bond of indemnity executed by a corporate surety or by two individual sureties satisfactory to the corporation as to form, amount, and responsibility of sureties. The bond shall be conditioned to protect the corporation, its officers, transfer agents, and registrars, or any of them, against any loss, damage, expense, or other liability to the owner of the shares by reason of the recordation of the transfer or the issuance of a new certificate for shares. 19. Section 8. LOST, STOLEN AND DESTROYED CERTIFICATES. The holder of any certificate for shares of the corporation shall immediately notify the corporation of any loss, theft or destruction of such certificate, and the corporation may issue a new certificate to replace such certificate alleged to have been lost, stolen or destroyed. The board of directors may, in its discretion, require the owner of the lost, stolen or destroyed certificate or his legal representative to give the corporation a bond in such sum and with such surety or sureties, as it may direct, to indemnify the corporation, its transfer agent and registrar against any claim that may be made against it on account of or arising out of the alleged loss, theft or destruction of any such certificate or the issuance of the new certificate. Section 9. COMPULSORY EXCHANGE OF CERTIFICATES. When the articles of incorporation are amended in any way affecting the statement contained in the certificates for outstanding shares, or when, in the discretion of the board of directors, it becomes desirable for any reason to cancel any outstanding certificate for shares and issue a new certificate therefor conforming to the rights of the holder, the board of directors may order any holder of outstanding certificates for shares to surrender and exchange them for new certificates within a reasonable time to be fixed by the board of directors. Such order may provide that a holder of any certificate so ordered to be surrendered is not entitled to vote or to receive dividends or to exercise any of the other rights of shareholders of record until he has complied with the order, but such order shall operate to suspend such rights only after notice and until compliance. Section 10. INSPECTION OF BY-LAWS. The secretary shall keep at the principal executive office in California, or if the principal executive office is not in California, then at the principal business office in California, the original or a copy of the bylaws as amended to date, certified by the secretary, which shall be available for inspection by the shareholders at all reasonable times during office hours. If the corporation has neither a principal executive office nor a principal business office in California, it shall furnish a copy of the bylaws as amended to date to any shareholder who makes a written request for such bylaws. Section 11. INDEMNIFICATION. The corporation shall indemnify any officer, director or other agent of the corporation who has been successful on the merits in defense of any proceeding referred to in Subsections 317(b) or (c) of the Corporations Code, or in defense of any claim, issue or matter in such proceeding, against expenses actually and reasonably incurred by the agent in connection therewith. The corporation may also indemnify, or purchase and maintain insurance for, any officer, director, or other agent, to the extent permitted by Section 317 of the Corporations Code. 20. Section 12. CONSTRUCTIONS AND DEFINITIONS. Unless the content otherwise requires the general provisions, rules of construction and definitions contained in the California Corporations Code shall govern the construction of these bylaws. ARTICLE VI AMENDMENTS Section 1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the corporation's articles of incorporation set forth the number of its authorized directors, the authorized number of directors may be changed only by an amendment of the articles of incorporation. Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the shareholders as provided in Section 1 of this Article VI, new bylaws may be adopted or these bylaws amended or repealed by the board of directors, provided that no such bylaw may change the authorized number of directors of the corporation except that, if the corporation has a variable board of directors, such bylaw may fix the exact number of directors within the limits specified in the articles of incorporation or in Section 2 of Article III of the bylaws. CERTIFICATE OF SECRETARY THE UNDERSIGNED DOES HEREBY CERTIFY: That I am the duly elected, qualified and acting Secretary of BIA HOTEL CORP., a California corporation, and that the above and foregoing Bylaws were adopted as the Bylaws of said corporation on April 15, 1984, by the directors of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of April, 1984. /s/ Robert Snukal ---------------------------- Robert Snukal, Secretary 21. EX-3.29 30 ARTICLES OF INCORP. OF BRIAR OAK CONVALESCENT, INC Exhibit 3.29 1459020 ARTICLES OF INCORPORATION FILED in the office of the OF Secretary of State of the State of California BRIER OAK CONVALESCENT, INC. MAR 30, 1989 /s/ March Fong Eu March Fong Eu Secretary of State I The name of this corporation is Brier Oak Convalescent, Inc. II The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. III The name and address in the State of California of this corporation's initial agent for service of process is: Robert Snukal, 4311 Wilshire Boulevard, Suite 206, Los Angeles, California 90010. IV This corporation's is authorized to issue only one class of shares of stock; and the total number of shares which this corporation is authorized to issue is 500,000. DATED: March 30, 1989. /s/ David B. Bloom ------------------------------------- DAVID B. BLOOM I hereby declare that I am the person who executed the foregoing Articles of Incorporation, which execution is my act and deed. /s/ David B. Bloom ------------------------------------- DAVID B. BLOOM [SEAL OF THE OFFICE OF THE SECRETARY OF STATE APPEARS HERE] EX-3.30 31 BY-LAWS OF BRIAR OAK CONVALESCENT, INC. Exhibit 3.30 BY-LAWS OF BRIER OAK CONVALESCENT, INC. (A California Corporation) ARTICLE I SHAREHOLDERS' MEETINGS Section 1. TIME. An annual meeting for the election of directors and or the - ---------- transaction of any other proper business and any special meeting shall be held on the date and at the time as the Board of Directors shall from time to time fix. Time of Meeting: 5:30 O'clock A.M. Date of Meeting: The 27th day of April of each year. Section 2. PLACE. Annual meetings and special meetings shall be held at such - ---------- place, within or without the State of California, as the Directors may, from time to time, fix. Whenever the Directors shall fail to fix such place, the meetings shall be held at the principal executive office of the corporation. Section 3. CALL. Annual meetings may be called by the Directors, by the Chairman - ---------- of the Board, if any, Vice Chairman of the Board, if any, the President, if any, the Secretary, or by any officer instructed by the Directors to call the meeting. Special meetings may be called in like manner and by the holders of shares entitled to cast not less than ten percent of the votes at the meeting being called. Section 4. NOTICE. Written notice stating the place, day and hour of each - ---------- meeting, and, in the case of a special meeting, the general nature of the business to be transacted or, in the case of an Annual Meeting, those matters which the Board of Directors, at the time of mailing of the notice, intends to present for action by the shareholders, shall be given not less than ten days (or not less than any such other minimum period of days as may be prescribed by the General Corporation Law) or more than sixty days (or more than any such maximum period of days as may be prescribed by the General Corporation Law) before the date of the meeting, by mail, personally, or by other means of written communication, charges prepaid by or at the direction of the Directors, the President, if any, the Secretary or the officer or persons calling the meeting, addressed to each shareholder at his address appearing on the books of the corporation or given by him to the corporation for the purpose of notice, or, if no such address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the said principal executive office is located. Such notice shall be deemed to be delivered when deposited in the United States mail with first class postage therein prepaid, or sent by other means of written communication addressed to the shareholder at his address as it appears on the stock transfer 1 books of the corporation. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of notice to be presented by management for election. At an annual meeting of shareholders, any matter relating to the affairs of the corporation, whether or not stated in the notice of the meeting, may be brought up for action except matters which the General Corporation Law requires to be stated in the notice of the meeting. The notice of any annual or special meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the General Corporation Law. When a meeting is adjourned to another time or place, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken; provided that, 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 shareholder. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. Section 5. CONSENT. The transaction of any meeting, however called and noticed, - ---------- and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting, each of the shareholders or his proxy signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting constitutes a waiver of notice of such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting shall not constitute a waiver of any right to object to the consideration of matters required by the General Corporation Law to be included in the notice if such objection is expressly made at the meeting. Except as otherwise provided in subdivision (f) of Section 601 of the General Corporation Law, neither the business to be transacted at nor the purpose of any regular or special meeting need be specified in any written waiver of notice. Section 6. CONDUCT OF MEETING. Meetings of the shareholders shall be presided - ---------- over by one of the following officers in the order of seniority and if present and acting the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the President, if any, a Vice President, or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the share-holders. The Secretary of the corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the Chairman of the meeting shall appoint a secretary of the meeting. Section 7. PROXY REPRESENTATION. Every shareholder may authorize another person - ---------- or persons to act as his proxy at a meeting or by written action. No proxy shall be valid after the expiration of eleven months from the date of its execution unless 2 otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the person executing it prior to the vote or written action pursuant thereto, except as otherwise provided by the General Corporation Law. As used herein, a "proxy" shall be deemed to mean a written authorization signed by a shareholder or a shareholder's attorney in fact giving another person or persons power to vote or consent in writing with respect to the shares of such shareholder, and "Signed" as used herein shall be deemed to mean the placing of such shareholder's name on the proxy, whether by manual signature, typewriting, telegraphic transmission or otherwise by such shareholder or such shareholder's attorney in fact. Where applicable, the form of any proxy shall comply with the provisions of Section 604 of the General Corporation Law. Section 8. INSPECTORS - APPOINTMENT. In advance of any meeting, the Board of - ---------- Directors may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or, if any persons so appointed fail to appear or refuse to act, the Chairman of any meeting of shareholders may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election or persons to replace any of those who so fail or refuse, at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented shall determine whether one or three inspectors are to be appointed. The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity, and effect of proxies, receive votes, ballots, if any, or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result, and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. If there are three inspectors of election, the decision, act, or certificate of a majority shall be effective in all respects as the decision, act, or certificate of all. Section 9. SUBSIDIARY CORPORATIONS. Shares of this corporation owned by a - ---------- subsidiary shall not be entitled to vote on any matter. A subsidiary for these purposes is defined as a corporation, the shares of which possessing more than 25% of the total combined voting power of all classes of shares entitled to vote, are owned directly or indirectly through one or more subsidiaries. Section 10. QUORUM; VOTE; WRITTEN CONSENT. The holders of a majority of the - ----------- voting shares shall constitute a quorum at a meeting of shareholders for the transaction of any business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum if any action taken, other than adjournment, is approved by at least a majority of the shares required to constitute a quorum. In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares represented thereat, but no other business 3 may be transacted except as hereinbefore provided. In the election of directors, a plurality of the votes cast shall elect. No shareholder shall be entitled to exercise the right of cumulative voting at a meeting for the election of directors unless the candidate's name or the candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder's intention to cumulate the shareholder's votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for such candidates in nomination. Except as otherwise provided by the General Corporation Law, the Articles of Incorporation or these By-Laws, any action required or permitted to be taken at a meeting at which a quorum is present shall be authorized by the affirmative vote of a majority of the shares represented at the meeting. Except in the election of directors by written consent in lieu of a meeting, and except as may otherwise be provided by the General Corporation Law, the Articles of Incorporation or these By-Laws, any action which may be taken at any annual or special meeting may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by holders of shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. Notice of any shareholder approval pursuant to Section 310, 317, 1201 or 2007 without a meeting by less than unanimous written consent shall be given at least ten days before the consummation of the action authorized by such approval, and prompt notice shall be given of the taking of any other corporate action approved by shareholders without a meeting by less than unanimous written consent to those shareholders entitled to vote who have not consented in writing. Section 11. BALLOT. Elections of directors at a meeting need not be by ballot - ----------- unless a shareholder demands election by ballot at the election and before the voting begins. In all other matters, voting need not be by ballot. Section 12. SHAREHOLDERS' AGREEMENTS. Notwithstanding the above provisions in - ----------- the event this corporation elects to become a close corporation, an agreement between two or more shareholders thereof, if in writing and signed by the parties thereof, may provide that in exercising any voting rights the shares held by them shall be voted as provided therein or in section 706 and may otherwise modify these provisions as to shareholders' meetings and actions. ARTICLE II BOARD OF DIRECTORS Section 1. FUNCTIONS. The business and affairs of the corporation shall be - ---------- managed and all corporate powers shall be exercised by or under the direction of its Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the corporation to a management 4 company or other person, provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board of Directors. The Board of Directors shall have authority to fix the compensation of directors for services in any lawful capacity. Each director shall exercise such powers and otherwise perform such duties in good faith, in the manner such director believes to be in the best interests of the corporation, and with care, including reasonable inquiry, using ordinary prudence, as a person in a like position would use under similar circumstances. (Section 309). Section 2. EXCEPTION FOR CLOSE CORPORATION. Notwithstanding the provisions of - --------- Section 1, in the event that this corporation shall elect to become a close corporation as defined in Section 186, its shareholders may enter into a Shareholders' Agreement as provided in Section 300 (b). Said Agreement may provide for the exercise of corporate powers and the management of the business and affairs of this corporation by the shareholders, provided however such agreement shall, to the extent and so long as the discretion or the powers of the Board in its management of corporate affairs is controlled by such agreement, impose upon each shareholder who is a party thereof, liability for managerial acts performed or omitted by such person pursuant thereto otherwise imposed upon Directors as provided in Section 300 (d). Section 3. QUALIFICATIONS AND NUMBER. A director need not be a shareholder of - --------- the corporation, a citizen of the United States, or a resident of the State of California. The authorized number of directors constituting the Board of Directors until further changed shall be 4. Thereafter, the authorized number of directors constituting the Board shall be at least three provided that, whenever the corporation shall have only two shareholders, the number of directors may be at least two, and, whenever the corporation shall have only one shareholder, the number of directors may be at least one. Subject to the foregoing provisions, the number of directors may be changed from time to time by an amendment of these By-Laws adopted by the shareholders. Any such amendment reducing the number of directors to fewer than five cannot be adopted if the votes cast against its adoption at a meeting or the shares not consenting in writing in the case of action by written consent are equal to more than sixteen and two-thirds percent of the outstanding shares. No decrease in the authorized number of directors shall have the effect of shortening the term of any incumbent director. Section 4. ELECTION AND TERM. The initial Board of Directors shall consist of - --------- the persons elected at the meeting of the incorporator, all of whom shall hold office until the first annual meeting of shareholders and until their successors have been elected and qualified, or until their earlier resignation or removal from office. Thereafter, directors who are elected to replace any or all of the members of the initial Board of Directors or who are elected at an annual meeting of shareholders, and directors who are elected in the interim to fill vacancies, shall hold office until the next annual meeting of shareholders and until their successors have been elected and 5 qualified, or until their earlier resignation, removal from office, or death. In the interim between annual meetings of shareholders or of special meetings of shareholders called for the election of directors, any vacancies in the Board of Directors, including vacancies resulting from an increase in the authorized number of directors which have not been filled by the shareholders, including any other vacancies which the General Corporation Law authorizes directors to fill, and including vacancies resulting from the removal of directors which are not filled at the meeting of shareholders at which any such removal has been effected, if the Articles of Incorporation or a By-Law adopted by the shareholders so provides, may be filled by the vote of a majority of the directors then in office or of the sole remaining director, although less than a quorum exists. Any director may resign effective upon giving written notice to the Chairman of the Board, if any, the President, the Secretary or the Board of Directors, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to the office when the resignation becomes effective. The shareholders may elect a director at any time to fill any vacancy which the directors are entitled to fill, but which they have not filled. Any such election by written consent shall require the consent of a majority of the shares. Section 5. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The - --------- corporation may indemnify any Director, Officer, agent or employee as to those liabilities and on those terms and conditions as are specified in Section 317. In any event, the corporation shall have the right to purchase and maintain insurance on behalf of any such persons whether or not the corporation would have the power to indemnify such person against the liability insured against. Section 6. MEETINGS. - --------- TIME. Meetings shall be held at such time as the Board shall fix, except that the first meeting of a newly elected Board shall be held as soon after its election as the directors may conveniently assemble. PLACE. Meetings may be held at any place, within or without the State of California, which has been designated in any notice of the meeting, or, if not stated in said notice, or, if there is no notice given, at the place designated by resolution of the Board of Directors. CALL. Meetings may be called by the Chairman of the Board, if any and acting, by the Vice Chairman of the Board, if any, by the President, if any, by any Vice President or Secretary, or by any two directors. NOTICE AND WAIVER THEREOF. No notice shall be required for regular meetings for which the time and place have been fixed by the Board of Directors. Special meetings shall be held upon at least four days' notice by mail or upon at least forty-eight hours' notice delivered personally or by telephone or telegraph. Notice of a meeting need not be given to any director who signs a waiver of notice, whether before or after the meeting, or who 6 attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. A notice or waiver of notice need not specify the purpose of any regular or special meeting of the Board of Directors. Section 7. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION. In the event - --------- only one director is required by the By-Laws or Articles of Incorporation, then any reference herein to notices, waivers, consents, meetings or other actions by a majority or quorum of the directors shall be deemed to refer to such notice, waiver, etc., by such sole director, who shall have all the rights and duties and shall be entitled to exercise all of the powers and shall assume all the responsibilities otherwise herein described as given to a Board of Directors. Section 8. QUORUM AND ACTION. A majority of the authorized number of directors - --------- shall constitute a quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided such majority shall constitute at least either one-third of the authorized number of directors or at least two directors, whichever is larger, or unless the authorized number of directors is only one. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than twenty-four hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors, if any, who were not present at the time of the adjournment. Except as the Articles of Incorporation, these By-Laws and the General Corporation Law may otherwise provide, the act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be the act of the Board of Directors. Members of the Board of Directors may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another, and participation by such use shall be deemed to constitute presence in person at any such meeting. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, provided that any action which may be taken is approved by at least a majority of the required quorum for such meeting. Section 9. CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if - --------- present and acting, the Vice Chairman of the Board, if any and if present and acting, shall preside at all meetings. Otherwise, the President, if any and present and acting, or any director chosen by the Board, shall preside. Section 10. REMOVAL OF DIRECTORS. The entire Board of Directors or any - ---------- individual director may be removed from office without cause by approval of the holders of at least a majority of the shares provided, that unless the entire Board is removed, an individual director shall not be removed when the votes cast against such removal, or not consenting in writing to such removal, would be sufficient to elect such director if voted cumulatively at an election of directors at which the same total 7 number of votes were cast, or, if such action is taken by written consent, in lieu of a meeting, all shares entitled to vote were voted, and the entire number of directors authorized at the time of the director's most recent election were then being elected. If any or all directors are so removed, new directors may be elected at the same meeting or by such written consent. The Board of Directors may declare vacant the office of any director who has been declared of unsound mind by an order of court or convicted of a felony. Section 11. COMMITTEES. The Board of Directors, by resolution adopted by a - ---------- majority of the authorized number of directors, may designate one or more committees, each consisting of two or more directors to serve at the pleasure of the Board of Directors. The Board of Directors may designate one or more directors as alternate members of any such committee, who may replace any absent member at any meeting of such committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have all the authority of the Board of Directors except such authority as may not be delegated by the provisions of the General Corporation Law. Section 12. INFORMAL ACTION. The transactions of any meeting of the Board of - ---------- Directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting, or an approval of the minutes thereof. All such waivers, consents, or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 13. WRITTEN ACTION. Any action required or permitted to be taken may be - ---------- taken without a meeting if all of the members of the Board of Directors shall individually or collectively consent in writing to such action. Any such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. ARTICLE III. OFFICERS Section 1. OFFICERS. The officers of the corporation shall be a Chairman of the - --------- Board or a President or both, a Secretary and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, one or more Vice Presidents, one or more Assistant Secretaries and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. One person may hold two or more offices. Section 2. ELECTION. The officers of the corporation, except such officers as - --------- may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article shall be chosen annually by the Board of Directors, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and 8 qualified. Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint such - --------- other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the By-Laws or as the Board of Directors may from time to time determine. Section 4. REMOVAL AND RESIGNATION. Any officer may be removed, either with or - --------- without cause, by a majority of the directors at the time in office, at any regular or special meeting of the Board, or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the Board of Directors, or to the President, or to the Secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. VACANCIES. A vacancy in any office because of death, resignation, - --------- removal, disqualification or any other cause shall be filled in the manner prescribed in the By-Laws for regular appointments to such office. Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be - --------- such an officer, shall, if present, preside at all meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the By-Laws. Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be - --------- given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. He shall preside at all meetings of the shareholders and in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. He shall be ex officio a member of all the standing committees, including the Executive Committee, if any, and shall have the general powers and duties of management usually vested in the office of President of a corporation, and shall have such other powers and duties as nay be prescribed by the Board of Directors or the By-Laws. Section 8. VICE PRESIDENT. In the absence or disability of the President, the - --------- Vice Presidents, in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to, all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed 9 for them respectively by the Board of Directors or the By-Laws. Section 9. SECRETARY. The Secretary shall keep, or cause to be kept, a book of - --------- minutes at the principal office or such other place as the Board of Directors may order, of all meetings of Directors and Shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Directors' meetings, the number of shares present or represented at Shareholders' meetings and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or duplicate share register, showing the names of the shareholders and their addresses; the number and classes of shares held by each; the number and date of certificates issued for the same; and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all the meetings of the shareholders and of the Board of Directors required by the By-Laws or by law to be given, and he shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the By-Laws. Section 10. CHIEF FINANCIAL OFFICER. This officer shall keep and maintain, or - ---------- cause to be kept and maintained in accordance with generally accepted accounting principles, adequate and correct accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, earnings (or surplus) and shares. The books of account shall at all reasonable times be open to inspection by any director. This officer shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all his transactions and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-Laws. ARTICLE IV CERTIFICATES AND TRANSFERS OF SHARES Section 1. CERTIFICATES FOR SHARES. Each certificate for shares of the - --------- corporation shall set forth therein the name of the record holder of the shares represented thereby, the number of shares and the class or series of shares owned by said holder, the par value, if any, of the shares represented thereby, and such other statements, as applicable, prescribed by Sections 416 - 419, inclusive, and other relevant Sections of the General Corporation Law of the State of California (the "General Corporation Law") and such other statements, as applicable, which may be prescribed by the Corporate Securities Law of the State of California and any other applicable provision of the law. Each such certificate issued shall be signed in the name of the corporation by the Chairman of the Board of Directors, if any, or 10 the Vice Chairman of the Board of Directors, if any, the President, if any, or a Vice President, if any, and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or an Assistant Secretary. Any or all of the signatures on a certificate for shares may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate for shares shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. In the event that the corporation shall issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor, any such certificate for shares shall set forth thereon the statements prescribed by Section 409 of the General Corporation Law. Section 2. LOST OR DESTROYED CERTIFICATES FOR SHARES. The corporation may issue - --------- a new certificate for shares or for any other security in the place of any other certificate theretofore issued by it, which is alleged to have been lost, stolen or destroyed. As a condition to such issuance, the corporation may require any such owner of the allegedly lost, stolen or destroyed certificate or any such owner's legal representative to give the corporation a bond, or other adequate security, sufficient to indemnify it against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 3. SHARE TRANSFERS. Upon compliance with any provisions of the General - --------- Corporation Law and/or the Corporate Securities Law of 1968 which may restrict the transferability of shares, transfers of shares of the corporation shall be made only on the record of shareholders of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation or with a transfer agent or a registrar, if any, and on surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes, if any, due thereon. Section 4. RECORD DATE FOR SHAREHOLDERS. In order that the corporation may - --------- determine the shareholders entitled to notice of any meeting or to vote or be 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 other lawful action, the Board of Directors may fix, in advance a record date, which shall not be more than sixty days or fewer than ten days prior to the date of such meeting or more than sixty days prior to any other action. If the Board of Directors shall not have fixed a record date as aforesaid, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; the record date 11 for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given; and the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth day prior to the day of such other action, whichever is later. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, but the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five days from the date set for the original meeting. Except as may be otherwise provided by the General Corporation Law, shareholders on the record date shall be entitled to notice and to vote or to receive any dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date. Section 5. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other - --------- corporations standing in the name of this corporation may be voted or represented and all incidents thereto may be exercised on behalf of the corporation by the Chairman of the Board, the President or any Vice President or any other person authorized by resolution of the Board of Directors. Section 6. MEANING OF CERTAIN TERMS. As used in these By-Laws in respect of the - --------- right to notice of a meeting of shareholders or a waiver thereof or to participate or vote thereat or to assent or consent or dissent in writing in lieu of a meeting, as the case may be, the term "share" or "shares" or "shareholder" or "shareholders" refers to an outstanding share or shares and to a holder or holders of record or outstanding shares when the corporation is authorized to issue only one class of shares, and said reference is also intended to include any outstanding share or shares and any holder or holders of record of outstanding shares of any class upon which or upon whom the Articles of Incorporation confer such rights where there are two or more classes or series of shares or upon which or upon whom the General Corporation Law confers such rights notwithstanding that the Articles of Incorporation may provide for more than one class or series of shares, one or more of which are limited or denied such rights thereunder. Section 7. CLOSE CORPORATION CERTIFICATES. All certificates representing shares - --------- of this corporation, in the event it shall elect to become a close corporation, shall contain the legend required by Section 418 (c). ARTICLE V EFFECT OF SHAREHOLDERS' AGREEMENT-CLOSE CORPORATION Any Shareholders' Agreement authorized by Section 300 (b) shall only be effective to modify the terms of these By-Laws if this corporation elects to become a close corporation with appropriate 12 filing of or amendment to its Articles as required by Section 202 and shall terminate when this corporation ceases to be a close corporation. Such an agreement cannot waive or alter Sections 158 (defining close corporations), 202 (requirements of Articles of Incorporation), 500 and 501 relative to distributions, 111 (merger), 1201(e) (reorganization) or Chapters 15 (Records and Reports), 16 (Rights of Inspection), 18 (Involuntary Dissolution) or 22 (Crimes and Penalties). Any other provisions of the Code or these By-Laws may be altered or waived thereby, but to the extent they are not so altered or waived, these By-Laws shall be applicable. ARTICLE VI CORPORATE CONTRACTS AND INSTRUMENTS-HOW EXECUTED The Board of Directors, except as in the By-Laws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board of Directors, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or agreement, or to pledge its credit, or to render it liable for any purposes or any amount, except as provided in Section 313 of the Corporations Code. ARTICLE VII CONTROL OVER BY-LAWS After the initial By-Laws of the corporation shall have been adopted by the incorporator or incorporators of the corporation, the By-Laws may be amended or repealed or new By-Laws may be adopted by the shareholders entitled to exercise a majority of the voting power or by the Board of Directors; provided, however, that the Board of Directors shall have no control over any By-Law which fixes or changes the authorized number of directors of the corporation; provided, further, than any control over the By-Laws herein vested in the Board of Directors shall be subject to the authority of the aforesaid shareholders to amend or repeal the By-Laws or to adopt new By-Laws; and provided further that any By-Law amendment or new By-Law which changes the minimum number of director. to fewer than five shall require authorization by the greater proportion of voting power of the shareholders as hereinbefore set forth. ARTICLE VIII BOOKS AND RECORDS-STATUTORY AGENT Section 1. RECORDS: STORAGE AND INSPECTION. The corporation shall keep at its - --------- principal executive office in the State of California, or, if its principal executive office is not in the State of California, the original or a copy of the By-Laws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California, and, if the corporation has no principal business office in the State of California, it shall upon request of any shareholder furnish a copy of the By-Laws as amended to 13 date. The corporation shall keep adequate and correct books and records of account and shall keep minutes of the proceedings of its shareholders, Board of Directors and committees, if any, of the Board of Directors. The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each. Such minutes shall be in written form. Such other books and records shall be kept either in written form or in any other form capable of being converted into written form. Section 2. RECORD OF PAYMENTS. All checks, drafts or other orders - --------- for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as shall be determined from time to time by resolution of the Board of Directors. Section 3. ANNUAL REPORT. Whenever the corporation shall have fewer than one - --------- hundred shareholders, the Board of Directors shall not be required to cause to be sent to the shareholders of the corporation the annual report prescribed by Section 1501 of the General Corporation Law unless it shall determine that a useful purpose would be served by causing the same to be sent or unless the Department of Corporations, pursuant to the provisions of the Corporate Securities Law of 1968, shall direct the sending of the same. Section 4. AGENT FOR SERVICE. The name of the agent for service of process - --------- within the State of California is Robert Snukal. 14 CERTIFICATE BY SECRETARY OF ADOPTION BY SHAREHOLDERS' VOTE. THIS IS TO CERTIFY: That I am the duly-elected, qualified and acting Secretary of the above-named corporation and that the above and foregoing Code of By-Laws was submitted to the shareholders at their first meeting held on the date set forth in the By-Laws and recorded in the minutes thereof, was ratified by the vote of shareholders entitled to exercise the majority of the voting power of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of April, 1989. /s/ Sheila Snukal ------------------------ Secretary, Sheila Snukal CERTIFICATE OF ADOPTION OF BY-LAWS ADOPTION BY INCORPORATOR(S) OR FIRST DIRECTOR(S). The undersigned person(s) appointed in the Articles of Incorporation to act as the Incorporator(s) or First Director(s) of the above named corporation hereby adopt the same as the By-Laws of said corporation. Executed this 27th day of April 1989. /s/ Robert Snukal ----------------------------- Name THIS IS TO CERTIFY: That I am the duly-elected, qualified and acting Secretary of the above-named corporation; that the foregoing By-Laws were adopted as the By- Laws of said corporation on the date set forth above by the person(s) appointed in the Articles of Incorporation to act as the Incorporator(s) or First Director(s) of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal this 27th day of april, 1989. /s/ Sheila Snukal ------------------------ Secretary, Sheila Snukal (SEAL) EX-3.31 32 ARTICLES OF INCORP. OF ELMCREST CONVALESCENT HOSP. Exhibit 3.31 1477539 FILED In the office of the Secretary of State of the State of California FEB 26 1990 /s/ March Fong EU MARCH FONG EU, Secretary of State ARTICLES OF INCORPORATION OF WILSHIRE CARE CENTER, INC. I The name of this corporation is Wilshire Care Center, Inc. II The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. III The name and address in the State of California of this corporation's initial agent for service of process is: Robert Snukal, 4311 Wilshire Boulevard, Suite 206, Los Angeles, California 90010. IV This corporation is authorized to issue only one class of shares of stock; and the total number of shares which this corporation is authorized to issue is 500,000. Dated: February 26, 1990 /s/ David B. Bloom -------------------------- DAVID B. BLOOM I hereby declare that I an the person who executed the foregoing Articles of Incorporation, which execution is my act and deed. /S/ David B. Bloom -------------------------- DAVID B. BLOOM A387225 FILED In the office of the Secretary of State of the State of California MAY 11 1990 /s/ March Fong EU March Fong EU. Secretary of State CERTIFICATE OF AMENDMENT ----------------------- OF -- ARTICLES OF INCORPORATION ------------------------- ROBERT SNUKAL, SHEILA SNUKAL, MANUEL PADAMA AND CLAIRE PADAMA certify that: 1. They are the directors of Wilshire Care Center, Inc., a California corporation. 2. They hereby adopt the following amendment of the Articles of Incorporation of said corporation: Article I is amended to read as follows: "The name of this corporation is Elmcrest Convalescent Hospital." 3. The corporation has issued no shares. I further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of my own knowledge. Dated: May 2, 1990 /s/ Robert Snukal ----------------------- Robert Snukal, Director /s/ Sneila Snukal ----------------------- Sneila Snukal,Director /s/ Manuel Padama ------------------------ Manuel Padama, Director /s/ Claire Padama ------------------------ Claire Padama, Director (SEAL) EX-3.32 33 BY-LAWS OF ELMCREST CONVALESCENT HOSPITAL Exhibit 3.32 BY-LAWS OF WILSHIRE CARE CENTER, INC. [Elmcrest Convalescent Hospital] (A California Corporation) ARTICLE I SHAREHOLDERS' MEETINGS Section 1. TIME. An annual meeting for the election of directors and or the - --------- transaction of any other proper business and any special meeting shall be held on the date and at the time as the Board of Directors shall from time to time fix. Time of Meeting: 10 O'Clock A.M. Date of Meeting: The 1st day of March of each year. Section 2. PLACE. Annual meetings and special meetings shall be held at such - --------- place, within or without the State of California, as the Directors may, from time to time, fix. Whenever the Directors shall fail to fix such place, the meetings shall be held at the principal executive office of the corporation. Section 3. CALL. Annual meetings may be called by the Directors, by the Chairman - --------- of the Board, if any, Vice Chairman of the Board, if any, the President, if any, the Secretary, or by any officer instructed by the Directors to call the meeting. Special meetings may be called in like manner and by the holders of shares entitled to cast not less than ten percent of the votes at the meeting being called. Section 4. NOTICE. Written notice stating the place, day and hour of each - --------- meeting, and, in the case of a special meeting, the general nature of the business to be transacted or, in the case of an Annual Meeting, those matters which the Board of Directors, at the time of mailing of the notice, intends to present for action by the shareholders, shall be given not less than ten days (or not less than any such other minimum period of days as may be prescribed by the General Corporation Law) or more than sixty days (or more than any such maximum period of days as may be prescribed by the General Corporation Law) before the date of the meeting, by mail, personally, or by other means of written communication, charges prepaid by or at the direction of the Directors, the President, if any, the Secretary or the officer or persons calling the meeting, addressed to each shareholder at his address appearing on the books of the corporation or given by him to the corporation for the purpose of notice, or, if no such address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the said principal executive office is located. Such notice shall be deemed to be delivered when deposited in the United States mail with first class postage therein prepaid, or sent by other means of written communication addressed to the 1 shareholder at his address as it appears on the stock transfer books of the corporation. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of notice to be presented by management for election. At an annual meeting of shareholders, any matter relating to the affairs of the corporation, whether or not stated in the notice of the meeting, may be brought up for action except matters which the General Corporation Law requires to be stated in the notice of the meeting. The notice of any annual or special meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the General Corporation Law. When a meeting is adjourned to another time or place, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken; provided that, 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 shareholder. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. Section 5. CONSENT. The transaction of any meeting, however called and noticed, - --------- and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting, each of the shareholders or his proxy signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting constitutes a waiver of notice of such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting shall not constitute a waiver of any right to object to the consideration of matters required by the General Corporation Law to be included in the notice if such objection is expressly made at the meeting. Except as otherwise provided in subdivision (f) of Section 601 of the General Corporation Law, neither the business to be transacted at nor the purpose of any regular or special meeting need be specified in any written waiver of notice. Section 6. CONDUCT OF MEETING. Meetings of the shareholders shall be presided - --------- over by one of the following officers in the order of seniority and if present and acting the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the President, if any, a Vice President, or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the share-holders. The Secretary of the corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the Chairman of the meeting shall appoint a secretary of the meeting. 2 Section 7. PROXY REPRESENTATION. Every shareholder may authorize another person - --------- or persons to act as his proxy at a meeting or by written action. No proxy shall be valid after the expiration of eleven months from the date of its execution unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the person executing it prior to the vote or written action pursuant thereto, except as otherwise provided by the General Corporation Law. As used herein, a "proxy" shall be deemed to mean a written authorization signed by a shareholder or a shareholder's attorney in fact giving another person or persons power to vote or consent in writing with respect to the shares of such shareholder, and "Signed" as used herein shall be deemed to mean the placing of such shareholder's name on the proxy, whether by manual signature, typewriting, telegraphic transmission or otherwise by such shareholder or such shareholder's attorney in fact. Where applicable, the form of any proxy shall comply with the provisions of Section 604 of the General Corporation Law. Section 8. INSPECTORS - APPOINTMENT. In advance of any meeting, the Board of - --------- Directors may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or, if any persons so appointed fail to appear or refuse to act, the Chairman of any meeting of shareholders may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election or persons to replace any of those who so fail or refuse, at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented shall determine whether one or three inspectors are to be appointed. The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity, and effect of proxies, receive votes, ballots, if any, or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result, and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. If there are three inspectors of election, the decision, act, or certificate of a majority shall be effective in all respects as the decision, act, or certificate of all. Section 9. SUBSIDIARY CORPORATIONS. Shares of this corporation owned by a - --------- subsidiary shall not be entitled to vote on any matter. A subsidiary for these purposes is defined as a corporation, the shares of which possessing more than 25% of the total combined voting power of all classes of shares entitled to vote, are owned directly or indirectly through one or more subsidiaries. Section 10. QUORUM; VOTE; WRITTEN CONSENT. The holders of a majority of the - ---------- voting shares shall constitute a quorum at a meeting of shareholders for the transaction of any business. The 3 shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum if any action taken, other than adjournment, is approved by at least a majority of the shares required to constitute a quorum. In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares represented thereat, but no other business may be transacted except as hereinbefore provided. In the election of directors, a plurality of the votes cast shall elect. No shareholder shall be entitled to exercise the right of cumulative voting at a meeting for the election of directors unless the candidate's name or the candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder's intention to cumulate the shareholder's votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for such candidates in nomination. Except as otherwise provided by the General Corporation Law, the Articles of Incorporation or these By-Laws, any action required or permitted to be taken at a meeting at which a quorum is present shall be authorized by the affirmative vote of a majority of the shares represented at the meeting. Except in the election of directors by written consent in lieu of a meeting, and except as may otherwise be provided by the General Corporation Law, the Articles of Incorporation or these By-Laws, any action which may be taken at any annual or special meeting may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by holders of shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. Notice of any shareholder approval pursuant to Section 310, 317, 1201 or 2007 without a meeting by less than unanimous written consent shall be given at least ten days before the consummation of the action authorized by such approval, and prompt notice shall be given of the taking of any other corporate action approved by shareholders without a meeting by less than unanimous written consent to those shareholders entitled to vote who have not consented in writing. Section 11. BALLOT. Elections of directors at a meeting need not be by ballot - ---------- unless a shareholder demands election by ballot at the election and before the voting begins. In all other matters, voting need not be by ballot. Section 12. SHAREHOLDERS' AGREEMENTS. Notwithstanding the above provisions in - ---------- the event this corporation elects to become a close corporation, an agreement between two or more shareholders 4 thereof, if in writing and signed by the parties thereof, may provide that in exercising any voting rights the shares held by them shall be voted as provided therein or in Section 706 and may otherwise modify these provisions as to shareholders' meetings and actions. ARTICLE II BOARD OF DIRECTORS Section 1. FUNCTIONS. The business and affairs of the corporation shall be - --------- managed and all corporate powers shall be exercised by or under the direction of its Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person, provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board of Directors. The Board of Directors shall have authority to fix the compensation of directors for services in any lawful capacity. Each director shall exercise such powers and otherwise perform such duties in good faith, in the manner such director believes to be in the best interests of the corporation, and with care, including reasonable inquiry, using ordinary prudence, as a person in a like position would use under similar circumstances. (Section 309). Section 2. EXCEPTION FOR CLOSE CORPORATION. Notwithstanding the provisions of - --------- Section 1, in the event that this corporation shall elect to become a close corporation as defined in Section 186, its shareholders may enter into a Shareholders' Agreement as provided in Section 300 (b). Said Agreement may provide for the exercise of corporate powers and the management of the business and affairs of this corporation by the shareholders, provided however such agreement shall, to the extent and so long as the discretion or the powers of the Board in its management of corporate affairs is controlled by such agreement, impose upon each shareholder who is a party thereof, liability for managerial acts performed or omitted by such person pursuant thereto otherwise imposed upon Directors as provided in Section 300(d). Section 3. QUALIFICATIONS AND NUMBER. A director need not be a shareholder of - --------- the corporation, a citizen of the United States, or a resident of the State of California. The authorized number of directors constituting the Board of Directors until further changed shall be 4. Thereafter, the authorized number of directors constituting the Board shall be at least three provided that, whenever the corporation shall have only two shareholders, the number of directors may be at least two, and, whenever the corporation shall have only one shareholder, the number of directors may be at least one. Subject to the foregoing provisions, the number of directors may be changed from time to time by an amendment of these By-Laws adopted by the shareholders. Any such amendment reducing the number of 5 directors to fewer than five cannot be adopted if the votes cast against its adoption at a meeting or the shares not consenting in writing in the case of action by written consent are equal to more than sixteen and two-thirds percent of the outstanding shares. No decrease in the authorized number of directors shall have the effect of shortening the term of any incumbent director. Section 4. ELECTION AND TERM. The initial Board of Directors shall consist of - --------- the persons elected at the meeting of the incorporator, all of whom shall hold office until the first annual meeting of shareholders and until their successors have been elected and qualified, or until their earlier resignation or removal from office. Thereafter, directors who are elected to replace any or all of the members of the initial Board of Directors or who are elected at an annual meeting of shareholders, and directors who are elected in the interim to fill vacancies, shall hold office until the next annual meeting of shareholders and until their successors have been elected and qualified, or until their earlier resignation, removal from office, or death. In the interim between annual meetings of shareholders or of special meetings of shareholders called for the election of directors, any vacancies in the Board of Directors, including vacancies resulting from an increase in the authorized number of directors which have not been filled by the shareholders, including any other vacancies which the General Corporation Law authorizes directors to fill, and including vacancies resulting from the removal of directors which are not filled at the meeting of shareholders at which any such removal has been effected, if the Articles of Incorporation or a By-Law adopted by the shareholders so provides, may be filled by the vote of a majority of the directors then in office or of the sole remaining director, although less than a quorum exists. Any director may resign effective upon giving written notice to the Chairman of the Board, if any, the President, the Secretary or the Board of Directors, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to the office when the resignation becomes effective. The shareholders may elect a director at any time to fill any vacancy which the directors are entitled to fill, but which they have not filled. Any such election by written consent shall require the consent of a majority of the shares. Section 5. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The - --------- corporation may indemnify any Director, Officer, agent or employee as to those liabilities and on those terms and conditions as are specified in Section 317. In any event, the corporation shall have the right to purchase and maintain insurance on behalf of any such persons whether or not the corporation would have the power to indemnify such person against the liability insured against. 6 Section 6. MEETINGS. - --------- TIME. Meetings shall be held at such time as the Board shall fix, except that the first meeting of a newly elected Board shall be held as soon after its election as the directors may conveniently assemble. PLACE. Meetings may be held at any place, within or without the State of California, which has been designated in any notice of the meeting, or, if not stated in said notice, or, if there is no notice given, at the place designated by resolution of the Board of Directors. CALL. Meetings may be called by the Chairman of the Board, if any and acting, by the Vice Chairman of the Board, if any, by the President, if any, by any Vice President or Secretary, or by any two directors. NOTICE AND WAIVER THEREOF. No notice shall be required for regular meetings for which the time and place have been fixed by the Board of Directors. Special meetings shall be held upon at least four days' notice by mail or upon at least forty-eight hours' notice delivered personally or by telephone or telegraph. Notice of a meeting need not be given to any director who signs a waiver of notice, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. A notice or waiver of notice need not specify the purpose of any regular or special meeting of the Board of Directors. Section 7. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION. - --------- In the event only one director is required by the By-Laws or Articles of Incorporation, then any reference herein to notices, waivers, consents, meetings or other actions by a majority or quorum of the directors shall be deemed to refer to such notice, waiver, etc., by such sole director, who shall have all the rights and duties and shall be entitled to exercise all of the powers and shall assume all the responsibilities otherwise herein described as given to a Board of Directors. Section 8. QUORUM AND ACTION. A majority of the authorized number of directors - --------- shall constitute a quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided such majority shall constitute at least either one-third of the authorized number of directors or at least two directors, whichever is larger, or unless the authorized number of directors is only one. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than twenty-four hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors, if any, who were not present at the time of the adjournment. Except as the Articles of Incorporation, these By-Laws and the General Corporation Law may otherwise provide, the act or decision done or made by a majority of the directors 7 present at a meeting duly held at which a quorum is present shall be the act of the Board of Directors. Members of the Board of Directors may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another, and participation by such use shall be deemed to constitute presence in person at any such meeting. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, provided that any action which may be taken is approved by at least a majority of the required quorum for such meeting. Section 9. CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if - --------- present and acting, the Vice Chairman of the Board, if any and if present and acting, shall preside at all meetings. Otherwise, the President, if any and present and acting, or any director chosen by the Board, shall preside. Section 10. REMOVAL OF DIRECTORS. The entire Board of Directors or any - ---------- individual director may be removed from office without cause by approval of the holders of at least a majority of the shares provided, that unless the entire Board is removed, an individual director shall not be removed when the votes cast against such removal, or not consenting in writing to such removal, would be sufficient to elect such director if voted cumulatively at an election of directors at which the same total number of votes were cast, or, if such action is taken by written consent, in lieu of a meeting, all shares entitled to vote were voted, and the entire number of directors authorized at the time of the director's most recent election were then being elected. If any or all directors are so removed, new directors may be elected at the same meeting or by such written consent. The Board of Directors may declare vacant the office of any director who has been declared of unsound mind by an order of court or convicted of a felony. Section 11. COMMITTEES. The Board of Directors, by resolution adopted by a - ---------- majority of the authorized number of directors, may designate one or more committees, each consisting of two or more directors to serve at the pleasure of the Board of Directors. The Board of Directors may designate one or more directors as alternate members of any such committee, who may replace any absent member at any meeting of such committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have all the authority of the Board of Directors except such authority as may not be delegated by the provisions of the General Corporation Law. Section 12. INFORMAL ACTION. The transactions of any meeting of the Board of - ---------- Directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting, each of the directors not 8 present signs a written waiver of notice, a consent to holding the meeting, or an approval of the minutes thereof. All such waivers, consents, or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 13. WRITTEN ACTION. Any action required or permitted to be taken may be - ---------- taken without a meeting if all of the members of the Board of Directors shall individually or collectively consent in writing to such action. Any such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. ARTICLE III. OFFICERS Section 1. OFFICERS. The officers of the corporation shall be a Chairman of the - --------- Board or a President or both, a Secretary and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, one or more Vice Presidents, one or more Assistant Secretaries and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. One person may hold two or more offices. Section 2. ELECTION. The officers of the corporation, except such officers as - --------- may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article shall be chosen annually by the Board of Directors, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified. Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint such - --------- other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the By-Laws or as the Board of Directors may from time to time determine. Section 4. REMOVAL AND RESIGNATION. Any officer may be removed, either with or - --------- without cause, by a majority of the directors at the time in office, at any regular or special meeting of the Board, or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the Board of Directors, or to the President, or to the Secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 9 Section 5. VACANCIES. A vacancy in any office because of death, resignation, - --------- removal, disqualification or any other cause shall be filled in the manner prescribed in the By-Laws for regular appointments to such office. Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be - --------- such an officer, shall, if present, preside at all meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the By-Laws. Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be - --------- given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. He shall preside at all meetings of the shareholders and in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. He shall be ex officio a member of all the standing committees, including the Executive Committee, if any, and shall have the general powers and duties of management usually vested in the office of President of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the By-Laws. Section 8. VICE PRESIDENT. In the absence or disability of the president, the - --------- Vice Presidents, in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to, all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the By-Laws. Section 9. SECRETARY. The Secretary shall keep, or cause to be kept, a book of - --------- minutes at the principal office or such other place as the Board of Directors may order, of all meetings of Directors and Shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Directors' meetings, the number of shares present or represented at Shareholders' meetings and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or duplicate share register, showing the names of the shareholders and their addresses; the number and classes of shares held by each; the number and date of certificates issued for the same; and the number and date of cancellation of every certificate surrendered for cancellation. 10 The Secretary shall give, or cause to be given, notice of all the meetings of the shareholders and of the Board of Directors required by the By- Laws or by law to be given, and he shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the By-Laws. Section 10. CHIEF FINANCIAL OFFICER. This officer shall keep and maintain, or - ----------- cause to be kept and maintained in accordance with generally accepted accounting principles, adequate and correct accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, earnings (or surplus) and shares. The books of account shall at all reasonable times be open to inspection by any director. This officer shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all his transactions and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-Laws. ARTICLE IV CERTIFICATES AND TRANSFERS OF SHARES Section 1. CERTIFICATES FOR SHARES. Each certificate for shares of the ---------- corporation shall set forth therein the name of the record holder of the shares represented thereby, the number of shares and the class or series of shares owned by said holder, the par value, if any, of the shares represented thereby, and such other statements, as applicable, prescribed by Sections 416 - 419, inclusive, and other relevant Sections of the General Corporation Law of the State of California (the "General Corporation Law") and such other statements, as applicable, which may be prescribed by the Corporate Securities Law of the State of California and any other applicable provision of the law. Each such certificate issued shall be signed in the name of the corporation by the Chairman of the Board of Directors, if any, or the Vice Chairman of the Board of Directors, if any, the President, if any, or a Vice President, if any, and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or an Assistant Secretary. Any or all of the signatures on a certificate for shares may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate for shares shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. 11 In the event that the corporation shall issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor, any such certificate for shares shall set forth thereon the statements prescribed by Section 409 of the General Corporation Law. Section 2. LOST OR DESTROYED CERTIFICATES FOR SHARES. The corporation ---------- may issue a new certificate for shares or for any other security in the place of any other certificate theretofore issued by it, which is alleged to have been lost, stolen or destroyed. As a condition to such issuance, the corporation may require any such owner of the allegedly lost, stolen or destroyed certificate or any such owner's legal representative to give the corporation a bond, or other adequate security, sufficient to indemnify it against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 3. SHARE TRANSFERS. Upon compliance with any provisions of the General - ---------- Corporation Law and/or the Corporate Securities Law of 1968 which may restrict the transferability of shares, transfers of shares of the corporation shall be made only on the record of shareholders of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation or with a transfer agent or a registrar, if any, and on surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes, if any, due thereon. Section 4. RECORD DATE FOR SHAREHOLDERS. In order that the corporation may - ---------- determine the shareholders entitled to notice of any meeting or to vote or be 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 other lawful action, the Board of Directors may fix, in advance a record date, which shall not be more than sixty days or fewer than ten days prior to the date of such meeting or more than sixty days prior to any other action. If the Board of Directors shall not have fixed a record date as aforesaid, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given; and the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth day prior to the day of such other action, whichever is later. 12 A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, but the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five days from the date set for the original meeting. Except as may be otherwise provided by the General Corporation Law, shareholders on the record date shall be entitled to notice and to vote or to receive any dividend, distribution or allotment of rights or to exercise the rights, as the case may be, any transfer of any shares on the books of the corporation after the record date. Section 5. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other - ---------- corporations standing in the name of this corporation may be voted or represented and all incidents thereto may be exercised on behalf of the corporation by the Chairman of the Board, the President or any Vice President or any other person authorized by resolution of the Board of Directors. Section 6. MEANING OF CERTAIN TERMS. As used in these By-Laws in respect of the - ---------- right to notice of a meeting of shareholders or a waiver thereof or to participate or vote thereat or to assent or consent or dissent in writing in lieu of a meeting, as the case may be, the term "share" or "shares" or "shareholder" or "shareholders" refers to an outstanding share or shares and to a holder or holders of record or outstanding shares when the corporation is authorized to issue only one class of shares, and said reference is also intended to include any outstanding share or shares and any holder or holders of record of outstanding shares of any class upon which or upon whom the Articles of Incorporation confer such rights where there are two or more classes or series of shares or upon which or upon whom the General Corporation Law confers such rights notwithstanding that the Articles of Incorporation may provide for more than one class or series of shares, one or more of which are limited or denied such rights thereunder. Section 7. CLOSE CORPORATION CERTIFICATES. All certificates representing shares - ---------- of this corporation, in the event it shall elect to become a close corporation, shall contain the legend required by Section 418 (c). ARTICLE V EFFECT OF SHAREHOLDERS' AGREEMENT-CLOSE CORPORATION Any Shareholders' Agreement authorized by Section 300 (b) shall only be effective to modify the tens of these By-Laws if this corporation elects to become a close corporation with appropriate filing of or amendment to its Articles as required by Section 202 and shall terminate when this corporation ceases to be a close corporation. Such an agreement cannot waive or alter Sections 158 (defining close corporations), 202 (requirements of Articles 13 of Incorporation), 500 and 501 relative to distributions, 111 (merger), 1201(e) (reorganization) or Chapters 15 (Records and Reports), 16 (Rights of Inspection), 18 (Involuntary Dissolution) or 22 (Crimes and Penalties). Any other provisions of the Code or these By-Laws may be altered or waived thereby, but to the extent they are not so altered or waived, these By-Laws shall be applicable. ARTICLE VI CORPORATE CONTRACTS AND INSTRUMENTS-HOW EXECUTED The Board of Directors, except as in the By-Laws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board of Directors, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or agreement, or to pledge its credit, or to render it liable for any purposes or any amount, except as provided in Section 313 of the Corporations Code. ARTICLE VII CONTROL OVER BY-LAWS After the initial By-Laws of the corporation shall have been adopted by the incorporator or incorporators of the corporation, the By-Laws may be amended or repealed or new By-Laws may be adopted by the shareholders entitled to exercise a majority of the voting power or by the Board of Directors; provided, however, that the Board of Directors shall have no control over any By-Law which fixes or changes the authorized number of directors of the corporation; provided, further, that any control over the By-Laws herein vested in the Board of Directors shall be subject to the authority of the aforesaid shareholders to amend or repeal the By-Laws or to adopt new By-Laws; and provided further that any By-Law amendment or new By-Law which changes the minimum number of directors to fewer than five shall require authorization by the greater proportion of voting power of the shareholders as hereinbefore set forth. ARTICLE VIII BOOKS AND RECORDS -STATUTORY AGENT Section 1. RECORDS: STORAGE AND INSPECTION. The corporation shall keep at its - ---------- principal executive office in the State of California, or, if its principal executive office is not in the State of California, the original or a copy of the By-Laws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California, and, if the corporation has no principal business office in the State of California, it shall upon request of any shareholder furnish a copy of the By-Laws as amended to date. 14 The corporation shall keep adequate and correct books and records of account and shall keep minutes of the proceedings of its shareholders, Board of Directors and committees, if any, of the Hoard of Directors. The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each. Such minutes shall be in written form. Such other books and records shall be kept either in written form or in any other form capable of being converted into written form. Section 2. RECORD OF PAYMENTS. All checks, drafts or other orders for payment of - ---------- money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as shall be determined from time to time by resolution of the Board of Directors. Section 3. ANNUAL REPORT. Whenever the corporation shall have fewer than one - ---------- hundred shareholders, the Board of Directors shall not be required to cause to be sent to the shareholders of the corporation the annual report prescribed by section 1501 of the General Corporation Law unless it shall determine that a useful purpose would be served by causing the same to be sent or unless the Department of Corporations, pursuant to the provisions of the Corporate Securities Law of 1968, shall direct the sending of the same. Section 4. AGENT FOR SERVICE. The name of the agent for service of process - ---------- within the State of California is Robert Snukal. 15 CERTIFICATE OF ADOPTION OF BY-LAWS ADOPTION BY INCORPORATOR(S) OR FIRST DIRECTOR(S). The undersigned person(s) appointed in the Articles of Incorporation to act as the Incorporator(s) or First Director(s) of the above named corporation hereby adopt the same as the By-Laws of said corporation. Executed this 1st day of March, 1990. /s/ David B. Bloom ----------------------------------------- David B. Bloom THIS IS TO CERTIFY: That I am the duly-elected, qualified and acting Secretary of the above-named corporation; that the foregoing By-Laws were adopted as the By-Laws of said corporation on the date set forth above by the person(s) appointed in the Articles of Incorporation to act as the Incorporator(s) or First Director(s) of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal this 1st day of March, 1990. /s/ Sheila Snukal --------------------------------- Secretary, Sheila Snukal (SEAL) CERTIFICATE BY SECRETARY OF ADOPTION BY SHAREHOLDERS' VOTE. THIS IS TO CERTIFY: That I am the duly-elected, qualified and acting secretary of the above- named corporation and that the above and foregoing Code of By-Laws was submitted to the shareholders at their first meeting held on the date set forth in the By- Laws and recorded in the minutes thereof, was ratified by the vote of shareholders entitled to exercise the majority of the voting power of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand this 1st day of March, 1990. /s/ Sheila Snukal --------------------------------- Secretary, Sheila Snukal EX-3.33 34 ARTICLES OF INCORP. OF FOUNTAINVIEW CONVALESCENT Restriction of right to amend articles yes no -- Exhibit 3.33 FILED In the office of the Secretary of State of the State of California JUNE 29 1967 FRANK M. JORDAN, Secretary of State By [SIGNATURE APPEARS HERE] ------------------------ Deputy ARTICLES OF INCORPORATION OF FOUNTAINVIEW CONVALESCENT HOSPITAL KNOW ALL MEN BY THESE PRESENTS: That we, the undersigned have this day voluntarily associated ourselves together for the purpose of forming a corporation under and pursuant to the laws of the State of California, and we do hereby certify: I The name of the corporation is FOUNTAINVIEW CONVALESCENT HOSPITAL. II The purposes for which this corporation is formed are: (a) The specific business in which this corporation is primarily to engage is the managing, operating, maintaining and conducting of convalescent homes, nursing homes, rest homes, sanitariums, hospitals and related facilities. (b) To engage in any and all other lawful business, acts, and enterprises; and to perform such services and operations in connection with the said business as may be necessary, customary and/or advisable. (c) To enter into, make, perform, and carry out contracts of every kind and for any lawful purpose, without limit as to amount, with any person, firm, association, corporation, municipality, state or government, territory, or any other subdivision, district or department thereof. -1- (d) To carry on any business whatsoever which this corporation may deem proper or convenient in connection with any of the foregoing purposes or otherwise, or which may be calculated directly or indirectly to promote the interest of this corporation, or to enhance the value of its property or business. (e) To borrow money, to lend money, to own real property, to own personal property, to deal in real property, to deal in personal property, to have and to exercise all the powers conferred by the laws of the State of California upon corporations formed under the laws pursuant to and under which this corporation is formed, as such laws are now in effect or may at any time hereafter be enacted or amended. The foregoing statement of purposes shall be construed as a statement of both purposes and powers, and the purposes and powers stated in each clause, shall, except where otherwise expressed, be in nowise limited or restricted by reference to or inference from the terms or provisions of any other clause, but shall he regarded as independent purposes. III This corporation is authorized to issue only one class of shares; the total number of such shares is Seven Hundred Fifty (750) with a par value of One Hundred Dollars ($100.00) per share. The aggregate par value of the capital stock is Seventy-Five Thousand Dollars ($75,000.00). IV The principal office for the transaction of the business of this corporation is to be located in the County of Los Angeles, State of California. -2- V The number of directors is three (3) and the names and addresses of the parties who are appointed to act as the first directors are as follows: 1. Julian Robinson 1291 Woodruff Westwood, California 2. Alan B. Bodley 5854 San Vicente Boulevard Los Angeles, California 90019 3. Alan L. Belinkoff 3240 Barbydell Los Angeles, California 90064 DATED: June 27, 1966. /s/ Julian Robinson ------------------------------------ JULIAN ROBINSON /s/ Alan B. Bodley ------------------------------------ ALAN B. BODLEY /s/ Alan L. Belinkoff ------------------------------------ ALAN L. BELINKOFF STATE OF CALIFORNIA ) ) ss COUNTY OF LOS ANGELES ) On June 27, 1966, before the undersigned, a Notary Public in and for said County and State, personally appeared JULIAN ROBINSON, ALAN B. BODLEY AND ALAN L. BELINKOFF, known to me to be the persons whose names are subscribed to the foregoing Articles of Incorporation, and acknowledged to me that they executed the same. OFFICIAL SEAL /s/ Alice Moriarty ALICE MORIARTY ----------------------------- [SEAL OF THE NOTARY PUBLIC CALIFORNIA Notary Public in and for said SECRETARY OF PRINCIPAL OFFICE IN County and State. STATE APPEARS LOS ANGELES COUNTY HERE] -3- EX-3.34 35 BY-LAWS OF FOUNTAINVIEW CONVALESCENT HOSPITAL Exhibit 3.34 BY-LAWS OF FOUNTAINVIEW CONVALESCENT HOSPITAL ARTICLE I PLACE OF BUSINESS The principal office for the transaction of the business of the corporation shall be located at such place or places within the County of Los Angeles State of California, as the Board of Directors shall from time to time determine. ARTICLE II MEETINGS OF SHAREHOLDERS Section l. PLACE. All meetings of the shareholders shall be held at the - --------- principal office of the corporation in the State of California. Section 2. ANNUAL. The annual meeting of the shareholders shall be held on the - --------- 2nd Monday of September , in each year, if not a legal holiday, and if a legal holiday, then on the next succeeding business day, at the hour of 10:00 o'clock A.M., at which time the shareholders shall elect by plurality vote a Board of Directors, consider reports of the affairs of the Corporation, and transact such other business as may properly be brought before the meeting. Section 3. SPECIAL. Special meetings of the shareholders, for any purpose or - --------- purposes whatsoever, may be called at any time by the President, or by the Board of Directors, or by any two or more members thereof, or by one or more shareholders holding not less than one-fifth of the voting power of the corporation. Section 4. NOTICE OF MEETINGS AND ADJOURNED MEETINGS. Notices of meetings, - --------- annual or special, shall be given in writing to shareholders entitled to vote by the Secretary or the Assistant Secretary, or if there be no such officer, or in case of his neglect or refusal, by any director or shareholder. Such notices shall be sent to the shareholder's address appearing on the books of the corporation, or supplied by him to the corporation for the purpose of notice, not less than seven days before such meeting. Notice of any meeting of shareholders shall specify the place, the day and the hour of meeting, and in case of special meeting, as provided by the Corporations Code of California, the general nature of the business to be transacted. When a meeting is adjourned for thirty days or more, notice of the adjourned meeting shall be given as in case of an original meeting. Save, as aforesaid, it shall not be necessary to give any notice of the adjournment or of the business to be transacted at an adjourned meeting other than by announcement at the meeting at which such adjournment is taken. Section 5. ENTRY OF NOTICE, Whenever any shareholder entitled to vote has been - --------- absent from any meeting of shareholders, whether annual or special, an entry in the minutes to the effect that notice has been duly given shall be sufficient evidence that due notice of such meeting was given to such shareholder, as required by law and the by-laws of the corporation. Section 6. CONSENT TO SHAREHOLDERS' MEETINGS, The transactions of any meeting of - --------- shareholders, however called and noticed, shall be valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each of the shareholders entitled to vote, not present in person or by proxy, sign a written waiver of notice, or a consent to the holding of such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Any action which may be taken at a meeting of the shareholders may be taken without a meeting if authorized by a writing signed by all of the holders of shares who would be entitled to vote at a meeting for such purpose, and filed with the Secretary of the corporation. Section 7. QUORUM. The holders of a majority of the shares entitled to vote - --------- thereat, present in person, or represented by proxy, shall be requisite and shall constitute a quorum at all meetings of the shareholders for the transaction of business except as otherwise provided by law, by the Articles of Incorporation, or by these By-Laws. If, however, such majority shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat, present in person, or by proxy, shall have power to adjourn the meeting from time to time, until the requisite amount of voting shares shall be present. At such adjourned meeting at which the requisite amount of voting shares shall be represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 8. VOTING. Only persons in whose names shares entitled to vote stand on - --------- the stock records of the corporation on the day of any meeting of shareholders, unless some other day be fixed by the Board of Directors for the determination of shareholders of record, then on such other day, shall be entitled to vote at such meeting. Every shareholder entitled to vote shall be entitled to one vote for each of said shares and shall have the right to accumulate his votes as provided in Section 2235 Corporations Code of California. Section 9. PROXIES. Every person entitled to vote or execute consents may do so - --------- either in person or by one or more agents authorized by a written proxy executed by the person or his duly authorized agent and filed with the secretary of the corporation. ARTICLE III DIRECTORS - MANAGEMENT Section l. POWERS. Subject to the limitation of the Articles of Incorporation, - --------- of the By-Laws and of the Laws of the State of California as to actions to be authorized or approved by the shareholders, all corporate powers shall be exercised by or under authority of, and the business and affairs of this corporation shall be controlled by, a Board of Directors. Section 2. NUMBER OF DIRECTORS AND QUALIFICATIONS. The authorized number of - --------- directors of the corporation shall be three (3), until changed by amendment to the Articles of Incorporation or by an amendment to this Section 2, Article III of these By-Laws, adopted by the vote or written assent of the shareholders entitled to exercise the majority of the voting power of the corporation. 2. Section 3. ELECTION AND TENURE or OFFICE. The directors shall be elected by - --------- ballot at the annual meeting of the shareholders, to serve for one year and until their successors are elected and have qualified. Their term of office shall begin immediately after election. Section 4. VACANCIES. Vacancies in the Board of Directors may be filled by a - --------- majority of the remaining directors, though less than a quorum, or by a sole remaining director, and each director so elected shall hold office until his successor is elected at an annual meeting of shareholders or at a special meeting called for that purpose. The Shareholders may at any time elect a director to fill any vacancy not filled by the directors, and may elect the additional directors at the meeting at which an amendment of the By-Laws is voted authorizing an increase in the number of directors. A vacancy or vacancies shall be deemed to exist in case of the death, resignation or removal of any director, or if the shareholders shall increase the authorized number of directors but shall fail at the meeting at which such increase is authorized, or at an adjournment thereof, to elect the additional director so provided for, or in case the shareholders fail at any time to elect the full number of authorized directors. If the Board of Directors accepts the resignation of a Director tendered to take effect at a future time, The Board, or the shareholders, shall have power to elect a successor to take office when the resignation shall become effective. No reduction of the number of directors shall have the effect of removing any director prior to the expiration of his term of office. The entire Board of Directors or any individual director may be removed from office as provided by Section 810 of the Corporations Code of the State of California. Section 5. PLACE OF MEETINGS. Meetings of the Board of Directors shall be held - --------- at the office of the corporation in the State of California, as designated for this purpose, from time to time, by resolution of the Board of Directors or written consent of all of the Members of the Board. Any meeting shall be valid, wherever held, if held by the written consent of all Members of the Board of Directors, given either before or after the meeting and filed with the Secretary of the corporation. Section 6. ORGANIZATION MEETINGS. The organization meetings of the Board of - --------- Directors shall be held immediately following the adjournment of the annual meetings of the shareholders. Section 7. OTHER REGULAR MEETINGS. Other regular meetings of the Board of - --------- Directors shall be held on none If said day shall fall upon a holiday, such meetings shall be held on the next succeeding business day thereafter. No notice need be given of such regular meetings. Section 8. SPECIAL MEETINGS and NOTICE THEREOF. Special meetings of the Board of - --------- Directors for any purpose or purposes shall be called at any time by the President or if he is absent or unable or refuses to act, by any Vice-President or by any two directors. Written notice of the time and place of special meetings shall be delivered personally to the directors or sent to each director by letter or by telegram, charges prepaid, addressed to him at his address as it is shown upon the records 3. on the corporation, or it is not so Shown on such records or is not readily ascertainable, at the place in which the meetings of the directors are regularly held. In case such notice is mailed or telegraphed, it shall be deposited in the United States mail or delivered to the telegraph company in the place in which the principal office of the corporation is located at least forty-eight (48) hours prior to the time of the holding of the meeting. In case such notice is delivered as above provided; it shall be so delivered at least twenty-four (24) hours prior to the time of the holding of the meeting. Such mailing, telegraphing or delivery as above provided shall be due, legal and personal notice to such director. Section 9. WAIVER OF NOTICE. When all the directors are present at any - --------- directors' meeting, however called or noticed, and sign a written consent thereto on the records of such meeting, or, if a majority of the directors are present, and if those not present sign in writing a waiver of notice of such meeting, whether prior to or after the holding of such meeting, which said waiver shall be filed with the Secretary of the corporation, the transactions thereof are as valid as if had at a meeting regularly called and noticed. Section 10. NOTICE OF ADJOURNMENT. Notice of the time and place of holding an - ---------- adjourned meeting need not be given to absent directors if the time and place be fixed at the meeting adjourned. Section 11. QUORUM. A majority of the number of directors as fixed by the - ---------- articles or By-Laws shall be necessary to constitute a quorum for the transaction of business, and the action of a majority of the directors present at any meeting at which there is a quorum, when duly assembled, is valid as a corporate act; provided that a minority of the directors, in the absence of a quorum, may adjourn from time to time, but may not transact any business. Section 12. DIRECTORS ACTING WITHOUT A MEETING, Any action required or permitted - ---------- to be taken by the Board of Directors under any provision of this Article may be taken without a meeting, if all members of the Board shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. Any certificate or other document filed under any provision of this Article which relates to action so taken shall state that the action was taken by unanimous written consent of the Board of Directors without a meeting, and that the By-Laws, authorize the directors to so act, and such statement shall be prima facie evidence of such authority. ARTICLE IV OFFICERS Section l. OFFICERS. The officers of the corporation shall be - --------- l. President 2. Vice-President 3. Secretary 4. Treasurer The corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, one or more additional vice-presidents, one or more assistant-secretaries, one or more assistant-treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. 4. Officers other than the president and chairman of the board need not be directors. One person may hold two or more offices, except those of president and secretary. Section 2. ELECTIONS. The Officers of the corporation, except such officers as - --------- may be appointed in accordance with the provisions of Section 3 or 5 of this Article, shall be chosen annually by the Board of Directors, and each shall hold his or her office at the pleasure of the Board of Directors, who may, either at a regular or special meeting, remove any such officer and appoint his or her successor. Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint such - --------- other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the By-Laws or as the Board of Directors may from time to time determine. Section 4. RESIGNATION AND REMOVAL. Any officer may be removed, either with or - --------- without cause, by a majority of the directors at the time in office at a regular or special meeting of the board, or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the Board of Directors or to the president, or to the secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. VACANCIES. A vacancy in any office because of death, resignation, - --------- removal, disqualification or any other cause shall be filled in the manner prescribed in the By-Laws for regular appointments to such office. Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be - --------- such an officer, shall, if present, preside at all meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him or her by the Board of Directors as prescribed by the By-Laws. Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be - --------- given by the Board of Directors to the Chairman of the Board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and affairs of the corporation. He shall: (1) Preside at all meetings of the shareholders, and in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors; (2) Be a member of all the standing committees, including the executive committee, if any, and shall have the general powers and duties of management usually vested in the office of president of a corporation. (3) Have such other powers and duties as may be prescribed by the Board of Directors or the By-Laws. Section 8. VICE-PRESIDENTS In the absence or disability of the president, the - --------- vice-presidents in order of their rank as fixed by the Board of Directors, or if not ranked, the vice-president designated by the Board of Directors, shall perform all the duties of the president, and when so acting shall have all the 5. powers of, and be subject to all the restrictions upon, the president. The vice-presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them by the Board of Directors or the By-Laws. Section 9. SECRETARY. The secretary shall: (1) Keep, or cause to be kept, a book - --------- of minutes at the principal office or such other place as the Board of Directors may order, of all meetings of directors and shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those directors and shareholders present, the names of those present at the directors' meeting, the number of shares present or represented at shareholders' meetings and the proceedings thereof; (2) Keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or a duplicate share register, showing the names of the shareholders and their addresses; the number and classes of shares held by each; the number and date of certificates issued for the same; the number and date of cancellation of every certificate surrendered for cancellation; (3) Give or cause to be given, notice of all meetings of shareholders and the Board of Directors, as required by the By-Laws or By-Law to be given; (4) Keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-Laws. Section 10. TREASURER. The treasurer shall: (1) Keep and maintain, or cause to - ---------- be kept and maintained, adequate and correct accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, surplus and surplus shares. Any surplus, including earned surplus, paid-in surplus and surplus arising from a reduction of stated capital, shall be classified according to source and shown in a separate account. The books of account shall at all times be open for inspection by any director; (2) Shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board of Directors; (3) Disburse the funds of the corporation as may be ordered by the Board of Directors; (4) Render to the president and directors, when they request it, an account of all of his or her transactions as treasurer and of the financial condition of the corporation; (5) Have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-Laws. ARTICLE V RECORDS - REPORTS - INSPECTION Section l. RECORDS. The corporation shall maintain adequate and correct - --------- accounts, books and records of its business and properties. All of such books, records and accounts shall be kept at its principal place of business in the State of California, as fixed by the Board of Directors from time to time. Section 2. INSPECTION. The share register or duplicate share register, the books - --------- of account, and minutes of proceedings of the shareholders and directors shall be open to inspection upon the written demand of any shareholder or the 6. holder or a voting trust certificate at any reasonable time, and for a purpose reasonably related to his or her interests as a shareholder, and shall be exhibited at any time when required by the demand of ten percent of the shares represented at any shareholders' meeting. Such inspection may be made in person or by an agent or attorney, and shall include the right to make extracts. Demand of inspection other than at a shareholders' meeting shall be made in writing upon the president, secretary or assistant-secretary of the corporation. Section 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for payment - --------- of money, notes or other evidences of indebtedness issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board of Directors. Section 4. ANNUAL REPORT. The Board of Directors of the corporation shall cause - --------- to be sent to the shareholders not later than 75 days after the close of the fiscal or calendar year an annual report in compliance with the provisions of Section 3006 of the California Corporation Code, unless the By-Laws expressly dispense with such report. Section 5. CONTRACTS, ETC. The Board of Directors, except as the By-Laws or - --------- Articles of Incorporation otherwise provide, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances; and unless so authorized by the Board of Directors, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or agreement or to pledge its credit to render it liable for any purpose or to any amount. Section 6. INSPECTION OF BY-LAWS. The corporation shall keep in its principal - --------- office for the transaction of business the original or a copy of the By-Laws as amended or otherwise altered to date, certified by the secretary, which shall be open to inspection by the shareholders at all reasonable times during business hours. ARTICLE VI CERTIFICATES OF STOCK Section l. CERTIFICATES OF STOCK. Certificates for shares shall be of such form - --------- and device as the Board of Directors may designate and shall state the name of the record holder of the shares represented thereby; its number; date of issuance; the number of shares for which it is issued; the par value, if any, or a statement that such shares are without par value; a statement of the rights, privileges, preferences and restrictions, if any; a statement as to the redemption or conversion, if any; a statement of liens or restrictions upon transfer or voting, if any; if the shares be assessable, or, if assessments are collectible by personal action, a plain statement of such facts. Every certificate for shares must be signed by the President or a Vice-President and the Secretary or an Assistant Secretary or must be authenticated by facsimiles of the signature of the President and Secretary or by a facsimile of the signature of its President and the written signature of its Secretary or an Assistant Secretary. Before it became effective every certificate for shares authenticated by a facsimile of a signature must be countersigned by a transfer agent or transfer clerk and must be registered by an incorporated bank or trust company, either domestic or foreign as registrar of transfers. 7. Section 2. TRANSFER. Upon surrender to the Secretary or transfer agent of the - --------- corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 3. LOST OR DESTROYED CERTIFICATES. Any person claiming a certificate of - --------- stock to be lost or destroyed shall make an affidavit or affirmation of that fact and advertise the same in such manner as the Board of Directors may require, and shall if the directors so require give the corporation a bond of indemnity, in form and with one or more sureties satisfactory to the Board, in at least double the value of the stack represented by said certificate, whereupon a new certificate may be issued of the same tenor and for the same number of shares as the one alleged to be lost or destroyed. Section 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may appoint - --------- one or more transfer agents or transfer clerks, and one or more registrars, which shall be an incorporated bank or trust company, either domestic or foreign, who shall be appointed at such times and places as the requirements of the corporation may necessitate and the Board of Directors may designate. Section 5. CLOSING STOCK TRANSFER BOOKS. The Board of Directors may close the - --------- transfer books in their discretion for a period not exceeding thirty days preceding any meeting, annual or special, of the shareholders, or the day appointed for the payment of a dividend. ARTICLE VII AMENDMENTS Section 1. POWER OF SHAREHOLDERS. These By-Laws may be repealed or amended, or - --------- new By-Laws may be adopted at such annual meeting, or at any other meeting of the shareholders, called for the purpose by the Board of Directors, by a vote representing a majority of the shares entitled to vote, or by the written assent of such shareholders. Section 2. POWER OF DIRECTORS. Subject to the right of shareholders as provided - --------- in Section 1 of this Article VII to adopt, amend or repeal By-Laws, By-Laws other than a By-Law or amendment thereof changing the authorized number of directors may be adopted, amended or repealed by the Board of Directors. Section 3. RECORD OF AMENDMENTS. Whenever an amendment or new By-Law is adopted, - --------- it shall be copied in the Book of By-Laws with the original By-Laws, in the appropriate place. If any By-Law is repealed, the fact of repeal with the date of the meeting at which the repeal was enacted or written assent was filed shall be stated in said book. ARTICLE VIII SEAL The Corporation shall adopt and use a corporate seal consisting of a circle setting forth on its circumference the name of the corporation and showing the State and date of incorporation. 8. KNOW ALL MEN BY THESE PRESENTS: That we, the undersigned, being all the directors of FOUNTAINVIEW CONVALESCENT HOSPITAL, a corporation incorporated, organized and existing under the laws of the State of California, do hereby certify that the foregoing By-Laws, were duly adopted as the By-Laws of the said corporation. IN WITNESS WHEREOF, we have hereunto subscribed our names this 30th day of June, 1967 /s/ Julian Robinson ----------------------------------- JULIAN ROBINSON /s/ Alan B. Bodley ----------------------------------- ALAN B. BODLEY /s/ Alan L. Belinkoff ----------------------------------- ALAN L. BELINKOFF KNOW ALL MEN BY THESE PRESENTS: That I, the undersigned, the duly elected, and acting Secretary of FOUNTAINVIEW CONVALESCENT HOSPITAL do hereby certify, that the above and foregoing By-Laws were adopted as the By-Laws of said corporation on the 30th day of June, 1967 IN WITNESS WHEREOF, I have hereunto subscribed my name this 30th day of June, 1967. /s/ Morris Freedman ----------------------------------- Secretary MORRIS FREEDMAN KNOW ALL MEN BY THESE PRESENTS: That I, the undersigned, the duly elected, and acting Secretary of do hereby certify, that the above and foregoing Code of By-Laws was submitted to the shareholders at their first meeting held on the day of 19 , and was ratified by the vote of shareholders entitled to exercise the majority of the voting power of said corporation. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of said corporation this day of 19 ----------------------------------- Secretary 9. EX-3.35 36 ARTICLES OF INCORP. OF FOUNTAIN VIEW MANAGEMENT Exhibit 3.35 ARTICLES OF INCORPORATION OF FOUNTAIN VIEW MANAGEMENT, INC. I The name of this corporation is Fountain View Management, Inc. II The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. III The name and address in the State of California of this corporation's initial agent for service of process is: Robert Snukal, 4311 Wilshire Boulevard, Suite 206, Los Angeles, California 90010. IV This corporation is authorized to issue only one class of shares of stock; and the total number of shares which this corporation is authorized to issue is 500,000. DATED: November 28, 1988. /s/ David B. Bloom ----------------------------------- DAVID B. BLOOM I hereby declare that I am the person who executed the foregoing Articles of Incorporation, which execution is my act and deed. /s/ David B. Bloom ----------------------------------- DAVID B. BLOOM [SEAL OF THE SECRETARY OF STATE APPEARS HERE] EX-3.36 37 BY-LAWS OF FOUNTAIN VIEW MANAGEMENT, INC. Exhibit 3.36 BY-LAWS OF FOUNTAIN VIEW MANAGEMENT, INC. (A California Corporation) ARTICLE I SHAREHOLDERS' MEETINGS Section 1. TIME. An annual meeting for the election of directors and or ------- - the transaction of any other proper business and any special meeting shall be held on the date and at the time as the Board of Directors shall from time to time fix. Time of Meeting: Ten o'clock A.M. Date of Meeting: The 10th day of January of each year. Section 2. PLACE. Annual meetings and special meetings shall ------- - be held at such place, within or without the State of California, as the Directors may, from time to time, fix. Whenever the Directors shall fail to fix such place, the meetings shall be held at the principal executive office of the corporation. Section 3. CALL. Annual meetings may be called by the Directors, by the ------- - Chairman of the Board, if any, Vice Chairman of the Board, if any, the President, if any, the Secretary, or by any officer instructed by the Directors to call the meeting. Special meetings may be called in like manner and by the holders of shares entitled to cast not less than ten percent of the votes at the meeting being called. Section 4. NOTICE. Written notice stating the place, day and hour of ------- - each meeting, and, in the case of a special meeting, the general nature of the business to be transacted or, in the case of an Annual Meeting, those matters which the Board of Directors, at the time of mailing of the notice, intends to present for action by the shareholders, shall be given not less than ten days (or not less than any such other minimum period of days as may be prescribed by the General Corporation Law) or more than sixty days (or more than any such maximum period of days as may be prescribed by the General Corporation Law) before the date of the meeting, by mail, personally, or by other means of written communication, charges prepaid by or at the direction of the Directors, the President, if any, the Secretary or the officer or persons calling the meeting, addressed to each shareholder at his address appearing on the books of the corporation or given by him to the corporation for the purpose of notice, or, if no such address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the said principal executive office is located. Such notice shall be deemed to be delivered when deposited in the United States mail with first class postage therein prepaid, or sent by other means of written communication addressed to the shareholder at his address as it appears on the stock transfer books of the corporation. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of notice to be presented by management for election. At an annual meeting of shareholders, any matter relating to the affairs of the corporation, whether or not stated in the notice of the meeting, may be brought up for action except matters which the General Corporation Law requires to be stated in the notice of the meeting. The notice of any annual or special meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the General Corporation Law. When a meeting is adjourned to another time or place, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken; provided that, 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 shareholder. At the adjourned meeting, the corporation may transact any business Which might have been transacted at the original meeting. Section 5. CONSENT. The transaction of any meeting, however called and noticed, - ------- - and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting, each of the shareholders or his proxy signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting constitutes a waiver of notice of such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting shall not constitute a waiver of any right to object to the consideration of matters required by the General Corporation Law to be included in the notice if such objection is expressly made at the meeting. Except as otherwise provided in subdivision (f) of Section 601 of the General Corporation Law, neither the business to be transacted at nor the purpose of any regular or special meeting need be specified in any written waiver of notice. Section 6. CONDUCT OF MEETING. Meetings of the shareholders shall be presided - ------- - over by one of the following officers in the order of seniority and if present and acting the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the President, if any, a Vice President or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the shareholders. The Secretary of the corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the Chairman of the meeting shall appoint a secretary of the meeting. Section 7. PROXY REPRESENTATION. Every shareholder may authorize ------- - another person or persons to act as his proxy at a meeting or by written action. No proxy shall be valid after the expiration of eleven months from the date of its execution unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the person executing it prior to the vote or written action pursuant thereto, except as otherwise provided by the General Corporation Law. As used herein, a "proxy" shall be deemed to mean a written authorization signed by a shareholder or a shareholder's attorney in fact giving another person or persons power to vote or consent in writing with respect to the shares of such shareholder, and "Signed" as used herein shall be deemed to mean the placing of such shareholder's name on the proxy, whether by manual signature, typewriting, telegraphic transmission or otherwise by such shareholder or such shareholder's attorney in fact. Where applicable, the form of any proxy shall comply with the provisions of Section 604 of the General Corporation Law. Section 8. INSPECTORS - APPOINTMENT. In advance of any meeting, the ------- - Board of Directors may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or, if any persons so appointed fail to appear or refuse to act, the Chairman of any meeting of shareholders may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election or persons to replace any of those who so fail or refuse, at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented shall determine whether one or three inspectors are to be appointed. The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity, and effect of proxies, receive votes, ballots, if any, or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result, and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. If there are three inspectors of election, the decision, act, or certificate of a majority shall be effective in all respects as the decision, act, or certificate of all. Section 9. SUBSIDIARY CORPORATIONS. Shares of this corporation owned by a - ------- - subsidiary shall not be entitled to vote on any matter. A subsidiary for these purposes is defined as a corporation, the shares of which possessing more than 25% of the total combined voting power of all classes of shares entitled to vote, are owned directly or indirectly through one or more subsidiaries. Section 10. QUORUM; VOTE; WRITTEN CONSENT. The holders of a majority of the - ------- -- voting shares shall constitute a quorum at a meeting of shareholders for the transaction of any business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum if any action taken, other than adjournment, is approved by at least a majority of the shares required to constitute a quorum. In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares represented thereat, but no other business may be transacted except as hereinbefore provided. In the election of directors, a plurality of the votes cast shall elect. No shareholder shall be entitled to exercise the right of cumulative voting at a meeting for the election of directors unless the candidate's name or the candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder's intention to cumulate the shareholder's votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for such candidates in nomination. Except as otherwise provided by the General Corporation Law, the Articles of Incorporation or these By-Laws, any action required or permitted to be taken at a meeting at which a quorum is present shall be authorized by the affirmative vote of a majority of the shares represented at the meeting. Except in the election of directors by written consent in lieu of a meeting, and except as may otherwise be provided by the General Corporation Law, the Articles of Incorporation or these By-Laws, any action which may be taken at any annual or special meeting may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by holders of shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. Notice of any shareholder approval pursuant to Section 310, 317, 1201 or 2007 without a meeting by less than unanimous written consent shall be given at least ten days before the consummation of the action authorized by such approval, and prompt notice shall be given of the taking of any other corporate action approved by shareholders without a meeting by less than unanimous written consent to those shareholders entitled to vote who have not consented in writing. Section 11. BALLOT. Elections of directors at a meeting need not be - ------- -- by ballot unless a shareholder demands election by ballot at the election and before the voting begins. In all other matters, voting need not be by ballot. Section 12. SHAREHOLDERS' AGREEMENTS. Notwithstanding the above provisions in - ------- -- the event this corporation elects to become a close corporation, an agreement between two or more shareholders thereof, if in writing and signed by the parties thereof, may provide that in exercising any voting rights the shares held by them shall be voted as provided therein or in Section 706 and may otherwise modify these provisions as to shareholders' meetings and actions. ARTICLE II BOARD OF DIRECTORS Section 1. FUNCTIONS. The business and affairs of the corporation shall be - ------- - managed and all corporate powers shall be exercised by or under the direction of its Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person, provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board of Directors. The Board of Directors shall have authority to fix the compensation of directors for services in any lawful capacity. Each director shall exercise such powers and otherwise perform such duties in good faith, in the manner such director believes to be in the best interests of the corporation, and with care, including reasonable inquiry, using ordinary prudence, as a person in a like position would use under similar circumstances. (Section 309). Section 2. EXCEPTION FOR CLOSE CORPORATION. Notwithstanding the provisions of - ------- - Section 1, in the event that this corporation shall elect to become a close corporation as defined in Section 186, its shareholders may enter into a Shareholders' Agreement as provided in Section 300 (b). Said Agreement may provide for the exercise of corporate powers and the management of the business and affairs of this corporation by the shareholders, provided however such agreement shall, to the extent and so long as the discretion or the powers of the Board in its management of corporate affairs is controlled by such agreement, impose upon each shareholder who is a party thereof, liability for managerial acts performed or omitted by such person pursuant thereto otherwise imposed upon Directors as provided in Section 300 (d). Section 3. QUALIFICATIONS AND NUMBER. A director need not be a shareholder of - ------- - the corporation, a citizen of the United States, or a resident of the State of California. The authorized number of directors constituting the Board of Directors until further changed shall be 4. Thereafter, the authorized number of directors constituting the Board shall be at least three provided that, whenever the corporation shall have only two shareholders, the number of directors may be at least two, and, whenever the corporation shall have only one shareholder, the number of directors may be at least one. Subject to the foregoing provisions, the number of directors may be changed from time to time by an amendment of these By-Laws adopted by the shareholders. Any such amendment reducing the number of directors to fewer than five cannot be adopted if the votes cast against its adoption at a meeting or the shares not consenting in writing in the case of action by written consent are equal to more than sixteen and two-thirds percent of the outstanding shares. No decrease in the authorized number of directors shall have the effect of shortening the term of any incumbent director. Section 4. ELECTION AND TERM. The initial Board of Directors shall consist of - ------- - the persons elected at the meeting of the incorporator, all of whom shall hold office until the first annual meeting of shareholders and until their successors have been elected and qualified, or until their earlier resignation or removal from office. Thereafter, directors who are elected to replace any or all of the members of the initial Board of Directors or who are elected at an annual meeting of shareholders, and directors who are elected in the interim to fill vacancies, shall hold office until the next annual meeting of shareholders and until their successors have been elected and qualified, or until their earlier resignation, removal from office, or death. In the interim between annual meetings of shareholders or of special meetings of shareholders called for the election of directors, any vacancies in the Board of Directors, including vacancies resulting from an increase in the authorized number of directors which have not been filled by the shareholders, including any other vacancies which the General Corporation Law authorizes directors to fill, and including vacancies resulting from the removal of directors which are not filled at the meeting of shareholders at which any such removal has been effected, if the Articles of Incorporation or a By-Law adopted by the shareholders so provides, may be filled by the vote of a majority of the directors then in office or of the sole remaining director, although less than a quorum exists. Any director may resign effective upon giving written notice to the Chairman of the Board, if any, the President, the Secretary or the Board of Directors, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to the office when the resignation becomes effective. The shareholders may elect a director at any time to fill any vacancy which the directors are entitled to fill, but which they have not filled. Any such election by written consent shall require the consent of a majority of the shares. Section 5. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The - ------- - corporation may indemnify any Director, Officer, agent or employee as to those liabilities and on those terms and conditions as are specified in Section 317. In any event, the corporation shall have the right to purchase and maintain insurance on behalf of any such persons whether or not the corporation would have the power to indemnify such person against the liability insured against. Section 6. MEETINGS. - ------- - TIME. Meetings shall be held at such time as the Board shall fix, except that the first meeting of a newly elected Board shall be held as soon after its election as the directors may conveniently assemble. PLACE. Meetings may be held at any place, within or without the State of California, which has been designated in any notice of the meeting, or, if not stated in said notice, or, if there is no notice given, at the place designated by resolution of the Board of Directors. CALL. Meetings may be called by the Chairman of the Board, if any and acting, by the Vice Chairman of the Board, if any, by the President, if any, by any Vice President or Secretary, or by any two directors. NOTICE AND WAIVER THEREOF. No notice shall be required for regular meetings for which the time and place have been fixed by the Board of Directors. Special meetings shall be held upon at least four days' notice by mail or upon at least forty-eight hours' notice delivered personally or by telephone or telegraph. Notice of a meeting need not be given to any director who signs a waiver of notice, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. A notice or waiver of notice need not specify the purpose of any regular or special meeting of the Board of Directors. Section 7. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION. In the event - ------- - only one director is required by the By-Laws or Articles of Incorporation then any reference herein to notices, waivers, consents, meetings or other actions by a majority or quorum of the directors shall be deemed to refer to such notice, waiver, etc., by such sole director, who shall have all the rights and duties and shall be entitled to exercise all of the powers and shall assume all the responsibilities otherwise herein described as given to a Board of Directors. Section 8. QUORUM AND ACTION. A majority of the authorized number of directors - ------- - shall constitute a quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided such majority shall constitute at least either one-third of the authorized number of directors or at least two directors, whichever is larger, or unless the authorized number of directors is only one. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than twenty-four hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors, if any, who were not present at the time of the adjournment. Except as the Articles of Incorporation, these By-Laws and the General Corporation Law may otherwise provide, the act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be the act of the Board of Directors. Members of the Board of Directors may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another, and participation by such use shall be deemed to constitute presence in person at any such meeting. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, provided that any action which may be taken is approved by at least a majority of the required quorum for such meeting. Section 9. CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if - ------- - present and acting, the Vice Chairman of the Board, if any and if present and acting, shall preside at all meetings. Otherwise, the President, if any and present and acting, or any director chosen by the Board, shall preside. Section 10. REMOVAL OF DIRECTORS. The entire Board of Directors or any - ------- -- individual director may be removed from office without cause by approval of the holders of at least a majority of the shares provided, that unless the entire Board is removed, an individual director shall not be removed when the votes cast against such removal, or not consenting in writing to such removal, would be sufficient to elect such director voted cumulatively at an election of directors at which the same total number of votes were cast, or, if such action is taken by written consent, in lieu of a meeting, all shares entitled to vote were voted, and the entire number of directors authorized at the time of the director's most recent election were then being elected. If any or all directors are so removed, new directors may be elected at the same meeting or by such written consent. The Board of Directors may declare vacant the office of any director who has been declared of unsound mind by an order of court or convicted of a felony. Section 11. COMMITTEES. The Board of Directors, by resolution adopted by a - ---------- majority of the authorized number of directors, may designate one or more committees, each consisting of two or more directors to serve at the pleasure of the Board of Directors. The Board of Directors may designate one or more directors as alternate members of any such committee, who may replace any absent member at any meeting of such committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have all the authority of the Board of Directors except such authority as may not be delegated by the provisions of the General Corporation Law. Section 12. INFORMAL ACTION. The transactions of any meeting of the Board of - ---------- Directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting, or an approval of the minutes thereof. All such waivers, consents, or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 13. WRITTEN ACTION. Any action required or permitted to be taken may be - ---------- taken without a meeting if all of the members of the Board of Directors shall individually or collectively consent in writing to such action. Any such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. ARTICLE III. OFFICERS Section 1. OFFICERS. The officers of the corporation shall be a Chairman of the - --------- Board or a President or both, a Secretary and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, one or more Vice Presidents, one or more Assistant Secretaries and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. One person may hold two or more offices. Section 2. ELECTION. The officers of the corporation, except such officers as - --------- may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article shall be chosen annually by the Board of Directors, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified. Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint such - --------- other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the By-Laws or as the Board of Directors may from time to time determine. Section 4. REMOVAL AND RESIGNATION. Any officer may be removed, either with or - --------- without cause, by a majority of the directors at the time in office, at any regular or special meeting of the Board, or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the Board of Directors, or to the President, or to the Secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. VACANCIES. A vacancy in any office because of death, resignation, - --------- removal, disqualification or any other cause shall be filled in the manner prescribed in the By-Laws for regular appointments to such office. Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be - --------- such an officer, shall, if present, preside at all meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the By-Laws. Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be - --------- given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. He shall preside at all meetings of the shareholders and in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. He shall be ex officio a member of all the standing committees, including the Executive Committee, if any, and shall have general powers and duties of management usually in the office of President of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the By-Laws. Section 8. VICE PRESIDENT. In the absence or disability of the President, the - --------- Vice Presidents, in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to, all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the By-Laws. Section 9. SECRETARY. The Secretary shall keep, or cause to be kept, a book of - --------- minutes at the principal office or such other place as the Board of Directors may order, of all meetings of Directors and Shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Directors' meetings, the number of shares present or represented at Shareholders' meetings and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or duplicate share register, showing the names of the shareholders and their addresses; the number and classes of shares held by each; the number and date of certificates issued for the same; and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all the meetings of the shareholders and of the Board of Directors required by the By-Laws or by law to be given, and he shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the By-Laws. Section 10. CHIEF FINANCIAL OFFICER. This officer shall keep and maintain, or - ---------- cause to be kept and maintained in accordance with generally accepted accounting principles, adequate and correct accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, earnings (or surplus) and shares. The books of account shall at all reasonable times be open to inspection by any director. This officer shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all his transactions and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-Laws. ARTICLE IV CERTIFICATES AND TRANSFERS OF SHARES Section 1. CERTIFICATES FOR SHARES. Each certificate for shares of the --------- corporation shall set forth therein the name of the record holder of the shares represented thereby, the number of shares and the class or series of shares owned by said holder, the par value, if any, of the shares represented thereby, and such other statements, as applicable, prescribed by Sections 416 - 419, inclusive, and other relevant Sections of the General Corporation Law of the State of California (the "General Corporation Law") and such other statements, as applicable, which may be prescribed by the Corporate Securities Law of the State of California and any other applicable provision of the law. Each such certificate issued shall be signed in the name of the corporation by the Chairman of the Board of Directors; if any, or the Vice Chairman of the Board of Directors, if any, the President, if any, or a Vice President, if any, and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or an Assistant Secretary. Any or all of the signatures on a certificate for shares may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate for shares shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. In the event that the corporation shall issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor, any such certificate for shares shall set forth thereon the statements prescribed by Section 409 of the General Corporation Law. Section 2. LOST OR DESTROYED CERTIFICATES FOR SHARES. The corporation may --------- issue a new certificate for shares or for any other security in the place of any other certificate theretofore issued by it, which is alleged to have been lost, stolen or destroyed. As a condition to such issuance, the corporation may require any such owner of the allegedly lost, stolen or destroyed certificate or any such owner's legal representative to give the corporation a bond, or other adequate security, sufficient to indemnify it against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 3. SHARE TRANSFERS. Upon compliance with any provisions of the General - --------- Corporation Law and/or the Corporate Securities Law of 1968 which may restrict the transferability of shares, transfers of shares of the corporation shall be made only on the record of shareholders of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation or with a transfer agent or a registrar, if any, and on surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes, if any, due thereon. Section 4. RECORD DATE FOR SHAREHOLDERS. In order that the corporation may - --------- determine the shareholders entitled to notice of any meeting or to vote or be 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 other lawful action, the Board of Directors may fix, in advance a record date, which shall not be more than sixty days or fewer than ten days prior to the date of such meeting or more than sixty days prior to any other action. If the Board of Directors shall not have fixed a record date as aforesaid, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given; and the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth day prior to the day of such other action, whichever is later. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, but the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five days from the date set for the original meeting. Except as may be otherwise provided by the General Corporation Law, shareholders on the record date shall be entitled to notice and to vote or to receive any dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date. Section 5. PRESENTATION OF SPARES IN OTHER CORPORATIONS. Shares of other - ------- - corporations standing in the name of this corporation may be voted or represented and all incidents thereto may be exercised on behalf of the corporation by the Chairman of the Board, the President or any Vice President or any other person authorized by resolution of the Board of Directors. Section 6. MEANING OF CERTAIN TERMS. As used in these By-Laws in respect of the - ------- - right to notice of a meeting of shareholders or a waiver thereof or to participate or vote thereat or to assent or consent or dissent in writing in lieu of a meeting, as the case may be, the term "share" or "shares" or "shareholder" or "shareholders" refers to an outstanding share or shares and to a holder or holders of record or outstanding shares when the corporation is authorized to issue only one class of shares, and said reference is also intended to include any outstanding share or shares and any holder or holders of record of outstanding shares of any class upon which or upon whom the Articles of Incorporation confer such rights where there are two or more classes or series of shares or upon which or upon whom the General Corporation Law confers such rights notwithstanding that the Articles of Incorporation may provide for more than one class or series of shares, one or more of which are limited or denied such rights thereunder. Section 7. CLOSE CORPORATION CERTIFICATES. All certificates representing shares - ------- - of this corporation, in the event it shall elect to become a close corporation, shall contain the legend required by Section 418 (c). ARTICLE V EFFECT OF SHAREHOLDERS' AGREEMENT-CLOSE CORPORATION Any Shareholders' Agreement authorized by Section 300 (b) shall only be effective to modify the terms of these By-Laws if this corporation elects to become a close corporation with appropriate filing of or amendment to its Articles as required by Section 202 and shall terminate when this corporation ceases to be a close corporation. Such an agreement cannot waive or alter Sections 158 (defining close corporations), 202 (requirements of Articles of Incorporation), 500 and 501 relative to distributions, 111 (merger), 1201(e) (reorganization) or Chapters 15 (Records and Reports), 16 (Rights of Inspection), 18 (Involuntary Dissolution) or 22 (Crimes and Penalties). Any other provisions of the Code or these By-Laws may be altered or waived thereby, but to the extent they are not so altered or waived, these By-Laws shall be applicable. ARTICLE VI CORPORATE CONTRACTS AND INSTRUMENTS-HOW EXECUTED The Board of Directors, except as in the By-Laws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board of Directors, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or agreement, or to pledge its credit, or to render it liable for any purposes or any amount, except as provided in Section 313 of the Corporations Code. ARTICLE VII CONTROL OVER BY-LAWS After the initial By-Laws of the corporation shall have been adopted by the incorporator or incorporators of the corporation, the By-Laws may be amended or repealed or new By-Laws may be adopted by the shareholders entitled to exercise a majority of the voting power or by the Board of Directors; provided, however, that the Board of Directors shall have no control over any By-Law which fixes or changes the authorized number of directors of the corporation; provided, further, than any control over the By-Laws herein vested in the Board of Directors shall be subject to the authority of the aforesaid shareholders to amend or repeal the By-Laws or to adopt new By-Laws; and provided further that any By-Law amendment or new By-Law which changes the minimum number of directors to fewer than five shall require authorization by the greater proportion of voting power of the shareholders as hereinbefore set forth. ARTICLE VIII BOOKS AND RECORDS -STATUTORY AGENT Section 1. RECORDS: STORAGE AND INSPECTION. The corporation shall keep at its - --------- principal executive office in the State of California, or, if its principal executive office is not in the State of California, the original or a copy of the By-Laws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California, and, if the corporation has no principal business office in the State of California, it shall upon request of any shareholder furnish a copy of the By-Laws as amended to date. The corporation shall keep adequate and correct books and records of account and shall keep minutes of the proceedings of its shareholders, Board of Directors and committees, if any, of the Board of Directors. The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, a record its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each. Such minutes shall be in written form. Such other books and records shall be kept either in written form or in any other form capable of being converted into written form. Section 2. RECORD OF PAYMENTS. All checks, drafts or other orders for payment of - --------- money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as shall be determined from time to time by resolution of the Board of Directors. Section 3. ANNUAL REPORT. Whenever the corporation shall have fewer than one - --------- hundred shareholders, the Board of Directors shall not be required to cause to be sent to the shareholders of the corporation the annual report prescribed by Section 1501 of the General Corporation Law unless it shall determine that a useful purpose would be served by causing the same to be sent or unless the Department of Corporations, pursuant to the provisions of the Corporate Securities Law of 1968, shall direct the sending of the same. Section 4. AGENT FOR SERVICE. The name of the agent for service of process - --------- within the State of California is Robert Snukal. CERTIFICATE OF ADOPTION OF BY-LAWS ADOPTION BY INCORPORATOR(S) OR FIRST DIRECTOR(S). The undersigned person(s) appointed in the Articles of Incorporation to act as the Incorporator(s) or First Director(s) of the above named corporation hereby adopt the same as the By-Laws of said corporation. Executed this 18th day of January, 1989. /s/ Robert Snukal -------------------------------------- Name THIS IS TO CERTIFY: That I am the duly-elected, qualified and acting Secretary of the above-named corporation; that the foregoing By-Laws were adopted as the By-Laws of said corporation on the date set forth above by the person(s) appointed in the Articles of Incorporation to act as the Incorporator(s) or First Director(s) of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal this 18th day of January, 1989. /s/ Sheila Snukal -------------------------- Secretary, Sheila Snukal (SEAL) EX-3.37 38 ARTICLES OF INCORP. OF RIO HONDO NURSING CENTER Exhibit 3.37 ARTICLES OF INCORPORATION OF RIO HONDO NURSING CENTER I The name of this corporation is RIO HONDO NURSING CENTER. II The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. III The name and address in the State of California of this corporation's initial agent for service of process is: Robert Snukal, 273 East Beverly Boulevard, Montebello, California. IV This corporation is authorized to issue only one class of shares of stock; and the total number of shares which this corporation is authorized to issue is 300,000. DATED: March 21, 1990. /s/ David B. Bloom ----------------------------------- DAVID B. BLOOM I hereby declare that I am the person who executed the foregoing Articles of Incorporation, which execution is my act and deed. /s/ David B. Bloom ----------------------------------- DAVID B. BLOOM [SEAL OF THE SECRETARY OF STATE APPEARS HERE] EX-3.38 39 BY-LAWS OF RIO HONDO NURSING CENTER Exhibit 3.38 BY-LAWS OF RIO HONDO NURSING CENTER, (A California Corporation) ARTICLE I SHAREHOLDERS' MEETINGS Section l. TIME. An annual meeting for the election of directors and or the - --------- transaction of any other proper business and any special meeting shall be held on the date and at the time as the Board of Directors shall from time to time fix. Time of Meeting: Ten o'clock A.M. Date of Meeting: First day of June of each year. Section 2. PLACE. Annual meetings and special meetings shall be held at such - --------- place, within or without the State of California, as the Directors may, from time to time, fix. Whenever the Directors shall fail to fix such place, the meetings shall be held at the principal executive office of the corporation. Section 3. CALL. Annual meetings may be called by the Directors, by the Chairman - --------- of the Board, if any, Vice Chairman of the Board, if any, the President, if any, the Secretary, or by any officer instructed by the Directors to call the meeting. Special meetings may be called in like manner and by the holders of shares entitled to cast not less than ten percent of the votes at the meeting being called. Section 4. NOTICE. Written notice stating the place, day and hour of each - --------- meeting, and, in the case of a special meeting, the general nature of the business to be transacted or, in the case of an Annual Meeting, those matters which the Board of Directors, at the time of mailing of the notice, intends to present for action by the shareholders, shall be given not less than ten days (or not less than any such other minimum period of days as may be prescribed by the General Corporation Law) or more than sixty days (or more than any such maximum period of days as may be prescribed by the General Corporation Law) before the date of the meeting, by mail, personally, or by other means of written communication, charges prepaid by or at the direction of the Directors, the President, if any, the Secretary or the officer or persons calling the meeting, addressed to each shareholder at his address appearing on the books of the corporation or given by him to the corporation for the purpose of notice, or, if no such address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the said principal executive office is located. Such notice shall be deemed to be delivered when deposited in the United States mail with first class postage therein prepaid, or sent by other means of written communication addressed to the 1 shareholder at his address as it appears on the stock transfer books of the corporation. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of notice to be presented by management for election. At an annual meeting of shareholders, any matter relating to the affairs of the corporation, whether or not stated in the notice of the meeting, may be brought up for action except matters which the General Corporation Law requires to be stated in the notice of the meeting. The notice of any annual or special meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the General Corporation Law. When a meeting is adjourned to another time or place, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken; provided that, 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 shareholder. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. Section 5. CONSENT. The transaction of any meeting, however called and noticed, - --------- and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting, each of the shareholders or his proxy signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting constitutes a waiver of notice of such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting shall not constitute a waiver of any right to object to the consideration of matters required by the General Corporation Law to be included in the notice if such objection is expressly made at the meeting. Except as otherwise provided in subdivision (f) of Section 601 of the General Corporation Law, neither the business to be transacted at nor the purpose of any regular or special meeting need be specified in any written waiver of notice. Section 6. CONDUCT OF MEETING. Meetings of the shareholders shall be presided - --------- over by one of the following officers in the order of seniority and if present and acting the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the President, if any, a Vice President, or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the shareholders. The Secretary of the corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the Chairman of the meeting shall appoint a secretary of the meeting. 2 Section 7. PROXY REPRESENTATION. Every shareholder may authorize another person - --------- or persons to act as his proxy at a meeting or by written action. No proxy shall be valid after the expiration of eleven months from the date of its execution unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the person executing it prior to the vote or written action pursuant thereto, except as otherwise provided by the General Corporation Law. As used herein, a "proxy" shall be deemed to mean a written authorization signed by a shareholder or a shareholder's attorney in fact giving another person or persons power to vote or consent in writing with respect to the shares of such shareholder, and "Signed" as used herein shall be deemed to mean the placing of such shareholder's name on the proxy, whether by manual signature, typewriting, telegraphic transmission or otherwise by such shareholder or such shareholder's attorney in fact. Where applicable, the form of any proxy shall comply with the provisions of Section 604 of the General Corporation Law. Section 8. INSPECTORS - APPOINTMENT. In advance of any meeting, the Board of - --------- Directors may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or, if any persons so appointed fail to appear or refuse to act, the Chairman of any meeting of shareholders may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election or persons to replace any of those who so fail or refuse, at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of states represented shall determine whether one or three inspectors are to be appointed. The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity, and effect of proxies, receive votes, ballots, if any, or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result, and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. If there are three inspectors of election, the decision, act, or certificate of a majority shall be effective in all respects as the decision, act, or certificate of all. Section 9. SUBSIDIARY CORPORATIONS. Shares of this corporation owned by a - --------- subsidiary shall not be entitled to vote on any matter. A subsidiary for these purposes is defined as a corporation, the shares of which possessing more than 25% of the total combined voting power of all classes of shares entitled to vote, are owned directly or indirectly through one or more subsidiaries. Section 10. QUORUM; VOTE; WRITTEN CONSENT. The holders of a majority of the - ---------- voting shares shall constitute a quorum at a meeting of shareholders for the transaction of any business. The 3 shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum if any action taken, other than adjournment, is approved by at least a majority of the shares required to constitute a quorum. In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares represented thereat, but no other business may be transacted except as hereinbefore provided. In the election of directors, a plurality of the votes cast shall elect. No shareholder shall be entitled to exercise the right of cumulative voting at a meeting for the election of directors unless the candidate's name or the candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder's intention to cumulate the shareholder's votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for such candidates in nomination. Except as otherwise provided by the General Corporation Law, the Articles of Incorporation or these By-Laws, any action required or permitted to be taken at a meeting at which a quorum is present shall be authorized by the affirmative vote of a majority of the shares represented at the meeting. Except in the election of directors by written consent in lieu of a meeting, and except as may otherwise be provided by the General Corporation Law, the Articles of Incorporation or these By-Laws, any action which may be taken at any annual or special meeting may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by holders of shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. Notice of any shareholder approval pursuant to Section 310, 317, 1201 or 2007 without a meeting by less than unanimous written consent shall be given at least ten days before the consummation of the action authorized by such approval, and prompt notice shall be given of the taking of any other corporate action approved by shareholders without a meeting by less than unanimous written consent to those shareholders entitled to vote who have not consented in writing. Section 11. BALLOT. Elections of directors at a meeting need not be by ballot - ---------- unless a shareholder demands election by ballot at the election and before the voting begins. In all other matters, voting need not be by ballot. Section 12. SHAREHOLDERS' AGREEMENTS. Notwithstanding the above provisions in - ---------- the event this corporation elects to become a close corporation, an agreement between two or more shareholders 4 thereof, if in writing and signed by the parties thereof, may provide that in exercising any voting rights the shares held by them shall be voted as provided therein or in Section 706 and may otherwise modify these provisions as to shareholders' meetings and actions. ARTICLE II BOARD OF DIRECTORS Section 1. FUNCTIONS. The business and affairs of the corporation shall be - --------- managed and all corporate powers shall be exercised by or under the direction of its Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person, provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board of Directors. The Board of Directors shall have authority to fix the compensation of directors for services in any lawful capacity. Each director shall exercise such powers and otherwise perform such duties in good faith, in the manner such director believes to be in the best interests of the corporation, and with care, including reasonable inquiry, using ordinary prudence, as a person in a like position would use under similar circumstances. (Section 309). Section 2. EXCEPTION FOR CLOSE CORPORATION. Notwithstanding the provisions of - --------- Section 1, in the event that this corporation shall elect to become a close corporation as defined in Section 186, its shareholders may enter into a Shareholders' Agreement as provided in Section 300 (b). Said Agreement may provide for the exercise of corporate powers and the management of the business and affairs of this corporation by the shareholders, provided however such agreement shall, to the extent and so long as the discretion or the powers of the Board in its management of corporate affairs is controlled by such agreement, impose upon each shareholder who is a party thereof, liability for managerial acts performed or omitted by such person pursuant thereto otherwise imposed upon Directors as provided in Section 300 (d). Section 3. QUALIFICATIONS AND NUMBER. A director need not be a shareholder of - --------- the corporation, a citizen of the United States, or a resident of the State of California. The authorized number of directors constituting the Board of Directors until further changed shall be 4. Thereafter, the authorized number of directors constituting the Board shall be at least three provided that, whenever the corporation shall have only two shareholders, the number of directors may be at least two, and, whenever the corporation shall have only one shareholder, the number of directors may be at least one. Subject to the foregoing provisions, the number of directors may be changed from time to time by an amendment of these By-Laws adopted by the shareholders. Any such amendment reducing the number of 5 directors to fewer than five cannot be adopted if the votes cast against its adoption at a meeting or the shares not consenting in writing in the case of action by written consent are equal to more than sixteen and two-thirds percent of the outstanding shares. No decrease in the authorized number of directors shall have the effect of shortening the term of any incumbent director. Section 4. ELECTION AND TERM. The initial Board of Directors shall consist of - --------- the persons elected at the meeting of the incorporator, all of whom shall hold office until the first annual meeting of shareholders and until their successors have been elected and qualified, or until their earlier resignation or removal from office. Thereafter, directors who are elected to replace any or all of the members of the initial Board of Directors or who are elected at an annual meeting of shareholders, and directors who are elected in the interim to fill vacancies, shall hold office until the next annual meeting of shareholders and until their successors have been elected and qualified, or until their earlier resignation, removal from office, or death. In the interim between annual meetings of shareholders or of special meetings of shareholders called for the election of directors, any vacancies in the Board of Directors, including vacancies resulting from an increase in the authorized number of directors which have not been filled by the shareholders, including any other vacancies which the General Corporation Law authorizes directors to fill, and including vacancies resulting from the removal of directors which are not filled at the meeting of shareholders at which any such removal has been effected, if the Articles of Incorporation or a By-Law adopted by the shareholders so provides, may be filled by the vote of a majority of the directors then in office or of the sole remaining director, although less than a quorum exists. Any director may resign effective upon giving written notice to the Chairman of the Board, if any, the President, the Secretary or the Board of Directors, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to the office when the resignation becomes effective. The shareholders may elect a director at any time to fill any vacancy which the directors are entitled to fill, but which they have not filled. Any such election by written consent shall require the consent of a majority of the shares. Section 5. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The - --------- corporation may indemnify any Director, Officer, agent or employee as to those liabilities and on those terms and conditions as are specified in Section 317. In any event, the corporation shall have the right to purchase and maintain insurance on behalf of any such persons whether or not the corporation would have the power to indemnify such person against the liability insured against. 6 Section 6. MEETINGS. - --------- TIME. Meetings shall be held at such time as the Board shall fix, except that the first meeting of a newly elected Board shall be held as soon after its election as the directors may conveniently assemble. PLACE. Meetings may be held at any place, within or without the State of California, which has been designated in any notice of the meeting, or, if not stated in said notice, or, if there is no notice given, at the place designated by resolution of the Board of Directors. CALL. Meetings may be called by the Chairman of the Board, if any and acting, by the Vice Chairman of the Board, if any, by the President, if any, by any Vice President or Secretary, or by any two directors. NOTICE AND WAIVER THEREOF. No notice shall be required for regular meetings for which the time and place have been fixed by the Board of Directors. Special meetings shall be held upon at least four days' notice by mail or upon at least forty-eight hours' notice delivered personally or by telephone or telegraph. Notice of a meeting need not be given to any director who signs a waiver of notice, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. A notice or waiver of notice need not specify the purpose of any regular or special meeting of the Board of Directors. Section 7. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION. In the event - --------- only one director is required by the By-Laws or Articles of Incorporation, then any reference herein to notices, waivers, consents, meetings or other actions by a majority or quorum of the directors shall be deemed to refer to such notice, waiver, etc., by such sole director, who shall have all the rights and duties and shall be entitled to exercise all of the powers and shall assume all the responsibilities otherwise herein described as given to a Board of Directors. Section 8. QUORUM AND ACTION. A majority of the authorized number of directors - --------- shall constitute a quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided such majority shall constitute at least either one-third of the authorized number of directors or at least two directors, whichever is larger, or unless the authorized number of directors is only one. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than twenty-four hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors, if any, who were not present at the time of the adjournment. Except as the Articles of Incorporation, these By-Laws and the General Corporation Law may otherwise provide, the act or decision done or made by a majority of the directors 7 present at a meeting duly held at which a quorum is present shall be the act of the Board of Directors. Members of the Board of Directors may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another, and participation by such use shall be deemed to constitute presence in person at any such meeting. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, provided that any action which may be taken is approved by at least a majority of the required quorum for such meeting. Section 9. CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if - --------- present and acting, the Vice Chairman of the Board, if any and if present and acting, shall preside at all meetings. Otherwise, the President, if any and present and acting, or any director chosen by the Board, shall preside. Section 10. REMOVAL OF DIRECTORS. The entire Board of Directors or any - ---------- individual director may be removed from office without cause by approval of the holders of at least a majority of the shares provided, that unless the entire Board is removed, an individual director shall not be removed when the votes cast against such removal, or not consenting in writing to such removal, would be sufficient to elect such director if voted cumulatively at an election of directors at which the same total number of votes were cast, or, if such action is taken by written consent, in lieu of a meeting, all shares entitled to vote were voted, and the entire number of directors authorized at the time of the director's most recent election were then being elected. If any or all directors are so removed, new directors may be elected at the same meeting or by such written consent. The Board of Directors may declare vacant the office of any director who has been declared of unsound mind by an order of court or convicted of a felony. Section 11. COMMITTEES. The Board of Directors, by resolution adopted by a - ---------- majority of the authorized number of directors, may designate one or more committees, each consisting of two or more directors to serve at the pleasure of the Board of Directors. The Board of Directors may designate one or more directors as alternate members of any such committee, who may replace any absent member at any meeting of such committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have all the authority of the Board of Directors except such authority as may not be delegated by the provisions of the General Corporation Law. Section 12. INFORMAL ACTION. The transactions of any meeting of the Board of - ---------- Directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting, each of the directors not 8 present signs a written waiver of notice, a consent to holding the meeting, or an approval of the minutes thereof. All such waivers, consents, or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 13. WRITTEN ACTION. Any action required or permitted to be taken may be - ---------- taken without a meeting if all of the members of the Board of Directors shall individually or collectively consent in writing to such action. Any such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. ARTICLE III. OFFICERS Section 1. OFFICERS. The officers of the corporation shall be a Chairman of the - --------- Board or a President or both, a Secretary and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, one or more Vice Presidents, one or more Assistant Secretaries and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. One person may hold two or more offices. Section 2. ELECTION. The officers of the corporation, except such officers as - --------- may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article shall be chosen annually by the Board of Directors, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified. Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint such - --------- other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the By-Laws or as the Board of Directors may from time to time determine. Section 4. REMOVAL AND RESIGNATION. Any officer may be removed, either with or - --------- without cause, by a majority of the directors at the time in office, at any regular or special meeting of the Board, or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the Board of Directors, or to the President, or to the Secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 9 Section 5. VACANCIES. A vacancy in any office because of death, resignation, - --------- removal, disqualification or any other cause shall be filled in the manner prescribed in the By-Laws for regular appointments to such office. Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be - --------- such an officer, shall, if present, preside at all meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the By-Laws. Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be - --------- given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. He shall preside at all meetings of the shareholders and in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. He shall be ex officio a member of all the standing committees, including the Executive Committee, if any, and shall have the general powers and duties of management usually vested in the office of President of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the By-Laws. Section 8. VICE PRESIDENT. In the absence or disability of the President, the - --------- Vice Presidents, in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to, all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the By-Laws. Section 9. SECRETARY. The Secretary shall keep, or cause to be kept, a book of - --------- minutes at the principal office or such other place as the Board of Directors may order, of all meetings of Directors and Shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Directors' meetings, the number of shares present or represented at Shareholders' meetings and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or duplicate share register, showing the names of the shareholders and their addresses; the number and classes of shares held by each; the number and date of certificates issued for the same; and the number and date of cancellation of every certificate surrendered for cancellation. 10 The Secretary shall give, or cause to be given, notice of all the meetings of the shareholders and of the Board of Directors required by the By-Laws or by law to be given, and he shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the By-Laws. Section 10. CHIEF FINANCIAL OFFICER. This officer shall keep and maintain, or - ---------- cause to be kept and maintained in accordance with generally accepted accounting principles, adequate and correct accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, earnings (or surplus) and shares. The books of account shall at all reasonable times be open to inspection by any director. This officer shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all his transactions and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-Laws. ARTICLE IV CERTIFICATES AND TRANSFERS OF SHARES Section 1. CERTIFICATES FOR SHARES. Each certificate for shares of the --------- corporation shall set forth therein the name of the record holder of the shares represented thereby, the number of shares and the class or series of shares owned by said holder, the par value, if any, of the shares represented thereby, and such other statements, as applicable, prescribed by Sections 416 -- 419, inclusive, and other relevant Sections of the General Corporation Law of the State of California (the "General Corporation Law") and such other statements, as applicable, which may be prescribed by the Corporate Securities Law of the State of California and any other applicable provision of the law. Each such certificate issued shall be signed in the name of the corporation by the Chairman of the Board of Directors, if any, or the Vice Chairman of the Board of Directors, if any, the President, if any, or a Vice President, if any, and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or an Assistant Secretary. Any or all of the signatures on a certificate for shares may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate for shares shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. 11 In the event that the corporation shall issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor, any such certificate for shares shall set forth thereon the statements prescribed by Section 409 of the General Corporation Law. Section 2. LOST OR DESTROYED CERTIFICATES FOR SHARES. The corporation - --------- may issue a new certificate for shares or for any other security in the place of any other certificate theretofore issued by it, which is alleged to have been lost, stolen or destroyed. As a condition to such issuance, the corporation may require any such owner of the allegedly lost, stolen or destroyed certificate or any such owner's legal representative to give the corporation a bond, or other adequate security, sufficient to indemnify it against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 3. SHARE TRANSFERS. Upon compliance with any provisions of the General - --------- Corporation Law and/or the Corporate Securities Law of 1968 which may restrict the transferability of shares, transfers of shares of the corporation shall be made only on the record of shareholders of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation or with a transfer agent or a registrar, if any, and on surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes, if any, due thereon. Section 4. RECORD DATE FOR SHAREHOLDERS. In order that the corporation may - --------- determine the shareholders entitled to notice of any meeting or to vote or be 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 other lawful action, the Board of Directors may fix, in advance a record date, which shall not be more than sixty days or fewer than ten days prior to the date of such meeting or more than sixty days prior to any other action. If the Board of Directors shall not have fixed a record date as aforesaid, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given; and the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth day prior to the day of such other action, whichever is later. 12 A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, but the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five days from the date set for the original meeting. Except as may be otherwise provided by the General Corporation Law, shareholders on the record date shall be entitled to notice and to vote or to receive any dividend, distribution or allotment of rights or to exercise the rights, as the case may be, any transfer of any shares on the books of the corporation after the record date. Section 5. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other - --------- corporations standing in the name of this corporation may be voted or represented and all incidents thereto may be exercised on behalf of the corporation by the Chairman of the Board, the President or any Vice President or any other person authorized by resolution of the Board of Directors. Section 6. MEANING OF CERTAIN TERMS. As used in these By-Laws in respect of the - --------- right to notice of a meeting of shareholders or a waiver thereof or to participate or vote thereat or to assent or consent or dissent in writing in lieu of a meeting, as the case may be, the term "share" or "shares" or "shareholder" or "shareholders" refers to an outstanding share or shares and to a holder or holders of record or outstanding shares when the corporation is authorized to issue only one class of shares, and said reference is also intended to include any outstanding share or shares and any holder or holders of record of outstanding shares of any class upon which or upon whom the Articles of Incorporation confer such rights where there are two or more classes or series of shares or upon which or upon whom the General Corporation Law confers such rights notwithstanding that the Articles of Incorporation may provide for more than one class or series of shares, one or more of which are limited or denied such rights thereunder. Section 7. CLOSE CORPORATION CERTIFICATES. All certificates representing shares - --------- of this corporation, in the event it shall elect to become a close corporation, shall contain the legend required by Section 418 (c). ARTICLE V EFFECT OF SHAREHOLDERS' AGREEMENT-CLOSE CORPORATION Any Shareholders' Agreement authorized by Section 300 (b) shall only be effective to modify the terms of these By-Laws if this corporation elects to become a close corporation with appropriate filing of or amendment to its Articles as required by Section 202 and shall terminate when this corporation ceases to be a close corporation. Such an agreement cannot waive or alter Sections 158 (defining close corporations), 202 (requirements of Articles 13 of Incorporation), 500 and 501 relative to distributions, 111 (merger), 1201(e) (reorganization) or Chapters 15 (Records and Reports) , 16 (Rights of Inspection), 18 (Involuntary Dissolution) or 22 (Crimes and Penalties). Any other provisions of the Code or these By-Laws may be altered or waived thereby, but to the extent they are not so altered or waived, these By-Laws shall be applicable. ARTICLE VI CORPORATE CONTRACTS AND INSTRUMENTS-HOW EXECUTED The Board of Directors, except as in the By-Laws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board of Directors, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or agreement, or to pledge its credit, or to render it liable for any purposes or any amount, except as provided in Section 313 of the Corporations Code. ARTICLE VII CONTROL OVER BY-LAWS After the initial By-Laws of the corporation shall have been adopted by the incorporator or incorporators of the corporation, the By-Laws may be amended or repealed or new By-Laws may be adopted by the shareholders entitled to exercise a majority of the voting power or by the Board of Directors; provided, however, that the Board of Directors shall have no control aver any By-Law which fixes or changes the authorized number of directors of the corporation; provided, further, than any control over the By-Laws herein vested in the Board of Directors shall be subject to the authority of the aforesaid shareholders to amend or repeal the By-Laws or to adopt new By-Laws; and provided further that any By-Law amendment or new By-Law which changes the minimum number of directors to fewer than five shall require authorization by the greater proportion of voting power of the shareholders as hereinbefore set forth. ARTICLE VIII BOOKS AND RECORDS -STATUTORY AGENT Section 1. RECORDS: STORAGE AND INSPECTION. The corporation shall keep at its - --------- principal executive office in the State of California, or, if its principal executive office is not in the State of California, the original or a copy of the By-Laws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California, and, if the corporation has no principal business office in the State of California, it shall upon request of any shareholder furnish a copy of the By-Laws as amended to date. 14 The corporation shall keep adequate and correct books and records of account and shall keep minutes of the proceedings of its shareholders, Board of Directors and committees, if any, of the Board of Directors. The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each. Such minutes shall be in written form. Such other books and records shall be kept either in written form or in any other form capable of being converted into written form. Section 2. RECORD OF PAYMENTS. All checks, drafts or other orders for payment of - --------- money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as shall be determined from time to time by resolution of the Board of Directors. Section 3. ANNUAL REPORT. Whenever the corporation shall have fewer than one - --------- hundred shareholders, the Board of Directors shall not be required to cause to be sent to the shareholders of the corporation the annual report prescribed by Section 1501 of the General Corporation Law unless it shall determine that a useful purpose would be served by causing the same to be sent or unless the Department of Corporations, pursuant to the provisions of the Corporate Securities Law of 1968, shall direct the sending of the same. Section 4. AGENT FOR SERVICE. The name of the agent for service of process - --------- within the State of California is Robert Snukal. 15 CERTIFICATE OF ADOPTION OF BY-LAWS ADOPTION BY INCORPORATOR(S) OR FIRST DIRECTOR(S). The undersigned person(s) appointed in the Articles of Incorporation to act as the Incorporator(s) or First Director(s) of the above named corporation hereby adopt the same as the By-Laws of said corporation. Executed this 1st day of June, 1990. /s/ David B.Bloom ------------------------- Name David B. Bloom THIS IS TO CERTIFY: That I am the duly-elected, qualified and acting Secretary of the above-named corporation; that the foregoing By-Laws were adopted as the By-Laws of said corporation on the date set forth above by the person(s) appointed in the Articles of Incorporation to act as the Incorporator(s) or First Director(s) of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal this 1st day of June, 1990. /s/ Claire Padama ------------------------- Secretary, Claire Padama (SEAL) CERTIFICATE BY SECRETARY OF ADOPTION BY SHAREHOLDERS' VOTE. THIS IS TO CERTIFY: That I am the duly-elected, qualified and acting Secretary of the above-named corporation and that the above and foregoing Code of By-Laws was submitted to the shareholders at their first meeting held on the date set forth in the By-Laws and recorded in the minutes thereof, was ratified by the vote of shareholders entitled to exercise the majority of the voting power of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand this 1st day of June, 1990. /s/ Claire Padama ------------------------ Secretary, Claire Padama EX-3.39 40 CERTIFICATE OF INCORP. OF LOCOMOTION HOLDINGS, INC EXHIBIT 3.39 CERTIFICATE OF INCORPORATION OF Locomotion Holdings, Inc. ------------------------- THE UNDERSIGNED, for the purpose of forming a corporation pursuant to the provisions of the General Corporation Law of the State of Delaware, does hereby certify as follows: FIRST: The name of the Corporation is Locomotion Holdings, Inc. (the "Corporation"). SECOND: The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, 19801 and the name of the Corporation's registered agent at such address is The Corporation Trust Company. THIRD: The purpose for which the Corporation is organized is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is 3,000 shares of Class A Common Stock, $.01 par value. FIFTH: The name and the mailing address of the incorporator is as follows: NAME MAILING ADDRESS ---- --------------- Kathleen M. Sablone Choate, Hall & Stewart Exchange Place 53 State Street Boston, MA 02109 SIXTH: The Directors shall have power to adopt, amend, or repeal the By- Laws of the Corporation. SEVENTH: Election of Directors need not be by written ballot unless the By-Laws of the Corporation so provide. EIGHTH: The Corporation shall indemnify and hold harmless any director, officer employee or agent of the Corporation from and against any and all expenses and liabilities that may be imposed upon or incurred in connection with, or as a result of, any proceeding in which he or she may become involved, as a party or otherwise, by reason of the fact that he or she is or was such a director, officer, employee or agent, whether or not he or she continues to be such at the time such expenses and liabilities shall have been imposed or incurred, to the fullest extent permitted by the laws of the State of Delaware as they may be amended from time to time. NINTH: No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of Title 8 of the General Corporation Law of the State of Delaware or (iv) for any transaction from which the director derived an improper personal benefit. TENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. The undersigned incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, does make this certificate, hereby declaring and certifying that this is her act and deed and the facts stated herein are true and accordingly has hereunto set her hand this 14th day of July, 1997. /s/ Kathleen M. Sablone ---------------------------------------------- Kathleen M. Sablone, Incorporator EX-3.40 41 BY-LAWS OF LOCOMOTION HOLDINGS, INC. EXHIBIT 3.40 BY - LAWS --------- OF -- LOCOMOTION HOLDINGS, INC. ------------------------- (A Delaware Corporation) ---------------- ARTICLE I --------- STOCKHOLDERS ------------ 1. CERTIFICATES REPRESENTING STOCK. Every holder of stock in the ------------------------------- corporation shall be entitled to have a certificate signed by, or in the name of, the corporation by the Chairman or Vice-Chairman of the Board of Directors, if any, or by the President or a Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the corporation certifying the number of shares owned by him in the corporation. Any and all signatures on any such certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Whenever the corporation shall be authorized to issue more than one class of stock or more than one series of any class of stock, and whenever the corporation shall issue any shares of its stock as partly paid stock, the certificates representing shares of any such class or series or of any such partly paid stock shall set forth thereon the statements prescribed by the General Corporation Law. Any restrictions on the transfer or registration of transfer of any shares of stock of any class or series shall be noted conspicuously on the certificate representing such shares. The corporation may issue a new certificate of stock in place of any certificate theretofore issued by it, alleged to have been lost, stolen, or destroyed, and the Board of Directors may require the owner of any lost, stolen, or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify the corporation against any claim that may be made against it on account of the alleged loss, theft, or destruction of any such certificate or the issuance of any such new certificate. 2. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not -------------------------- be required to, issue fractions of a share. If the corporation does not issue fractions of a share, it shall (1) arrange for the disposition of fractional interests by those entitled thereto, (2) pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, or (3) issue scrip or warrants in registered or bearer form which shall entitle the holder to receive a certificate for a full share upon the surrender of such scrip or warrants aggregating a full share. A certificate for a fractional share shall, but scrip or warrants shall not unless otherwise provided therein, entitle the holder to exercise voting rights, to receive dividends thereon, and to participate in any of the assets of the corporation in the event of liquidation. The Board of Directors may cause scrip or warrants to be issued subject to the conditions that they shall become void if not exchanged for certificates representing full shares before a specified date, or subject to the conditions that the shares for which scrip or warrants are exchangeable may be sold by the corporation and the proceeds thereof distributed to the holders of scrip or warrants, or subject to any other conditions which the Board of Directors may impose. 3. STOCK TRANSFERS. Upon compliance with provisions restricting the --------------- transfer or registration of transfer of shares of stock, if any, transfers or registration of transfers of shares of stock of the corporation shall be made only on the stock ledger of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation or with a transfer agent or a registrar, if any, and on surrender of the certificate or certificates for such shares of stock properly endorsed and the payment of all taxes due thereon. 4. RECORD DATE FOR STOCKHOLDERS. For the purpose of determining 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 the 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 directors may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. For the purpose of determining the stockholders entitled to express consent to corporate action in writing without a meeting, the directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed; and the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at any 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. -2- 5. MEANING OF CERTAIN TERMS. As used herein in respect of the right ------------------------ to notice of a meeting of stockholders or a waiver thereof or to participate or vote thereat or to consent or dissent in writing in lieu of a meeting, as the case may be, the term "share" or "shares" or "share of stock" or "shares of stock" or "stockholder" or "stockholders" refers to an outstanding share or shares of stock and to a holder or holders of record of outstanding shares of stock when the corporation is authorized to issue only one class of shares of stock, and said reference is also intended to include any outstanding share or shares of stock and any holder or holders of record of outstanding shares of stock of any class upon which or upon whom the certificate of incorporation confers such rights where there are two or more classes or series of shares of stock or upon which or upon whom the General Corporation Law confers such right notwithstanding that the certificate of incorporation may provide for more than one class or series of shares of stock, one or more of which are limited or denied such rights thereunder; provided, however, that no such right shall vest in the event of an increase or a decrease in the authorized number of shares of stock of any class or series which is otherwise denied voting rights under the provisions of the certificate of incorporation. 6. STOCKHOLDER MEETINGS. -------------------- - TIME. The annual meeting shall be held on the date and at the time ---- fixed, from time to time, by the directors, provided, that the first annual meeting shall be held on a date within thirteen months after the organization of the corporation, and each successive annual meeting shall be held on a date within thirteen months after the date of the preceding annual meeting. A special meeting shall be held on the date and at the time fixed by the directors. - PLACE. Annual meetings and special meetings shall be held at such ----- place, within or without the State of Delaware, as the directors may, from time to time fix. Whenever the directors shall fail to fix such place, the meeting shall be held at the registered office of the corporation in the State of Delaware. - CALL. Annual meetings and special meetings may be called by the ---- directors or by any officer instructed by the directors to call the meeting. - NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be -------------------------- given, stating the place, date and hour of the meeting and stating the place within the city or other municipality or community at which the list of stockholders of the corporation may be examined. The notice of an annual meeting shall state that the meeting is called for the election of directors and for the transaction of other business which may properly come before the meeting, and shall, (if any other action which could be taken at a special meeting is to be taken at such annual meeting) state the purpose or purposes. The notice of a special meeting shall in all instances state the purpose or purposes for which the meeting is called. The notice of any meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the General Corporation Law. Except as otherwise provided by the General Corporation Law, a copy of the notice of any meeting shall be given, personally or by mail, not less than ten days nor more than sixty days before the date of the meeting, unless the -3- lapse of the prescribed period of time shall have been waived, and directed to each stockholder at his record address or at such other address which he may have furnished by request in writing to the Secretary of the corporation. Notice by mail shall be deemed to be given when deposited, with postage thereon prepaid, in the United States mail. If a meeting is adjourned to another time, not more than thirty days hence, and/or to another place, and if an announcement of the adjourned time and/or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the directors, after adjournment, fix a new record date for the adjourned meeting. Notice need not be given to any stockholder who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of a stockholder at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends the 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. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice. - STOCKHOLDER LIST. The officer who has charge of the stock ledger of ---------------- the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of 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 days prior to the meeting, either at a place within the city or other municipality or community 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. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the corporation, or to vote at any meeting of stockholders. - CONDUCT OF MEETING. Meetings of the stockholders shall be presided ------------------ over by one of the following officers in the order of seniority and if present and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the President, a Vice-President, or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the stockholders. The Secretary of the corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present the Chairman of the meeting shall appoint a secretary of the meeting. - PROXY REPRESENTATION. Every stockholder may authorize another -------------------- person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in -4- law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. - INSPECTORS. The directors, in advance of any meeting, may, but need ---------- not, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall make a report in writing of any challenge, question or matter determined by him or them and execute a certificate of any fact found by him or them. - QUORUM. The holders of a majority of the outstanding shares of ------ stock shall constitute a quorum at a meeting of stockholders for the transaction of any business. The stockholders present may adjourn the meeting despite the absence of a quorum. - VOTING. Each share of stock shall entitle the holder thereof to one ------ vote. In the election of directors, a plurality of the votes cast shall elect. Any other action shall be authorized by a majority of the votes cast except where the General Corporation Law prescribes a different percentage of votes and/or a different exercise of voting power, and except as may be otherwise prescribed by the provisions of the certificate of incorporation and these By- Laws. In the election of directors, and for any other action, voting need not be by ballot. 7. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the ----------------------------------- General Corporation Law to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meetings of stockholders, 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 outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. 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. -5- ARTICLE II ---------- DIRECTORS --------- 1. FUNCTIONS AND DEFINITION. The business and affairs of the ------------------------ corporation shall be managed by or under the direction of the Board of Directors of the corporation. The Board of Directors shall have the authority to fix the compensation of the members thereof. The use of the phrase "whole board" herein refers to the total number of directors which the corporation would have if there were no vacancies. 2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, ------------------------- a citizen of the United States, or a resident of the State of Delaware. The property, affairs and business of the corporation shall be managed by its Board of Directors. The number of directors may be fixed from time to time by action of the stockholders or of the directors and may be increased or decreased by action of the stockholders or of the directors. 3. ELECTION AND TERM. The first Board of Directors, unless the ----------------- members thereof shall have been named in the certificate of incorporation, shall be elected by the incorporator or incorporators and shall hold office until the first annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. Any director may resign at any time upon written notice to the corporation. Thereafter, directors who are elected at an annual meeting of stockholders, and directors who are elected in the interim to fill vacancies and newly created directorships, shall hold office until the next annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. In the interim between annual meetings of stockholders or of special meetings of stockholders called for the election of directors and/or for the removal of one or more directors and for the filling of any vacancy in that connection, newly created directorships and any vacancies in the Board of Directors, including vacancies resulting from the removal of directors for cause or without cause, may be filled by the vote of a majority of the remaining directors then in office, although less than a quorum, or by the sole remaining director. 4. MEETINGS. -------- - TIME. Meetings shall be held at such time as the Board shall fix, ---- except that the first meeting of a newly elected Board shall be held as soon after its election as the directors may conveniently assemble. - PLACE. Meetings shall be held at such place within or without the ----- State of Delaware as shall be fixed by the Board. - CALL. No call shall be required for regular meetings for which the ---- time and place have been fixed. Special meetings may be called by or at the direction of the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, of the President, or of a majority of the directors in office. -6- - NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be --------------------------------------- required for regular meetings for which the time and place have been fixed. Written, oral, or any other mode of notice of the time and place shall be given for special meetings in sufficient time for the convenient assembly of the directors thereat. Notice need not be given to any director or to any member of a committee of directors who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of any such person at a meeting shall constitute a waiver of notice of such meeting, except when he 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. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors need be specified in any written waiver of notice. - QUORUM AND ACTION. A majority of the whole Board shall constitute a ----------------- quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided, that such majority shall constitute at least one-third of the whole Board. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting to another time and place. Except as herein otherwise provided, and except as otherwise provided by the General Corporation Law, the vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. The quorum and voting provisions herein stated shall not be construed as conflicting with any provisions of the General Corporation Law and these By-Laws which govern a meeting of directors held to fill vacancies and newly created directorships in the Board or action of disinterested directors. Any member or members of the Board of Directors or of any committee designated by the Board, may participate in a meeting of the Board, or any such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. - CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if ----------------------- present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman of the Board, if any and if present and acting, or the President, if present and acting, or any other director chosen by the Board, shall preside. 5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the -------------------- General Corporation Law, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. 6. COMMITTEES. Whenever its number consists of three or more, 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 two 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. In the absence or disqualification of any member of any such committee or committees, the member or -7- members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise the powers and authority of the Board of Directors in the management of the business and affairs of the corporation with the exception of any authority the delegation of which is prohibited by Section 14l of the General Corporation Law, and may authorize the seal of the corporation to be affixed to all papers which may require it. 7. WRITTEN ACTION. Any action required or permitted to be taken at -------------- any meeting of the Board of Directors or any committee thereof may be taken without a meeting, without prior notice and without a vote if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. ARTICLE III ----------- OFFICERS -------- The officers of the corporation shall consist of a President, a Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an Executive Vice-President, one or more other Vice-Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers with such titles as the resolution of the Board of Directors choosing them shall designate. Except as may otherwise be provided in the resolution of the Board of Directors choosing him, no officer other than the Chairman or Vice-Chairman of the Board, if any, need be a director. Any number of officers may be held by the same person, as the directors may determine, except that no person may hold the offices of President and Secretary simultaneously. Unless otherwise provided in the resolution choosing him, each officer shall be chosen for a term which shall continue until the meeting of the Board of Directors following the next annual meeting of stockholders and until his successor shall have been chosen and qualified. All officers of the corporation shall have such authority and perform such duties in the management and operation of the corporation as shall be prescribed in the resolutions of the Board of Directors designating and choosing such officers and prescribing their authority and duties, and shall have such additional authority and duties as are incident to their office except to the extent that such resolutions may be inconsistent therewith. The Secretary or an Assistant Secretary of the corporation shall record all of the proceedings of all meetings and actions in writing of stockholders, directors, and committees of directors, and shall exercise such additional authority and perform such additional duties as the Board shall assign to him. Any officer may -8- be removed, with or without cause, by the Board of Directors. Any vacancy in any office may be filled by the Board of Directors. ARTICLE IV ---------- CORPORATE SEAL -------------- The corporate seal shall be in such form as the Board of Directors shall prescribe. ARTICLE V --------- FISCAL YEAR ----------- The fiscal year of the corporation shall be fixed, and shall be subject to change, by the Board of Directors. ARTICLE VI ---------- CONTROL OVER BY-LAWS -------------------- Subject to the provisions of the certificate of incorporation and the provisions of the General Corporation Law, the power to amend, alter or repeal these By-Laws and to adopt new By-Laws may be exercised by the Board of Directors or by the stockholders. I HEREBY CERTIFY that the foregoing is a full, true and correct copy of the By-Laws of Locomotion Holdings, Inc., a Delaware corporation, as in effect on the date hereof. WITNESS my hand and the seal of the corporation. Dated: ______________________________________ Secretary of Locomotion Holdings, Inc. (SEAL) -9- EX-3.41 42 CERTIFICATE OF INCORP. OF LOCOMOTION THERAPY, INC. EXHIBIT 3.41 [STAMP APPEARS HERE] CERTIFICATE OF INCORPORATION OF Locomotion Therapy, Inc. ------------------------ THE UNDERSIGNED, for the purpose of forming a corporation pursuant to the provisions of the General Corporation Law of the State of Delaware, does hereby certify as follows: FIRST: The name of the Corporation is Locomotion Therapy, Inc. (the "Corporation"). SECOND: The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, 19801 and the name of the Corporation's registered agent at such address is The Corporation Trust Company. THIRD: The purpose for which the Corporation is organized is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is 3,000 shares of Class A Common Stock, $.01 par value. FIFTH: The name and the mailing address of the incorporator is as follows: NAME MAILING ADDRESS ---- --------------- Kathleen M. Sablone Choate, Hall & Stewart Exchange Place 53 State Street Boston, MA 02109 SIXTH: The Directors shall have power to adopt, amend, or repeal the By- Laws of the Corporation. SEVENTH: Election of Directors need not be by written ballot unless the By-Laws of the Corporation so provide. EIGHTH: The Corporation shall indemnify and hold harmless any director, officer employee or agent of the Corporation from and against any and all expenses and liabilities that may be imposed upon or incurred in connection with, or as a result of, any proceeding in which he or she may become involved, as a party or otherwise, by reason of the fact that he or she is or was such a director, officer, employee or agent, whether or not he or she continues to be such at the time such expenses and liabilities shall have been imposed or incurred, to the fullest extent permitted by the laws of the State of Delaware as they may be amended from time to time. NINTH: No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of Title 8 of the General Corporation Law of the State of Delaware or (iv) for any transaction from which the director derived an improper personal benefit. TENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. The undersigned incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, does make this certificate, hereby declaring and certifying that this is her act and deed and the facts stated herein are true and accordingly has hereunto set her hand this 14th day of July, 1997. /s/ Kathleen M. Sablone ---------------------------------------------- Kathleen M. Sablone, Incorporator CERTIFICATE OF MERGER OF LOCOMOTION THERAPY, INC., A CALIFORNIA CORPORATION AND LOCOMOTION THERAPY, INC., A DELAWARE CORPORATION It is hereby certified that: 1. The constituent business corporations participating in the merger herein certified are: (i) Locomotion Therapy, Inc., which is incorporated under the laws of the State of Delaware (the "Surviving Corporation"); and (ii) Locomotion Therapy, Inc., which is incorporated under the laws of the State of California (the "Terminating Corporation") and which has 500,000 shares of common stock, par value $.01, authorized. 2. An Agreement and Plan of Merger has been approved, adopted, certified, executed and acknowledged by each of the aforesaid constituent corporations in accordance with the provisions of Section 252 of the General Corporation Law of the State of Delaware; and in accordance with the provisions of Section 1108 of the General Corporation Law of the State of California. 3. The name of the Surviving Corporation in the merger is Locomotion Therapy, Inc., which will continue its existence as said surviving corporation under this name upon the effective date of said merger pursuant to the provisions of the laws of the State of Delaware. 4. The Certificate of Incorporation of Locomotion Therapy, Inc., a Delaware corporation, as now in force and effect, shall be the Certificate of Incorporation of said surviving corporation. 5. The executed Agreement and Plan of Merger between the aforesaid constituent corporations is on file at the principal place of business of the aforesaid surviving corporation, the address of which is as follows: Locomotion Therapy, Inc. 4751 Wilshire Blvd., #213 Los Angeles, CA 90010 [STAMP APPEARS HERE] 6. A copy of the aforesaid Agreement and Plan of Merger will be furnished by the aforesaid Surviving Corporation, on request and without cost, to any stockholder of each of the aforesaid constituent corporations. Dated: As of August 1, 1997. LOCOMOTION THERAPY, INC., A DELAWARE CORPORATION By: /s/ Robert Snukal ------------------------------ Robert Snukal Chief Financial Officer Attest: /s/ Sheila Snukal - -------------------------------- Sheila Snukal Secretary Dated: As of August 1, 1997. LOCOMOTION THERAPY, INC., A CALIFORNIA CORPORATION By: /s/ Robert Snukal ------------------------------ Robert Snukal Chief Financial Officer Attest: /s/ Sheila Snukal - -------------------------------- Sheila Snukal Secretary EX-3.42 43 BY-LAWS OF LOCOMOTION THERAPY, INC. EXHIBIT 3.42 BY - LAWS --------- OF -- LOCOMOTION THERAPY, INC. ------------------------ (A Delaware Corporation) ---------------- ARTICLE I --------- STOCKHOLDERS ------------ 1. CERTIFICATES REPRESENTING STOCK. Every holder of stock in the ------------------------------- corporation shall be entitled to have a certificate signed by, or in the name of, the corporation by the Chairman or Vice-Chairman of the Board of Directors, if any, or by the President or a Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the corporation certifying the number of shares owned by him in the corporation. Any and all signatures on any such certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Whenever the corporation shall be authorized to issue more than one class of stock or more than one series of any class of stock, and whenever the corporation shall issue any shares of its stock as partly paid stock, the certificates representing shares of any such class or series or of any such partly paid stock shall set forth thereon the statements prescribed by the General Corporation Law. Any restrictions on the transfer or registration of transfer of any shares of stock of any class or series shall be noted conspicuously on the certificate representing such shares. The corporation may issue a new certificate of stock in place of any certificate theretofore issued by it, alleged to have been lost, stolen, or destroyed, and the Board of Directors may require the owner of any lost, stolen, or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify the corporation against any claim that may be made against it on account of the alleged loss, theft, or destruction of any such certificate or the issuance of any such new certificate. 2. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not -------------------------- be required to, issue fractions of a share. If the corporation does not issue fractions of a share, it shall (1) arrange for the disposition of fractional interests by those entitled thereto, (2) pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, or (3) issue scrip or warrants in registered or bearer form which shall entitle the holder to receive a certificate for a full share upon the surrender of such scrip or warrants aggregating a full share. A certificate for a fractional share shall, but scrip or warrants shall not unless otherwise provided therein, entitle the holder to exercise voting rights, to receive dividends thereon, and to participate in any of the assets of the corporation in the event of liquidation. The Board of Directors may cause scrip or warrants to be issued subject to the conditions that they shall become void if not exchanged for certificates representing full shares before a specified date, or subject to the conditions that the shares for which scrip or warrants are exchangeable may be sold by the corporation and the proceeds thereof distributed to the holders of scrip or warrants, or subject to any other conditions which the Board of Directors may impose. 3. STOCK TRANSFERS. Upon compliance with provisions restricting the --------------- transfer or registration of transfer of shares of stock, if any, transfers or registration of transfers of shares of stock of the corporation shall be made only on the stock ledger of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation or with a transfer agent or a registrar, if any, and on surrender of the certificate or certificates for such shares of stock properly endorsed and the payment of all taxes due thereon. 4. RECORD DATE FOR STOCKHOLDERS. For the purpose of determining 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 the 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 directors may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. For the purpose of determining the stockholders entitled to express consent to corporate action in writing without a meeting, the directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed; and the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at any 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. -2- 5. MEANING OF CERTAIN TERMS. As used herein in respect of the right ------------------------ to notice of a meeting of stockholders or a waiver thereof or to participate or vote thereat or to consent or dissent in writing in lieu of a meeting, as the case may be, the term "share" or "shares" or "share of stock" or "shares of stock" or "stockholder" or "stockholders" refers to an outstanding share or shares of stock and to a holder or holders of record of outstanding shares of stock when the corporation is authorized to issue only one class of shares of stock, and said reference is also intended to include any outstanding share or shares of stock and any holder or holders of record of outstanding shares of stock of any class upon which or upon whom the certificate of incorporation confers such rights where there are two or more classes or series of shares of stock or upon which or upon whom the General Corporation Law confers such right notwithstanding that the certificate of incorporation may provide for more than one class or series of shares of stock, one or more of which are limited or denied such rights thereunder; provided, however, that no such right shall vest in the event of an increase or a decrease in the authorized number of shares of stock of any class or series which is otherwise denied voting rights under the provisions of the certificate of incorporation. 6. STOCKHOLDER MEETINGS. -------------------- - TIME. The annual meeting shall be held on the date and at the time ---- fixed, from time to time, by the directors, provided, that the first annual meeting shall be held on a date within thirteen months after the organization of the corporation, and each successive annual meeting shall be held on a date within thirteen months after the date of the preceding annual meeting. A special meeting shall be held on the date and at the time fixed by the directors. - PLACE. Annual meetings and special meetings shall be held at such ----- place, within or without the State of Delaware, as the directors may, from time to time fix. Whenever the directors shall fail to fix such place, the meeting shall be held at the registered office of the corporation in the State of Delaware. - CALL. Annual meetings and special meetings may be called by the ---- directors or by any officer instructed by the directors to call the meeting. - NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be -------------------------- given, stating the place, date and hour of the meeting and stating the place within the city or other municipality or community at which the list of stockholders of the corporation may be examined. The notice of an annual meeting shall state that the meeting is called for the election of directors and for the transaction of other business which may properly come before the meeting, and shall, (if any other action which could be taken at a special meeting is to be taken at such annual meeting) state the purpose or purposes. The notice of a special meeting shall in all instances state the purpose or purposes for which the meeting is called. The notice of any meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the General Corporation Law. Except as otherwise provided by the General Corporation Law, a copy of the notice of any meeting shall be given, personally or by mail, not less than ten days nor more than sixty days before the date of the meeting, unless the -3- lapse of the prescribed period of time shall have been waived, and directed to each stockholder at his record address or at such other address which he may have furnished by request in writing to the Secretary of the corporation. Notice by mail shall be deemed to be given when deposited, with postage thereon prepaid, in the United States mail. If a meeting is adjourned to another time, not more than thirty days hence, and/or to another place, and if an announcement of the adjourned time and/or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the directors, after adjournment, fix a new record date for the adjourned meeting. Notice need not be given to any stockholder who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of a stockholder at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends the 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. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice. - STOCKHOLDER LIST. The officer who has charge of the stock ledger of ---------------- the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of 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 days prior to the meeting, either at a place within the city or other municipality or community 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. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the corporation, or to vote at any meeting of stockholders. - CONDUCT OF MEETING. Meetings of the stockholders shall be presided ------------------ over by one of the following officers in the order of seniority and if present and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the President, a Vice-President, or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the stockholders. The Secretary of the corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present the Chairman of the meeting shall appoint a secretary of the meeting. - PROXY REPRESENTATION. Every stockholder may authorize another -------------------- person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in -4- law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. - INSPECTORS. The directors, in advance of any meeting, may, but need ---------- not, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall make a report in writing of any challenge, question or matter determined by him or them and execute a certificate of any fact found by him or them. - QUORUM. The holders of a majority of the outstanding shares of ------ stock shall constitute a quorum at a meeting of stockholders for the transaction of any business. The stockholders present may adjourn the meeting despite the absence of a quorum. - VOTING. Each share of stock shall entitle the holder thereof to one ------ vote. In the election of directors, a plurality of the votes cast shall elect. Any other action shall be authorized by a majority of the votes cast except where the General Corporation Law prescribes a different percentage of votes and/or a different exercise of voting power, and except as may be otherwise prescribed by the provisions of the certificate of incorporation and these By- Laws. In the election of directors, and for any other action, voting need not be by ballot. 7. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the ----------------------------------- General Corporation Law to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meetings of stockholders, 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 outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. 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. -5- ARTICLE II ---------- DIRECTORS --------- 1. FUNCTIONS AND DEFINITION. The business and affairs of the ------------------------ corporation shall be managed by or under the direction of the Board of Directors of the corporation. The Board of Directors shall have the authority to fix the compensation of the members thereof. The use of the phrase "whole board" herein refers to the total number of directors which the corporation would have if there were no vacancies. 2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, ------------------------- a citizen of the United States, or a resident of the State of Delaware. The property, affairs and business of the corporation shall be managed by its Board of Directors. The number of directors may be fixed from time to time by action of the stockholders or of the directors and may be increased or decreased by action of the stockholders or of the directors. 3. ELECTION AND TERM. The first Board of Directors, unless the ----------------- members thereof shall have been named in the certificate of incorporation, shall be elected by the incorporator or incorporators and shall hold office until the first annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. Any director may resign at any time upon written notice to the corporation. Thereafter, directors who are elected at an annual meeting of stockholders, and directors who are elected in the interim to fill vacancies and newly created directorships, shall hold office until the next annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. In the interim between annual meetings of stockholders or of special meetings of stockholders called for the election of directors and/or for the removal of one or more directors and for the filling of any vacancy in that connection, newly created directorships and any vacancies in the Board of Directors, including vacancies resulting from the removal of directors for cause or without cause, may be filled by the vote of a majority of the remaining directors then in office, although less than a quorum, or by the sole remaining director. 4. MEETINGS. -------- - TIME. Meetings shall be held at such time as the Board shall fix, ---- except that the first meeting of a newly elected Board shall be held as soon after its election as the directors may conveniently assemble. - PLACE. Meetings shall be held at such place within or without the ----- State of Delaware as shall be fixed by the Board. - CALL. No call shall be required for regular meetings for which the ---- time and place have been fixed. Special meetings may be called by or at the direction of the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, of the President, or of a majority of the directors in office. -6- - NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be --------------------------------------- required for regular meetings for which the time and place have been fixed. Written, oral, or any other mode of notice of the time and place shall be given for special meetings in sufficient time for the convenient assembly of the directors thereat. Notice need not be given to any director or to any member of a committee of directors who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of any such person at a meeting shall constitute a waiver of notice of such meeting, except when he 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. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors need be specified in any written waiver of notice. - QUORUM AND ACTION. A majority of the whole Board shall constitute a ----------------- quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided, that such majority shall constitute at least one-third of the whole Board. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting to another time and place. Except as herein otherwise provided, and except as otherwise provided by the General Corporation Law, the vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. The quorum and voting provisions herein stated shall not be construed as conflicting with any provisions of the General Corporation Law and these By-Laws which govern a meeting of directors held to fill vacancies and newly created directorships in the Board or action of disinterested directors. Any member or members of the Board of Directors or of any committee designated by the Board, may participate in a meeting of the Board, or any such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. - CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if ----------------------- present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman of the Board, if any and if present and acting, or the President, if present and acting, or any other director chosen by the Board, shall preside. 5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the -------------------- General Corporation Law, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. 6. COMMITTEES. Whenever its number consists of three or more, 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 two 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. In the absence or disqualification of any member of any such committee or committees, the member or -7- members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise the powers and authority of the Board of Directors in the management of the business and affairs of the corporation with the exception of any authority the delegation of which is prohibited by Section 14l of the General Corporation Law, and may authorize the seal of the corporation to be affixed to all papers which may require it. 7. WRITTEN ACTION. Any action required or permitted to be taken at -------------- any meeting of the Board of Directors or any committee thereof may be taken without a meeting, without prior notice and without a vote if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. ARTICLE III ----------- OFFICERS -------- The officers of the corporation shall consist of a President, a Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an Executive Vice-President, one or more other Vice-Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers with such titles as the resolution of the Board of Directors choosing them shall designate. Except as may otherwise be provided in the resolution of the Board of Directors choosing him, no officer other than the Chairman or Vice-Chairman of the Board, if any, need be a director. Any number of officers may be held by the same person, as the directors may determine, except that no person may hold the offices of President and Secretary simultaneously. Unless otherwise provided in the resolution choosing him, each officer shall be chosen for a term which shall continue until the meeting of the Board of Directors following the next annual meeting of stockholders and until his successor shall have been chosen and qualified. All officers of the corporation shall have such authority and perform such duties in the management and operation of the corporation as shall be prescribed in the resolutions of the Board of Directors designating and choosing such officers and prescribing their authority and duties, and shall have such additional authority and duties as are incident to their office except to the extent that such resolutions may be inconsistent therewith. The Secretary or an Assistant Secretary of the corporation shall record all of the proceedings of all meetings and actions in writing of stockholders, directors, and committees of directors, and shall exercise such additional authority and perform such additional duties as the Board shall assign to him. Any officer may -8- be removed, with or without cause, by the Board of Directors. Any vacancy in any office may be filled by the Board of Directors. ARTICLE IV ---------- CORPORATE SEAL -------------- The corporate seal shall be in such form as the Board of Directors shall prescribe. ARTICLE V --------- FISCAL YEAR ----------- The fiscal year of the corporation shall be fixed, and shall be subject to change, by the Board of Directors. ARTICLE VI ---------- CONTROL OVER BY-LAWS -------------------- Subject to the provisions of the certificate of incorporation and the provisions of the General Corporation Law, the power to amend, alter or repeal these By-Laws and to adopt new By-Laws may be exercised by the Board of Directors or by the stockholders. I HEREBY CERTIFY that the foregoing is a full, true and correct copy of the By-Laws of Locomotion Therapy, Inc., a Delaware corporation, as in effect on the date hereof. IN WITNESS WHEREOF, I set my hand this 14th day of July, 1997. /s/ Sheila Snukal ------------------------------------- Secretary of Locomotion Therapy, Inc. -9- EX-3.43 44 ARTICLES OF INCORP. OF ON-TRACK THERAPY CENTER Exhibit 3.43 1797984 FILED In the office of the Secretary of State of the State of California JAN 21 1997 /s/ Bill Jones BILL JONES, Secretary of State ARTICLES OF INCORPORATION OF ON-TRACK THERAPY CENTER, INC. I The name of this corporation is ON-TRACK THERAPY CENTER, INC. II The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the general corporation law of California other than the banking business, the trust business or the practice of a profession permitted to be incorporated by the California Corporations Code. III The name and address in the State of California of this corporation's initial agent for service of process is: Robert Snukal, c/o Fountain View Management, Inc., 11900 West Olympic Boulevard, Suite 680, Los Angeles, California 90064. IV This corporation is authorized to issue only one class of shares of stock; and the total number of shares which this corporation is authorized to issue is 500,000. Dated: January 17, 1997 /s/ David B Bloom -------------------- DAVID B. BLOOM I hereby declare that I am the person who executed the foregoing Articles of Incorporation, which execution is my act and deed. /s/ David B Bloom -------------------- DAVID B. BLOOM (SEAL) EX-3.44 45 BY-LAWS OF ON-TRACK THERAPY CENTER, INC. Exhibit 3.44 BY-LAWS OF ON-TRACK THERAPY CENTER, INC. ----------------------------- (A California Corporation) ARTICLE I SHAREHOLDERS' MEETINGS Section 1. TIME. An annual meeting for the election of directors and or the - --------- transaction of any other proper business and any special meeting shall be held on the date and at the time as the Board of Directors shall from time to time fix. Section 2. PLACE. Annual meetings and special meetings shall be held at such - --------- place, within or without the State of California, as the Directors may, from time to time, fix. Whenever the Directors shall fail to fix such place, the meetings shall be held at the principal executive office of the corporation. Section 3. CALL. Annual meetings may be called by the Directors, by the Chairman - --------- of the Board, if any, Vice Chairman of the Board, if any, the President, if any, the Secretary, or by any officer instructed by the Directors to call the meeting. Special meetings may be called in like manner and by the holders of shares entitled to cast not less than ten percent of the votes at the meeting being called. Section 4. NOTICE. Written notice stating the place, day and hour of each - --------- meeting, and, in the case of a special meeting, the general nature of the business to be transacted or, in the case of an Annual Meeting, those matters which the Board of Directors, at the time of mailing of the notice, intends to present for action by the shareholders, shall be given not less than ten days (or not less than any such other minimum period of days as may be prescribed by the General Corporation Law) or more than sixty days (or more than any such maximum period of days as may be prescribed by the General Corporation Law) before the date of the meeting, by mail, personally, or by other means of written communication, charges prepaid by or at the direction of the Directors, the President, if any, the Secretary or the officer or persons calling the meeting, addressed to each shareholder at his address appearing on the books of the corporation or given by him to the corporation for the purpose of notice, or, if no such address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the said principal executive office is located. Such notice shall be deemed to be delivered when deposited in the United States mail with first class postage therein prepaid, or sent by other means of written communication addressed to the shareholder at his address as it appears on the stock transfer books of the corporation. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of notice to be presented by management for election. At an annual meeting of shareholders, any matter relating to the affairs of the corporation, whether or not stated in the notice of the meeting, may be brought up for action except matters which the General Corporation Law requires to be stated in the notice of the meeting. The notice of any annual or special meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the General Corporation Law. When a meeting is adjourned to another time or place, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken; provided that, 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 shareholder. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. Section 5. CONSENT. The transaction of any meeting, however called and noticed, - --------- and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting, each of the shareholders or his proxy signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting constitutes a waiver of notice of such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting shall not constitute a waiver of any right to object to the consideration of matters required by the General Corporation Law to be included in the notice if such objection is expressly made at the meeting. Except as otherwise provided in subdivision (f) of Section 601. of the General Corporation Law, neither the business to be transacted at nor the purpose of any regular or special meeting need be specified in any written waiver of notice. Section 6. CONDUCT OF MEETING. Meetings of the shareholders shall be presided - --------- over by one of the following officers in the order of seniority and if present and acting the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the President, if any, a Vice President, or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the shareholders. The Secretary of the corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but 2 if neither the Secretary nor an Assistant Secretary is present, the Chairman of the meeting shall appoint a secretary of the meeting. Section 7. PROXY REPRESENTATION. Every shareholder may authorize another person - --------- or persons to act as his proxy at a meeting or by written action. No proxy shall be valid after the expiration of eleven months from the date of its execution unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the person executing it prior to the vote or written action pursuant thereto, except as otherwise provided by the General Corporation Law. As used herein, a "proxy" shall be deemed to mean a written authorization signed by a shareholder or a shareholder's attorney in fact giving another person or persons power to vote or consent in writing with respect to the shares of such shareholder, and "Signed" as used herein shall be deemed to mean the placing of such shareholder's name on the proxy, whether by manual signature, typewriting, telegraphic transmission or otherwise by such shareholder or such shareholder's attorney in fact. Where applicable, the form of any proxy shall comply with the provisions of Section 604 of the General Corporation Law. Section 8. INSPECTORS - APPOINTMENT. In advance of any meeting, the Board of - --------- Directors may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or, if any persons so appointed fail to appear or refuse to act, the Chairmen of any meeting or shareholders may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election or persons to replace any of those who so fail or refuse, at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented shall determine whether one or three inspectors are to be appointed. The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity, and effect of proxies, receive votes, ballots, if any, or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result, and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. If there are three inspectors of election, the decision, act, or certificate of a majority shall be effective in all respects as the decision, act, or certificate of all. Section 9. SUBSIDIARY CORPORATIONS. Shares of this corporation owned by a - --------- subsidiary shall not be entitled to vote on any matter. A subsidiary for these proposes is defined as a corporation, the 3 share of which possessing more than 25% of the total combined voting power of all classes of shares entitled to vote, are owned directly or indirectly through one or more subsidiaries. Section 10. QUORUM; VOTE; WRITTEN CONSENT. The holders of a majority of the - ---------- voting shares shall constitute a quorum at a meeting of shareholders for the transaction of any business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum if any action taken, other than adjournment, is approved by at least a majority of the shares required to constitute a quorum. In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares represented thereat, but no other business may be transacted except as hereinbefore provided. In the election of directors, a plurality of the votes cast shall elect. No shareholder shall be entitled to exercise the right of cumulative voting at a meeting for the election of directors unless the candidate's name or the candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder's intention to cumulate the shareholder's votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for such candidates in nomination. Except as otherwise provided by the General Corporation Law, the Articles of Incorporation or these By-Laws, any action required or permitted to be taken at a meeting at which a quorum is present shall be authorized by the affirmative vote of a majority of the shares represented at the meeting. Except in the election of directors by written consent in lieu of a meeting, and except as may otherwise be provided by the General Corporation Law, the Articles of Incorporation or these By-Laws, any action which may be taken at any annual or special meeting may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by holders of shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. Notice of any shareholder approval pursuant to Section 310, 317, 1201 or 2007 without a meeting by less than unanimous written consent shall be given at least ten days before the consummation of the action authorized by such approval, and prompt notice shall be given of the taking of any other corporate action approved by shareholders without a meeting 4 by less than unanimous written consent to those shareholders entitled to vote who have not consented in writing. Section 11. BALLOT. Elections of directors at a meeting need not be by ballot - ---------- unless a shareholder demands election by ballot at the election and before the voting begins. In all other matters, voting need not be by ballot. Section 12. SHAREHOLDERS' AGREEMENTS. Notwithstanding the above provisions in - ---------- the event this corporation elects to become a close corporation, an agreement between two or more shareholders thereof, if in writing and signed by the parties thereof, may provide that in exercising any voting rights the shares held by them shall be voted as provided therein or in Section 706 and may otherwise modify these provisions as to shareholders' meetings and actions. ARTICLE II BOARD OF DIRECTORS Section 1. FUNCTIONS. The business and affairs of the corporation shall be - --------- managed and all corporate powers shall be exercised by or under the direction of its Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person, provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board of Directors. The Board of Directors shall have authority to fix the compensation of directors for services in any lawful capacity. Each director shall exercise such powers and otherwise perform such duties in good faith, in the manner such director believes to be in the best interests of the corporation, and with care, including reasonable inquiry, using ordinary prudence, as a person in a like position would use under similar circumstances. (Section 309). Section 2. EXCEPTION FOR CLOSE CORPORATION. Notwithstanding the provisions of - --------- Section 1, in the event that this corporation shall elect to become a close corporation as defined in Section 186, its shareholders may enter into a Shareholders' Agreement as provided in Section 300 (b). Said Agreement may provide for the exercise of corporate powers and the management of the business and affairs, of this corporation by the shareholders, provided however such 5 agreement shall, to the extent and so long as the discretion or the powers of the Board in its management of corporate affairs is controlled by such agreement, impose upon each shareholder who is a party thereof, liability for managerial acts performed or omitted by such person pursuant thereto otherwise imposed upon Directors as provided in Section 300 (d). Section 3. QUALIFICATIONS AND NUMBER. A director need not be a shareholder of - --------- the corporation, a citizen of the United States, or a resident of the State of California. The authorized number of directors constituting the Board of Directors until further changed shall be 4. Thereafter, the authorized number of directors constituting the Board shall be at least three provided that, whenever the corporation shall have only two shareholders, the number of directors may be at least two, and, whenever the corporation shall have only one shareholder, the number of directors may be at least one. Subject to the foregoing provisions, the number of directors may be changed from time to time by an amendment of these By-Laws adopted by the shareholders. Any such amendment reducing the number of directors to fewer than five cannot be adopted if the votes cast against its adoption at a meeting or the shares not consenting in writing in the case of action by written consent are equal to more than sixteen and two-thirds percent of the outstanding shares. No decrease in the authorized number of directors shall have the effect of shortening the term of any incumbent director. Section 4. ELECTION AND TERM. The initial Board of Directors shall consist of - --------- the persons elected at the meeting of the incorporator, all of whom shall hold office until the first annual meeting of shareholders and until their successors have been elected and qualified, or until their earlier resignation or removal from office. Thereafter, directors who are elected to replace any or all of the members of the initial Board of Directors or who are elected at an annual meeting of shareholders, and directors who are elected in the interim to fill vacancies, shall hold office until the next annual meeting of shareholders and until their successors have been elected and qualified, or until their earlier resignation, removal from office, or death. In the interim between annual meetings of shareholders or of special meetings of shareholders called for the election of directors, any vacancies in the Board of Directors, including vacancies resulting from an increase in the authorized number of directors which have not been filled by the shareholders, including any other vacancies which the General Corporation Law authorizes directors to fill, and including vacancies resulting from the removal of directors which are not filled at the meeting of shareholders at which any such removal has been effected, if the Articles of Incorporation or a By-Law adopted by the shareholders so provides, may be filled by the vote of a 6 majority of the directors then in office or of the sole remaining director, although less than a quorum exists. Any director may resign effective upon giving written notice to the Chairman of the Board, if any, the President, the Secretary or the Board of Directors, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to the office when the resignation becomes effective. The shareholders may elect a director at any time to fill any vacancy which the directors are entitled to fill, but which they have not filled. Any such election by written consent shall require the consent of a majority of the shares. Section 5. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The - --------- corporation may indemnify any Director, Officer, agent or employee as to those liabilities and on those terms and conditions as are specified in Section 317. In any event, the corporation shall have the right to purchase and maintain insurance on behalf of any such persons whether or not the corporation would have the power to indemnify such person against the liability insured against. Section 6. MEETINGS. - --------- TIME. Meetings shall be held at such time as the Board shall fix, except that the first meeting of a newly elected Board shall be held as soon after its election as the directors may conveniently assemble. PLACE. Meetings may be held at any place, within or without the State of California, which has been designated in any notice of the meeting, or, if not stated in said notice, or, if there is no notice given, at the place designated by resolution of the Board of Directors. CALL. Meetings may be called by the Chairman of the Board, if any and acting, by the Vice Chairman of the Board, if any, by the President, if any, by any Vice President or Secretary, or by any two directors. NOTICE AND WAIVER THEREOF. No notice shall be required for regular meetings for which the time and place have been fixed by the Board of Directors. Special meetings shall be held upon at least four days' notice by mail or upon at least forty-eight hours' notice delivered personally or by telephone or telegraph. Notice of a meeting need not be given to any director who signs a waiver of notice, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. A notice or waiver of notice 7 need not specify the purpose of any regular or special meeting of the Board of Directors. Section 7. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION. In the event - --------- only one director is required by the By-Laws or Articles of Incorporation, then any reference herein to notices, waivers, consents, meetings or other actions by a majority or quorum of the directors shall be deemed to refer to such notice, waiver, etc., by such sole director, who shall have all the rights and duties and shall be entitled to exercise all of the powers and shall assume all the responsibilities otherwise herein described as given to a Board of Directors. Section 8. QUORUM AND ACTION. A majority of the authorized number of directors - --------- shall constitute a quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided such majority shall constitute at least either one-third of the authorized number of directors or at least two directors, whichever is larger, or unless the authorized number of directors is only one. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than twenty-four hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors, if any, who were not present at the time of the adjournment. Except as the Articles of Incorporation, these By-Laws and the General Corporation Law may otherwise provide, the act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be the act of the Board of Directors. Members of the Board of Directors may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another, and participation by such use shall be deemed to constitute presence in person at any such meeting. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, provided that any action which may be taken is approved by at least a majority of the required quorum for such meeting. Section 9. CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if - --------- present and acting, the Vice Chairman of the Board, if any and if present and acting, shall preside at all meetings. Otherwise, the President, if any and present and acting, or any director chosen by the Board, shall preside. Section 10. REMOVAL OF DIRECTORS. The entire Board of Directors or any - ---------- individual director may be removed from office without cause 8 by approval of the holders of at least a majority of the shares provided, that unless the entire Board is removed, an individual director shall not be removed when the votes cast against such removal, or not consenting in writing to such removal, would be sufficient to elect such director if voted cumulatively at an election of directors at which the same total number of votes were cast, or, if such action is taken by written consent, in lieu of a meeting, all shares entitled to vote were voted, and the entire number of directors authorized at the time of the director's most recent election were then being elected. If any or all directors are so removed, new directors may be elected at the same meeting or by such written consent. The Board of Directors may declare vacant the office of any director who has been declared of unsound mind by an order of court or convicted of a felony. Section 11. COMMITTEES. The Board or Directors, by resolution adopted by a - ---------- majority of the authorized number of directors, may designate one or more committees, each consisting of two or more directors to serve at the pleasure of the Board of Directors. The Board of Directors may designate one or more directors as alternate members of any such committee, who may replace any absent member at any meeting of such committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have all the authority of the Board of Directors except such authority as may not be delegated by the provisions of the General Corporation Law. Section 12. INFORMAL ACTION. The transactions of any meeting of the Board of - ---------- Directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting, or an approval of the minutes thereof. All such waivers, consents, or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 13. WRITTEN ACTION. Any action required or permitted to be taken may be - ---------- taken without a meeting if all of the members of the Board of Directors shall individually or collectively consent in writing to such action. Any such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. 9 ARTICLE III. OFFICERS Section 1. OFFICERS. The officers of the corporation shall be a Chairman of the - --------- Board or a President or both, a Secretary and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, one or more Vice Presidents, one or more Assistant Secretaries and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. One person may hold two or more offices. Section 2. ELECTION. The officers of the corporation, except such officers as - --------- may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article shall be chosen annually by the Board of Directors, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified. Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint such - --------- other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the By-Laws or as the Board of Directors may from time to time determine. Section 4. REMOVAL AND RESIGNATION. Any officer may be removed, either with or - --------- without cause, by a majority of the directors at the time in office, at any regular or special meeting of the Board, or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the Board of Directors, or to the President, or to the Secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. VACANCIES. A vacancy in any office because of death, resignation, - --------- removal, disqualification or any other cause shall be filled in the manner prescribed in the By-Laws for regular appointments to such office. Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be - --------- such an officer, shall, if present, preside at all meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the By-Laws. 10 Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be - --------- given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. He shall preside at all meetings of the shareholders and in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. He shall be ex officio a member of all the standing committees, including the Executive Committee, if any, and shall have the general powers and duties of management usually vested in the office of President of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the By-Laws. Section 8. VICE PRESIDENT. In the absence or disability of the President, the - --------- Vice Presidents, in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to, all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the By-Laws. Section 9. SECRETARY. The Secretary shall keep, or cause to be kept, a book of - --------- minutes at the principal office or such other place as the Board of Directors may order, of all meetings of Directors and Shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Directors' meetings, the number of shares present or represented at Shareholders' meetings and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or duplicate share register, showing the names of the shareholders and their addresses; the number and classes of shares held by each; the number and date of certificates issued for the same; and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all the meetings of the shareholders and of the Board of Directors required by the By-Laws or by law to be given, and he shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the By-Laws. 11 Section 10. CHIEF FINANCIAL OFFICER. This officer shall keep and maintain, or - ---------- cause to be kept and maintained in accordance with generally accepted accounting principles, adequate and correct accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, earnings (or surplus) and shares. The books of account shall at all reasonable times be open to inspection by any director. This officer shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all his transactions and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors of the By-Laws. ARTICLE IV CERTIFICATES AND TRANSFERS OF SHARES Section 1. CERTIFICATES FOR SHARES. Each certificate for shares of the - --------- corporation shall set forth therein the name of the record holder of the shares represented thereby, the number of shares and the class or series of shares owned by said holder, the par value, if any, of the shares represented thereby, and such other statements, as applicable, prescribed by Sections 416 - 419, inclusive, and other relevant Sections of the General Corporation Law of the State of California (the "General Corporation Law") and such other statements, as applicable which may be prescribed by the Corporate Securities Law of the State of California and any other applicable provision of the law. Each such certificate issued shall be signed in the name of the corporation by the Chairman of the Board of Directors, if any, or the Vice Chairman of the Board of Directors, if any, the President, if any, or a Vice President, if any, and by the Chief Financial Officer or an Assistant Treasurer or the secretary or an Assistant Secretary. Any or all of the signatures on a certificate for shares may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate for shares shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. 12 In the event that the corporation shall issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor, any such certificate for shares shall set forth thereon the statements prescribed by Section 409 of the General Corporation Law. Section 2. LOST OR DESTROYED CERTIFICATES FOR SHARES. The corporation may issue - --------- a new certificate for shares or for any other security in the place of any other certificate theretofore issued by it, which is alleged to have been lost, stolen or destroyed. As a condition to such issuance, the corporation may require any such owner of the allegedly lost, stolen or destroyed certificate or any such owner's legal representative to give the corporation a bond, or other adequate security, sufficient to indemnify it against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 3. SHARE TRANSFERS. Upon compliance with any provisions of the General - --------- Corporation Law and/or the Corporate Securities Law of 1968 which may restrict the transferability of shares, transfers of shares of the corporation shall be made only on the record of shareholders of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation or with a transfer agent or a registrar, if any, and on surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes, if any, due thereon. Section 4. RECORD DATE FOR SHAREHOLDERS. In order that the corporation may - --------- determine the shareholders entitled to notice of any meeting or to vote or be 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 other lawful action, the Board of Directors may fix, in advance a record date, which shall not be more than sixty days or fewer than ten days prior to the date of such meeting or more than sixty days prior to any other action. If the Board of Directors shall not have fixed a record date as aforesaid, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given; and the record date for determining shareholders for any other 13 purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth day prior to the day of such other action, which ever is later. A determination so shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, but the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five days from the date set for the original meeting. Except as may be otherwise provided by the General Corporation Law, shareholders on the record date shall be entitled to notice and to vote or to receive any dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date. Section 5. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other - --------- corporations standing in the name of this corporation may be voted or represented and all incidents thereto may be exercised on behalf of the corporation by the Chairman of the Board, the President or any Vice President or any other person authorized by resolution of the Board of Directors. Section 6. MEANING OF CERTAIN TERMS. As used in these By-Laws in respect of the - --------- right to notice of a meeting of shareholders or a waiver thereof or to participate or vote thereat or to assent or consent or dissent in writing in lieu of a meeting, as the case may be, the term "share" or "shares" or "shareholder" or "shareholders" refers to an outstanding share or shares and to a holder or holders of record or outstanding shares when the corporation is authorized to issue only one class of shares, and said reference is also intended to include any outstanding share or shares and any holder or holders of record of outstanding shares of any class upon which or upon whom the Articles of Incorporation confer such rights where there are two or more classes or series of shares or upon which or upon whom the General Corporation Law confers such rights notwithstanding that the Articles of Incorporation may provide for more than one class or series of shares, one or more of which are limited or denied such rights thereunder. Section 7. CLOSE CORPORATION CERTIFICATES. All certificates representing shares - --------- of this corporation, in the event it shall elect to become a close corporation, shall contain the legend required by Section 418 (c). 14 ARTICLE V EFFECT OF SHAREHOLDERS' AGREEMENT-CLOSE CORPORATION Any Shareholders' Agreement authorized by Section 300 (b) shall only be effective to modify the terms of these By-Laws if this corporation elects to become a close corporation with appropriate filing of or amendment to its Articles as required by Section 202 and shall terminate when this corporation ceases to be a close corporation. Such an agreement cannot waive or alter Sections 158 (defining close corporations), 202 (requirements of Articles of Incorporation), 500 and 501 relative to distributions, 1ll (merger), 1201(e) (reorganization) or Chapters 15 (Records and Reports), 16 (Rights of Inspection), 18 (Involuntary Dissolution) or 22 (Crimes and Penalties). Any other provisions of the Code or these By-Laws may be altered or waived thereby, but to the extent they are not so altered or waived, these By-Laws shall be applicable. ARTICLE VI CORPORATE CONTRACTS AND INSTRUMENTS-HOW EXECUTED The Board of Directors, except as in the By-Laws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board of Directors, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or agreement, or to pledge its credit, or to render it liable for any purposes or any amount, except as provided in Section 313 of the Corporations Code. ARTICLE VII CONTROL OVER BY-LAWS After the initial By-Laws of the corporation shall have been adopted by the incorporator or incorporators of the corporation, the By-Laws may be amended or repealed or new By-Laws may be adopted by the shareholders entitled to exercise a majority of the voting power or by the Board of Directors; provided, however, that 15 the Board of Directors shall have no control over any By-Law which fixes or changes the authorized number of directors of the corporation; provided, further, than any control over the By-Laws herein vested in the Board of Directors shall be subject to the authority of the aforesaid shareholders to amend or repeal the By-Laws or to adopt new By-Laws; and provided further that any By-Law amendment or new By-Law which changes the minimum number of directors to fewer than five shall require authorization by the greater proportion of voting power of the shareholders as hereinbefore set forth. ARTICLE VIII BOOKS AND RECORDS - STATUTORY AGENT Section 1. RECORDS: STORAGE AND INSPECTION. The corporation shall keep at its - --------- principal executive office in the State of California, or, if its principal executive office is not in the State of California, the original or a copy of the By-Laws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California, and, if the corporation has no principal business office in the State of California, it shall upon request of any shareholder furnish a copy of the By-Laws as amended to date. The corporation shall keep adequate and correct books and records of account and shall keep minutes of the proceedings of its shareholders, Board of Directors and committees, if any, of the Board of Directors. The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each. Such minutes shall be in written form. Such other books and records shall be kept either in written form or in any other form capable of being converted into written form. Section 2. RECORD OF PAYMENTS. All checks, drafts or other orders for payment of - --------- money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as shall be determined from time to time by resolution of the Board of Directors. Section 3. ANNUAL REPORT. Whenever the corporation shall have fewer than one - --------- hundred shareholders, the Board of Directors shall not be required to cause to be sent to the shareholders of the 16 corporation the annual report prescribed by Section 1501 of the General Corporation Law unless it shall determine that a useful purpose would be served by causing the same to be sent or unless the Department of Corporations, pursuant to the provisions of the Corporate Securities Law of 1968, shall direct the sending of the same. Section 4. AGENT FOR SERVICE. The name of the agent for service of process - --------- within the State of California is Mr. Robert Snukal. 17 CERTIFICATE OF ADOPTION OF BY-LAWS ADOPTION BY INCORPORATION(S) OR FIRST DIRECTOR(S). The undersigned person(s) appointed in the Articles of Incorporation to act as the Incorporator(s) or First Director(s) of the above named corporation hereby adopt the same as the By-Laws of said corporation. Executed this 21st day of January, 1997. /s/ David B. Bloom --------------------------------- INCORPORATOR, DAVID B. BLOOM THIS IS TO CERTIFY: That I am the duly-elected, qualified and acting Secretary of the above-named corporation; that the foregoing By-Laws were adopted as the By-Laws of said corporation on the date set forth above by the person(s) appointed in the Articles of Incorporation to act as the Incorporator(s) or First Director(s) of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal this 21st day of January, 1997. /s/ Sheila Snukal --------------------------------- SECRETARY, SHEILA SNUKAL (SEAL) CERTIFICATE BY SECRETARY OF ADOPTION BY SHAREHOLDERS' VOTE THIS IS TO CERTIFY: That I am the duly-elected, qualified and acting Secretary of the above-named corporation and that the above and foregoing Code of By-Laws was submitted to the shareholders at their first meeting held on the date set forth in the By-Laws and recorded in the minutes thereof, was ratified by the vote of shareholders entitled to exercise the majority of the voting power of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of January, 1997. /s/ Sheila Snukal --------------------------------- SECRETARY, SHEILA SNUKAL 19 EX-3.45 46 ARTICLES OF INCORPORATION OF I.' NO, INC. Exhibit 3.45 1776225 ARTICLES OF INCORPORATION FILED OF in the office of the Secretary of State I.' n O., Inc. of the State of California JAN 11, 1996 /s/ Bill Jones BILL JONES, Secretary of State I The name of this corporation is I.' n O., Inc. II The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the general corporation law of California other than the banking business, the trust business or the practice of a profession permitted to be incorporated by the California Corporations Code. III The name and address in the State of California of this corporation's initial agent for service of process is: Robert Snukal, c/o Fountain View Management, 11900 W. Olympic Boulevard, Suite 680, Los Angeles, California 90064. IV This corporation is authorized to issue only one class of shares of stock; and the total number of shares which this corporation is authorized to issue is 500,000. Dated: January 11, 1996 /s/ David B. Bloom ----------------------- David B. Bloom I hereby declare that I am the person who executed the foregoing Articles of Incorporation, which execution is my act and deed. /s/ David B. Bloom ----------------------- David B. Bloom (SEAL) EX-3.46 47 BY-LAWS OF I.' NO, INC. Exhibit 3.46 BY-LAWS OF I.' n. O., Inc. -------------- (A California Corporation) ARTICLE I SHAREHOLDERS' MEETINGS Section 1. TIME. An annual meeting for the election of directors and or the - --------- transaction of any other proper business and any special meeting shall be held on the date and at the time as the Board of Directors shall from time to time fix. Section 2. PLACE. Annual meetings and special meetings shall be held at such - --------- place, within or without the State of California, as the Directors may, from time to time, fix. Whenever the Directors shall fail to fix such place, the meetings shall be held at the principal executive office of the corporation. Section 3. CALL. Annual meetings may be called by the Directors, by the Chairman - --------- of the Board, if any, Vice Chairman of the Board, if any, the President, if any, the Secretary, or by any officer instructed by the Directors to call the meeting. Special meetings may be called in like manner and by the holders of shares entitled to cast not less than ten percent of the votes at the meeting being called. Section 4. NOTICE. Written notice stating the place, day and hour of each - --------- meeting, and, in the case of a special meeting, the general nature of the business to be transacted or, in the case of an Annual Meeting, those matters which the Board of Directors, at the time of mailing of the notice, intends to present for action by the shareholders, shall be given not less than ten days (or not less than any such other minimum period of days as may be prescribed by the General Corporation Law) or more than sixty days (or more than any such maximum period of days as may be prescribed by the General Corporation Law) before the date of the meeting, by mail, personally, or by other means of written communication, charges prepaid by or at the direction of the Directors, the President, if any, the Secretary or the officer or persons calling the meeting, addressed to each shareholder at his address appearing on the books of the corporation or given by him to the corporation for the purpose of notice, or, if no such address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the said principal executive office is located. Such notice shall be deemed to be delivered when deposited in the United States mail with first class postage therein prepaid, or sent by other means of written communication addressed to the shareholder at his address as it appears on the stock transfer books of the corporation. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of notice to be presented by management for election. At an annual meeting of shareholders, any matter relating to the affairs of the corporation, whether or not stated in the notice of the meeting, may be brought up for action except matters which the General Corporation Law requires to be stated in the notice of the meeting. The notice of any annual or special meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the General Corporation Law. When a meeting is adjourned to another time or place, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken; provided that, 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 shareholder. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. Section 5. CONSENT. The transaction of any meeting, however called and noticed, - --------- and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting, each of the shareholders or his proxy signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting constitutes a waiver of notice of such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting shall not constitute a waiver of any right to object to the consideration of matters required by the General Corporation Law to be included in the notice if such objection is expressly made at the meeting. Except as otherwise provided in subdivision (f) of Section 601 of the General Corporation Law, neither the business to be transacted at nor the purpose of any regular or special meeting need be specified in any written waiver of notice. Section 6. CONDUCT OF MEETING. Meetings of the shareholders shall be presided - --------- over by one of the following officers in the order of seniority and if present and acting the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the President, if any, a Vice President, or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the shareholders. The Secretary of the corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but 2 if neither the Secretary nor an Assistant Secretary is present, the Chairman of the meeting shall appoint a secretary of the meeting. Section 7. PROXY REPRESENTATION. Every shareholder may authorize another person - --------- or persons to act as his proxy at a meeting or by written action. No proxy shall be valid after the expiration of eleven months from the date of its execution unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the person executing it prior to the vote or written action pursuant thereto, except as otherwise provided by the General Corporation Law. As used herein, a "proxy" shall be deemed to mean a written authorization signed by a shareholder or a shareholder's attorney in fact giving another person or persons power to vote or consent in writing with respect to the shares of such shareholder, and "Signed" as used herein shall be deemed to mean the placing of such shareholder's name on the proxy, whether by manual signature, typewriting, telegraphic transmission or otherwise by such shareholder or such shareholder's attorney in fact. Where applicable, the form of any proxy shall comply with the provisions of Section 604 of the General Corporation Law. Section 8. INSPECTORS -- APPOINTMENT. In advance of any meeting, the Board of - --------- Directors may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or, if any persons so appointed fail to appear or refuse to act, the Chairmen of any meeting or shareholders may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election or persons to replace any of those who so fail or refuse, at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented shall determine whether one or three inspectors are to be appointed. The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity, and effect of proxies, receive votes, ballots, if any, or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result, and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. If there are three inspectors of election, the decision, act, or certificate of a majority shall be effective in all respects as the decision, act, or certificate of all. Section 9. SUBSIDIARY CORPORATIONS. Shares of this corporation owned by a - --------- subsidiary shall not be entitled to vote on any matter. A subsidiary for these proposes is defined as a corporation, the 3 share of which possessing more than 25% of the total combined voting power of all classes of shares entitled to vote, are owned directly or indirectly through one or more subsidiaries. Section 10. QUORUM; VOTE; WRITTEN CONSENT. The holders of a majority of the - ---------- voting shares shall constitute a quorum at a meeting of shareholders for the transaction of any business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum if any action taken, other than adjournment, is approved by at least a majority of the shares required to constitute a quorum. In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares represented thereat, but no other business may be transacted except as hereinbefore provided. In the election of directors, a plurality of the votes cast shall elect. No shareholder shall be entitled to exercise the right of cumulative voting at a meeting for the election of directors unless the candidate's name or the candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder's intention to cumulate the shareholder's votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for such candidates in nomination. Except as otherwise provided by the General Corporation Law, the Articles of Incorporation or these By-Laws, any action required or permitted to be taken at a meeting at which a quorum is present shall be authorized by the affirmative vote of a majority of the shares represented at the meeting. Except in the election of directors by written consent in lieu of a meeting, and except as may otherwise be provided by the General Corporation Law, the Articles of Incorporation or these By-Laws, any action which may be taken at any annual or special meeting may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by holders of shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. Notice of any shareholder approval pursuant to Section 310, 317, 1201 or 2007 without a meeting by less than unanimous written consent shall be given at least ten days before the consummation of the action authorized by such approval, and prompt notice shall be given of the taking of any other corporate action approved by shareholders without a meeting 4 by less than unanimous written consent to those shareholders entitled to vote who have not consented in writing. Section 11. BALLOT. Elections of directors at a meeting need not be by ballot - ---------- unless a shareholder demands election by ballot at the election and before the voting begins. In all other matters, voting need not be by ballot. Section 12. SHAREHOLDERS' AGREEMENTS. Notwithstanding the above provisions in - ---------- the event this corporation elects to become a close corporation, an agreement between two or more shareholders thereof, if in writing and signed by the parties thereof, may provide that in exercising any voting rights the shares held by them shall be voted as provided therein or in Section 706 and may otherwise modify these provisions as to shareholders' meetings and actions. ARTICLE II BOARD OF DIRECTORS Section 1. FUNCTIONS. The business and affairs of the corporation shall be - --------- managed and all corporate powers shall be exercised by or under the direction of its Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person, provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board of Directors. The Board of Directors shall have authority to fix the compensation of directors for services in any lawful capacity. Each director shall exercise such powers and otherwise perform such duties in good faith, in the manner such director believes to be in the best interests of the corporation, and with care, including reasonable inquiry, using ordinary prudence, as a person in a like position would use under similar circumstances. (Section 309). Section 2. EXCEPTION FOR CLOSE CORPORATION. Notwithstanding the provisions of - --------- Section 1, in the event that this corporation shall elect to become a close corporation as defined in Section 186, its shareholders may enter into a Shareholders' Agreement as provided in Section 300 (b). Said Agreement may provide for the exercise of corporate powers and the management of the business and affairs of this corporation by the shareholders, provided however such 5 agreement shall, to the extent and so long as the discretion or the powers of the Board in its management of corporate affairs is controlled by such agreement, impose upon each shareholder who is a party thereof, liability for managerial acts performed or omitted by such person pursuant thereto otherwise imposed upon Directors as provided in Section 300 (d). Section 3. QUALIFICATIONS AND NUMBER. A director need not be a shareholder of - --------- the corporation, a citizen of the United States, or a resident of the State of California. The authorized number of directors constituting the Board of Directors until further changed shall be 4. Thereafter, the authorized number of directors constituting the Board shall be at least three provided that, whenever the corporation shall have only two shareholders, the number of directors may be at least two, and, whenever the corporation shall have only one shareholder, the number of directors may be at least one. Subject to the foregoing provisions, the number of directors may be changed from time to time by an amendment of these By-Laws adopted by the shareholders. Any such amendment reducing the number of directors to fewer than five cannot be adopted if the votes cast against its adoption at a meeting or the shares not consenting in writing in the case of action by written consent are equal to more than sixteen and two-thirds percent of the outstanding shares. No decrease in the authorized number of directors shall have the effect of shortening the term of any incumbent director. Section 4. ELECTION AND TERM. The initial Board of Directors shall consist of - --------- the persons elected at the meeting of the incorporator, all of whom shall hold office until the first annual meeting of shareholders and until their successors have been elected and qualified, or until their earlier resignation or removal from office. Thereafter, directors who are elected to replace any or all of the members of the initial Board of Directors or who are elected at an annual meeting of shareholders, and directors who are elected in the interim to fill vacancies, shall hold office until the next annual meeting of shareholders and until their successors have been elected and qualified, or until their earlier resignation, removal from office, or death. In the interim between annual meetings of shareholders or of special meetings of shareholders called for the election of directors, any vacancies in the Board of Directors, including vacancies resulting from an increase in the authorized number of directors which have not been filled by the shareholders, including any other vacancies which the General Corporation Law authorizes directors to fill, and including vacancies resulting from the removal of directors which are not filled at the meeting of shareholders at which any such removal has been effected, if the Articles of Incorporation or a By-Law adopted by the shareholders so provides, may be filled by the vote of a 6 majority of the directors then in office or of the sole remaining director, although less than a quorum exists. Any director may resign effective upon giving written notice to the Chairman of the Board, if any, the President, the Secretary or the Board of Directors, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to the office when the resignation becomes effective. The shareholders may elect a director at any time to fill any vacancy which the directors are entitled to fill, but which they have not filled. Any such election by written consent shall require the consent of a majority of the shares. Section 5. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The - --------- corporation may indemnify any Director, Officer, agent or employee as to those liabilities and on those terms and conditions as are specified in Section 317. In any event, the corporation shall have the right to purchase and maintain insurance on behalf of any such persons whether or not the corporation would have the power to indemnify such person against the liability insured against. Section 6. MEETINGS. - --------- TIME. Meetings shall be held at such time as the Board shall fix, except that the first meeting of a newly elected Board shall be held as soon after its election as the directors may conveniently assemble. PLACE. Meetings may be held at any place, within or without the State of California, which has been designated in any notice of the meeting, or, if not stated in said notice, or, if there is no notice given, at the place designated by resolution of the Board of Directors. CALL. Meetings may be called by the Chairman of the Board, if any and acting, by the Vice Chairman of the Board, if any, by the President, if any, by any Vice President or Secretary, or by any two directors. NOTICE AND WAIVER THEREOF. No notice shall be required for regular meetings for which the time and place have been fixed by the Board of Directors. Special meetings shall be held upon at least four days' notice by mail or upon at least forty-eight hours' notice delivered personally or by telephone or telegraph. Notice of a meeting need not be given to any director who signs a waiver of notice, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. A notice or waiver of notice 7 need not specify the purpose of any regular or special meeting of the Board of Directors. Section 7. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION. In the event - --------- only one director is required by the By-Laws or Articles of Incorporation, then any reference herein to notices, waivers, consents, meetings or other actions by a majority or quorum of the directors shall be deemed to refer to such notice , waiver, etc., by such sole director, who shall have all the rights and duties and shall be entitled to exercise all of the powers and shall assume all the responsibilities otherwise herein described as given to a Board of Directors. Section 8. QUORUM AND ACTION. A majority of the authorized number of directors - --------- shall constitute a quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided such majority shall constitute at least either one-third of the authorized number of directors or at least two directors, whichever is larger, or unless the authorized number of directors is only one. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than twenty-four hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors, if any, who were not present at the time of the adjournment. Except as the Articles of Incorporation, these By-Laws and the General Corporation Law may otherwise provide, the act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be the act of the Board of Directors. Members of the Board of Directors may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another, and participation by such use shall be deemed to constitute presence in person at any such meeting. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, provided that any action which may be taken is approved by at least a majority of the required quorum for such meeting. Section 9. CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if - --------- present and acting, the Vice Chairman of the Board, if any and if present and acting, shall preside at all meetings. Otherwise, the President, if any and present and acting, or any director chosen by the Board, shall preside. Section 10. REMOVAL OF DIRECTORS. The entire Board of Directors - ---------- or any individual director may be removed from office without cause 8 by approval of the holders of at least a majority of the shares provided, that unless the entire Board is removed, an individual director shall not be removed when the votes cast against such removal, or not consenting in writing to such removal, would be sufficient to elect such director if voted cumulatively at an election of directors at which the same total number of votes were cast, or, if such action is taken by written consent, in lieu of a meeting, all shares entitled to vote were voted, and the entire number of directors authorized at the time of the director's most recent election were then being elected. If any or all directors are so removed, new directors may be elected at the same meeting or by such written consent. The Board of Directors may declare vacant the office of any director who has been declared of unsound mind by an order of court or convicted of a felony. Section 11. COMMITTEES. The Board or Directors, by resolution adopted by a - ---------- majority of the authorized number of directors, may designate one or more committees, each consisting of two or more directors to serve at the pleasure of the Board of Directors. The Board of Directors may designate one or more directors as alternate members of any such committee, who may replace any absent member at any meeting of such committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have all the authority of the Board of Directors except such authority as may not be delegated by the provisions of the General Corporation Law. Section 12. INFORMAL ACTION. The transactions of any meeting of the Board of - ---------- Directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting, or an approval of the minutes thereof. All such waivers, consents, or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 13. WRITTEN ACTION. Any action required or permitted to be taken may be - ---------- taken without a meeting if all of the members of the Board of Directors shall individually or collectively consent in writing to such action. Any such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. 9 ARTICLE III. OFFICERS Section 1. OFFICERS. The officers of the corporation shall be a Chairman of the - --------- Board or a President or both, a Secretary and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, one or more Vice Presidents, one or more Assistant Secretaries and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. One person may hold two or more offices. Section 2. ELECTION. The officers of the corporation, except such officers as - --------- may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article shall be chosen annually by the Board of Directors, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified. Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint such - --------- other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the By-Laws or as the Board of Directors may from time to time determine. Section 4. REMOVAL AND RESIGNATION. Any officer may be removed, either with or - --------- without cause, by a majority of the directors at the time in office, at any regular or special meeting of the Board, or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the Board of Directors, or to the President, or to the Secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. VACANCIES. A vacancy in any office because of death, resignation, - --------- removal, disqualification or any other cause shall be filled in the manner prescribed in the By-Laws for regular appointments to such office. Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be - --------- such an officer, shall, if present, preside at all meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the By-Laws. 10 Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be - --------- given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. He shall preside at all meetings of the shareholders and in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. He shall be ex officio a member of all the standing committees, including the Executive Committee, if any, and shall have the general powers and duties of management usually vested in the office of President of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the By-Laws. Section 8. VICE PRESIDENT. In the absence or disability of the President, the - --------- Vice Presidents, in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to, all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the By-Laws. Section 9. SECRETARY. The Secretary shall keep, or cause to be kept, a book of - --------- minutes at the principal office or such other place as the Board of Directors may order, of all meetings of Directors and Shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Directors' meetings, the number of shares present or represented at Shareholders' meetings and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or duplicate share register, showing the names of the shareholders and their addresses; the number and classes of shares held by each; the number and date of certificates issued for the same; and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all the meetings of the shareholders and of the Board of Directors required by the By-Laws or by law to be given, and he shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the By-Laws. 11 Section 10. CHIEF FINANCIAL OFFICER. This officer shall keep and maintain, or - ---------- cause to be kept and maintained in accordance with generally accepted accounting principles, adequate and correct accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, earnings (or surplus) and shares. The books of account shall at all reasonable times be open to inspection by any director. This officer shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all his transactions and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors of the By-Laws. ARTICLE IV CERTIFICATES AND TRANSFERS OF SHARES Section 1. CERTIFICATES FOR SHARES. Each certificate for shares of the - --------- corporation shall set forth therein the name of the record holder of the shares represented thereby, the number of shares and the class or series of shares owned by said holder, the par value, if any, of the shares represented thereby, and such other statements, as applicable, prescribed by Sections 416 - 419, inclusive, and other relevant Sections of the General Corporation Law of the State of California (the "General Corporation Law") and such other statements, as applicable which may be prescribed by the Corporate Securities Law of the State of California and any other applicable provision of the law. Each such certificate issued shall be signed in the name of the corporation by the Chairman of the Board of Directors, if any, or the Vice Chairman of the Board of Directors, if any, the President, if any, or a Vice President, if any, and by the Chief Financial Officer or an Assistant Treasurer or the secretary or an Assistant Secretary. Any or all of the signatures on a certificate for shares may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate for shares shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. 12 In the event that the corporation shall issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor, any such certificate for shares shall set forth thereon the statements prescribed by Section 409 of the General Corporation Law. Section 2. LOST OR DESTROYED CERTIFICATES FOR SHARES. The corporation may issue - --------- a new certificate for shares or for any other security in the place of any other certificate theretofore issued by it, which is alleged to have been lost, stolen or destroyed. As a condition to such issuance, the corporation may require any such owner of the allegedly lost, stolen or destroyed certificate or any such owner's legal representative to give the corporation a bond, or other adequate security, sufficient to indemnify it against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 3. SHARE TRANSFERS. Upon compliance with any provisions of the General - --------- Corporation Law and/or the Corporate Securities Law of 1968 which may restrict the transferability of shares, transfers of shares of the corporation shall be made only on the record of shareholders of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation or with a transfer agent or a registrar, if any, and on surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes, if any, due thereon. Section 4. RECORD DATE FOR SHAREHOLDERS. In order that the corporation may - --------- determine the shareholders entitled to notice of any meeting or to vote or be 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 other lawful action, the Board of Directors may fix, in advance a record date, which shall not be more than sixty days or fewer than ten days prior to the date of such meeting or more than sixty days prior to any other action. If the Board of Directors shall not have fixed a record date as aforesaid, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors has been taken, shall be the day on which the fist written consent is given; and the record date for determining shareholders for any other 13 purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth day prior to the day of such other action, which ever is later. A determination so shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, but the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five days from the date set for the original meeting. Except as may be otherwise provided by the General Corporation Law, shareholders on the record date shall be entitled to notice and to vote or to receive any dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date. Section 5. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other - --------- corporations standing in the name of this corporation may be voted or represented and all incidents thereto may be exercised on behalf of the corporation by the Chairman of the Board, the President or any Vice President or any other person authorized by resolution of the Board of Directors. Section 6. MEANING OF CERTAIN TERMS. As used in these By-Laws in respect of the - --------- right to notice of a meeting of shareholders or a waiver thereof or to participate or vote thereat or to assent or consent or dissent in writing in lieu of a meeting, as the case may be, the term "share" or "shares" or "shareholder" or "shareholders" refers to an outstanding share or shares and to a holder or holders of record or outstanding shares when the corporation is authorized to issue only one class of shares, and said reference is also intended to include any outstanding share or shares and any holder or holders of record of outstanding shares of any class upon which or upon whom the Articles of Incorporation confer such rights where there are two or more classes or series of shares or upon which or upon whom the General Corporation Law confers such rights notwithstanding that the Articles of Incorporation may provide for more than one class or series of shares, one or more of which are limited or denied such rights thereunder. Section 7. CLOSE CORPORATION CERTIFICATES. All certificates representing shares - --------- of this corporation, in the event it shall elect to become a close corporation, shall contain the legend required by Section 418 (c). 14 ARTICLE V EFFECT OF SHAREHOLDERS' AGREEMENT-CLOSE CORPORATION Any Shareholders' Agreement authorized by Section 300 (b) shall only be effective to modify the terms of these By-Laws if this corporation elects to become a close corporation with appropriate filing of or amendment to its Articles as required by Section 202 and shall terminate when this corporation ceases to be a close corporation. Such an agreement cannot waive or alter Sections 158 (defining close corporations), 202 (requirements of Articles of Incorporation), 500 and 501 relative to distributions,111 (merger), 1201(e) (reorganization) or Chapters 15 (Records and Reports), 16 (Rights of Inspection), 18 (Involuntary Dissolution) or 22 (Crimes and Penalties). Any other provisions of the Code or these By-Laws may be altered or waived thereby, but to the extent they are not so altered or waived, these By-Laws shall be applicable. ARTICLE VI CORPORATE CONTRACTS AND INSTRUMENTS-HOW EXECUTED The Board of Directors, except as in the By-Laws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board of Directors, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or agreement, or to pledge its credit, or to render it liable for any purposes or any amount, except as provided in Section 313 of the Corporations Code. ARTICLE VII CONTROL OVER BY-LAWS After the initial By-Laws of the corporation shall have been adopted by the incorporator or incorporators of the corporation, the By-Laws may be amended or repealed or new By-Laws may be adopted by the shareholders entitled to exercise a majority of the voting power or by the Board of Directors; provided, however, that 15 the Board of Directors shall have no control over any By-Law which fixes or changes the authorized number of directors of the corporation; provided, further, than any control over the By-Laws herein vested in the Board of Directors shall be subject to the authority of the aforesaid shareholders to amend or repeal the By-Laws or to adopt new By-Laws; and provided further that any By-Law amendment or new By-Law which changes the minimum number of directors to fewer than five shall require authorization by the greater proportion of voting power of the shareholders as hereinbefore set forth. ARTICLE VIII BOOKS AND RECORDS - STATUTORY AGENT Section 1. RECORDS: STORAGE AND INSPECTION. The corporation shall keep at its - --------- principal executive office in the State of California, or, if its principal executive office is not in the State of California, the original or a copy of the By-Laws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California, and, if the corporation has no principal business office in the State of California, it shall upon request of any shareholder furnish a copy of the By-Laws as amended to date. The corporation shall keep adequate and correct books and records of account and shall keep minutes of the proceedings of its shareholders, Board of Directors and committees, if any, of the Board of Directors. The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each. Such minutes shall be in written form. Such other books and records shall be kept either in written form or in any other form capable of being converted into written form. Section 2. RECORD OF PAYMENTS. All checks, drafts or other orders for payment of - --------- money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as shall be determined from time to time by resolution of the Board of Directors. Section 3. ANNUAL REPORT. Whenever the corporation shall have fewer than one - --------- hundred shareholders, the Board of Directors shall not be required to cause to be sent to the shareholders of the 16 corporation the annual report prescribed by Section 1501 of the General Corporation Law unless it shall determine that a useful purpose would be served by causing the same to be sent or unless the Department of Corporations, pursuant to the provisions of the Corporate Securities Law of 1968, shall direct the sending of the same. Section 4. AGENT FOR SERVICE. The name of the agent for service of process - --------- within the State of California is Mr. Robert Snukal. CERTIFICATE OF ADOPTION OF BY-LAWS ADOPTION BY INCORPORATION(S) OR FIRST DIRECTOR(S). The undersigned person(s) appointed in the Articles of Incorporation to act as the Incorporator(s) or First Director(s) of the above named corporation hereby adopt the same as the By-Laws of said corporation. Executed this 11th day of January, 1996. /s/ Robert Snukal ------------------------------- PRESIDENT, ROBERT SNUKAL THIS IS TO CERTIFY: That I am the duly-elected, qualified and acting Secretary of the above-named corporation; that the foregoing By-Laws were adopted as the By-Laws of said corporation on the date set forth above by the person(s) appointed in the Articles of Incorporation to act as the Incorporator(s) or First Director(s) of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal this __th day of January, 1996. /s/ Sheila Snukal ------------------------------- SECRETARY, SHEILA SNUKAL (SEAL) EX-3.47 48 ARTICLES OF INCORP. OF SYCAMORE PARK CONVALESCENT Exhibit 3.47 ARTICLES OF INCORPORATION of SYCAMORE PARK CONVALESCENT HOSPITAL We, the undersigned, hereby associate ourselves for the purpose of forming a corporation under the laws of the State of California and we certify the following: I The name of the corporation shall be: SYCAMORE PARK CONVALESCENT HOSPITAL II The purpose for which this corporation are formed are as follows: 1. The specific business in which the corporation proposes primarily and initially to engage is the ownership and operation of a convalescent and nursing hospital. 2. The additional purposes for which the corporation is formed are: (a) To engage in any one or more other businesses or transactions which the Board of Directors of the corporation may from time to time authorize or approve, whether related or unrelated to the business described in Subparagraph 1 above or to any other business then or theretofore done by this corporation. (b) To exercise any and all rights and powers which a corporation may now or hereafter exercise. (c) To act as principal, agent, joint venturer, partner or in any other capacity which may be 1 (4) 8-9-65 authorized or approved by the Board of Directors of this corporation. (d) To transact business in the State of California or in any other jurisdiction of the United States of America, or elsewhere in the world. The foregoing statement of purposes shall be construed as a statement of both purposes and powers, and the purposes and powers in each clause shall, except where otherwise expressed, be in no wise limited or restricted by reference to or inference from the terms or provisions of any other clause but shall be regarded as independent purposes and powers. III The principal office for the transaction of the business of the corporation is to be located in the County of Los Angeles, State of California. IV The corporation is authorized to issue one class of stock, to wit: common stock. The total number of shares which the corporation is authorized to issue is 250 shares. The par value of each share is $100.00 and the aggregate par value of such shares is $25,000.00. V The number of its directors shall be five. The names and addresses of the persons who are appointed to act as the first directors are as follows: 2 (4) 8-9-65 NAME ADDRESS ---- ------- CHARLES D. SILVERBERG 3605 Valley Meadow Road Sherman Oaks, California GARY L. ZIMMERMAN 7331 Cleargrove Drive Downey, California IRENE A. IRWIN 1921 North Edgemont Street Los Angeles, California REBECCA COOPER 506 North Flores Street Los Angeles 48, California CAROLINA JUAREZ 2924 Acresite Street Los Angeles 39, California IN WITNESS WHEREOF, we do execute these Articles of Incorporation and have hereunto set our hands this 10th day of August, 1965. /s/ Charles D. Silverberg -------------------------------- CHARLES D. SILVERBERG /s/ Gary L. Zimmerman -------------------------------- GARY L. ZIMMERMAN /s/ Irene A. Irwin -------------------------------- IRENE A. IRWIN /s/ Rebecca Cooper -------------------------------- REBECCA COOPER /s/ Carolina Juarez -------------------------------- CAROLINA JUAREZ 3 (4) 8-9-65 STATE OF CALIFORNIA ) ) ss. COUNTY OF LOS ANGELES ) On this 10th day of August, 1965, before me, the undersigned, a Notary Public in and for said County and State, personally appeared Charles D. Silverberg, Gary L. Zimmerman, Irene A. Irwin, Rebecca Cooper, and Carolina Juarez, known to me to be the persons whose names are subscribed to the foregoing Articles of Incorporation as incorporators, and who are also named therein as directors, and each duly acknowledged to me that he executed the same. WITNESS my hand and official seal. /s/ Rose De Jack --------------------------------- ROSE DeJACK, Notary Public in and for said County and State. ROSE DeJACK My Commission Expires:_______________ A495741 CERTIFICATE OF AMENDMENT FILED In the office of the OF Secretary of the State of California ARTICLES OF INCORPORATION August 11, 1997 /s/ Bill Jones BILL JONES,SECRETARY OF STATE The undersigned, Robert Snukal and Sheila Snukal, hereby certify that: 1. They are the President and Secretary, respectively, of Sycamore Park Convalescent Hospital, a California corporation (the "Corporation"). 2. Article IV of the Articles of Incorporation of this Corporation is amended and restated to read in its entirety as follows: "The corporation is authorized to issue one class of capital stock, to wit: common stock. The total number of shares which the corporation is authorized to issue is 625. The par value of each such share is $100.00, and the aggregate value of such shares is $62,500.00." 3. The foregoing amendment of the Articles of Incorporation has been duly approved by the Board of Directors. 4. The foregoing amendment of the Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the California Corporations Code. The total number of outstanding shares of the Corporation entitled to vote thereon is 250. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was greater than 50%. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of our own knowledge. DATED: August 8th, 1997 --------------------------- Robert Snukal President --------------------------- Sheila Snukal Secretary [SEAL OF THE SECRETARY OF STATE APPEARS HERE] EX-3.48 49 BY-LAWS OF SYCAMORE PARK CONVALESCENT HOSPITAL Exhibit 3.48 BY-LAWS OF SYCAMORE PARK CONVALESCENT HOSPITAL ARTICLE I SHAREHOLDERS' MEETING Section 1. PLACE OF MEETINGS. All meetings of the shareholders shall be held at the office of the corporation in the State of California, as may be designated for that purpose from time to time by the Board of Directors. Section 2. ANNUAL MEETINGS. The annual meeting of the shareholders shall be held on the 30th day of September in each year, if not a legal holiday, and if a legal holiday, then on the next succeeding business day, at the hour of 10:00 o'clock A.M., at which time the shareholders shall elect by plurality vote a Board of Directors, consider reports of the affairs of the Corporation, and transact such other business as may properly be brought before the meeting. Section 3. SPECIAL MEETINGS. Special meetings of the shareholders, for any purpose or purposes whatsoever, may be called at any time by the President, or by the Board of Directors, or by any two or more members thereof, or by one or more shareholders holding not less than one-fifth (1/5) of the voting power of the corporation. Section 4. NOTICE OF MEETINGS. Notices of meetings annual or special, shall be given in writing to shareholders entitled to vote by the Secretary or the Assistant Secretary, or if there be no such officer, or in case of his neglect or refusal, by any director or shareholder. Such notices shall be sent to the shareholder's address appearing on the books of the corporation, or supplied by him to the corporation for the purpose of notice, not less than seven days before such meeting. Notice of any meeting of shareholders shall specify the place, the day and the hour of meeting, and in case of special meeting, as provided by the Corporations Code of California, the general nature of the business to be transacted. When a meeting is adjourned for thirty days or more, notice of the adjourned meeting shall be given as in case of an original meeting. Save, as aforesaid, it shall not be necessary to give any notice of the adjournment or of the business to be transacted at an adjourned meeting other than by announcement at the meeting at which such adjournment is taken. Section 5. CONSENT TO SHAREHOLDERS' MEETINGS. The transactions of any meeting of shareholders, however called and noticed, shall be valid as though had at a meeting duly held after regular call and notice if a quorum be present either in person or by proxy, and if, either before or after the meeting, each -- 1 -- of the shareholders entitled to vote, not present in person or by proxy, sign a written waiver of notice, or a consent to the holding of such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Any action which may be taken at a meeting of the shareholders, may be taken without a meeting if authorized by a writing signed by all of the holders of shares who would be entitled to vote at a meeting for such purpose, and filed with the Secretary of the corporation. Section 6. QUORUM. The holders of a majority of the shares entitled to vote thereat, present in person, or represented by proxy, shall be requisite and shall constitute a quorum at all meetings of the shareholders for the transaction of business except as otherwise provided by law, by the Articles of Incorporation, or by these By-Laws. If, however, such majority shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat, present in person, or by proxy, shall have power to adjourn the meeting from time to time, until the requisite amount of voting shares shall be present. At such adjourned meeting at which the requisite amount of voting shares shall be represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 7. VOTING RIGHTS; CUMULATIVE VOTING. Only persons in whose names shares entitled to vote stand on the stock records of the corporation on the day of any meeting of shareholders, unless some other day be fixed by the Board of Directors for the determination of shareholders of record, then on such other day, shall be entitled to vote at such meeting. Every shareholder entitled to vote shall be entitled to one vote for each of said shares and shall have the right to cumulate his votes as provided in Section 2235, Corporations Code of California. Section 8. PROXIES. Every shareholder entitled to vote, or to execute consents, may do so, either in person or by written proxy, executed in accordance with the provisions of Section 2225 of the Corporations Code of California and filed with the Secretary of the corporation. ARTICLE II DIRECTORS; MANAGEMENT Section 1. POWERS. Subject to the limitation of the Articles of Incorporation, of the By-Laws and of the Laws of the State of California as to action to be authorized or approved by the shareholders, all corporate powers shall be exercised by or under authority of, and the business and affairs of this corporation shall be controlled by, a Board of Directors. -- 2 -- Section 2. NUMBER AND QUALIFICATION. The authorized number of directors of the corporation shall be five (5) until changed by amendment to the Articles of Incorporation or by an amendment to this Section 2, Article II of these By-Laws, adopted by the vote or written assent of the shareholders entitled to exercise the majority of the voting power of the corporation. Section 3. ELECTION AND TENURE OF OFFICE. The directors shall be elected by ballot at the annual meeting of the shareholders, to serve for one year and until their successors are elected and have qualified. Their term of office shall begin immediately after election. Section 4. VACANCIES. Vacancies in the Board of Directors may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, and each director so elected shall hold office until his successor is elected at an annual meeting of shareholders or at a special meeting called for that purpose. The shareholders may at any time elect a director to fill any vacancy not filled by the directors, and may elect the additional directors at the meeting at which an amendment of the By-Laws is voted authorizing an increase in the number of directors. A vacancy or vacancies shall be deemed to exist in case of the death, resignation or removal of any director, or if the shareholders shall increase the authorized number of directors but shall fail at the meeting at which such increase is authorized, or at an adjournment thereof, to elect the additional director so provided for, or in case the shareholders fail at any time to elect the full number of authorized directors. If the Board of Directors accepts the resignation of a Director tendered to take effect at a future time, the Board, or the shareholders, shall have power to elect a successor to take office when the resignation shall become effective. No reduction of the number of directors shall have the effect of removing any director prior to the expiration of his term of office. Section 5. REMOVAL OF DIRECTORS. The entire Board of Directors or any individual director may be removed from office as provided by Sections 807, 810 and 811 of the Corporations Code of the State of California. Section 6. PLACE OF MEETINGS. Meetings of the Board of Directors shall be held at the office of the corporation in the State of California, as designated for that purpose, from time to time, by resolution of the Board of Directors, or written consent of all of the Members of the Board. Any meeting shall be valid, wherever held, if held by the written consent of all Members of the Board of Directors, given either before or after the meeting and filed with the Secretary of the corporation. -- 3 -- Section 7. ORGANIZATION MEETINGS. The organization meetings of the Board of Directors shall be held immediately following the adjournment of the annual meetings of the shareholders. Section 8. OTHER REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held on the last Monday of March, June, September and December. If said day shall fall upon a holiday, such meetings shall be held on the next succeeding business day thereafter. No notice need be given of such regular meetings. Section 9. SPECIAL MEETINGS--NOTICES. Special meetings of the Board of Directors for any purpose or purposes shall be called at any time by the President or if he is absent or unable or refuses to act, by any Vice-President, or by any two directors. Written notice of the time and place of special meetings shall be delivered personally to the directors or sent to each director by letter or by telegram, charges prepaid, addressed to him at his address as it is shown upon the records of the corporation, or if it is not so shown on such records or is not readily ascertainable, at the place in which the meetings of the directors are regularly held. In case such notice is mailed or telegraphed, it shall be deposited in the United States mail or delivered to the telegraph company in the place in which the principal office of the corporation is located at least forty-eight (48) hours prior to the time of the holding of the meeting. In case such notice is delivered as above provided; it shall be so delivered at least twenty-four (24) hours prior to the time of the holding of the meeting. Such mailing, telegraphing or delivery as above provided shall be due, legal and personal notice to such director. Section 10. WAIVER OF NOTICE. When all the directors are present at any directors' meeting, however called or noticed, and sign a written consent thereto on the records of such meeting, or, if a majority of the directors are present, and if those not present sign in writing a waiver of notice of such meeting, whether prior to or after the holding of such meeting, which said waiver shall be filed with Secretary of the corporation, the transactions thereof are as valid as if had at a meeting regularly called and noticed. Section 11. NOTICE OF ADJOURNMENT. Notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place be fixed at the meeting adjourned. Section 12. QUORUM. A majority of the number of directors as fixed by the articles or By-Laws shall be necessary to constitute a quorum for the transaction of business, and the action of a majority of the directors -- 4 -- present at any meeting at which there is a quorum, when duly assembled, is valid as a corporate act; provided that a minority of the directors, in the absence of a quorum, may adjourn from time to time, but may not transact any business. Section 13. CONSENT OF BOARD OBVIATING NECESSITY OF MEETING Notwithstanding anything to the contrary contained in these By-Laws, any action required or permitted to be taken by the board of directors under any provisions of Sections 100 - 6804 of the Corporations Code of California may be taken without a meeting, if all members of the board of directors shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the board. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. ARTICLE III OFFICERS Section 1. OFFICERS. The officers shall be a President, one or more Vice-Presidents, a Secretary and a Treasurer, which officers shall be elected by, and hold office at the pleasure of, the Board of Directors. Section 2. ELECTION. After their election the directors shall meet and organize by electing a President from their own number, and one or more Vice-Presidents, a Secretary and a Treasurer, who may, but need not be, members of the Board of Directors. Any two or more of such offices except those of President and Secretary, may be held by the same person. Section 3. COMPENSATION AND TENURE OF OFFICE. The compensation and tenure of office of all the officers of the corporation shall be fixed by the Board of Directors. Section 4. REMOVAL AND RESIGNATION. Any officer may be removed, either with or without cause, by a majority of the directors at the time in office, at any regular or special meeting of the Board, or, except in case of any officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the Board of Directors or to the President, or to the Secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. -- 5 -- Section 5. VACANCIES. A vacancy in any office because of death, resignation, removal; disqualification or other cause shall be filled in the manner prescribed in the By-Laws for regular appointments to such office. Section 6. PRESIDENT. The President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and affairs of the corporation. He shall preside at all meetings of the shareholders and of the Board of Directors. He shall be ex-officio a member of all the standing committees, including the executive committee, if any, and shall have the general powers and duties of management usually vested in the office of President of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the By-Laws. Section 7. VICE-PRESIDENTS. The Vice-Presidents shall, in the order designated by the Board of Directors, in the absence or disability of the President, perform the duties and exercise the powers of the President, and shall perform such other duties as the Board of Directors shall prescribe. Section 8. SECRETARY. The Secretary shall keep, or cause to be kept, a book of minutes at the principal office or such other place as the Board of Directors may order, of all meetings of directors and shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at shareholders' meetings and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or a duplicate share register, showing the names of the shareholders and their addresses; the number and classes of shares held by each; the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all the meetings of the shareholders and of the Board of Directors required by the By-Laws or by law to be given; he shall keep the seal of the corporation and affix said seal to all documents requiring a seal, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-Laws. Section 9. TREASURER. The Treasurer shall receive and keep all the funds of the corporation, and pay them out only on the check of the corporation, signed in the manner authorized by the Board of Directors. -- 6 -- Section 10. ASSISTANTS. Any Assistant Secretary or Assistant Treasurer, respectively, may exercise any of the powers of Secretary or Treasurer, respectively, as provided in these By-Laws or as directed by the Board of Directors, and shall perform such other duties as are imposed upon them by the By-Laws or the Board of Directors. SECTION 11. SUBORDINATE OFFICERS. The Board of Directors may from time to time appoint such subordinate officers or agents as the business of the corporation may require, fix their tenure of office and allow them suitable compensation. ARTICLE IV EXECUTIVE AND OTHER COMMITTEES The Board of Directors may appoint an executive committee, and such other committees as may be necessary from time to time, consisting of such number of its members and with such powers as it may designate, consistent with the Articles of Incorporation and By-Laws and the General Corporation Laws of the State of California. Such committees shall hold office at the pleasure of the board. ARTICLE V CORPORATE RECORDS AND REPORTS--INSPECTION Section 1. RECORDS. The corporation shall maintain adequate and correct accounts, books and records of its business and properties. All of such books, records and accounts shall be kept at its principal place of business in the State of California, as fixed by the Board of Directors from time to time. Section 2. INSPECTION OF BOOKS AND RECORDS. All books and records provided for in Sections 3003 - 3005 of the Corporations Code of California shall be open to inspection of the directors and shareholders from time to time and in the manner provided in said Sections 3003 - - 3005. Section 3. CERTIFICATION AND INSPECTION OF BY-LAWS. The original or a copy of these By-Laws, as amended or otherwise altered to date, certified by the Secretary, shall be open to inspection by the shareholders of the company, as provided in Section 502 of the Corporations Code of California. Section 4. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as shall be determined from time to time by resolution of the Board of Directors. --7-- Section 5. CONTRACTS, ETC.--HOW EXECUTED. The Board of Directors, except as in the By-Laws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board of Directors, no officer, agent or employee shall have any power of authority to bind the corporation by any contract or engagement, or to pledge its credit, or to render it liable for any purpose or to any amount. Section 6. ANNUAL REPORTS. The Board of Directors shall cause annual reports to be made to the shareholders as provided by Sections 3006 - 3012 of the Corporations Code of California. The Board of Directors shall cause such annual reports to be sent to the shareholders not later than one hundred twenty (120) days after the close of the fiscal or calendar year. ARTICLE VI CERTIFICATES AND TRANSFER OF SHARES Section 1. CERTIFICATES FOR SHARES. Certificates for shares shall be of such form and device as the Board of Directors may designate and shall state the name of the record holder of the shares represented thereby; its number; date of issuance; the number of shares for which it is issued; the par value, if any, or a statement that such shares are without par value; a statement of the rights, privileges, preferences and restrictions, if any; a statement as to redemption or conversion, if any; a statement of liens or restrictions upon transfer or voting, if any; if the shares be assessable, or, if assessments are collectible by personal action, a plain statement of such facts. Every certificate for shares must be signed by the President or a Vice-President and the Secretary or an Assistant Secretary or must be authenticated by facsimiles of the signatures of the President and Secretary or by a facsimile of the signature of its President and the written signature of its Secretary or an Assistant Secretary. Before it becomes effective every certificate for shares authenticated by a facsimile of a signature must be countersigned by a transfer agent or transfer clerk and must be registered by an incorporated bank or trust company, either domestic or foreign, as registrar of transfers. Section 2. TRANSFER ON THE BOOKS. Upon surrender to the Secretary or transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 3. LOST OR DESTROYED CERTIFICATES. Any person claiming a certificate of stock to be lost or --8-- destroyed shall make an affidavit or affirmation of that fact and advertise the same in such manner as the Board of Directors may require, and shall if the directors so require give the corporation a bond of indemnity, in form and with one or more sureties satisfactory to the Board, in at least double the value of the stock represented by said certificate, whereupon a new certificate may be issued of the same tenor and for the same number of shares as the one alleged to be lost or destroyed. Section 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may appoint one or more transfer agents of transfer clerks, and one or more registrars, which shall be an incorporated bank or trust company--either domestic or foreign, who shall be appointed at such times and places as the requirements of the corporation may necessitate and the Board of Directors may designate. Section 5. CLOSING STOCK TRANSFER BOOKS. The Board of Directors may close the transfer books in their discretion for a period not exceeding thirty days preceding any meeting, annual or special, of the shareholders, or the day appointed for the payment of a dividend. Section 6. RESTRICTION ON TRANSFERS OF SHARES. Before there can be a valid sale or transfer of any of the shares of this corporation by the holders thereof, the holder of the shares to be sold or transferred shall first give notice in writing to the secretary of this corporation of his intention to sell or transfer such shares. Said notice shall specify the number of shares to be sold or transferred, the price per share, and the terms upon which such holder intends to make such sale or transfer. The secretary shall, within five (5) days thereafter, mail or deliver a copy of said notice to each of the other shareholders of record of this corporation.. Such notice may be delivered to such shareholders personally or may be mailed to the last known addresses of such shareholders, as the same may appear on the books of this corporation. Within twenty (20) days after the mailing or delivering of said notice to such shareholders, any such shareholder or shareholders desiring to acquire any part or all of the shares referred to in said notice shall deliver by mail or otherwise to the secretary of this corporation a written offer or offers, expressed to be acceptable immediately, to purchase a specified number or numbers of such shares at the price and upon the terms --9-- stated in said notice, accompanied by the purchase price therefor with authorization to pay such purchase price against delivery of such shares. If the total number of shares specified in such offer exceeds the number of shares referred to in said notice, each offering shareholder shall be entitled to purchase such proportion of the shares referred to in said notice to the secretary as the number of shares of this corporation, which he holds, bears to the total number of shares held by all such shareholders desiring to purchase the shares referred to in said notice to the secretary. If all of the shares referred to in said notice to the secretary are not disposed of under such apportionment, each shareholder desiring to purchase shares in a number in excess of his proportionate share, as provided above, shall be entitled to purchase such proportion of those shares which remain thus undisposed of, as the total number of shares which he holds bears to the total number of shares held by all of the shareholders desiring to purchase shares in excess of those to which they are entitled under such apportionment. If none or only a part of the shares referred to in said notice to the secretary is purchased, as aforesaid, in accordance with offers made within said twenty (20) days period, the shareholder desiring to sell or transfer may dispose of all shares of stock referred to in said notice to the secretary not so purchased by the other shareholders, to any person or persons he may so desire; provided, however, that he shall not sell or transfer such shares at a lower price or on terms more favorable to the purchaser or transferee than those specified in said notice to the secretary. Any sale or transfer, or purported sale or transfer, of the shares of this corporation shall be null and void unless the terms, conditions and provisions of this Section 6 are strictly observed and followed. ARTICLE VII CORPORATE SEAL The corporate seal shall be circular in form, and shall have inscribed thereon the name of the corporation, the date of its incorporation, and the word California. --10-- ARTICLE VIII AMENDMENTS TO BY-LAWS SECTION 1. BY SHAREHOLDERS. New By-Laws may be adopted or these By-Laws may be repealed or amended at their annual meeting, or at any other meeting of the shareholders called for that purpose, by a vote of shareholders entitled to exercise a majority of the voting power of the corporation, or by written assent of such shareholders. Section 2. POWERS OF DIRECTORS. Subject to the right of the shareholders to adopt, amend or repeal By-Laws, as provided in Section 1 of this Article VIII, the Board of Directors may adopt, amend or repeal any of these By-Laws other than a By-Law or amendment thereof changing the authorized number of directors. Section 3. RECORD OF AMENDMENTS. Whenever an amendment or new By-Law is adopted, it shall be copied in the Book of By-Laws with the original By-Laws, in the appropriate place. If any By-Law is repealed, the fact of repeal with the date of the meeting at which the repeal was enacted or written assent was filed shall be stated in said book. --11-- KNOW ALL MEN BY THESE PRESENTS: That we, the undersigned, being all of the persons appointed in the Articles of Incorporation to act as the first Board of Directors of Sycamore Park Convalescent Hospital hereby assent to the foregoing By-Laws, and adopt the same as the By-Laws of said corporation. IN WITNESS WHEREOF, We have hereunto set our hands on this 25th day of August, 1965. ) ) /s/ Charles D. Silverberg ) - ---------------------------- CHARLES D. SILVERBERG ) ) ) /s/ Gary L. Zimmerman ) - ---------------------------- GARY L. ZIMMERMAN ) ) ) /s/ Irene A. Irwin ) Directors. - ---------------------------- IRENE A. IRWIN ) ) ) /s/ Rebecca Cooper ) - ---------------------------- REBECCA COOPER ) ) ) /s/ Carolina Juarez ) - ---------------------------- CAROLINA JUAREZ THIS IS TO CERTIFY: That I am the duly elected, qualified and acting Secretary of Sycamore Park Convalescent Hospital and that the above and foregoing By-Laws were adopted as the By-Laws of said corporation on the 25th day of August, 1965, by the persons appointed in the Articles of Incorporation to act as the first directors of said corporation. IN WITNESS WHEREOF, I have hereto set my hand this 25th day of August, 1965. /s/ Charles D. Silverberg -------------------------------- Secretary, CHARLES D. SILVERBERG THIS IS TO CERTIFY: That I am the duly elected, qualified and acting Secretary of and that the above and foregoing Code of By-Laws was submitted to the shareholders at their first meeting held on the day of 19 , and was ratified by the vote of the shareholders entitled to exercise the majority of the voting power of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand this day of 19 . ---------------------------------- Secretary. -- 12 -- AMENDMENT TO BY-LAWS OF SYCAMORE PARK CONVALESCENT HOSPITAL A CALIFORNIA CORPORATION I. Section 8 of Article II of said By-Laws is hereby amended by the deletion therefrom of the words: "the last Monday of March, June, September and December" and to substitute in lieu thereof the words: "the first Wednesday of March, June, September, and December." KNOW ALL MEN BY THESE PRESENTS: That I, the undersigned, duly elected and acting Secretary of SYCAMORE PARK CONVALESCENT HOSPITAL, do hereby certify that the foregoing Amendment to the By-Laws of said corporation was duly adopted by the directors on the 3rd day of March, 1966. IN WITNESS WHEREOF, I have hereunto subscribed my name this 3rd day of March, 1966. /s/ Charles D. Silverberg --------------------------------- CHARLES D. SILVERBERG Secretary of the Board of Directors. Discussion followed regarding the possibility of changing the date of the annual meeting of the shareholders. Upon motion duly made, seconded and unanimously carried, the following resolution was unanimously adopted: RESOLVED, that Section 2 of Article I of the By-Laws of this corporation be and it is hereby deleted and the following substituted in lieu thereof: Section 2. ANNUAL MEETINGS. The annual meeting of the shareholders shall be held on the last Thursday of October in each year, if not a legal holiday, and if a legal holiday, then on the next succeeding business day, at the hour of 7:30 P.M., at which time the shareholders shall elect by plurality vote a Board of Directors, consider reports of the affairs of the Corporation, and transact such other business as may properly be brought before the meeting. The meeting then proceeded to a discussion regarding Section 6 of Article VI which deals with right of first refusal in the event of a proposed sale or transfer of any shares of this corporation by any holder thereof. It was felt by those present that a holder of shares of this corporation should be allowed to make a gift of his shares to a member of his family and have them remain subject to the right of first refusal therein contained. After extensive discussion, and upon motion duly made, seconded and unanimously carried, the following resolution was adopted: 2 RESOLVED, that Section 6 of Article VI be and it is hereby amended by the addition of the following: "Nothing herein contained shall apply when a holder of the shares of this corporation makes a gift or other transfer without consideration to a member of his immediate family. Said shares when transferred shall nevertheless remain subject to the right of first refusal herein contained." RESOLVED FURTHER, that the By-laws as amended hereinabove be and the same hereby are adopted, ratified and confirmed. Julian Robinson, President of the Corporation, gave a report of the past year's operation of the corporation's business. He reviewed in detail all of the financial statements of the corporation, copies of which had been supplied to each shareholder prior to this meeting. Said statements revealed, among other things, that the corporation was currently operating at a profit. Mr. Robinson cautioned the meeting that labor costs were increasing rapidly and that the Federal and State Aid Programs which would benefit the hospital were requiring the addition of certain personnel to the hospital's staff. Mr. Robinson reported that the corporation had received a cost reimbursement rate from MediCal (The California State Medical Program) of $11.06 per day per patient. Mr. Robinson anticipated that upon review by the State, that the rate for the corporation might go as high as $12.51 per day per patient. 3 the board that Article II Section 8 of the By-laws of the corporation provided for regular meetings on the last Monday of March, June, September and December of each year. Following discussion and upon motion duly made, seconded and unanimously carried, it was -- RESOLVED that Section 8 of Article II of the By-laws of this corporation be and they are hereby amended to Amendment adopted delete therefrom the words "the last Monday of March, March 3, 1966 June, September and December" and to substitute in lieu thereof the words "the first Wednesday of March, June, September and December". Mr.Silverberg recommended that the corporation create the office of Assistant Secretary, and that Mr. Gary L. Zimmerman of his law firm be elected to the office of Assistant Secretary to facilitate preparation and execution of documents, board minutes, and other similar matters in the event of Mr. Silverberg's absence. After discussion and upon motion duly made, seconded and unanimously carried, it was -- RESOLVED that this corporation hereby creates the office of ASSISTANT SECRETARY; that GARY L. ZIMMERMAN of Silverberg and Rosen, 1680 North Vine Street, Hollywood, be and he is hereby elected to the office of Assistant Secretary. There being no further business, upon motion duly made, seconded and unanimously carried, the meeting adjourned. - ------------------------- --------------------------- JULIAN ROBINSON, Chairman CHARLES D. SILVERBERG, Secy. 5 AMENDMENT TO BY-LAWS OF SYCAMORE PARK CONVALESCENT HOSPITAL Pursuant to Section 5 of Article I of the by-laws of Sycamore Park Convalescent Hospital, a California corporation, the undersigned, being all of the shareholders of Sycamore Park Convalescent Hospital, do hereby unanimously adopt the following resolution amending the by-laws of this corporation: RESOLVE, that Section 2 of Article II of the by-laws of this corporation being in the same are hereby amended to read as follows: "Section 2. NUMBER AND QUALIFICATIONS. The authorized number of directors of the corporation shall be four (4), until changed by amendment to the Articles of Incorporation or by an amendment to this Section 2, Article II of these by-laws, adopted by the vote or written assent of the shareholders entitled to exercise the majority of the voting power of the corporation." DATED: July 1, 1982 /s/ Gertrude Snukal /s/ Robert Snukal - ------------------------- --------------------------- Fountainview Convalescent Robert Snukal Hospital By: Gertrude Snukal, /s/ Sheila Snukal President --------------------------- Sheila Snukal /s/ Manuel Padama --------------------------- Manuel Padama /s/ Consolacion Padama --------------------------- Consolacion Padama EX-4.1 50 INDENTURE DATED 4/16/98 Exhibit 4.1 ________________________________________________________________________________ FOUNTAIN VIEW, INC. SERIES A AND SERIES B 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008 INDENTURE _____________________________ Dated as of April 16, 1998 _____________________________ STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A. Trustee ________________________________________________________________________________ TABLE OF CONTENTS -----------------
PAGE ---- ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE..................................... 1 Section 1.01. Definitions................................................................ 1 Section 1.02. Other Definitions.......................................................... 20 Section 1.03. Terms of TIA............................................................... 20 Section 1.04. Rules of Construction...................................................... 21 ARTICLE 2. THE NOTES...................................................................... 21 Section 2.01. Form and Dating............................................................ 21 Section 2.02. Execution and Authentication............................................... 23 Section 2.03. Registrar and Paying Agent................................................. 23 Section 2.04. Paying Agent to Hold Money in Trust........................................ 24 Section 2.05. Holder Lists............................................................... 24 Section 2.06. Transfer and Exchange...................................................... 24 Section 2.07. Replacement Notes.......................................................... 38 Section 2.08. Outstanding Notes.......................................................... 38 Section 2.09. Treasury Notes............................................................. 39 Section 2.10. Temporary Notes............................................................ 39 Section 2.11. Cancellation............................................................... 39 Section 2.12. Defaulted Interest......................................................... 39 ARTICLE 3. REDEMPTION AND PREPAYMENT...................................................... 40 Section 3.01. Notices to Trustee......................................................... 40 Section 3.02. Selection of Notes to Be Redeemed.......................................... 40 Section 3.03. Notice of Redemption....................................................... 40 Section 3.04. Effect of Notice of Redemption............................................. 41 Section 3.05. Deposit of Redemption Price................................................ 41 Section 3.06. Notes Redeemed in Part..................................................... 42 Section 3.07. Optional Redemption........................................................ 42 Section 3.08. Mandatory Redemption....................................................... 43 Section 3.09. Offer to Purchase by Application of Excess Proceeds........................ 43 ARTICLE 4. COVENANTS...................................................................... 45 Section 4.01. Payment of Notes........................................................... 45 Section 4.02. Maintenance of Office or Agency............................................ 45 Section 4.03. Reports.................................................................... 46 Section 4.04. Compliance Certificate..................................................... 46 Section 4.05. Taxes...................................................................... 47 Section 4.06. Stay, Extension and Usury Laws............................................. 47 Section 4.07. Restricted Payments........................................................ 48
i Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries............. 50 Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock................. 51 Section 4.10. Asset Sales............................................................... 53 Section 4.11. Transactions with Affiliates............................................... 54 Section 4.12. Liens...................................................................... 55 Section 4.13. No Senior Subordinated Debt................................................ 55 Section 4.14. Corporate Existence........................................................ 55 Section 4.15. Offer to Repurchase Upon Change of Control................................. 56 Section 4.16. Payments for Consent....................................................... 57 Section 4.17. Additional Subsidiary Guarantees........................................... 57 Section 4.18. Sale Leaseback Transactions................................................ 57 ARTICLE 5. SUCCESSORS..................................................................... 57 Section 5.01. Merger, Consolidation, or Sale of Assets................................... 57 Section 5.02. Successor Corporation Substituted.......................................... 58 ARTICLE 6. DEFAULTS AND REMEDIES.......................................................... 59 Section 6.01. Events of Default.......................................................... 59 Section 6.02. Acceleration............................................................... 60 Section 6.03. Other Remedies............................................................. 61 Section 6.04. Waiver of Past Defaults.................................................... 61 Section 6.05. Control by Majority........................................................ 62 Section 6.06. Limitation on Suits........................................................ 62 Section 6.07. Rights of Holders of Notes to Receive Payment.............................. 63 Section 6.08. Collection Suit by Trustee................................................. 63 Section 6.09. Trustee May File Proofs of Claim........................................... 63 Section 6.10. Priorities................................................................. 64 Section 6.11. Undertaking for Costs...................................................... 64 ARTICLE 7. TRUSTEE........................................................................ 64 Section 7.01. Duties of Trustee.......................................................... 64 Section 7.02. Rights of Trustee.......................................................... 65 Section 7.03. Individual Rights of Trustee............................................... 66 Section 7.04. Trustee's Disclaimer....................................................... 67 Section 7.05. Notice of Defaults......................................................... 67 Section 7.06. Reports by Trustee to Holders of the Notes................................. 67 Section 7.07. Compensation and Indemnity................................................. 67 Section 7.08. Replacement of Trustee..................................................... 68 Section 7.09. Successor Trustee by Merger, Etc........................................... 69 Section 7.10. Eligibility; Disqualification.............................................. 69 Section 7.11. Preferential Collection of Claims Against Company.......................... 70
ii ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE....................................... 70 Section 8.01. Option to effect legal defeasance or covenant Defeasance................... 70 Section 8.02. Legal Defeasance and Discharge............................................. 70 Section 8.03. Covenant Defeasance........................................................ 70 Section 8.04. Conditions to Legal or Covenant Defeasance................................. 71 Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions............................................. 72 Section 8.06. Repayment to Company....................................................... 73 Section 8.07. Reinstatement.............................................................. 73 ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER............................................... 74 Section 9.01. Without Consent of Holders of Notes........................................ 74 Section 9.02. With Consent of Holders of Notes........................................... 74 Section 9.03. Compliance with Trust Indenture Act........................................ 76 Section 9.04. Revocation and Effect of Consents.......................................... 76 Section 9.05. Notation on or Exchange of Notes........................................... 76 Section 9.06. Trustee to Sign Amendments, Etc............................................ 77 ARTICLE 10. SUBORDINATION................................................................. 77 Section 10.01. Agreement to Subordinate.................................................. 77 Section 10.02. Liquidation; Dissolution; Bankruptcy...................................... 77 Section 10.03. Default on Designated Senior Debt......................................... 78 Section 10.04. Acceleration of Securities................................................ 78 Section 10.05. When Distribution Must Be Paid Over....................................... 78 Section 10.06. Notice by Company......................................................... 79 Section 10.07. Subrogation............................................................... 79 Section 10.08. Relative Rights........................................................... 79 Section 10.09. Subordination May Not Be Impaired by Company.............................. 80 Section 10.10. Distribution or Notice to Representative.................................. 80 Section 10.11. Rights of Trustee and Paying Agent........................................ 80 Section 10.12. Authorization to Effect Subordination..................................... 80 Section 10.13. Amendments................................................................ 81 ARTICLE 11. SUBSIDIARY GUARANTEES......................................................... 81 Section 11.01. Guarantee................................................................. 81 Section 11.02. Subordination of Subsidiary Guarantee..................................... 82 Section 11.03. Limitation on Guarantor Liability......................................... 82 Section 11.04. Execution and Delivery of Subsidiary Guarantee............................ 83 Section 11.05. Guarantors May Consolidate, Etc., on Certain Terms........................ 83 Section 11.06. Releases Following Sale of Assets or Capital Stock........................ 84
iii ARTICLE 12. MISCELLANEOUS................................................................. 84 Section 12.01. Trust Indenture Act Controls.............................................. 84 Section 12.02. Notices................................................................... 84 Section 12.03. Communication by Holders of Notes with Other Holders of Notes............. 86 Section 12.04. Certificate and Opinion as to Conditions Precedent........................ 86 Section 12.05. Statements Required in Certificate or Opinion............................. 86 Section 12.06. Rules by Trustee and Agents............................................... 87 Section 12.07. No Personal Liability of Directors, Officers, Employees and Stockholders.. 87 Section 12.08. Governing Law............................................................. 87 Section 12.09. No Adverse Interpretation of Other Agreements............................. 87 Section 12.10. Successors................................................................ 87 Section 12.11. Severability.............................................................. 87 Section 12.12. Counterpart Originals..................................................... 87 Section 12.13. Table of Contents, Headings, Etc.......................................... 88
EXHIBITS Exhibit A-1 FORM OF NOTE Exhibit A-2 FORM OF REGULATION S TEMPORARY GLOBAL NOTE Exhibit B FORM OF CERTIFICATE OF TRANSFER Exhibit C FORM OF CERTIFICATE OF EXCHANGE Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Exhibit E FORM OF SUBORDINATED SUBSIDIARY GUARANTEE Exhibit F FORM OF SUPPLEMENTAL INDENTURE iv INDENTURE dated as of April 16, 1998 among Fountain View, Inc., a Delaware corporation (the "Company"), the Guarantors (as defined below) and State Street Bank and Trust Company of California, N.A., a national banking association organized and existing under the laws of the United States of America, as trustee (the "Trustee"). The Company, the Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 11 1/4% Series A Senior Subordinated Notes due 2008 (the "Series A Notes") and the 11 1/4% Series B Senior Subordinated Notes due 2008 (the "Series B Notes" and, together with the Series A Notes, the "Notes") of the Company: ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS. "144A Global Note" means a global note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. "Agent" means any Registrar, Paying Agent or co-registrar. "Applicable Procedures" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Cedel that apply to such transfer or exchange. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than sales of inventory in the ordinary course of business consistent with past practices (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by Sections 4.15 or 5.01 and not by Section 4.10 hereof and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company's Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0 million. Notwithstanding the foregoing, the following items shall not be deemed to be Asset Sales: (i) a transfer of assets by the Company to a Restricted Subsidiary or by a Restricted Subsidiary to the Company or to another Restricted Subsidiary, (ii) an issuance of Equity Interests by a Restricted Subsidiary to the Company or to another Restricted Subsidiary, (iii) a Restricted Payment that is permitted by Section 4.07 hereof and (iv) an exchange of facilities by the Company or a Restricted Subsidiary to the extent that such facilities are exchanged for one or more nursing centers, long-term care facilities, assisted living facilities, outpatient clinics or any other facilities or businesses that are used or useful in the provision of healthcare related services, in each case the aggregate fair market value of which is equal to or greater than the fair market value of the facilities so exchanged, as determined in good faith by the Board of Directors. "Attributable Debt" in respect of a sale and leaseback transaction or an operating lease in respect of a healthcare facility means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee of the property subject to such sale and leaseback transaction or operating lease in respect of a healthcare facility or net rental payments during the remaining term of the lease included in such transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Board of Directors" means the Board of Directors of the Company, or any authorized committee of the Board of Directors. "Broker-Dealer" has the meaning set forth in the Registration Rights Agreement. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. 2 "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any lender party to the New Credit Facility or with any domestic commercial bank having capital and surplus in excess of $500 million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition and (vi) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (i) - (v) of this definition. "Cedel" means Cedel Bank, SA. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act) other than one or more Principals and their Related Parties, (ii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than one or more Principals and their Related Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), directly or indirectly, of more than 50% of the Voting Stock of the Company (measured by voting power rather than number of shares), (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than one or more Principals and their Related Parties, becomes the "beneficial owner" (as defined above), directly or indirectly, of more than 35% of the Voting Stock of the Company (measured by voting power rather than number of shares) and the Principals and their Related Parties in the aggregate "beneficially own" (as defined above) less than 35% of the Voting Stock of the Company (measured by 3 voting power rather than number of shares) or, in the event the Company has consummated a Public Equity Offering, less than 20% of the Voting Stock of the Company (measured by voting power rather than number of shares), or (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "Company" means Fountain View, Inc., a Delaware corporation, and any and all successors thereto. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income, plus (v) any non-recurring expenses related to the Company's reorganization transactions during August 1997, plus (vi) non-recurring financing, advisory and other expenses incurred in connection with the Transactions, minus (v) non-cash items increasing such Consolidated Net Income for such period (other than items accrued in the ordinary course of business), in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash expenses of, a Subsidiary of the Company shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent that a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries 4 for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Wholly Owned Restricted Subsidiary thereof that is a Guarantor, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iv) the cumulative effect of a change in accounting principles shall be excluded, (v) the Net Income of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the Company or one of its Restricted Subsidiaries, and (vi) the Net Income of any Restricted Subsidiary shall be calculated after deducting preferred stock dividends payable by such Restricted Subsidiary to Persons other than the Company and its other Restricted Subsidiaries. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments). "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of this Indenture, (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election or (iii) was elected to such Board of Directors pursuant to a designation made pursuant to the Stockholders Agreement, provided that at such time the Principals and their Related Parties own more than 35% of the Voting Stock of the Company. "Corporate Trust Office" shall be at the address of the Trustee specified in Section 12.02 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Facilities" means one or more debt facilities (including, without limitation, the New Credit Facility) or commercial paper facilities with banks, insurance companies, commercial finance companies or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of 5 receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. Indebtedness under Credit Facilities outstanding on the date on which Notes are first issued and authenticated under this Indenture shall be deemed to have been incurred on such date in reliance on the exception provided by clause (i) of the definition of Permitted Indebtedness. "Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, in the form of Exhibit A-1 hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture. "Designated Senior Debt" means (i) so long as the New Credit Facility is outstanding, any Indebtedness outstanding under the New Credit Facility, and (ii) at any time thereafter any other Senior Debt permitted under the Indenture the principal amount of which is $25.0 million or more and that has been designated by the Company as "Designated Senior Debt". "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature; provided, however, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Company to repurchase such Capital Stock upon the occurrence of a Change of Control or an Asset Sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with Section 4.07 hereof. "Employment Agreement" means any of the employment agreements between the Company and William C. Scott, Robert M. Snukal or Shiela S. Snukal in effect as of the date of this Indenture. 6 "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear system. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" means the Notes issued in the Exchange Offer pursuant to Section 2.06(f) hereof. "Exchange Offer" has the meaning set forth in the Registration Rights Agreement. "Exchange Offer Registration Statement" has the meaning set forth in the Registration Rights Agreement. "Existing Affiliate Transactions" means any transaction contemplated by any of (i) the Stockholders Agreement, (ii) the Employment Agreements, (iii) the Merger Agreement, (iv) the Investment Agreement, (v) the leases of the Company's Rio Hondo, Fountain View, Montebello and Sycamore Park skilled nursing facilities, between Robert M. Snukal, Sheila S. Snukal or their affiliates and the Company, and (vi) the purchase and supply agreements between the Company or its Subsidiaries and Twin Med, Inc. consistent with past practice in the ordinary course of business. "Existing Disqualified Stock" means the Series A Preferred Stock of the Company. "Existing Indebtedness" means up to $165.0 million in aggregate principal amount of Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the New Credit Facility) in existence on the date of this Indenture, until such amounts are repaid. "Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of debt issuance costs (other than any such costs incurred in connection with the Transactions) and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries (whether 7 or not such Guarantee or Lien is called upon) and (iv) the product of (a) all dividend payments, whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such period to the Fixed Charges of such Person and its Restricted Subsidiaries for such period. In the event that the referent Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Global Notes" means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes, in the form of Exhibit A hereto issued in accordance with Section 2.01, 2.06(b)(iv), 2.06(d)(ii) or 2.06(f) hereof. 8 "Global Note Legend" means the legend set forth in Section 2.06(g)(ii), which is required to be placed on all Global Notes issued under this Indenture. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, by way of a pledge of assets or through letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Guarantors" means each of Summit Care Corporation, a California corporation, Summit Care-California, Inc., a California corporation, Summit Care Pharmacy, Inc., a California corporation, Skilled Care Network, a California corporation, Summit Care Texas Equity, Inc., a California corporation, Summit Care-Texas No. 2, Inc., a Texas corporation, Summit Care-Texas No. 3, Inc., a Texas corporation, Summit Care Management Texas, Inc., a Texas corporation, Summit Care Texas, L.P., a Texas limited partnership, Fountain View Holdings, Inc., a Delaware corporation, AIB Corp., a California corporation, Alexandria Convalescent Hospital, Inc., a California corporation, BIA Hotel Corp., a California corporation, Brier Oak Convalescent, Inc.,, a California corporation, Elmcrest Convalescent Hospital, a California corporation, Fountainview Convalescent Hospital, a California corporation, Fountain View Management, Inc., a California corporation, Rio Hondo Nursing Center, a California corporation, Locomotion Holdings, Inc., a Delaware corporation, Locomotion Therapy, Inc., a Delaware corporation, On-Track Therapy Center, Inc., a California corporation, I.'NO., Inc., a California corporation, Sycamore Park Convalescent Hospital, a California corporation, SNF Pharmacy, Inc., a California corporation, and (ii) any other subsidiary that executes a Guarantee in accordance with the provisions of this Indenture, and their respective successors and assigns. "Healthcare Related Business" means a business, at least a majority of whose revenues result from healthcare, long-term care or assisted living related businesses or facilities. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency changes. "Holder" means a Person in whose name a Note is registered. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease 9 Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such Indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof, in the case of any Indebtedness issued with original issue discount, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Indenture" means this Indenture, as amended or supplemented from time to time. "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Initial Purchaser" means an initial purchaser of the Notes pursuant to that certain Purchase Agreement dated as of April 9, 1998 among the Company, the Guarantors and the other parties thereto. "Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, but that is not also a QIB. "Investment Agreement" means that certain Investment Agreement, dated as of March 27, 1998, by and among the Company, Robert M. Snukal, Sheila S. Snukal, William C. Scott, Heritage Fund II, L.P., Heritage Investors II, L.L.C., Heritage Fund II Investment Corporation, HFV Holdings, LLC, Nassua Capital Partners II, L.P., NAS Partners I LLC, Paribas North America, Inc., Phoenix Home Life Mutual Insurance Company, PMI Mezzanine Fund, L.P., GS Private Equity Partners, L.P., GS Private Equity Partners Offshore, L.P., and Sutro Investment Partners V, LLC. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of direct or indirect loans (including Guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of 10 the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in Section 4.07 hereof. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or the city in which the principal Corporate Trust Office of the Trustee is located are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period. "Letter of Transmittal" means the letter of transmittal to be prepared by the Company and sent to all Holders of the Notes for use by such Holders in connection with the Exchange Offer. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Liquidated Damages" means all liquidated damages then owing pursuant to Section 5 of the Registration Rights Agreement. "Merger" means the merger of FV-SCC Acquisition Corp. with and into Summit Care Corporation pursuant to the terms of the Merger Agreement. "Merger Agreement" means that certain Agreement and Plan of Merger, dated as of February 6, 1998, by and among the Company, FV-SCC Acquisition Corp., Summit Care Corporation and Heritage Fund II, L.P. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and 11 sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness (other than Indebtedness under the New Credit Facility) secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "New Credit Facility" means that certain Credit Agreement, dated as of April 16, 1998, by and among the Company and Bank of Montreal, as agent and lender, and the other lenders named therein, providing for up to $30.0 million of revolving credit borrowings and $85.0 million of term loan borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "Non-Recourse Debt" means Indebtedness: (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise) or (c) constitutes the lender; (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness (other than the Notes) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "Non-U.S. Person" means a Person who is not a U.S. Person. "Notes" has the meaning assigned to it in the preamble to this Indenture. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Offering" means the offering of the Notes by the Company. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the 12 principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Sections 12.04 and 12.05 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Sections 12.04 and 12.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Participant" means, with respect to the Depositary, Euroclear or Cedel, a Person who has an account with the Depositary, Euroclear or Cedel, respectively (and, with respect to The Depository Trust Company, shall include Euroclear and Cedel). "Permitted Investments" means (a) any Investment in the Company or in a Restricted Subsidiary of the Company that is a Guarantor; (b) any Investment in Cash Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Restricted Subsidiary of the Company and a Guarantor or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company that is a Guarantor; (d) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.10 hereof; (e) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (f) Hedging Obligations; (g) any Investment in a Permitted Joint Venture; (h) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (h) that are at the time outstanding, not to exceed $2.5 million; and (i) Investments provided for in the Investment Agreement as of the date of this Indenture. "Permitted Joint Venture" mean (i) any Restricted Subsidiary which owns, operates or services a Healthcare Related Business, and (ii) Summit Care Pharmacy, L.L.C., which owns and operates a pharmacy in Texas. "Permitted Junior Securities" means Equity Interests in the Company or any Guarantor or debt securities that are unsecured and subordinated to all Senior Debt (and any debt securities issued in exchange for Senior Debt) to at least the same extent as, or to a greater extent than, the Notes are subordinated to Senior Debt pursuant to Article 10 of this Indenture. "Permitted Liens" means (i) Liens on assets of the Company, any of its Restricted Subsidiaries or any of the Guarantors securing Senior Debt that was permitted by the terms of this Indenture to be incurred; (ii) Liens in favor of the Company; (iii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Restricted Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the 13 Company; (iv) Liens on property or assets existing at the time of acquisition thereof or the acquisition of a Person owning such property or assets by the Company or any Restricted Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (v) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (vi) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (iv) of Section 4.09 hereof covering only the assets acquired with such Indebtedness; (vii) Liens existing on the date of this Indenture; (viii) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (ix) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (x) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (xi) Liens on assets of Guarantors to secure Senior Debt of such Guarantors that was permitted by the Indenture to be incurred; (xii) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $5.0 million at any one time outstanding and that (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Restricted Subsidiary; and (xiii) Liens on assets or Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness is subordinated in right of payment to the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or 14 refunded; and (iv) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "Principals" means Heritage Partners Management Company, Inc. and Heritage Fund II, L.P. "Private Placement Legend" means the legend set forth in Section 2.06(g)(i) to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture. "Public Equity Offering" means a public offering of common stock of the Company pursuant to a registration statement filed with the Securities and Exchange Commission in accordance with the Securities Act. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of the date of this Indenture, by and among the Company and the other parties named on the signature pages thereof, as such agreement may be amended, modified or supplemented from time to time. "Regulation S" means Regulation S promulgated under the Securities Act. "Regulation S Global Note" means a Regulation S Temporary Global Note or Regulation S Permanent Global Note, as appropriate. "Regulation S Permanent Global Note" means a permanent global Note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Regulation S Temporary Global Note upon expiration of the Restricted Period. "Regulation S Temporary Global Note" means a temporary global Note in the form of Exhibit A-2 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes initially sold in reliance on Rule 903 of Regulation S. "Related Party" with respect to any Principal means (A) any controlling holder of Equity Interests, 80% (or more) owned Subsidiary, or spouse or ex-spouse or 15 immediate family member (in the case of an individual) of such Principal or (B) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (A) or (C) any investment fund, whether a limited partnership, limited liability corporation or corporation, or other entity managed and controlled by Heritage Partners Management Company, Inc. "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Debt. "Responsible Officer," when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Definitive Note" means a Definitive Note bearing the Private Placement Legend. "Restricted Global Note" means a Global Note bearing the Private Placement Legend. "Restricted Investment" means any Investment other than a Permitted Investment. "Restricted Period" means the 40-day restricted period as defined in Regulation S. "Restricted Subsidiary" means, with respect to any Person, each Subsidiary of such Person that is not an Unrestricted Subsidiary. "Rule 144" means Rule 144 promulgated under the Securities Act. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Rule 903" means Rule 903 promulgated under the Securities Act. "Rule 904" means Rule 904 promulgated the Securities Act. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Senior Debt" means (i) all Indebtedness outstanding under Credit Facilities and all Hedging Obligations with respect thereto, (ii) any other Indebtedness permitted to be incurred by the Company under the terms of this Indenture, unless the 16 instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes and (iii) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include (w) any liability for federal, state, local or other taxes owned or owing by the Company, (x) any Indebtedness of the Company to any of its Subsidiaries or other Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in violation of this Indenture. "Shelf Registration Statement" means the Shelf Registration Statement as defined in the Registration Rights Agreement. "Series A Preferred Stock" means the Series A Preferred Stock, par value $.01 per share, authorized under the Company's certificate of incorporation in effect as of the date of this Indenture, with such additional or different rights, preferences, privileges and terms as do not adversely affect the interests of the Holders of the Notes. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of this Indenture. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Stockholders Agreement" means the Stockholders Agreement, dated as of March 27, 1998, among the Company and certain of its stockholders, as in effect on the date of this Indenture, and as thereafter amended from time to time; provided for purposes of the definition of "Continuing Director" that no such amendment alters the provision relating to the designation and election of members of the Company's Board of Directors. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "Subsidiary Guarantee" means the Guarantee by each Guarantor of the Company's payment obligations under this Indenture and the Notes, executed pursuant to the provisions of this Indenture. 17 "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa- 77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "Transaction Related Payments" mean (i) certain bonus and other payments not to exceed $1,925,000 from Summit Care Corporation or the Company to William Scott, payable at the effective time of the Merger, (ii) payments not to exceed $2,535,000 in the aggregate to effect the cash-out of Summit stock options, as described in the Merger Agreement, (iii) the payment of a transaction fee of up to $3,000,000 by the Company to Heritage, payable at the effective time of the Merger, and (iv) payments to Mr. and Mrs. Snukal and William Scott, not to exceed $150,000 in the aggregate, upon the forfeiture of Series B Common Stock pursuant to the Stockholders Agreement. "Transactions" means (i) the transactions contemplated by the Merger Agreement, (ii) the offering of the Notes on or prior to the date of this Indenture, (iii) the execution and initial funding under the New Credit Facility, and (iv) the transactions contemplated by the Investment Agreement, and the application of the proceeds from the foregoing. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Global Note" means a permanent global Note in the form of Exhibit A-1 attached hereto that bears the Global Note Legend and that has the "Schedule of Exchanges of Interests in the Global Note" attached thereto, and that is deposited with or on behalf of and registered in the name of the Depositary, representing a series of Notes that do not bear the Private Placement Legend. "Unrestricted Definitive Note" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend. "Unrestricted Subsidiary" means any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary: (i) has no Indebtedness other than Non-Recourse Debt; (ii) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (iii) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (A) to subscribe for additional Equity Interests or (B) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (iv) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; and (v) has at least one director on its board of directors that is not a director or executive officer of the Company or any of its 18 Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of the Company or any of its Restricted Subsidiaries. Any such designation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation compiled with the foregoing conditions and was permitted by Section 4.07 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date (and, if such Indebtedness is not permitted to be incurred as of such date under Section 4.09 hereof the Company shall be in default of such covenant). The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (i) such Indebtedness is permitted under Section 4.09 hereof calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period, and (ii) no Default or Event of Default would be in existence following such designation. "U.S. Person" means a U.S. person as defined in Rule 902(o) under the Securities Act. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned" means, when used with respect to any Subsidiary or Restricted Subsidiary of a Person, a Subsidiary (or Restricted Subsidiary, as appropriate) of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries (or Wholly Owned Restricted Subsidiaries, as appropriate) of such Person and one or more Wholly Owned Subsidiaries (or Wholly Owned Restricted Subsidiaries, as appropriate) of such Person. 19 Section 1.02. Other Definitions.
Defined in Term Section "Affiliate Transaction".................. 4.11 "Asset Sale Offer"....................... 3.09 "Authentication Order"................... 2.02 "DTC".................................... 2.03 "Change of Control Offer"................ 4.15 "Change of Control Payment".............. 4.15 "Change of Control Payment Date"......... 4.15 "Covenant Defeasance".................... 8.03 "Event of Default"....................... 6.01 "Excess Proceeds"........................ 4.10 "incur".................................. 4.09 "Legal Defeasance"....................... 8.02 "Offer Amount"........................... 3.09 "Offer Period"........................... 3.09 "Paying Agent"........................... 2.03 "Permitted Debt"......................... 4.09 "Purchase Date".......................... 3.09 "Registrar".............................. 2.03 "Restricted Payments".................... 4.07
Section 1.03. Terms of TIA. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Notes and the Subsidiary Guarantees means the Company and the Guarantors, respectively, and any successor obligor upon the Notes and the Subsidiary Guarantees, respectively. 20 All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. Section 1.04. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. ARTICLE 2. THE NOTES Section 2.01. Form and Dating. (a) General. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. (b) Global Notes. Notes issued in global form shall be substantially in the form of Exhibits A-1 or A-2 attached hereto (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes issued in definitive form shall be substantially in the form of Exhibit A-1 attached hereto (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note shall represent such of 21 the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. (c) Temporary Global Notes. Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Temporary Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its Corporate Trust Office, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Cedel Bank, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Restricted Period shall be terminated upon the receipt by the Trustee of (i) a written certificate from the Depositary, together with copies of certificates from Euroclear and Cedel Bank certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a 144A Global Note bearing a Private Placement Legend, all as contemplated by Section 2.06(a)(ii) hereof), and (ii) an Officers' Certificate from the Company. Following the termination of the Restricted Period, beneficial interests in the Regulation S Temporary Global Note shall be exchanged for beneficial interests in Regulation S Permanent Global Notes pursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent Global Notes, the Trustee shall cancel the Regulation S Temporary Global Note. The aggregate principal amount of the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided. (d) Euroclear and Cedel Procedures Applicable. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be applicable to transfers of beneficial interests in the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes that are held by Participants through Euroclear or Cedel Bank. 22 Section 2.02. Execution and Authentication. An Officer shall sign the Notes for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Notes and may be in facsimile form. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall, upon a written order of the Company signed by an Officer (an "Authentication Order"), authenticate Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Notes. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Company. Section 2.03. Registrar and Paying Agent. The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes. The Company shall, prior to each Record Date, notify the Paying Agent of any wire transfer instructions for payments that it receives from Holders. 23 Section 2.04. Paying Agent to Hold Money in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium or Liquidated Damages, if any, or interest on the Notes, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. Section 2.05. Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA (S) 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA (S) 312(a). Section 2.06. Transfer and Exchange. (a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if (i) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 120 days after the date of such notice from the Depositary or (ii) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee; provided that in no event shall the Regulation S Temporary Global Note be exchanged by the Company for Definitive Notes prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act and provided further, there shall be no continuing Default or Event of Default. Upon the occurrence of either of the preceding events in (i) or (ii) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or 24 replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b),(c) or (f) hereof. (b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (i) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Temporary Regulation S Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(i). (ii) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(i) above, the transferor of such beneficial interest must deliver to the Registrar either (A) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above; provided that in no event shall Definitive Notes be issued upon the transfer or exchange of 25 beneficial interests in the Regulation S Temporary Global Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903 under the Securities Act. Upon consummation of an Exchange Offer by the Company in accordance with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(ii) shall be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof. (iii) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(ii) above and the Registrar receives the following: (A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; and (B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Temporary Global Note or the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; (iv) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in the Unrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of Section 2.06(b)(ii) above and: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; 26 (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; or (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above. Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note. (c) Transfer or Exchange of Beneficial Interests for Definitive Notes. (i) Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficial interest in a Restricted Global Note 27 proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by the Registrar of the following documentation: (A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (2)(a) thereof; (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such beneficial interest is being transferred to a Non- U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3)(d) thereof, if applicable: (F) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, 28 and the Company shall execute and, upon receipt of an Authentication Order, the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(i) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a beneficial interest in the Regulation S Temporary Global Note may not be exchanged for a Definitive Note or transferred to a Person who takes delivery thereof in the form of a Definitive Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act, except in the case of a transfer pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904. (iii) Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes. A holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker- dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: 29 (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(b) thereof; or (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (iv) Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes. If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and, upon receipt of an Authentication Order, the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iv) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iv) shall not bear the Private Placement Legend. (d) Transfer and Exchange of Definitive Notes for Beneficial Interests. (i) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation: 30 (A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (2)(b) thereof; (B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such Restricted Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3)(d) thereof, if applicable; (F) if such Restricted Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cancel the Restricted Definitive Note, and increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, and in the case of clause (c) above, the Regulation S Global Note. 31 (ii) Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(c) thereof; or (2) if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. Upon satisfaction of the conditions of any of the subparagraphs in this Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and 32 increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note. (iii) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred. (e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(e). (i) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B 33 hereto, including the certifications, certificates and Opinion of Counsel required by item (3)(d) thereof, if applicable. (ii) Restricted Definitive Notes to Unrestricted Definitive Notes. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(d) thereof; or (2) if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests, an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon 34 receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. (f) Exchange Offer. Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02, the Trustee shall authenticate (i) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes tendered for acceptance by Persons that certify in the applicable Letters of Transmittal that (x) they are not broker- dealers, (y) they are not participating in a distribution of the Exchange Notes and (z) they are not affiliates (as defined in Rule 144) of the Company, and accepted for exchange in the Exchange Offer and (ii) Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with the issuance of such Notes, the Trustee shall cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Company shall execute and the Trustee shall authenticate and deliver to the Persons designated by the Holders of Definitive Notes so accepted Definitive Notes in the appropriate principal amount. (g) Legends. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture. (i) Private Placement Legend. (A) Except as permitted by subparagraph (B) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) (1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE 35 SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS." (B) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(ii), (c)(iii), (c)(iv), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend. (ii) Global Note Legend. Each Global Note shall bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY." (iii) Regulation S Temporary Global Note Legend. The Regulation S Temporary Global Note shall bear a legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN)." (h) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or cancelled in whole and not in part, each such Global Note shall be returned to or retained and cancelled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such 36 Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase. (i) General Provisions Relating to Transfers and Exchanges. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Notes and Definitive Notes upon receipt of an Authentication Order. (ii) No service charge shall be made to a holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof). (iii) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (iv) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (v) The Registrar shall not be required (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection, (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding Interest Payment Date. (vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. 37 (viii) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile. Section 2.07. Replacement Notes If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of an Authentication Order, shall authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. Section 2.08. Outstanding Notes. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note; however, Notes held by the Company or a Subsidiary of the Company shall not be deemed to be outstanding for purposes of Section 3.07(b) hereof. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary of the Company or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. Section 2.09. Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, 38 or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned shall be so disregarded. Section 2.10. Temporary Notes Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. Section 2.11. Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy cancelled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all cancelled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. Section 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. 39 ARTICLE 3. REDEMPTION AND PREPAYMENT Section 3.01. Notices to Trustee. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 45 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the clause of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. Section 3.02. Selection of Notes to Be Redeemed If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee shall select the Notes to be redeemed or purchased among the Holders of the Notes in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot or in accordance with any other method the Trustee considers fair and appropriate. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Notes not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. Section 3.03. Notice of Redemption Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address. The notice shall identify the Notes to be redeemed and shall state: (a) the redemption date; (b) the redemption price; 40 (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; (h) the CUSIP number or numbers of the Notes called for redemption; and (i) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Section 3.04. Effect of Notice of Redemption Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. Section 3.05. Deposit of Redemption Price One Business Day prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and 41 unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. Section 3.06. Notes Redeemed in Part. Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered. Section 3.07. Optional Redemption. (a) Except as set forth in clause (b) of this Section 3.07, the Company shall not have the option to redeem the Notes pursuant to this Section 3.07 prior to April 15, 2003. Thereafter, the Notes will be subject to redemption at any time or from time to time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages thereon, to the applicable redemption date, if redeemed during the twelve-month period beginning on April 15 of the years indicated below:
YEAR PERCENTAGE ---- ---------- 2003..................................... 105.625% 2004..................................... 103.750% 2005..................................... 101.875% 2006 and thereafter...................... 100.000%
(b) Notwithstanding the provisions of clause (a) of this Section 3.07, at any time prior to April 15, 2001, the Company may on any one or more occasions redeem up to 35% in aggregate principal amount of Notes originally issued on the date of the Indenture at a redemption price of 111.25% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the redemption date, with the net cash proceeds of one or more Public Equity Offerings by the Company; provided that at least $78.0 million in aggregate principal amount of Notes remain outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and provided, further, that such redemption shall occur within 60 days of the date of the closing of such Public Equity Offering. (c) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. 42 Section 3.08. Mandatory Redemption. Except as set forth in Sections 4.10 and 4.15 hereof, the Company shall not be required to make mandatory redemption payments with respect to the Notes. Section 3.09. Offer to Purchase by Application of Excess Proceeds. In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date; (c) that any Note not tendered or accepted for payment shall continue to accrete or accrue interest; (d) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or accrue interest after the Purchase Date; 43 (e) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may only elect to have all of such Note purchased and may not elect to have only a portion of such Note purchased; (f) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Company, the depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (h) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and (i) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon receipt of an Authentication Order from the Company, shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. 44 Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. ARTICLE 4. COVENANTS Section 4.01. Payment of Notes. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. The Company shall pay all Liquidated Damages, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace period) at the same rate to the extent lawful. Section 4.02. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. 45 The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03. Section 4.03. Reports. (a) Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, the Company shall furnish to the Trustee and the Holders of Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10- K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the SEC on Form 8-K if the Company were required to file such reports, in each case within the time periods specified in the SEC's rules and regulations. In addition, following the consummation of the exchange offer contemplated by the Registration Rights Agreement, whether or not required by the rules and regulations of the SEC, the Company shall file a copy of all such information and reports with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. (b) In addition, for so long as any Notes remain outstanding, the Company and the Guarantors shall furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. Any materials required to be furnished to Holders of Notes by this Section 4.03 shall discuss, in reasonable detail, either on the face of the financial statements included therein or in the footnotes thereto and in any Management's Discussion and Analysis of Financial Condition and Results of Operations, the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company. Section 4.04. Compliance Certificate. (a) The Company and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no 46 event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. Section 4.05. Taxes. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. Section 4.06. Stay, Extension and Usury Laws. The Company and each of the Guarantors covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company and each of the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. Section 4.07. Restricted Payments. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the 47 direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or to the Company or a Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes, except a payment of interest or principal at Stated Maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09 hereof; and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of this Indenture (excluding Restricted Payments permitted by clauses (ii), (iii), (iv), (vi) and (vii) of the next succeeding paragraph), is less than the sum, without duplication, of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the date of this Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds received by the Company since the date of this Indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of Disqualified Stock or debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or Disqualified Stock or convertible debt securities) sold to a Subsidiary of the Company), plus (iii) to the extent that any Restricted Investment that was made after the date of this Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (B) the initial amount of such Restricted Investment. 48 The foregoing provisions shall not prohibit (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Indenture; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any Indebtedness that is subordinated to the Notes or Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of, other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (c) (ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of Indebtedness that is subordinated to the Notes with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any dividend (in cash or otherwise) by a Restricted Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis; (v) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any member of the Company's (or any of its Restricted Subsidiaries') management pursuant to any management equity subscription agreement, stock option agreement, or employment agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests of the Company or any Restricted Subsidiary shall not exceed $2.0 million in any twelve-month period and no Default or Event of Default shall have occurred and be continuing immediately after such transaction; (vi) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Subsidiary of the Company held by any member of the Company's (or any of its Subsidiaries') management pursuant to any management equity subscription agreement, stock option agreement or employment agreement, provided that the purchase price is paid with the proceeds to the Company of key man life or disability insurance policies purchased by the Company specifically to finance any such repurchase, redemption or other acquisition, or (vii) the payment of the Transaction Related Payments. The Board of Directors of the Company may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such determination, all outstanding investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation and will reduce the amount available for Restricted Payments under clause (c) of this Section 4.07 or Permitted Investments, as applicable. All such outstanding Investments will be deemed to constitute Restricted Investments in an amount equal to the greatest of (x) the net book value of such Investments at the time of such designation, (y) the fair market value of such Investments at the time of such designation and (z) the original fair market value of such Investments at the time they were made. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if such redesignation would not cause a Default. 49 The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets or securities that are required to be valued by this Section 4.07 shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee, such determination to be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if such fair market value exceeds $10.0 million. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 4.07 were computed, together with a copy of any opinion or appraisal required by this Indenture. Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or advances to the Company or any of its Restricted Subsidiaries or (iii) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. However, the foregoing restrictions will not apply to encumbrances or restrictions existing under or by reason of (a) Existing Indebtedness as in effect on the date of this Indenture and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the agreements governing the Existing Indebtedness as in effect on the date of this Indenture, (b) the New Credit Facility as in effect as of the date of this Indenture, or other Credit Facilities entered into subsequent to the date of this Indenture, and in either case any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such other Credit Facilities or amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the New Credit Facility as in effect on the date of this Indenture as determined in good faith by the Company's Board of Directors, (c) the Indenture and the Notes, (d) applicable law, (e) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the 50 properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Indenture to be incurred, (f) customary non-assignment provisions in leases and other contracts and other contracts entered into in the ordinary course of business and consistent with past practices, (g) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, (h) any agreement for the sale of a Subsidiary or a substantial portion of such Subsidiary's assets that restricts distributions by that Subsidiary pending its sale, (i) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced as determined in good faith by the Company's Board of Directors, (j) secured Indebtedness otherwise permitted to be incurred pursuant to the provisions of Section 4.09 that limits the right of the debtor to dispose of the assets securing such Indebtedness, (k) provisions with respect to the disposition or distribution of assets or property in joint venture agreements and other similar agreements entered into in the ordinary course of business and (l) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business. Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and that the Company shall not issue any Disqualified Stock and shall not permit any of its Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock and the Company's Subsidiaries may incur Indebtedness or issue preferred stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters (excluding any fiscal quarters ended prior to July 1, 1997) for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or preferred stock is issued would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock or preferred stock had been issued, as the case may be, at the beginning of such four-quarter period. The provisions of the first paragraph of this Section 4.09 will not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (i) the incurrence by the Company of Indebtedness and letters of credit (with letters of credit being deemed to have a principal amount equal to the stated amount thereof) and other obligations under Credit Facilities in an 51 aggregate principal amount that does not exceed at any one time $115.0 million less the aggregate amount of all Net Proceeds of Asset Sales applied to repay Indebtedness under such Credit Facilities pursuant to Section 4.10 hereof (other than temporary paydowns pending final application of such Net Proceeds); (ii) the incurrence by the Company and the Guarantors of the Existing Indebtedness and the issuance of the Existing Disqualified Stock; (iii) the incurrence by the Company of Indebtedness represented by the Notes in an aggregate principal amount not to exceed $120.0 million; (iv) the incurrence by the Company or any of the Guarantors of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Subsidiary, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any other Indebtedness incurred pursuant to this clause (iv), that does not exceed at any one time the amount of such Capital Lease Obligations, mortgage financings or purchase money obligations outstanding as of the date of this Indenture, plus $5.0 million; (v) the incurrence by the Company or any of the Guarantors of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that is permitted by this Indenture to be incurred under the first paragraph hereof or clauses (ii) or (iv) of this paragraph; (vi) the incurrence by the Company or any of the Guarantors of intercompany Indebtedness between or among the Company and any Guarantor; provided, however, that (i) if the Company is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Guarantor and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Guarantor thereof shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Guarantor, as the case may be, that was not permitted by this clause (vi); (vii) the incurrence by the Company or any of the Guarantors of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding; 52 (viii) the guarantee by the Company or any of its Subsidiaries or any of the Guarantors of Indebtedness of the Company or another Guarantor that was permitted to be incurred by another provision of this Section 4.09; (ix) the incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse Debt, provided, however, that if any such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of the Company that was not permitted by this clause (ix), and the issuance of preferred stock by Unrestricted Subsidiaries; and (x) the incurrence by the Company or any of the Guarantors of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (x), not to exceed $5.0 million. For purposes of determining compliance with this Section 4.09, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (x) above or is entitled to be incurred pursuant to the first paragraph of this Section 4.09, the Company shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this Section 4.09. Accrual of interest, accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this Section 4.09; provided, in each such case, that the amount thereof is included in Fixed Charges of the Company as accrued (to the extent not already included in Fixed Charges). Section 4.10. Asset Sales. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash; provided that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet) of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or the Subsidiary Guarantees) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability and (y) in the case of any Asset Sale constituting the transfer (by merger or otherwise) of all of the Capital Stock of a Restricted Subsidiary, any liabilities (as shown on such Restricted Subsidiary's most 53 recent balance sheet) of such Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or the Subsidiary Guarantees) that will remain outstanding after such transfer and will not be a liability of the Company or any other Restricted Subsidiary of the Company following such transfer and (z) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are contemporaneously (subject to ordinary settlement periods) converted by the Company or such Restricted Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this provision. Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds, at its option, (a) to repay Senior Debt, or (b) to the acquisition of a majority of the assets of, or a majority of the Voting Stock of a Healthcare Related Business, the making of a capital expenditure or the acquisition of other long-term assets for use in a Healthcare Related Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce revolving credit borrowings or otherwise invest such Net Proceeds in any manner that is not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be required to make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase, in accordance with the procedures set forth in this Indenture. To the extent that any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not otherwise prohibited by this Indenture. If the aggregate principal amount of Notes tendered into such Asset Sale Offer surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. Section 4.11. Transactions with Affiliates. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) 54 above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. Notwithstanding the foregoing, the following items shall not be deemed to be Affiliate Transactions: (i) any employment agreement entered into by the Company or any of its Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Subsidiary, (ii) transactions between or among the Company and/or its Restricted Subsidiaries, (iii) payment of reasonable directors fees to Persons who are not otherwise Affiliates of the Company, (iv) any sale or other issuance of Equity Interests (other than Disqualified Stock) of the Company, (v) Restricted Payments that are permitted by Section 4.07 hereof and (vi) Existing Affiliate Transactions. Section 4.12. Liens. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any asset now owned or hereafter acquired, securing Indebtedness or trade payables, except Permitted Liens. Section 4.13. No Senior Subordinated Debt. Notwithstanding the provisions of Section 4.09 hereof, (i) the Company shall not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is expressly subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Notes, and (ii) no Guarantor shall incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is expressly subordinate or junior in right of payment to Senior Debt of such Guarantor and senior in any respect in right of payment to the Subsidiary Guarantees. Section 4.14. Corporate Existence. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. 55 Section 4.15. Offer to Repurchase Upon Change of Control. (a) Upon the occurrence of a Change of Control, each Holder of Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (the "Change of Control Payment"). Within fifteen Business Days following any Change of Control, the Company shall mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures required by this Indenture and described in such notice. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. (b) On the Change of Control Payment Date, the Company shall, to the extent lawful, (1) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being repurchased by the Company. The Paying Agent shall promptly mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unrepurchased portion of the Notes surrendered, if any; provided that each such new Note shall be in a principal amount of $1,000 or an integral multiple thereof. Prior to complying with the provisions of this Section 4.15, but in any event within 90 days following a Change of Control, the Company shall either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this Section 4.15. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (c) Notwithstanding anything to the contrary in this Section 4.15, the Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Section 4.15 hereof and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. Section 4.16. Payments for Consent. Neither the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, 56 to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid or is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Section 4.17. Additional Subsidiary Guarantees. If the Company or any of its Restricted Subsidiaries shall acquire or create another Subsidiary after the date of this Indenture, then such newly acquired or created Subsidiary shall become a Guarantor and execute a Supplemental Indenture and deliver an Opinion of Counsel, in accordance with the terms of this Indenture; provided, that all Subsidiaries that have properly been designated as Unrestricted Subsidiaries in accordance with this Indenture (i) shall not be subject to the requirements of this Section 4.17 and (ii) shall be released from all Obligations under any Subsidiary Guarantee, in each case for so long as they continue to constitute Unrestricted Subsidiaries. Section 4.18. Sale Leaseback Transactions. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that the Company may enter into a sale and leaseback transaction if (i) the Company could have incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof, (ii) the gross cash proceeds of such sale and leaseback transaction are at least equal to the fair market value (as determined in good faith by the Board of Directors and set forth in an Officers' Certificate delivered to the Trustee) of the property that is the subject of such sale and leaseback transaction and (iii) the transfer of assets in such sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, Section 4.10 hereof. ARTICLE 5. SUCCESSORS Section 5.01. Merger, Consolidation, or Sale of Assets. The Company shall not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) except in the case of a merger or consolidation of the Company with or into a Wholly Owned Restricted Subsidiary of the Company, the entity or Person formed 57 by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Registration Rights Agreement, the Notes and this Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) except in the case of a merger or consolidation of the Company with or into a Wholly Owned Restricted Subsidiary of the Company, the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition shall have been made (A) shall have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) shall, immediately after such transaction after giving pro forma effect thereto and any related financial transaction as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof. The Company shall not lease its properties and assets substantially as an entity to any Person. Section 5.02. Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.01 hereof. ARTICLE 6. DEFAULTS AND REMEDIES Section 6.01. Events of Default. An "Event of Default" occurs if: (a) the Company defaults for 30 days in the payment when due of interest on, or Liquidated Damages with respect to, the Notes (whether or not prohibited by the subordination provisions of this Indenture); 58 (b) the Company defaults in the payment when due of principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions of this Indenture); (c) failure by the Company or any of its Subsidiaries for 30 days after notice to comply with any of the provisions of Section 4.07, 4.09, 4.10 or 4.15 hereof; (d) the Company or any of its Subsidiaries fails to comply with any other covenant, representation, warranty or other agreement in this Indenture or the Notes for 60 days after notice; (e) a default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), whether such Indebtedness or Guarantee now exists, or is created after the date of this Indenture, which default results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness the maturity of which has been so accelerated, aggregates $5.0 million or more (other than Existing Indebtedness to the extent it is secured by or paid by the drawing against a letter of credit permitted to be issued under this Indenture); (f) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any of its Restricted Subsidiaries and such judgment or judgments remain undischarged for a period (during which execution shall not be effectively stayed) of 60 days, provided that the aggregate of all such undischarged judgments exceeds $5.0 million; (g) the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or 59 (v) generally is not paying its debts as they become due; or (h) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case; (ii) appoints a custodian of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or (iii) orders the liquidation of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days; or (i) except as permitted by this Indenture, any Subsidiary Guarantee is held in any judicial proceeding to be unenforceable or invalid in any material respect or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee. Section 6.02. Acceleration. If any Event of Default (other than an Event of Default specified in clause (g) or (h) of Section 6.01 hereof with respect to the Company, any Significant Subsidiary or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (g) or (h) of Section 6.01 hereof occurs with respect to the Company, any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Notes shall be due and payable without further action or notice. Holders of the Notes may not enforce this Indenture or the Notes except as provided in this Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. If an Event of Default occurs on or after April 15, 2003 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the 60 intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to Section 3.07 hereof, then, upon acceleration of the Notes, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law, anything in this Indenture or in the Notes to the contrary notwithstanding. If an Event of Default occurs prior to April 15, 2003 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to such date, then, upon acceleration of the Notes, an additional premium shall also become and be immediately due and payable in an amount, for each of the twelve-month periods beginning on April 15 of the years set forth below, as set forth below (expressed as a percentage of the Principal Amount):
YEAR PERCENTAGE ---- ---------- 1998..................................................... 111.250% 1999..................................................... 110.125% 2000..................................................... 109.000% 2001..................................................... 107.875% 2002..................................................... 106.750%
Section 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may, subject to Article 10, pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.04. Waiver of Past Defaults. Holders of not less than a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium and Liquidated Damages, if any, or interest on the Notes (including any waiver obtained in connection with a purchase of, tender offer or exchange offer for Notes)(provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. 61 Section 6.05. Control by Majority. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. Section 6.06. Limitation on Suits. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. Section 6.07. Rights of Holders of Notes to Receive Payment. Notwithstanding any other provision of this Indenture and subject to Article 10 and Section 11.02,, the right of any Holder of a Note to receive payment of principal, premium and Liquidated Damages, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. 62 Section 6.08. Collection Suit by Trustee. If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium and Liquidated Damages, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.09. Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.10. Priorities. If the Trustee collects any money pursuant to this Article, it shall, subject to Article 10, pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; 63 Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and Liquidated Damages, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and Liquidated Damages, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. Section 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7. TRUSTEE Section 7.01. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. 64 (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to this Section 7.01 and Section 7.02. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. Section 7.02. Rights of Trustee. (a) In connection with the Trustee's rights and duties under this Indenture, the Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting under this Indenture, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. 65 (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (g) Except with respect to Section 4.01 hereof, the Trustee shall have no duty to inquire as to the performance of the Company's covenants in Article 4 hereof. In addition, the Trustee shall not be deemed to have knowledge of any Default or Event of Default except (i) any Event of Default occurring pursuant to Sections 6.01(a), 6.01(b) and 4.01 or (ii) any Default or Event of Default of which the Trustee shall have received written notification or obtained actual knowledge. (h) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee may, in its discretion, make such further inquiry or investigation into such facts or matters as it may see fit and if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company personally or by agent or attorney. Section 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest (as defined in the TIA) it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. Section 7.04. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any 66 statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. Section 7.05. Notice of Defaults. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default relating to the payment of principal or interest on any Note, the Trustee may withhold the notice if it determines that withholding the notice is in the interests of the Holders of the Notes. Section 7.06. Reports by Trustee to Holders of the Notes. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA (S) 313(a) (but if no event described in TIA (S) 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA (S) 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA (S) 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the SEC and each stock exchange on which the Notes are listed in accordance with TIA (S) 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. Section 7.07. Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee and each of its officers, directors, employees and agents against any and all losses, liabilities or expenses (including reasonable attorneys' fees) incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company (including this Section 7.07) and defending itself against any claim (whether asserted by the Company or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify 67 the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. To secure the Company's payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to the extent applicable. Section 7.08. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal 68 amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of Notes of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder of a Note who has been a Holder of a Note for at least six months, fails to comply with Section 7.10, such Holder of a Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. Section 7.09. Successor Trustee by Merger, Etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. Section 7.10. Eligibility; Disqualification. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has (or in the case of a corporation included in a bank holding company, the bank holding company and related entities has) a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA (S) 310(b). 69 Section 7.11 Preferential Collection of Claims Against Company. The Trustee is subject to TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to the extent indicated therein. ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01. Option to effect legal defeasance or covenant Defeasance. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article Eight. Section 8.02. Legal Defeasance and Discharge. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from its obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, premium, if any, and interest and Liquidated Damages on such Notes when such payments are due, solely from the trust fund described in Section 8.04 hereof, (b) the Company's obligations with respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith and (d) this Article Eight. Subject to compliance with this Article Eight, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. Section 8.03. Covenant Defeasance. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from its obligations under the covenants contained in Sections 4.05, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17 and 4.18 hereof with respect to the outstanding Notes on and after the date the conditions set forth in Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"), 70 and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(c) through 6.01(f) hereof shall not constitute Events of Default. SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in United States dollars, non- callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest and Liquidated Damages on the outstanding Notes on the Stated Maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date; (b) in the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of an election under Section 8.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States 71 reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Sections 6.01(g) or 6.01(h) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is bound including, without limitation, the New Credit Facility; (f) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over any other creditors of the Company with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; and (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. 72 The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article Eight to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 8.06. REPAYMENT TO COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, Liquidated Damages, if any, or interest on any Note and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as a secured creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 8.07. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. 73 ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES. Notwithstanding Section 9.02 of this Indenture, the Company and the Trustee may (subject to Section 10.13) amend or supplement this Indenture or the Notes without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes; (c) to provide for the assumption of the Company's (and Guarantors') obligations to the Holders of the Notes in the case of a merger or consolidation or sale of all or substantially all of the Company's (and Guarantors') assets pursuant to Article 5 or Article 11 hereof; (d) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Note; and (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company and the Guarantors in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES. Except as provided below in this Section 9.02 and in Section 10.13, the Company and the Trustee may amend or supplement this Indenture (including Section 3.09, 4.10 and 4.15 hereof), or the Notes and any Subsidiary Guarantees may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding voting as a single class (including, without limitation, consents obtained in connection with a purchase of, tender offer or exchange offer for, Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Notes, except a payment default resulting from an 74 acceleration that has been rescinded) or compliance with any provision of this Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a purchase of, tender offer or exchange offer for, Notes). Section 2.08 hereof shall determine which Notes are considered to be "outstanding" for purposes of this Section 9.02. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Notes then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes except as provided above with respect to Sections 3.09, 4.10 and 4.15 hereof; (c) reduce the rate of or change the time for payment of interest on any Note; (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration); 75 (e) make any Note payable in money other than that stated in the Notes; (f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or premium, if any, or interest on the Notes; or (g) waive a redemption payment with respect to any Note (other than a payment required by Sections 3.09, 4.10 and 4.15 hereof or make any change in Section 6.04 or 6.07 hereof or in the foregoing amendment and waiver provisions. In addition, any amendment to the provisions of Article 10 of this Indenture (which relate to subordination) will require the consent of the Holders of at least 75% in aggregate principal amount of the Notes then outstanding if such amendment would adversely affect the rights of Holders of Notes. SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental Indenture that complies with the TIA as then in effect. SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. 76 SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article Nine if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01 hereof) shall be fully protected in relying upon, in addition to the documents required by Section 12.04 hereof, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. ARTICLE 10. SUBORDINATION SECTION 10.01. AGREEMENT TO SUBORDINATE. The Company agrees, and each Holder by accepting a Note agrees, that the Indebtedness evidenced by the Notes is subordinated in right of payment, to the extent and in the manner provided in this Article 10, to the prior payment in full of all Senior Debt (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and that the subordination is for the benefit of the holders of Senior Debt. SECTION 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any distribution to creditors of the Company or any Guarantor in a liquidation or dissolution of the Company or any Guarantor or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company, any Guarantor, or their property, an assignment for the benefit of creditors or any marshaling of the Company's or any Guarantor's assets and liabilities, the holders of Senior Debt shall be entitled to receive payment in full of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt whether or not allowed as a claim in any such proceeding) before the Holders of Notes will be entitled to receive any payment with respect to the Notes or under the Subsidiary Guarantee, and until all Obligations with respect to Senior Debt are paid in full, any distribution to which the Holders of Notes would be entitled shall be made to the holders of Senior Debt (except that Holders of Notes may receive and retain Permitted Junior Securities and payments made from the trust created pursuant to Article 8 hereof). SECTION 10.03. DEFAULT ON DESIGNATED SENIOR DEBT. The Company and the Guarantors also may not make any payment upon or in respect of the Notes or the Subsidiary Guarantees (except in Permitted Junior Securities or from the trust created pursuant to Article 8 hereof) if (i) a default in the payment of the principal of, premium, if any, or interest on Senior Debt occurs and is 77 continuing beyond any applicable period of grace or (ii) any other default occurs and is continuing with respect to Designated Senior Debt that currently, or with the passage of time or giving of notice, permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity and, in the case of any such default described in this clause (ii), the Trustee receives a notice of such default of the type referred to in this clause (ii) (a "Payment Blockage Notice") from the Company or the holders of any Designated Senior Debt. Payments on the Notes may and shall be resumed (a) in the case of a payment default, upon the date on which such default is cured or waived in writing by the holders of the applicable Senior Debt and (b) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived in writing by the holders of Designated Senior Debt or 179 days after the date on which the applicable Payment Blockage Notice is received by the Trustee, unless the maturity of any Designated Senior Debt has been accelerated. No new period of payment blockage may be commenced under clause (ii) above unless and until (i) 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (ii) all scheduled payments of principal of, premium, if any, and interest on the Notes that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been waived in writing or cured for a period of not less than 180 days. In the event that the Company or any Guarantor makes any payment to the Trustee or any Holder of any Note prohibited by the foregoing, such payment will be required to be held in trust for and paid over to the holders of Senior Debt (or the representatives thereof). SECTION 10.04. ACCELERATION OF SECURITIES. If payment of the Notes is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration. SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER. In the event that the Trustee or any Holder receives any payment of any Obligations with respect to the Notes at a time when the Trustee or such Holder, as applicable, has actual knowledge that such payment is prohibited by Section 10.03 hereof, such payment shall be held by the Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt as their interests may appear or their Representative under the indenture or other agreement (if any) pursuant to which Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. With respect to the holders of Senior Debt, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be 78 deemed to owe any fiduciary duty to the holders of Senior Debt, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders or the Company or any other Person money or assets to which any holders of Senior Debt shall be entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. SECTION 10.06. NOTICE BY COMPANY. The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes to violate this Article 10, but failure to give such notice shall not affect the subordination of the Notes to the Senior Debt as provided in this Article 10. SECTION 10.07. SUBROGATION. After all Senior Debt is paid in full and until the Notes are paid in full, Holders of Notes shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt to receive distributions applicable to Senior Debt to the extent that distributions otherwise payable to the Holders of Notes have been applied to the payment of Senior Debt. A distribution made under this Article 10 to holders of Senior Debt that otherwise would have been made to Holders of Notes is not, as between the Company and Holders, a payment by the Company on the Notes. SECTION 10.08. RELATIVE RIGHTS. This Article 10 defines the relative rights of Holders of Notes and holders of Senior Debt. Nothing in this Indenture shall: (1) impair, as between the Company and Holders of Notes, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (2) affect the relative rights of Holders of Notes and creditors of the Company other than their rights in relation to holders of Senior Debt; or (3) prevent the Trustee or any Holder of Notes from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders of Notes. If the Company fails because of this Article 10 to pay principal of or interest on a Note on the due date, the failure is still a Default or Event of Default. SECTION 10.09. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No right of any holder of Senior Debt to enforce the subordination of the Indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the 79 Company or any Holder or by the failure of the Company or any Holder to comply with this Indenture. SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee and the Holders of Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative(s) or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders of Notes for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least two Business Days prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to violate this Article 10. Only the Company or a Representative may give the notice. Nothing in this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. Subject to Section 7.03 hereof and the applicable provisions of the TIA, the Trustee in its individual or any other capacity may hold Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION. Each Holder of Notes, by the Holder's acceptance thereof, authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10 and the subordination of the Subsidiary Guarantees as provided in Section 11.02, and appoints the Trustee to act as such Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.09 hereof at least 30 days before the expiration of the time to file such claim, the Representatives are hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes. 80 SECTION 10.13. AMENDMENTS. The provisions of this Article 10 or Section 11.02 shall not be amended or modified without the written consent of the holders of all Senior Debt. ARTICLE 11. SUBSIDIARY GUARANTEES SECTION 11.01. GUARANTEE. Subject to this Article 11, each of the Guarantors hereby, jointly and severally, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (a) the principal of, premium, Liquidated Damages, if any, and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of, premium, Liquidated Damages and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection. The Guarantors hereby agree that their obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that this Subsidiary Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and this Indenture. If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. 81 Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 hereof for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Subsidiary Guarantee. The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee. SECTION 11.02. SUBORDINATION OF SUBSIDIARY GUARANTEE. The Obligations of each Guarantor under its Subsidiary Guarantee pursuant to this Article 11 shall be junior and subordinated to the Senior Debt of such Guarantor on the same basis as the Notes are junior and subordinated to Senior Debt of the Company. For the purposes of the foregoing sentence, the Trustee and the Holders shall have the right to receive and/or retain payments by any of the Guarantors only at such times as they may receive and/or retain payments in respect of the Notes pursuant to this Indenture, including Article 10 hereof. SECTION 11.03. LIMITATION ON GUARANTOR LIABILITY. Each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Subsidiary Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Subsidiary Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree that the obligations of such Guarantor under its Subsidiary Guarantee and this Article 11 shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 11, result in the obligations of such Guarantor under its Subsidiary Guarantee not constituting a fraudulent transfer or conveyance. SECTION 11.04. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE. To evidence its Subsidiary Guarantee set forth in Section 11.01, each Guarantor hereby agrees that a notation of such Subsidiary Guarantee substantially in the form included in Exhibit E shall be endorsed by an Officer of such Guarantor on each Note authenticated and delivered by the Trustee and that this Indenture shall be executed 82 on behalf of such Guarantor by its Chairman, President or one of its Vice Presidents. Further, the Company shall cause all future Guarantors to execute a Supplemental Indenture substantially in the form of Exhibit F. Each Guarantor hereby agrees that its Subsidiary Guarantee set forth in Section 11.01 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Subsidiary Guarantee. If an Officer whose signature is on this Indenture or on the Subsidiary Guarantee no longer holds that office at the time the Trustee authenticates the Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall be valid nevertheless. The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Subsidiary Guarantee set forth in this Indenture on behalf of the Guarantors. In the event that the Company creates or acquires any new Subsidiaries subsequent to the date of this Indenture, if required by Section 4.17 hereof the Company shall cause such Subsidiaries to execute supplemental indentures to this Indenture and Subsidiary Guarantees in accordance with Section 4.17 hereof and this Article 11, to the extent applicable. SECTION 11.05. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS. No Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another corporation, Person or other entity whether or not affiliated with such Guarantor unless (i) subject to the provisions of the following paragraph, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the obligations of such Guarantor under the Registration Rights Agreement and, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes and the Indenture; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; and (iii) except in the case of a merger of a Guarantor with or into another Guarantor or a merger of a Guarantor with or into the Company, the Company would be permitted by virtue of the Company's pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such transaction, to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09 hereof. SECTION 11.06. RELEASES FOLLOWING SALE OF ASSETS OR CAPITAL STOCK. In the event of a sale or other disposition of all of the assets of any Guarantor (other than to the Company or another Guarantor), by way of merger, consolidation or otherwise, or a sale or other disposition of all of the Capital Stock of any Guarantor (other than to the Company or another Guarantor), then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the Capital Stock of such Guarantor) or the entity acquiring the property (in the 83 event of a sale or other disposition of all of the assets of such Guarantor) will be released and relieved of any obligations under its Subsidiary Guarantee and any such acquiring entity will not be required to assume any obligations of such Guarantor under the applicable Subsidiary Guarantee; provided that such sale or other disposition complies with all applicable provisions of this Indenture including, without limitation, Section 4.10 or Article 10. Any Guarantor not released from its obligations under its Subsidiary Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article 11. ARTICLE 12. MISCELLANEOUS SECTION 12.01. TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA (S) 318(c), the imposed duties shall control. SECTION 12.02. NOTICES. Any notice or communication by the Company, any Guarantor or the Trustee to the others is duly given if in writing and delivered in person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight courier guaranteeing next day delivery, to the other's address. If to the Company and/or any Guarantor: Fountain View, Inc. 11900 Olympic Boulevard, Suite 680 Los Angeles, California 90064 Telecopier No.: (310) 571-0365 Attention: Robert M. Snukal With a copy to: Choate, Hall & Stewart Exchange Place 53 State Street Boston, Massachusetts 02109 Telecopier No.: (617) 248-4000 Attention: Stephen M.L. Cohen, Esq. 84 If to the Trustee: State Street Bank and Trust Company of California, N.A. 633 West Fifth Street, 12th Floor Los Angeles, California 90071 Telecopier No.: (213) 362-7357 Attention: Corporate Trust Department With a copy to: Brown, Rudnick, Freed & Gesmer City Place I, 185 Asylum Street Hartford, Connecticut 06103 Telecopier No.: (860) 509-6501 Attention: Kevin Mallery, Esq. The Company, any Guarantor or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA (S) 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. SECTION 12.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES. Holders may communicate pursuant to TIA (S) 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA (S) 312(c). 85 SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. Section 12.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA (S) 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. SECTION 12.06. RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION. 12.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS. No past, present or future director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, shall have any liability for any 86 obligations of the Company or such Guarantor under the Notes, the Subsidiary Guarantees, this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. SECTION 12.08. GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES, WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. SECTION 12.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 12.10. SUCCESSORS. All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 12.11. SEVERABILITY. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 12.12. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [SIGNATURES ON FOLLOWING PAGES] 87 SIGNATURES DATED AS OF APRIL 16, 1998 FOUNTAIN VIEW, INC. By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman FOUNTAIN VIEW HOLDINGS, INC., as guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman AIB CORP., as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman ALEXANDRIA CONVALESCENT HOSPITAL, inc., as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman BRIER OAK CONVALESCENT, INC., as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman 88 ELMCREST CONVALESCENT HOSPITAL, as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman FOUNTAINVIEW CONVALESCENT HOSPITAL, as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman FOUNTAIN VIEW MANAGEMENT, INC., as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman I.'N O., Inc., as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman LOCOMOTION HOLDINGS, INC., as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman 89 LOCOMOTION THERAPY, INC., as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman ON-TRACK THERAPY CENTER, INC., as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman RIO HONDO NURSING CENTER, as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman SYCAMORE PARK CONVALESCENT HOSPITAL, as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman SUMMIT CARE CORPORATION, as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman 90 SUMMIT CARE - CALIFORNIA, INC., as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman SUMMIT CARE PHARMACY, INC., as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman SKILLED CARE NETWORK, as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman SUMMIT CARE TEXAS EQUITY, INC., as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman SUMMIT CARE - TEXAS NO. 2, INC., as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman 91 SUMMIT CARE - TEXAS NO. 3, INC., as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman SUMMIT CARE MANAGEMENT TEXAS, INC., as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman SUMMIT CARE TEXAS, L.P., as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman SNF PHARMACY, INC., as Guarantor By: /s/ William C. Scott -------------------------- Name: William C. Scott Title: Chairman State Street Bank and trust Company of California, N.A., as Trustee By /s/ Scott Emmons -------------------------- Name: Scott Emmons Title: Assistant Vice President 92 EXHIBIT A-1 (Face of Note) CUSIP: ________ [ISIN: ________] 11 1/4% [Series A] [Series B] Senior Subordinated Notes due 2008 No.: $________ FOUNTAIN VIEW, INC. promises to pay to ___________________________________________________________ or registered assigns, the principal sum of__________________________________________________________ Dollars on April 15, 2008. Interest Payment Dates: April 15 and October 15 Record Dates: April 1 and October 1 Dated: __________, _____ Fountain View, Inc. By:_________________________ Name: Title: (SEAL) This is one of the [Global] Notes referred to in the within-mentioned Indenture: State Street Bank and Trust Company of California, N.A., as Trustee By: ________________________ Name: Title: A1-1 (Back of Note) 11 1/4% [Series A] [Series B] Senior Subordinated Notes due 2008 [INSERT THE GLOBAL NOTE LEGEND, IF APPLICABLE PURSUANT TO THE PROVISIONS OF THE INDENTURE] [INSERT THE PRIVATE PLACEMENT LEGEND, IF APPLICABLE PURSUANT TO THE PROVISIONS OF THE INDENTURE] Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. Interest. Fountain View, Inc., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at 11 1/4% per annum from ____________ until maturity and shall pay the Liquidated Damages, if any, payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company will pay interest and Liquidated Damages, if any, semi-annually on April 15 and October 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand to the extent lawful at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post- petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages to the Persons who are registered Holders of Notes at the close of business on the April 1 or October 1 next preceding the Interest Payment Date, even if such Notes are cancelled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. Principal, premium, if any, and interest and Liquidated Damages, if any, on the Notes will be payable at the office or agency of the Company maintained for such purpose or, at the option of the Company, payment of interest and Liquidated Damages, if any, may be made by check mailed to the Holders of the Notes at their respective addresses set forth in the register of Holders of Notes; provided that all payments of principal, premium, interest and Liquidated Damages, if any, with respect to Notes the Holders of which have given wire transfer instructions to the Company prior to the Record Date will be required to be made by wire transfer of immediately available funds within the United States to the accounts specified by the Holders thereof. Until A1-2 otherwise designated by the Company, the Company's office or agency in New York will be the office of the Trustee maintained for such purpose. The Notes will be issued in denominations of $1,000 and integral multiples thereof. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. Paying Agent and Registrar. Initially, State Street Bank and Trust Company of California, N.A., the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. 4. Indenture and subordination. The Company issued the Notes under an Indenture dated as of April 16, 1998 ("Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are general unsecured obligations of the Company limited to $170.0 million in aggregate principal amount. The payment of the Notes will, to the extent set forth in the Indenture, be subordinated in right of payment to the prior payment in full of all Senior Debt. 5. Optional Redemption. (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Notes will not be redeemable at the Company's option prior to April 15, 2003. Thereafter, the Notes will be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on April 15 of the years indicated below: Year Percentage ---- ---------- 2003..................................... 105.625% 2004..................................... 103.750% 2005..................................... 101.875% 2006 and thereafter...................... 100.000% (b) Notwithstanding the foregoing, at any time prior to April 15, 2001, the Company may on any one or more occasions redeem up to 35% in aggregate principal amount of Notes originally issued on the date of the Indenture at a redemption price of 111.25% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the redemption date, with the net cash proceeds A1-3 of one or more Public Equity Offerings by the Company; provided that at least $78.0 million in aggregate principal amount of Notes remain outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and provided, further, that such redemption shall occur within 60 days of the date of the closing of such Public Equity Offering. 6. Mandatory Redemption. Except as set forth in Paragraph 7 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 7. Repurchase at Option of Holder. (a) If there is a Change of Control, each Holder of Notes will have the right to require the Company to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 15 Business Days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the ``Change of Control Payment Date''), pursuant to the procedures required by the Indenture and described in such notice. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. (b) If the Company or a Restricted Subsidiary consummates any Asset Sales, when the aggregate amount of Excess Proceeds exceeds $5.0 million the Company will be required to make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes tendered into such Asset Sale Offer surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. 8. Notice of Redemption. Notice of redemption will be mailed by first class mail at least 30 days but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. Notices of redemption may not be conditional. Notes in denominations larger than $1,000 may be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption that relates to such A1-4 Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company or the Registrar is not required to transfer or exchange any Note selected for redemption. Also, the Company or the Registrar is not required to transfer or exchange any Notes for a period of 15 days before a selection of Notes to be redeemed. 10. Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes. 11. Amendment, Supplement and Waiver. Subject to certain exceptions, the Indenture, the Notes or the Subsidiary Guarantees may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes) and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes). Without the consent of any Holder of Notes, the Company and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation, or sale of all or substantially all of the Company's assets, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 12. Defaults and Remedies. Events of Default include: (i) default for 30 days in the payment when due of interest on, or Liquidated Damages, if any, with respect to, the Notes (whether or not prohibited by the subordination provisions of the Indenture); (ii) default in payment when due of principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (iii) failure by the Company or any of its Subsidiaries for 30 days after notice to comply with Section 4.07, 4.09, 4.10 or 4.15 of the Indenture; (iv) failure by the Company or any of its Subsidiaries for 60 days after notice to comply with any of its other agreements in the Indenture or the Notes; (v) default under any mortgage, indenture or instrument under A1-5 which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created after the date of the Indenture, which default results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness the maturity of which has been so accelerated, aggregates $5.0 million or more (other than Existing Indebtedness to the extent it is secured by or paid by the drawing against a letter of credit permitted to be issued under the Indenture); (vi) failure by the Company or any of its Restricted Subsidiaries to pay final judgments aggregating in excess of $5.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries as set forth in the Indenture; and (viii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid in any material respect or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency as set forth in the Indenture, with respect to the Company, any Significant Subsidiary or any group of Subsidiaries, that taken together would constitute a Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required, upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. Trustee Dealings with Company. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue or resign. A1-6 14. No Recourse Against Others. A director, officer, employee, incorporator or stockholder, of the Company or any Guarantor, as such, shall not have any liability for any obligations of the Company or any Guarantor under the Notes, the Subsidiary Guarantees or the Indenture or the Registration Rights Agreement or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy. 15. Authentication. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement dated as of the date of the Indenture, between the Company and the parties named on the signature pages thereof (the "Registration Rights Agreement"). 18. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: Fountain View, Inc. 11900 Olympic Boulevard, Suite 680 Los Angeles, California 90064 Attention: Chief Executive Officer A1-7 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to ________________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint _______________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. ________________________________________________________________________________ Date:_________ Your Signature:_____________________________ (Sign exactly as your name appears on the face of this Note) SIGNATURE GUARANTEE. _________________________ Participant in a Recognized Signature Guarantee Medallion Program A1-8 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the box below: [_]Section 4.10 [_]Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $________ Date:_______ Your Signature:___________________________________________ (Sign exactly as your name appears on the Note) Tax Identification No:____________________________________ SIGNATURE GUARANTEE. _______________________________________ Participant in a Recognized Signature Guarantee Medallion Program A1-9 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE/1/ The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:
PRINCIPAL AMOUNT AMOUNT OF AMOUNT OF OF THIS SIGNATURE OF DECREASE IN INCREASE IN GLOBAL NOTE AUTHORIZED PRINCIPAL PRINCIPAL FOLLOWING SUCH OFFICER OF DATE OF AMOUNT OF AMOUNT OF DECREASE (OR TRUSTEE OR EXCHANGE THIS GLOBAL NOTE THIS GLOBAL NOTE INCREASE) CUSTODIAN - -------- ---------------- ---------------- --------- ---------
____________________________ /11/ This should be included only if the Note is issued in global form. A1-10 EXHIBIT A-2 (Face of Regulation S Temporary Global Note) CUSIP:__________ ISIN:_________ 11 1/4% [Series A] [Series B] Senior Subordinated Notes due 2008 No.___ $___________ FOUNTAIN VIEW, INC. promises to pay to _____________________________________________________________ or registered assigns, the principal sum of ___________________________________________________________ Dollars on April 15, 2008 Interest Payment Dates: April 15 and October 15 Record Dates: April 1 and October 1 Dated:________________________ Fountain View, Inc. By:___________________________ Name: Title: [(SEAL)] This is one of the Global Notes referred to in the within-mentioned Indenture: State Street Bank and Trust Company of California, N.A., as Trustee By:___________________ Name: Title: A2-1 (Back of Regulation S Temporary Global Note) 11 1/4% [Series A] [Series B] Senior Subordinated Notes due 2008 THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) (1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS. A2-2 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. Fountain View, Inc., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at 11 1/4% per annum from ______________ until maturity and shall pay the Liquidated Damages, if any, payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company will pay interest and Liquidated Damages, if any, semi-annually on April 15 and October 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand to the extent lawful at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post- petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Until this Regulation S Temporary Global Note is exchanged for one or more Regulation S Permanent Global Notes, the Holder hereof shall not be entitled to receive payments of interest hereon; until so exchanged in full, this Regulation S Temporary Global Note shall in all other respects be entitled to the same benefits as other Senior Subordinated Notes under the Indenture. 2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages, if any, to the Persons who are registered Holders of Notes at the close of business on the April 1 or October 1 next preceding the Interest Payment Date, even if such Notes are cancelled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. Principal, premium, if any, and interest and Liquidated Damages, if any, on the Notes will be payable at the office or agency of the Company maintained for such purpose or, at the option of the Company, payment of interest and Liquidated Damages, if any, may be made by check mailed to the Holders of the Notes at their respective addresses set forth in the register of Holders of Notes; provided that all payments of principal, premium, interest and Liquidated Damages, if any, with respect to Notes the Holders of which have given wire transfer instructions to the Company prior to the Record Date will be required to be made by wire transfer of immediately available funds within the United States to the accounts specified by the Holders thereof. Until otherwise designated by the Company, the Company's office or agency in New York will be the office of the Trustee maintained for such purpose. The A2-3 Notes will be issued in denominations of $1,000 and integral multiples thereof. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank and Trust Company of California, N.A., the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. 4. INDENTURE AND SUBORDINATION. The Company issued the Notes under an Indenture dated as of April 16, 1998 ("Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are general unsecured obligations of the Company limited to $170.0 million in aggregate principal amount. The payment of the Notes will, to the extent set forth in the Indenture, be subordinated in right of payment to the prior payment in full of all Senior Debt. 5. OPTIONAL REDEMPTION. (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Notes will not be redeemable at the Company's option prior to April 15, 2003. Thereafter, the Notes will be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on April 15 of the years indicated below:
Year Percentage ---- ---------- 2003.................................... 105.625% 2004.................................... 103.750% 2005.................................... 101.875% 2006 and thereafter..................... 100.000%
(b) Notwithstanding the foregoing, at any time prior to April 15, 2001, the Company may on any one or more occasions redeem up to 35% in aggregate principal amount of Notes originally issued on the date of the Indenture at a redemption price of 111.25% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the redemption date, with the net cash proceeds of one or more Public Equity Offerings by the Company; provided that at least $78.0 million in aggregate principal amount of Notes remain outstanding immediately after the A2-4 occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and provided, further, that such redemption shall occur within 60 days of the date of the closing of such Public Equity Offering. 6. MANDATORY REDEMPTION. Except as set forth in Paragraph 7 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 7. REPURCHASE AT OPTION OF HOLDER. (a) If there is a Change of Control, each Holder of Notes will have the right to require the Company to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 15 Business Days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures required by the Indenture and described in such notice. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. (b) If the Company or a Restricted Subsidiary consummates any Asset Sales, when the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be required to make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes tendered into such Asset Sale Offer surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. 8. NOTICE OF REDEMPTION. Notice of redemption will be mailed by first class mail at least 30 days but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. Notices of redemption may not be conditional. Notes in denominations larger than $1,000 may be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of A2-5 the Holder thereof upon cancellation of the original Note. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company or the Registrar is not required to transfer or exchange any Note selected for redemption. Also, the Company or the Registrar is not required to transfer or exchange any Notes for a period of 15 days before a selection of Notes to be redeemed. This Regulation S Temporary Global Note is exchangeable in whole or in part for one or more Global Notes only (i) on or after the termination of the 40-day restricted period (as defined in Regulation S) and (ii) upon presentation of certificates (accompanied by an Opinion of Counsel, if applicable) required by Article 2 of the Indenture. Upon exchange of this Regulation S Temporary Global Note for one or more Global Notes, the Trustee shall cancel this Regulation S Temporary Global Note. 10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture, the Notes or the Subsidiary Guarantees may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes) and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes). Without the consent of any Holder of Notes, the Company and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation or sale of all or substantially all of the Company's assets, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest on, or Liquidated Damages with respect to the Notes (whether or not prohibited by the subordination provisions of the Indenture); (ii) default in payment when due of principal of or premium, if any, on the Notes (whether or A2-6 not permitted by the subordination provisions of the Indenture); (iii) failure by the Company or any of its Subsidiaries for 30 days after notice to comply with Section 4.07, 4.09, 4.10 or 4.15 of the Indenture; (iv) failure by the Company or any of its Subsidiaries for 60 days after notice to comply with any of its other agreements in the Indenture or the Notes or (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created after the date of the Indenture, which default results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness the maturity of which has been so accelerated, aggregates $5.0 million or more (other than Existing Indebtedness to the extent it is secured by or paid by the drawing against a letter of credit permitted to be issued under the Indenture); (vi) failure by the Company or any of its Restricted Subsidiaries to pay final judgments aggregating in excess of $5.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries as set forth in the Indenture; and (viii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid in any material respect or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency as set forth in the Indenture, with respect to the Company, any Significant Subsidiary or any group of Subsidiaries, that taken together would constitute a Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, A2-7 as if it were not the Trustee; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue or resign. 14. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company or any Guarantor, as such, shall not have any liability for any obligations of the Company or any Guarantor under the Notes, the Subsidiary Guarantees or the Indenture or the Registration Rights Agreement or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy. 15. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement dated as of the date of the Indenture, between the Company and the parties named on the signature pages thereof (the "Registration Rights Agreement"). 18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: Fountain View, Inc. 11900 Olympic Boulevard, Suite 680 Los Angeles, California 90064 Attention: Chief Executive Officer A2-8 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to ________________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. ________________________________________________________________________________ Date:____________ Your Signature:_____________________________________ (Sign exactly as your name appears on the face of this Note) SIGNATURE GUARANTEE. ___________________________________________ Participant in a Recognized Signature Guarantee Medallion Program A2-9 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below: [_]Section 4.10 [_]Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $___________ ________________________________________________________________________________ Date: ___________ Your Signature:__________________________________ (Sign exactly as your name appears on the Note) Tax Identification No.:_____________________ SIGNATURE GUARANTEE. ________________________________________ Participant in a Recognized Signature Guarantee Medallion Program A2-10 SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE The following exchanges of a part of this Regulation S Temporary Global Note for an interest in another Global Note, or of other Restricted Global Notes for an interest in this Regulation S Temporary Global Note, have been made:
Amount of Principal Amount decrease in amount of increase of this Signature of principal in principal global note authorized Date of Amount of Amount of following such officer of Trustee Exchange this Global Note this Global Note decrease (or increase) or Custodian -------- ---------------- ------------------ ---------------------- ------------
A2-11 EXHIBIT B FORM OF CERTIFICATE OF TRANSFER Fountain View, Inc. 11900 Olympic Boulevard, Suite 680 Los Angeles, California 90064 [Registrar address block] Re: 11 1/4% Series [A] [B] Senior Subordinated Notes due 2008 ---------------------------------------------------- Reference is hereby made to the Indenture, dated as of April 16, 1998 (the "Indenture"), among Fountain View, Inc., as issuer (the "Company"), the --------- ------- guarantors named therein, and State Street Bank and Trust Company of California, N.A., as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ______________, (the "Transferor") owns and proposes to transfer the ---------- Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___________ in such Note[s] or interests (the "Transfer"), -------- to __________ (the "Transferee"), as further specified in Annex A hereto. In ---------- connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. [_] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE ---------------------------------------------------------------------- 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is - ----------------------------------------------------------- being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), and, ---------- --- accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 2. [_] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE ---------------------------------------------------------------------- TEMPORARY REGULATION S GLOBAL NOTE, THE REGULATION S GLOBAL NOTE OR A DEFINITIVE - -------------------------------------------------------------------------------- NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and - ----------------------------- in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a person in B-1 the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an initial purchaser). Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note, the Temporary Regulation S Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 3. [_] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL ------------------------------------------------------------------- INTEREST IN THE GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF - ----------------------------------------------------------------------------- THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being - ------------------------------------------------------- effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) [_] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) [_] such Transfer is being effected to the Company or a subsidiary thereof; or (c) [_] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act; or (d) [_] such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted B-2 Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) if such Transfer is in respect of a principal amount of Notes at the time of transfer of less than $250,000, an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certification), to the effect that such Transfer is in compliance with the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Global Note and/or the Definitive Notes and in the Indenture and the Securities Act. 4. [_] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE. (a) [_] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (b) [_] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (c) [_] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer B-3 enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. Dated:_____, ________ _______________________________ [Insert Name of Transferor] By:____________________________ Name: Title: B-4 ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) [_] a beneficial interest in the: (i) [_] 144A Global Note (CUSIP _________), or (ii) [_] Regulation S Global Note (CUSIP _________), or (b) [_] a Restricted Definitive Note. 2. After the Transfer the Transferee will hold: [CHECK ONE] (a) [_] a beneficial interest in the: (i) [_] 144A Global Note (CUSIP ________), or (ii) [_] Regulation S Global Note (CUSIP ________), or (iii) [_] Unrestricted Global Note (CUSIP ________); or (b) [_] a Restricted Definitive Note; or (c) [_] an Unrestricted Definitive Note, in accordance with the terms of the Indenture. B-5 EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE Fountain View, Inc. 11900 Olympic Boulevard, Suite 680 Los Angeles, California 90064 [Registrar address block] Re: 11 1/4% Series [A] [B] Senior Subordinated Notes due 2008 ---------------------------------------------------------- (CUSIP______________) Reference is hereby made to the Indenture, dated as of April 16, 1998 (the "Indenture"), among Fountain View, Inc., as issuer (the "Company"), the --------- ------- guarantors named therein, and State Street Bank and Trust Company of California, N.A., as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ____________, (the "Owner") owns and proposes to exchange the Note[s] ----- or interest in such Note[s] specified herein, in the principal amount of $____________ in such Note[s] or interests (the "Exchange"). In connection with -------- the Exchange, the Owner hereby certifies that: 1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE (a) [_] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A -------------------------------------------------- RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In - ---------------------------------------------------------------------------- connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the United States Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on -------------- transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (b) [_] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A -------------------------------------------------- RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the - ------------------------------------------------------ Exchange of the Owner's beneficial interest in a Restricted Global Note for an C-1 Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (c) [_] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO ------------------------------------------------------- BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the - -------------------------------------------------- Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (d) [_] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO ------------------------------------------------------- UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a - ---------------------------- Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. 2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES (a) [_] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A -------------------------------------------------- RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the - ---------------------------------------------------- Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act. C-2 (b) [_] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO ------------------------------------------------------- BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange - ----------------------------------------------- of the Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE] __144A Global Note, __ Regulation S Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. ___________________________________ [Insert Name of Owner] By: _______________________________ Name: Title: Dated: ________________, ____ C-3 EXHIBIT D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Fountain View, Inc. 11900 Olympic Boulevard, Suite 680 Los Angeles, California 90064 [Registrar address block] Re: 11 1/4% Series [A] [B] Senior Subordinated Notes due 2008 ---------------------------------------------------------- Reference is hereby made to the Indenture, dated as of April 16, 1998 (the "Indenture"), among Fountain View, Inc., as issuer (the "Company"), --------- ------- the guarantors named therein, and State Street Bank and Trust Company of California, N.A., as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. In connection with our proposed purchase of $____________ aggregate principal amount of: (a) [_] a beneficial interest in a Global Note, or (b) [_] a Definitive Note, we confirm that: 1. We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the United States Securities Act of 1933, as amended (the "Securities Act"). -------------- 2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Notes or any interest therein, we will do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (c) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and, if such transfer is in respect of a principal amount of Notes, at the time of transfer, of less than $250,000, an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such transfer is in compliance with the D-1 Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing the Definitive Note or beneficial interest in a Global Note from us in a transaction meeting the requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein. 3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. ______________________________________ [Insert Name of Accredited Investor] By:______________________________ Name: Title: Dated: __________________, ____ D-2 EXHIBIT E FORM OF SUBORDINATED SUBSIDIARY GUARANTEE For value received, each Guarantor (which term includes any successor Person under the Indenture) has, jointly and severally, unconditionally guaranteed, to the extent set forth in the Indenture and subject to the provisions in the Indenture dated as of April 16, 1998 (the "Indenture") among Fountain View, Inc., the Guarantors listed on the signature page thereto and State Street Bank and Trust Company of California, N.A., as trustee (the "Trustee"), (a) the due and punctual payment of the principal of, premium, if any, and interest on the Notes (as defined in the Indenture), whether at maturity, by acceleration, redemption or otherwise, the due and punctual payment of interest on overdue principal and premium, and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms of the Indenture and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantors to the Holders of Notes and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly set forth in Article 11 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Subsidiary Guarantee. Each Holder of a Note, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee, on behalf of such Holder, to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose; provided, however, that the Indebtedness evidenced by this Subsidiary Guarantee shall cease to be so subordinated and subject in right of payment upon any defeasance of this Note in accordance with the provisions of the Indenture. The terms of Article 10 of the Indenture are incorporated herein by reference. Dated: _______________________ Fountain View Holdings, Inc. By:__________________________________ Name: Title: E-1 AIB Corp. By:__________________________________ Name: Title: Alexandria convalescent hospital, inc. By:__________________________________ Name: Title: Brier Oak convalescent, inc. By:__________________________________ Name: Title: Elmcrest Convalescent Hospital By:__________________________________ Name: Title: Fountainview Convalescent Hospital By:__________________________________ Name: Title: E-2 Fountain View Management, Inc. By:__________________________________ Name: Title: I.'N O., Inc. By:__________________________________ Name: Title: Locomotion Holdings, Inc. By:__________________________________ Name: Title: Locomotion Therapy, Inc. By:__________________________________ Name: Title: On-Track Therapy Center, inc. By:__________________________________ Name: Title: E-3 Rio Hondo nursing center By:__________________________________ Name: Title: Sycamore Park Convalescent Hospital By:__________________________________ Name: Title: Summit Care Corporation By:__________________________________ Name: Title: Summit Care - California, Inc. By:__________________________________ Name: Title: Summit Care Pharmacy, Inc. By:__________________________________ Name: Title: E-4 Skilled Care Network By:__________________________________ Name: Title: Summit Care Texas Equity, Inc. By:__________________________________ Name: Title: Summit Care - Texas No. 2, Inc. By:__________________________________ Name: Title: Summit Care - Texas No. 3, Inc. By:__________________________________ Name: Title: Summit Care Management Texas, Inc. By:__________________________________ Name: Title: E-5 Summit Care Texas, L.P. By:__________________________________ Name: Title: SNF Pharmacy, Inc. By:__________________________________ Name: Title: E-6 EXHIBIT F FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY SUBSEQUENT GUARANTORS Supplemental Indenture (this "Supplemental Indenture"), dated as of ________________, among __________________ (the "Guaranteeing Subsidiary"), a subsidiary of Fountain View, Inc. (or its permitted successor), a Delaware corporation (the "Company"), the Company, the other Guarantors (as defined in the Indenture referred to herein) and State Street Bank and Trust Company of California, N.A., as trustee under the indenture referred to below (the "Trustee"). W I T N E S S E T H WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of April 16, 1998 providing for the issuance of an aggregate principal amount of up to $170.0 million of 11 1/4% Senior Subordinated Notes due 2008 (the "Notes"); WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "Subsidiary Guarantee"); and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: 1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees as follows: (a) Along with all Guarantors named in the Indenture, to jointly and severally Guarantee to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: F-1 (i) the principal of and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. (b) The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. (c) The following is hereby waived: diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever. (d) This Subsidiary Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture. (e) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any Custodian, Trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. (f) The Guaranteeing Subsidiary shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations F-2 guaranteed hereby until payment in full of all obligations guaranteed hereby. (g) As between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Subsidiary Guarantee. (h) The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee. (i) The obligations hereunder shall be subject to the subordination provisions set forth in Article 10 of the Indenture. 3. Execution and Delivery. Each Guaranteeing Subsidiary agrees that the Subsidiary Guarantees shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Subsidiary Guarantee. 4. Guaranteeing Subsidiary May Consolidate, Etc. on Certain Terms. (a) The Guaranteeing Subsidiary may not consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another corporation, Person or entity whether or not affiliated with such Guarantor unless: (i) subject to Section 11.05 and 11.06 of the Indenture, the Person formed by or surviving any such consolidation or merger (if other than a Guarantor or the Company) unconditionally assumes all the obligations of such Guarantor, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, the Indenture and the Subsidiary Guarantee on the terms set forth herein or therein; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; and (iii) except in the case of a merger of a Guarantor with or into another Guarantor or a merger of a Guarantor with or into the F-3 Company, the Company would be permitted by virtue of the Company's pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such transaction, to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09 of the Indenture. (b) In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of the Indenture to be performed by the Guarantor, such successor corporation shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor corporation thereupon may cause to be signed any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Subsidiary Guarantees so issued shall in all respects have the same legal rank and benefit under the Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the terms of the Indenture as though all of such Subsidiary Guarantees had been issued at the date of the execution hereof. (c) Except as set forth in Articles 4 and 5 of the Indenture, and notwithstanding clauses (a) and (b) above, nothing contained in the Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor, or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor. 5. Releases. (a) In the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the Capital Stock of any Guarantor (other than to the Company or another Guarantor), then such Guarantor (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the Capital Stock of such Guarantor (other than to the Company or another Guarantor)) or the entity acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) will be released and relieved of any obligations under its Subsidiary Guarantee and any such acquiring entity will not be required to assume any obligations of such Guarantor under the applicable F-4 Subsidiary Guarantee; provided that such sale or other disposition complies with all applicable provisions of the Indenture including, without limitation, Section 4.10 hereof. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of the Indenture, including without limitation Section 4.10 of the Indenture, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Subsidiary Guarantee. (b) Any Guarantor not released from its obligations under its Subsidiary Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under the Indenture as provided in Article 11 of the Indenture. 6. No Recourse Against Others. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, any Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy. 7. New York Law to Govern. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 8. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. 10. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company. F-5 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: _______________, ____ [Guaranteeing Subsidiary] By: _______________________________ Name: Title: F-6 EX-10.32 51 LIMITED LIABILITY COMPANY AGREEMENT 11/30/96 EXHIBIT 10.32 ================================================================================ LIMITED LIABILITY COMPANY AGREEMENT OF APS-SUMMIT CARE PHARMACY, L.L.C., a Delaware Limited Liability Company Dated as of November 30, 1996 ================================================================================ TABLE OF CONTENTS
Page ---- ARTICLE I - ORGANIZATIONAL MATTERS..................................... 1 1.1 Formation......................................................... 1 1.2 Name.............................................................. 1 1.3 Principal Place of Business; Other Places of Business............. 1 1.4 Purpose........................................................... 1 1.5 Certificate of Formation; Filings................................. 1 1.6 Fictitious Business Name Statements............................... 1 1.7 Designated Agent for Service of Process........................... 2 1.8 Term.............................................................. 2 ARTICLE 2 - DEFINITIONS................................................ 2 2.1 "Act"............................................................. 2 2.2 "Additional Members".............................................. 2 2.3 "Affected Member"................................................. 2 2.4 "Adjusted Capital Account Deficit"................................ 2 2.5 "Affiliate"....................................................... 2 2.6 "Agreement"....................................................... 2 2.7 "Assignee"........................................................ 3 2.8 "Bona Fide Offer"................................................. 3 2.9 "Business"........................................................ 3 2.10 "Capital Account"................................................ 3 2.11 "Capital Contributions".......................................... 4 2.12 "Cash Available for Distribution"................................ 4 2.13 "Certificate".................................................... 4 2.14 "Code"........................................................... 4 2.15 "Company"........................................................ 4 2.16 "Company Assets"................................................. 4 2.17 "Company Minimum Gain"........................................... 4 2.18 "Company Price".................................................. 4 2.19 [Intentionally deleted.)......................................... 4 2.20 "Depreciation"................................................... 4 2.21 "Economic Interest".............................................. 5 2.22 "Fundamental Change"............................................. 5 2.23 "Gross Asset Value".............................................. 6 2.24 "Immediate Family"............................................... 7 2.25 "Incapacity"..................................................... 7 2.26 "Indemnitee"..................................................... 7 2.27 "Majority in Interest"........................................... 7 2.28 "Majority of Remaining Members".................................. 7 2.29 "Member Minimum Gain"............................................ 7 2.30 "Member Nonrecourse Debt"........................................ 7 2.31 "Member Nonrecourse Deductions".................................. 7
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Page ---- 2.32 "Members"........................................................ 7 2.33 "Membership Interest" or "Interest".............................. 7 2.34 "Net Profits" or "Net Losses".................................... 7 2.35 "Nonrecourse Deductions"......................................... 8 2.36 "Nonrecourse Liability".......................................... 8 2.37 "Non-Transferring Members"....................................... 8 2.38 "Offerer"........................................................ 8 2.39 "Offer".......................................................... 8 2.40 "Offer by Transferor"............................................ 8 2.41 "Operating Cash Expenses"........................................ 9 2.42 "Ordinary Course"................................................ 9 2.43 "Percentage Interest"............................................ 9 2.44 "Person"......................................................... 9 2.45 "Recourse Liability"............................................. 9 2.46 "Regulations".................................................... 9 2.47 "Regulatory Allocations"......................................... 9 2.48 "Representative"................................................. 9 2.49 "Reserves"....................................................... 9 2.50 "Responsible Party".............................................. 9 2.51 "Substitute Member".............................................. 9 2.52 "Summit Care".................................................... 9 2.55 "Supermajority in Interest"...................................... 9 2.54 "Terminating Capital Transaction"................................ 10 2.55 "Termination Payment"............................................ 10 2.56 "Transfer"....................................................... 10 2.57 "Transferee"..................................................... 10 2.58 "Transferor"..................................................... 10 2.59 "Unaffected Members"............................................. 10 ARTICLE 3 - CAPITAL; CAPITAL ACCOUNTS AND MEMBERS...................... 10 3.1 Initial Capital Contributions of Members......................... 10 3.2 Additional Capital Contributions by Member....................... 10 3.3 Capital Accounts................................................. 11 3.4 Additional Members............................................... 11 3.5 Member Capital................................................... 11 3.6 Member Loans..................................................... 11 3.7 Liability of Members............................................. 11 ARTICLE 4 - DISTRIBUTIONS.............................................. 12 4.1 Distributions of Cash Available for Distribution................. 12 4.2 Distributions Upon Liquidation................................... 12 4.3 Withholding...................................................... 12 4.4 Distributions in Kind............................................ 13 4.5 Limitations on Distributions..................................... 13
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Page ---- ARTICLE 5 - ALLOCATIONS OF NET PROFITS AND NET LOSSES................... 13 5.1 General Allocation of Net Profits and Losses...................... 13 5.2 Regulatory Allocations............................................ 13 5.3 Tax Allocations................................................... 15 5.4 Other Provisions.................................................. 15 ARTICLE 6 - OPERATIONS.................................................. 16 6.1 Management........................................................ 16 6.2 Reliance By Third Parties......................................... 18 6.3 Compensation...................................................... 18 6.4 Records and Reports............................................... 18 6.5 Indemnification and Liability of the Member....................... 19 6.6 Covenant Not To Compete........................................... 20 6.7 Services.......................................................... 21 ARTICLE 7 - INTERESTS AND TRANSFERS OF INTERESTS........................ 21 7.1 Transfers......................................................... 21 7.2 Further Restrictions.............................................. 21 7.3 Rights of Assignees............................................... 22 7.4 Admissions and Withdrawals........................................ 22 7.5 Payment Upon Withdrawal of Member................................. 22 7.6 Admission of Assignees as Substitute Members...................... 22 7.7 Withdrawal of Members............................................. 23 7.8 Conversion of Membership Interest................................. 23 7.9 Right of First Refusal............................................ 23 7.10 Buy and Sell Rights............................................... 25 7.11 Option to Purchase Upon Fundamental Change........................ 26 ARTICLE 8 - DISSOLUTION, LIQUIDATION, AND TERMINATION OF THE COMPANY................................................................. 27 8.1 Limitations....................................................... 27 8.2 Exclusive Causes.................................................. 27 8.3 Effect of Dissolution............................................. 27 8.4 No Capital Contribution Upon Dissolution.......................... 28 8.5 Liquidation....................................................... 28 ARTICLE 9 - MISCELLANEOUS............................................... 28 9.1 Amendments.......................................................... 28 9.2 Accounting and Fiscal Year.......................................... 29 9.3 Meetings............................................................ 29 9.4 Entire Agreement.................................................... 29
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Page ---- 9.5 Further Assurances................................................ 29 9.6 Notices........................................................... 29 9.7 Tax Matters....................................................... 29 9.8 Governing Law..................................................... 30 9.9 Arbitration....................................................... 30 9.10 Construction...................................................... 30 9.11 Captions - Pronouns............................................... 30 9.12 Binding Effect.................................................... 30 9.13 Severability...................................................... 30 9.14 Confidentiality................................................... 30 9.15 Counterparts...................................................... 31 9.16 No Referrals...................................................... 31
iv LIMITED LIABILITY COMPANY AGREEMENT OF APS-SUMMIT CARE PHARMACY, L.L.C. THIS LIMITED LIABILITY COMPANY AGREEMENT (the "AGREEMENT") is made and entered into as of the 30th day of November, 1996, by and between American Pharmaceutical Services, Inc., a Delaware corporation ("APS"), and Summit Care Pharmacy, Inc., a California corporation ("SCPI"; each of APS and SCPI are a MEMBER, as defined below) for the purpose of forming APS-Summit Care Pharmacy, L.L.C. (the "COMPANY"), a limited liability company organized under the Delaware Limited Liability Company Act (the "ACT"). ARTICLE 1 ORGANIZATIONAL MATTERS 1.1 FORMATION. The Members hereby form the Company under the Act for the purposes and upon the terms and conditions hereinafter set forth. The rights and liabilities of the Members of the Company shall be as provided in the Act, except as otherwise expressly provided herein. In the event of any inconsistency between any terms and conditions contained in this Agreement and any nonmandatory provisions of the Act, the terms and conditions contained in this Agreement shall govern. 1.2 NAME. The name of the Company shall be "APS-Summit Care Pharmacy, L.L.C." The Company may also conduct business at the same time under one or more fictitious names if a Majority in Interest determines that such is in the best interests of the Company. The Members may, upon the written consent of a Majority in Interest, change the name of the Company, from time to time, in accordance with applicable law. 1.3 PRINCIPAL PLACE OF BUSINESS; OTHER PLACES OF BUSINESS. The principal place of business of the Company is located at 2324 Ridgepoint Drive, Suite G-1, Austin, Texas 78754 or such other place within or outside the State of Delaware as a Majority in Interest may from time to time designate. The Company may maintain offices and places of business at such other place or places within or outside the State of Delaware as a Majority in Interest deems advisable. 1.4 PURPOSE. The Company shall provide institutional pharmacy services to nursing homes, retirement centers and the patients and residents residing in such facilities, and may engage in any and all other lawful business, purpose or activity in which a limited liability company may be engaged under applicable law (including, without limitation, the Act). 1.5 CERTIFICATE OF FORMATION; FILINGS. The Members shall cause to be executed and filed a Certificate of Formation in the form attached as Schedule I hereto (the "CERTIFICATE") in the Office of the Delaware Secretary of state as required by the Act. Any Member may, upon the written consent of a Majority in Interest, execute and file any duly authorized amendments to the Certificate from time to time in a form prescribed by the Act. 1.6 FICTITIOUS BUSINESS NAME STATEMENTS. Following the execution of this Agreement, fictitious business name statements shall be filed and published when and if a Majority in Interest determines it necessary. Any such statement shall be renewed as required by applicable law. 1.7 DESIGNATED AGENT FOR SERVICE OF PROCESS. The Company shall continuously maintain a registered office and a designated and duly qualified agent for service of process on the Company in the State of Delaware. 1.8 TERM. The Company shall commence on the date that the Certificate is filed with the Office of the Delaware Secretary of State, and shall continue until terminated pursuant to this Agreement. ARTICLE 2 DEFINITIONS Capitalized words and phrases used and not otherwise defined elsewhere in this Agreement shall have the following meanings: 2.1 "ACT" is defined in the Preamble. 2.2 "ADDITIONAL MEMBERS" means those Persons admitted to the Company pursuant to Paragraph 3.4 of this Agreement. 2.3 "AFFECTED MEMBER" is defined in Paragraph 7.11.1. 2.4 "ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Member, the deficit balance, if any, in such Member's Capital Account as of the end of the relevant fiscal year, after giving effect to the following adjustments: 2.4.1 Add to such Capital Account the following items: (a) The amount, if any, that such Member is obligated to contribute to the Company pursuant to this Agreement upon liquidation of such Member's Interest; and (b) The amount that such Member is obligated to restore or is deemed to be obligated to restore pursuant to Regulations Section 1.704-1(b)(2)(ii)(c) or the penultimate sentence of each of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and 2.4.2 Subtract from such Capital Account such Member's share of the items described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6). The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. 2.5 "AFFILIATE" means, with reference to a specified Person: (a) a Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the specified Person, (b) any Person that is an officer, partner or trustee of, or serves in a similar capacity with respect to, the specified Person, or for which the specified Person is an officer, partner or trustee, or serves in a similar capacity, or (c) any member of the Immediate Family of the specified Person. 2.6 "AGREEMENT" is defined in the Preamble. 2 2.7 "ASSIGNEE" means any Person (a) to whom a Member (or assignee thereof) Transfers all or any part of its Interest, and (b) which has not been. admitted to the Company as a Substitute Member pursuant to Paragraph 7.6 of this Agreement. 2.8 "BONA FIDE OFFER" shall mean an offer in writing signed by a third party offeror or offerors (who must be a Person financially capable of carrying out the term of such Bona Fide Offer), in a form legally enforceable against such third party offeror or offerors. 2.9 "BUSINESS" means the provision of institutional pharmacy services to nursing homes, retirement centers and the patients and residents residing in such facilities, or any and all other lawful business, purpose or activity in which the Company may be engaged. 2.10 "CAPITAL ACCOUNT" means the Capital Account maintained for each Member on the Company's books and records in accordance with the following provisions: 2.10.1 To each Member's Capital Account there shall be added (a) such Member's Capital Contributions, (b) such Member's allocable share of Net Profits and any items in the nature of income or gain that are specially allocated to such Member pursuant to Article 5 hereof or other provisions of this Agreement, and (c) the amount of any Company liabilities assumed by such Member or which are secured by any property distributed to such Member. 2.10.2 From each Member's Capital Account there shall be subtracted (a) the amount of (i) cash and (ii) the Gross Asset Value of any Company Assets (other than cash) distributed to such Member (other than any payment of principal and/or interest to such Member pursuant to the terms of a loan made by the Member to the Company) pursuant to any provision of this Agreement, (b) such Member's allocable share of Net Losses and any other items in the nature of expenses or losses that are specially allocated to such Member pursuant to Article 5 or other provisions of this Agreement. 2.10.3 In the event any interest in the Company is transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred interest. 2.10.4 In determining the amount of any liability for purposes of Paragraphs 2.10.1 and 2.10.2 hereof, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations. 2.10.5 The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Sections 1.704-1(b) and 1.704-2 and shall be interpreted and applied in a manner consistent with such Regulations. In the event that a Majority in Interest shall determine that it is prudent to modify the manner in which the Capital Accounts, or any additions or subtractions thereto, are computed in order to comply with such Regulations, the Members may, upon the written consent of a Majority in Interest, make such modification, provided that it is not likely to have a material effect on the amounts distributable to any Member pursuant to Article 8 hereof upon the dissolution of the Company. Upon the written consent of a Majority in Interest, the Members shall also make (a) any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of Company capital reflected on the Company's balance sheet, as computed for book purposes, in accordance with Regulations 3 Section 1.704-1(b)(2)(iv)(q), and (b) any appropriate modifications in the event that unanticipated events might otherwise cause this Agreement not to comply with Regulations Sections 1.704-1(b) and 1.704-2. 2.11 "CAPITAL CONTRIBUTIONS" means, with respect to any Member, the total amount of money and the initial Gross Asset Value of property (other than money), less any liabilities of such Member assumed by the Company or any liabilities which are secured by any property contributed to the capital of the Company by such Member, whether as an initial Capital Contribution or as an additional Capital Contribution. 2.12 "CASH AVAILABLE FOR DISTRIBUTION" means, with respect to any fiscal year, all Company cash receipts (excluding the proceeds from any Terminating Capital Transaction), after deducting payments for Operating Cash Expenses, payments required to be made in connection with any loan to the Company or any other loan secured by a lien on any Company Assets, capital expenditures and any other amounts set aside for the restoration, increase or creation of reasonable Reserves. 2.13 "CERTIFICATE" means the Certificate of Formation of the Company filed under the Act in the Office of the Delaware Secretary of State for the purpose of forming the Company as a Delaware limited liability company, and any duly authorized, executed and filed amendments or restatements thereof. 2.14 "CODE" means the Internal Revenue Code of 1986, as amended from time to time (or any corresponding provisions of succeeding law). 2.15 "COMPANY" is defined in the Preamble. 2.16 "COMPANY ASSETS" means all direct and indirect interests in real and personal property owned by the Company from time to time, and shall include both tangible and intangible property (including cash and cash equivalents). 2.17 "COMPANY MINIMUM GAIN" has the meaning set forth in Regulations Sections 1.7042(b)(2) and 1.704-2(d)(1) for the phrase "partnership minimum gain." 2.18 "COMPANY PRICE" is defined in Paragraph 7.10.1 2.19 [Intentionally deleted.] 2.20 "DEPRECIATION" means, for each fiscal year or other period, an amount equal to the federal income tax depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount that bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; provided, however, that if the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method agreed to by a Majority in Interest. 4 2.21 "ECONOMIC INTEREST" means a Person's right to share in the Net Profits, Net Losses, or similar items of, and to receive distributions from, the Company, but does not include any other rights of a Member including, without limitation, the right to vote or to participate in the management of the Company, or, except as specifically provided in this Agreement or required under the Act, any right to information concerning the business and affairs of the Company. 2.22 "FUNDAMENTAL CHANGE" means the happening of any of the following events with respect to a Member (or, in the case of SCPI, with respect to either SCPI or Summit Care), without receiving the written consent of a majority in interest of the Unaffected Members: (a) the sale of substantially all of its assets to a Person or a group of associated or affiliated Persons who are not affiliated with such Member (or, in the case of SCPI, with either SCPI or Summit Care, as the case may be); (b) the sale, issuance, exchange or other disposition of more than fifty percent (50%) of any class or series of the outstanding capital stock of such Member (or, in the case of SCPI, either SCPI or Summit Care) in one transaction or a series of related transactions to a Person or a group of associated or affiliated Persons who are not affiliated with such Member (or, in the case of SCPI, with either SCPI or Summit Care, as the case may be); (c) the dissolution or liquidation of such Member (or, in the case of SCPI, of either SCPI or Summit Care); (d) a merger or other reorganization with one or more entities in which such Member (or, in the case of SCPI, either SCPI or Summit Care) is not the surviving entity, or if such Member (or, in the case of SCPI, either SCPI or Summit Care) is the surviving entity, the ownership of fifty percent (50%) or more of its voting common stock, is held by a Person or entity not currently holding fifty percent (50%) of such voting common stock; (e) such Member (or, in the case of SCPI, either SCPI or Summit Care) becomes insolvent or makes an assignment for the benefit of creditors, or voluntary proceedings are instituted by such Member (or, in the case of SCPI, either SCPI or Summit Care) under the Bankruptcy Code as amended, or involuntary proceedings are instituted against such Member (or, in the case of SCPI, against either SCPI or Summit Care) under the Bankruptcy Code, as amended and such involuntary proceedings are not dismissed within sixty (60) days thereafter; (f) a receiver is appointed for such Member (or, in the case of SCPI, for either SCPI or Summit Care) or its assets; or (g) any other event or transaction by which effective control of such Member (or, in the case of SCPI, of either SCPI or Summit Care) is transferred to, or vested in, a Person who is not affiliated with such Member (or, in the case of SCPI, with either SCPI or Summit Care). Notwithstanding the foregoing, a public distribution of securities by a Member (or, in the case of SCPI, by either SCPI or Summit Care) shall not be deemed a Fundamental Change with respect to such Member (or, in the case of SCPI, with respect to either SCPI or Summit Care) if a majority of such Member's directors and principal officers (or, in the case of SCPI, the directors and principal officers of SCPI and Summit Care) remain in the same positions they held prior to the public distribution. 5 2.23 "GROSS ASSET VALUE" means, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: 2.23.1 The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as determined by a Majority in Interest and the contributing Member. 2.23.2 The Gross Asset Values of all Company Assets immediately prior to the occurrence of any event described in subsection (a), subsection (b), subsection (c) or subsection (d) hereof shall be adjusted to equal their respective gross fair market values, as determined by a Majority in Interest using such reasonable method of valuation as such Majority in Interest may adopt, as of the following times: (a) the acquisition of an additional interest in the Company (other than in connection with the execution of this Agreement) by a new or existing Member in exchange for more than a de minimis Capital Contribution if a Majority in Interest reasonably determines that such adjustment is necessary or appropriate to reflect the relative Economic Interests of the Members in the Company; (b) the distribution by the Company to a Member of more than a de minimis amount of Company Assets as consideration for an interest in the Company, if a Majority in Interest reasonably determines that such adjustment is necessary or appropriate to reflect the relative Economic Interests of the Members in the Company; (c) the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); and (d) at such other times as a Majority in Interest shall reasonably determine necessary or advisable in order to comply with Regulations Sections 1.704-1(b) and 1.704-2. 2.23.3 The Gross Asset Values of Company Assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset Values shall not be adjusted pursuant to this Paragraph 2.23.3 to the extent that a Majority in Interest reasonably determines that an adjustment pursuant to Paragraph 2.23.2 above is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this Paragraph 2.23.3. 2.23.4 If the Gross Asset Value of a Company asset has been determined or adjusted pursuant to Paragraph 2.23.1, Paragraph 2.23.2 or Paragraph 2.23.3 hereof, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such Company Asset for purposes of computing Net Profits and Net Losses. 6 2.24 "IMMEDIATE FAMILY" means, and is limited to, an individual Member's current spouse, parents, parents-in-law, grandparents, children, siblings, and grandchildren, or a trust or estate, all of the beneficiaries of which consist of such Member or members of such Member's Immediate Family. 2.25 "INCAPACITY" means the bankruptcy, incompetence, insanity, death, retirement, resignation, withdrawal, expulsion, or other acts resulting in dissolution under the Act or termination (other than by merger or consolidation) of any Person, any such Person being an "Incapacitated Member". 2.26 "INDEMNITEE" is defined in Paragraph 6.5.1. 2.27 "MAJORITY IN INTEREST" means Members holding, in the aggregate, a majority of the Percentage Interests held by all Members of the Company. 2.28 "MAJORITY OF REMAINING MEMBERS" means Members other than the Incapacitated Member owning (a) a majority of the profits interests in the Company held by all Members other than the Incapacitated Member, determined and allocated based on any reasonable estimate of profits from the relevant date to the projected termination of the Company and taking into account present and future allocations of profits under this Agreement as it is in effect on the relevant date, and (b) a majority of the capital interests in the Company, determined as of the relevant date under this Agreement, owned by all the Members other than the Incapacitated Member. 2.29 "MEMBER MINIMUM GAIN" means an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i) with respect to "partner minimum gain." 2.30 "MEMBER NONRECOURSE DEBT" has the meaning set forth in Regulations Section 1.704-2(b)(4) for the phrase "partner nonrecourse debt." 2.31 "MEMBER NONRECOURSE DEDUCTIONS" has the meaning set forth in Regulations Section 1.704-2(i) for the phrase "partner nonrecourse deductions." 2.32 "MEMBERS" means the Persons owning Membership Interests, including any Substitute Members and Additional Members, with each Member being referred to, individually, AS A "MEMBER." 2.33 "MEMBERSHIP INTEREST" or "INTEREST" means the entire ownership interest of a Member in the Company at any particular time, including without limitation, the Member's Economic Interest, any and all rights to vote and otherwise participate in the Company's affairs, and the rights to any and all benefits to which a Member may be entitled as provided in this Agreement, together with the obligations of such Member to comply with all of the terms and provisions of this Agreement. 2.34 "NET PROFITS" or "NET LOSSES" means, for each fiscal year or other period, an amount equal to the Company's taxable income or loss for such year or period determined in accordance with Code Section 703(a)(for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments: 7 2.34.1 Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Net Profits or Net Losses pursuant to this Paragraph 2.34 shall be added to such taxable income or loss; 2.34.2 Any expenditure of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Profits or Net Losses pursuant to this Paragraph 2.34, shall be subtracted from such taxable income or loss; 2.34.3 Gain or loss resulting from any disposition of Company Assets with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the Company Assets disposed of, notwithstanding that the adjusted tax basis of such Company Assets differs from its Gross Asset Value; 2.34.4 In lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such fiscal year; 2.34.5 To the extent an adjustment to the adjusted tax basis of any asset included in Company Assets pursuant to Code Section 734(b) or Code Section 743(b) is required pursuant to Regulations Section 1.704-1 (b)(2)(iv) (m) (4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member's Interest, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for the purposes of computing Net Profits and Net Losses; 2.34.6 If the Gross Asset Value of any Company Asset is adjusted in accordance with Paragraph 2.23 of this Agreement, the amount of such adjustment shall be taken into account in the taxable year of such adjustment as gain or loss from the disposition of such asset for purposes of computing Net Profits or Net Losses; and 2.34.7 Notwithstanding any other provision of this Paragraph 2.33, any items that are specially allocated pursuant to Paragraph 5.2 hereof shall not be taken into account in computing Net Profits or Net Losses. 2.35 "NONRECOURSE DEDUCTIONS" has the meaning set forth in Regulations Sections 1.704-2(b)(1) and 1.704-2(c). 2.36 "NONRECOURSE LIABILITY" has the meaning set forth in Regulations Sections 1.704-2(b)(3) and 1.752-1(a)(2). 2.37 "NON-TRANSFERRING MEMBERS" means, in the event an Offer by Transferor is made, all Members other than the Member making such Offer by Transferor. 2.38 "OFFERER" is defined in Paragraph 7.10.1 2.39 "OFFER" is defined in Paragraph 7.10.1. 2.40 "OFFER BY TRANSFEROR" is defined in Paragraph 7.9. 8 2.41 "OPERATING CASH EXPENSES" means, with respect to any fiscal period, the amount of cash disbursed in the Ordinary Course during the period, including without limitation, all cash expenses, such as advertising, promotion, property management, insurance premiums, taxes, utilities, repair, maintenance, legal, accounting, bookkeeping, computing, equipment use, travel on Company business, telephone expenses and salaries, and direct expenses of Company employees (if any) and agents while engaged in Company business. Operating Cash Expenses shall include fees paid by the Company to any Member or any Affiliate thereof permitted by this Agreement, and the actual cost of goods, materials and administrative services used for or by the Company, whether incurred by any Member, any Affiliate thereof or any non-Affiliate in performing functions set forth in this Agreement reasonably requiring the use of such goods, materials or administrative services. Operating Cash Expenses shall not include expenditures paid from Reserves. 2.42 "ORDINARY COURSE" shall mean the ordinary course of business of the Business. 2.43 "PERCENTAGE INTEREST" means, with respect to each Member, the percentage set forth opposite such Member's name on Exhibit A. attached hereto as it may be modified or supplemented from time to time pursuant to the provisions of this Agreement. 2.44 "PERSON" means and includes an individual, a corporation, a general or limited partnership, a limited liability company, a trust, an unincorporated organization, a government or any department or agency thereof, or any entity similar to any of the foregoing. 2.45 "RECOURSE LIABILITY" has the meaning set forth in Regulations Section 1.752-1(a)(1). 2.46 "REGULATIONS" means temporary and final Treasury Regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding Treasury Regulations). 2.47 "REGULATORY ALLOCATIONS" is defined in Paragraph 5.2.8. 2.48 "REPRESENTATIVE" is defined in Paragraph 6.1.2. 2.49 "RESERVES" means funds set aside or amounts allocated to reserves that shall be maintained in amounts deemed sufficient by a Majority in Interest for working capital, to pay taxes, insurance, debt service, and other costs or expenses incident to the conduct of business by the Company as contemplated hereunder. 2.50 "RESPONSIBLE PARTY" is defined in Paragraph 6.5.5. 2.51 "SUBSTITUTE MEMBER" means any Person (a) to whom a Member (or assignee thereof) Transfers all or any part of its Interest and (b) which has been admitted to the Company as a Substitute Member pursuant to Paragraph 7.6. 2.52 "SUMMIT CARE" means Summit Care Corporation, a California corporation. 2.53 "SUPERMAJORITY IN INTEREST" means Members holding, in the aggregate, sixty-six percent (66%) or more of the Percentage Interests held by all Members of the Company. Until such time as there are members in addition to APS and SCPI, "Supermajority in Interest" shall mean 'Majority in Interest." 9 2.54 "TERMINATING CAPITAL TRANSACTION" means any sale or other disposition of all or substantially all of the assets of the Company or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the Company Assets. 2.55 "TERMINATION PAYMENT" is defined in Paragraph 7.5. 2.56 "TRANSFER" means, with respect to any interest in the Company, a sale, conveyance, exchange, assignment, pledge, encumbrance, gift, bequest, hypothecation or other transfer or disposition by any other means, whether for value or no value and whether voluntary or involuntary (including, without limitation, by operation of law), or an agreement to do any of the foregoing. 2.57 "TRANSFEREE" is defined in Paragraph 7.9. 2.58 "TRANSFEROR" is defined in Paragraph 7.9. 2.59 "UNAFFECTED MEMBERS" means, in the event of a Fundamental change, all Members other than the Affected Member. ARTICLE 3 CAPITAL: CAPITAL ACCOUNTS AND MEMBERS 3.1 INITIAL CAPITAL CONTRIBUTIONS OF MEMBERS. The names, addresses, initial Capital Contributions and Percentage Interests of the Members are set forth on Exhibit A attached hereto and incorporated herein. All Members acknowledge and agree that the initial Capital Contributions set forth in Exhibit A represent the amount of money and the Gross Asset Value of all property (other than money) initially contributed by the Members. 3.2 ADDITIONAL CAPITAL CONTRIBUTIONS BY MEMBERS. 3.2.1 Except as provided in Paragraphs 3.2.2 and 3.2.3, no Member shall be permitted or required to make any additional Capital Contributions to the Company. 3.2.2 If from time to time the Company requires additional capital or has capital inadequate to pay its liabilities, each as determined by a Majority in Interest, then the Members constituting such Majority in Interest shall deliver a notice to each other Member specifying the aggregate amount of the additional Capital Contribution required, a date not earlier than thirty (30) days from the date of such notice prior to which such additional Capital Contribution shall be made, and any other terms and conditions relating to such additional Capital Contribution. Upon receipt of such notice, each Member, in its discretion, shall thereafter be required to make additional Capital Contributions, on a date not later than the date set forth in the notice, on a pro rata basis in accordance with its respective Percentage Interests pursuant to such terms and conditions as are set forth in the notice. The sole remedy against a Member for failure to make the additional Capital Contribution approved by a Majority in Interest under this Paragraph 3.2.2 shall be the reduction of such Member's Percentage Interest as provided in Paragraph 3.2.3. 3.2.3 (a) If any Member fails to make its proportionate share of an additional Capital Contribution approved by a Majority in Interest as required under Paragraph 3.2.2, such 10 Member's Percentage Interest shall be reduced to that percentage arrived at by dividing the actual Capital Contributions made by such Member by the total Capital Contributions made by all Members (including additional Capital Contributions), and there shall be a corresponding increase to the Percentage Interest of the Members making such additional Capital Contributions. (b) In the event that any Member fails to make its proportionate share of an additional Capital Contribution approved by a Majority in Interest as required under Paragraph 3.2.2, and such failure shall continue for a period of thirty (30) days, the Members making such additional Capital Contribution shall at any time thereafter that such Capital Contribution has not been paid have the right to contribute (pro rata in accordance with the Percentage Interests held by those electing to so contribute) the delinquent Member's share of the additional Capital Contribution. In the event of such contribution by one or more Members making such additional Capital Contribution, the Percentage Interest of each such Member making such Additional Capital Contribution shall be increased to that percentage arrived at by dividing the sum of the actual Capital Contributions (including additional Capital Contributions) made by such Member on its own behalf and one hundred fifty percent (150%) of the total Capital Contributions made by such Member on behalf of the Member not making such Additional Capital Contribution, by the total Capital Contribution made by all Members. The Percentage Interest of the Member not making such additional Capital Contribution shall be correspondingly decreased. (c) In the event that a Member's Percentage Interest is diluted pursuant to this Paragraph 3.2.3, the Tax Matters Partner shall prepare a revised Exhibit A reflecting the adjusted Percentage Interests of the Members. 3.3 CAPITAL ACCOUNTS. A Capital Account shall be established and maintained for each Member in accordance with the terms of this Agreement. 3.4 ADDITIONAL MEMBERS. Following formation of the Company, the Members may, upon the written consent of a Majority in Interest, issue interests in the Company directly from the Company, and admit one or more recipients of such interests as additional Members ("ADDITIONAL MEMBERS") from time to time, on such terms and conditions and for such Capital Contributions, if any, as a Majority in Interest may determine. As a condition to being admitted to the Company, each Additional Member shall execute an agreement to be bound by the terms and conditions of this Agreement. 3.5 MEMBER CAPITAL. Except as otherwise provided in this Agreement or with the prior written consent of all of the Members: (a) no Member shall demand or be entitled to receive a return of or interest on its Capital Contributions or Capital Account, (b) no Member shall withdraw any portion of its Capital Contributions or receive any distributions from the Company as a return of capital on account of such Capital Contributions, and (c) the Company shall not redeem or repurchase the Interest of any Member. 3.6 MEMBER LOANS. No Member shall be required or permitted to make any loans or otherwise lend any funds to the Company, except with the consent of a Majority in Interest. No loans made by any Member to the Company shall have any effect on such Member's Percentage Interest, such loans representing a debt of the Company payable or collectible solely from the assets of the Company in accordance with the terms and conditions upon which such loans were made. 3.7 LIABILITY OF MEMBERS. Except as otherwise required by any non-waivable provision of the Act or other applicable law: (a) no Member shall be personally liable in any manner whatsoever 11 for any debt, liability or other obligation of the Company, whether such debt, liability or other obligation arises in contract, tort, or otherwise; and (b) no Member shall in any event have any liability whatsoever in excess of (i) the amount of its Capital Contributions, (ii) its share of any assets and undistributed profits of the Company, (iii) the amount of any unconditional obligation of such Member to make additional Capital Contributions to the Company pursuant to this Agreement, and (iv) the amount of any wrongful distribution to such Member, if, and only to the extent, such Member has actual knowledge (at the time of the distribution) that such distribution is made in violation of Section 18-607 of the Act. ARTICLE 4 DISTRIBUTIONS 4.1 Distributions of Cash Available for Distribution. 4.1.1 Except as otherwise provided in Article 8, Cash Available for Distribution shall be distributed to the Members only at such times as may be determined by a Majority in Interest. 4.1.2 Subject to Article 8 hereof, all distributions of Cash Available for Distribution shall be distributed to the Members pro rata in accordance with their respective Percentage Interests. 4.1.3 Notwithstanding anything to the contrary contained herein, the Company shall distribute to APS the amount of One Million Five Hundred Thousand Dollars ($1,500,000) in immediately available funds on the date that the Certificate is filed with the Office of the Delaware Secretary of State. 4.2 Distributions Upon Liquidation. Distributions made in conjunction with the final liquidation of the Company, including, without limitation, the net proceeds of a Terminating Capital Transaction, shall be applied or distributed as provided in Article 8 hereof. 4.3 Withholding. The Company may withhold distributions or portions thereof if it is required to do so by any applicable rule, regulation, or law, and each Member hereby authorizes the Company to withhold from or pay on behalf of or with respect to such Member any amount of federal, state, local or foreign taxes that a Majority in Interest determines that the Company is required to withhold or pay with respect to any amount distributable or allocable to such Member pursuant to this Agreement. Any amount paid on behalf of or with respect to a Member pursuant to this Paragraph 4.3 shall constitute a loan by the Company to such Member, which loan shall be repaid by such Member within fifteen (15) days after notice from the Company that such payment must be made unless: (i) the Company withholds such payment from a distribution which would otherwise be made to the Member or (ii) a Majority in Interest determines that such payment may be satisfied out of Cash Available For Distribution which would, but for such payment, be distributed to the Member. Any amounts withheld pursuant to this Paragraph 4.3 shall be treated as having been distributed to such Member. Each Member hereby unconditionally and irrevocably grants to the Company a security interest in such Member's Interest to secure such Member's obligation to pay to the Company any amounts required to be paid pursuant to this Paragraph 4.3. In the event that a Member fails to pay any amounts owed to the Company pursuant to this Paragraph 4.3 when due, the remaining Members may, in their respective sole and absolute discretion, elect to make the payment to the Company on behalf of such defaulting Member, and in such event shall be deemed to have loaned such amount to such defaulting Member and shall succeed to all rights and remedies of the Company as against such defaulting Member (including, without limitation, the right to receive distributions). Any amounts payable by a Member hereunder shall bear 12 interest at a rate equal to two percent (2%) above the "prime rate," as announced in the Wall Street Journal from time to time, or the successor to such rate if no longer published, compounded annually from the date such amount is due (i.e., fifteen (15) days after demand) until such amount is paid in full. Each Member shall take such actions as the Company shall request in order to perfect or enforce the security interest created hereunder. A Member's obligations hereunder shall survive the dissolution, liquidation, or winding up of the Company. 4.4 Distributions in Kind. No right is given to any Member to demand or receive property other than cash as provided in this Agreement. The Members may, upon the written consent of a Majority in Interest, cause the Company to make a distribution in kind of Company Assets to the Members, and such Company Assets shall be distributed in such a fashion as to ensure that the fair market value thereof is distributed and allocated in accordance with this Article 4 and Articles 5 and 8 hereof; provided, however, that no Member may be compelled to accept a distribution consisting, in whole or in part, of any Company Assets in kind unless the ratio that the fair market value of such distribution in kind bears to such Member's total distribution does not exceed the ratio that the fair market value of similar distributions in kind bear to the total distributions of other Members receiving distributions concurrently therewith (if any), except upon a dissolution and winding up of the Company. 4.5 Limitations on Distributions. Notwithstanding any provision to the contrary contained in this Agreement, neither the Company nor any Member, on behalf of the Company, shall knowingly make a distribution to any Member or the holder of any Economic Interest on account of its Membership Interest or Economic Interest (as applicable) in violation of Section 18-607 of the Act. ARTICLE 5 ALLOCATIONS OF NET PROFITS AND NET LOSSES 5.1 General Allocation of Net Profits and Losses. 5.1.1 Net Profits and Net Losses shall be determined and allocated with respect to each fiscal year of the Company as of the end of such fiscal year. Subject to the other provisions of this Agreement, an allocation to a Member of a share of Net Profits or Net Losses shall be treated as an allocation of the same share of each item of income, gain, loss or deduction that is taken into account in computing Net Profits or Net Losses. 5.1.2 Subject to the other provisions of this Article 5, Net Profits, Net Losses and any other items of income, gain, loss and deduction for any fiscal year shall be allocated in proportion to the Members' respective Percentage Interests. 5.2 Regulatory Allocations. Notwithstanding the any other provision of this Article 5, the following special allocations shall be made in the following order of priority: 5.2.1 If there is a net decrease in Company Minimum Gain during a Company taxable year, then each Member shall be allocated items of Company income and gain for such taxable year (and, if necessary, for subsequent years) in an amount equal to such Member's share of the net decrease in Company Minimum Gain, determined in accordance with Regulations Section 1.704-2(g)(2). Allocations made pursuant to the previous sentence shall be made in proportion to the amounts required to be allocated to each Member pursuant thereto. This Paragraph 5.2.1 is 13 intended to comply with the minimum gain chargeback requirement of Regulations Section 1.704-2(f) and shall be interpreted consistently therewith. 5.2.2 If there is a net decrease in Member Minimum Gain attributable to a Member Nonrecourse Debt during any Company taxable year, each Member who has a share of the Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated items of Company income and gain for such taxable year (and, if necessary, subsequent years) in an amount equal to such Member's share of the net decrease in Member Nonrecourse Debt, determined in a manner consistent with the provisions of Regulations Section 1.704-(i)(4). Allocations made pursuant to the previous sentence shall be made in proportion to the amounts required to be allocated to each Member pursuant thereto. This Paragraph 5.2.2 is intended to comply with the partner nonrecourse debt minimum gain chargeback requirement of Regulations Section 1.704-2(i)(4) and shall be interpreted consistently therewith. 5.2.3 If any Members unexpectedly receive an adjustment, allocation, or distribution of the type contemplated by Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of income and gain shall be allocated to all such Members (in proportion to the amounts of their respective Adjusted Capital Account Deficits) in an amount and manner sufficient to eliminate, to the extent required by the Regulation, the Adjusted Capital Account Deficit of such Members as quickly as possible. It is intended that this Paragraph 5.2.3 qualify and be construed as a "qualified income offset" within the meaning of Regulations Section 1.704- 1(b)(2)(ii)(d). 5.2.4 If the allocation of Net Loss to a Member as provided in Paragraph 5.1 hereof would create or increase an Adjusted Capital Account Deficit, there shall be allocated to such Member only that amount of Net Loss as will not create or increase an Adjusted Capital Account Deficit. The Net Loss that would, absent the application of the preceding sentence, otherwise be allocated to such Member shall be allocated to the other Members in accordance with their relative Percentage Interests, subject to the limitations of this Paragraph 5.2.4. 5.2.5 To the extent that an adjustment to the adjusted tax basis of any Company Asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulations Section 1.704- 1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of its Interest, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such gain or loss shall be specially allocated to the Members in accordance with their interests in the Company in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Members to whom such distribution was made in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies. 5.2.6 The Nonrecourse Deductions for each taxable year of the Company shall be allocated to the Members in proportion to their Percentage Interests. 5.2.7 The Member Nonrecourse Deductions shall be allocated each year to the Member that bears the economic risk of loss (within the meaning of Regulations Section 1.752-2) for the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Regulations Section 1.704-2(i)(1). 14 5.2.8 The allocations set forth in Paragraphs 5.2.1, 5.2.2, 5.2.3, 5.2.4, 5.2.5, 5.2.6 and 5.2.7 hereof (the "REGULATORY ALLOCATIONS") are intended to comply with certain requirements of Regulations Sections 1.704-1(b) and 1.704-2(i). Notwithstanding the provisions of Paragraph 5.1.2, the Regulatory Allocations shall be taken into account in allocating other items of income, gain, loss and deduction among the Members so that, to the extent possible, the net amount of such allocations of other items and the Regulatory Allocations to each Member shall be equal to the net amount that would have been allocated to each such Member if the Regulatory Allocations had not occurred. In the event that the Code or any Regulations require allocations of items of income, gain, loss, deduction or credit different from those set forth in this Article 5, the Company is hereby authorized to make new allocations in reliance on the Code and such Regulations, provided that such new allocations shall be subject to the prior written approval of a Majority in Interest. Furthermore, to the extent permitted by the Code or Regulations, any such new allocations shall be considered Regulatory Allocations subject to this Paragraph 5.2.8. 5.3 TAX ALLOCATIONS. 5.3.1 Except as provided in Paragraph 5.3.2 hereof, for income tax purposes under the Code and the Regulations each Company item of income, gain, loss and deduction shall be allocated between the Members as its correlative item of "book" income, gain, loss or deduction is allocated pursuant to this Article 5. 5.3.2 Tax items with respect to Company Assets that are contributed to the Company with a Gross Asset Value that varies from its basis in the hands of the contributing Member immediately preceding the date of contribution shall be allocated between the Members for income tax purposes pursuant to Regulations promulgated under Code Section 704(c) so as to take into account such variation. The Company shall account for such variation under any method approved under Code Section 704(c) and the applicable Regulations as chosen by a Majority in Interest including, without limitation, the 'traditional method" as described in Regulations Section 1.704-3(b). If the Gross Asset Value of any Company Asset is adjusted pursuant to Paragraph 2.23, subsequent allocations of income, gain, loss and deduction with respect to such Company Asset shall take account of any variation between the adjusted basis of such Company Asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Regulations promulgated thereunder under any method approved under Code Section 704(c) and the applicable Regulations as chosen by a Majority in Interest. Allocations pursuant to this Paragraph 5.3.2 are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Member's Capital Account or share of Net Profits, Net Losses and any other items or distributions pursuant to any provision of this Agreement. 5.4 OTHER PROVISIONS. 5.4.1 For any fiscal year during which any part of a Membership Interest or Economic Interest is transferred between the Members or to another Person, the portion of the Net Profits, Net Losses and other items of income, gain, loss, deduction and credit that are allocable with respect to such part of a Membership Interest or Economic Interest shall be apportioned between the transferor and the transferee under any method allowed pursuant to Section 706 of the Code and the applicable Regulations as determined by a Majority in Interest. 15 5.4.2 For purposes of determining a Member's proportional share of the Companys' "excess nonrecourse liabilities" within the meaning of Regulations Section 1.752-3(a)(3), each Member's interest in Net Profits shall be such Member's Percentage Interest. 5.4.3 The Members acknowledge and are aware of the income tax consequences of the allocations made by this Article 5 and hereby agree to be bound by the provisions of this Article 5 in reporting their shares of Net Profits, Net Losses and other items of income, gain, loss, deduction and credit for federal, state and local income tax purposes. ARTICLE 6 OPERATIONS 6.1 MANAGEMENT. 6.1.1 The Company shall be a member-managed limited liability company within the meaning of the Act. All Members shall be entitled to participate in the management and control of the day-to-day operation and business affairs of the Company. Each Member shall have the authority to bind the Company, and, except as otherwise provided herein, shall have the power, on behalf of the Company, to do all things necessary or convenient to carry out the business and affairs of the Company. Notwithstanding anything to the contrary contained herein, any action taken by any Member on behalf of the Company without the requisite approval of the other Members as required herein, shall constitute a breach of this Agreement by such Member. 6.1.2 Each of APS and SCPI is a duly organized and validly existing corporation, acting by and through its respective Board of Directors and elected and authorized officers. Each of APS and SCPI may delegate a single officer to serve as its representative with respect to the matters and affairs of the Company (each, a "Representative" and together, "Representatives"). Each Representative shall be provided with copies of any and all papers, documents and correspondences to or from the Company, including, without limitation, financial statements, balance sheets, contracts, reports, filings, tax returns, legal notices and notices from any governmental authority or agency. As its initial Representative, SCPI designates Jesse Martinez. APS designates Terry Davis as its initial Representative. 6.1.3 Subject to Paragraph 6.1.l and the limitations set forth in Paragraph 6.1.5,and except as otherwise expressly provided in this Agreement, all actions by or on behalf of the Company may be taken upon the prior written approval of a Majority in Interest. By way of illustration and not by way of limitation, and subject to the limitations set forth in the preceding sentence, the Company shall have the power and authority from time to time, upon the prior written approval of a Majority in Interest, to do the following: (a) to oversee the operations of the Business and to manage and maintain all personal and real property in which the Company has an interest; (b) to incur expenditures on behalf of the Company in connection with the operation of the Business; (c) to employ and dismiss from employment employees, agents and consultants of the Business in the Ordinary Course; 16 (d) to enter into, execute, amend, supplement, acknowledge and deliver contracts, agreements, leases or other instruments in connection with the operation of the Business; (e) to establish and maintain one or more bank accounts for the Company in such bank or banks having assets of at least Twenty-five Million Dollars ($25,000,000); (f) to the extent that funds of the Company are available, to pay expenses, debts and obligations of the Company; and (g) to perform all normal business functions, and otherwise operate and manage the business and affairs of the Company, in accordance with and as limited by this Agreement. 6.1.4 The Company may, from time to time, hire such employees as are deemed necessary by the Members for the efficient operation of the Company's day-to-day business operations, which employees shall be granted such powers and authority as determined by the Members. 6.1.5 Notwithstanding the provisions of Paragraphs 6.1.2, 6.1.3 and 6.1.4 or any other provision of this Agreement (but subject to Paragraph 6.1.1) the Company may not take any of the following actions without the written consent of a Supermajority in Interest: (a) approve any Terminating Capital Transaction; (b) sell, mortgage, encumber, pledge as security for borrowing, lease or otherwise transfer or dispose of (i) the Business or any portion thereof or (ii) any of the assets of the Company or the Business except in the Ordinary Course; (c) incur any indebtedness other than trade indebtedness to vendors and suppliers in the Ordinary Course; (d) employ or compensate any Person in connection with the business of the Company, except in the Ordinary Course; (e) lend money or give credit on behalf of the Company or release or discharge any debt or liability owing to the Company, except in the Ordinary Course; (f) cause the Company to become a surety, guarantor or endorser for any Person; (g) enter into, amend or otherwise modify any agreement, oral or written, including without limitation any employment agreement, consulting agreement or other similar agreement, on behalf of the Company with any Member or any Affiliate of any Member, and including, without limitation, this Agreement or the Certificate; or 17 (h) participate in a reorganization, merger or consolidation with one or more entities in which the Company is not the surviving entity, or if Company is the surviving entity, if the ownership of fifty percent (50%) or more of its membership interest is held by entities other than the Company, or the acquisition of beneficial ownership of fifty percent (50%) or more of the voting stock or other ownership interest in any Member (or, in the case of SCPI, of either SCPI or Summit Care) by any person or entity not currently holding fifty percent (50%) or more of such interest. 6.2 RELIANCE BY THIRD PARTIES. Any Person dealing with the Company or any Member may rely upon a certificate signed by any Member as to: (a) the identity of any Member of the Company; (b) the existence or non-existence of any fact or facts which constitute a condition precedent to acts by a Member or in any other manner germane to the affairs of the Company; (c) the Persons who are authorized to execute and deliver any instrument or document for or on behalf of the Company; or (d) any act or failure to act by the Company or as to any other matter whatsoever involving the Company or any Member. 6.3 COMPENSATION. 6.3.1 Except for the reimbursements provided for in Paragraph 6.3.2, no Member shall be entitled to compensation for actions taken on behalf of the Company or in connection with this Agreement. 6.3.2 Subject to the approval of a Majority in Interest, to be obtained on a monthly basis, to the extent not otherwise provided for in any agreement contemplated in Paragraph 6.3.1, each Member shall be entitled to reimbursement on a monthly basis from the Company for all out-of-pocket costs and expenses incurred by it, in its reasonable discretion, for or on behalf of the Company. 6.3.3 Compensation for the Representatives and any office created under Paragraph 6.1.3 shall be determined by a Supermajority in Interest. 6.4 RECORDS AND REPORTS. 6.4.1 The Members shall cause to be kept, at the principal place of business of the Company, or at such other location as a Majority in Interest shall reasonably deem appropriate, full and proper ledgers, other books of account, and records of all receipts and disbursements, other financial activities, and the internal affairs of the Company for at least the current and past four fiscal years. 6.4.2 The Members shall also cause to be sent to each Member of the Company, the following: 18 (a) within ninety (90) days following the end of each fiscal year of the Company, a report that shall include all necessary information required by the Members for preparation of their federal, state and local income or franchise tax or information returns, including each Member's pro rata share of Net Profits, Net Losses and any other items of income, gain, loss and deduction for such fiscal year; and (b) a copy of the Company's federal, state and local income tax or information returns for each fiscal year, concurrent with the filing of such returns. 6.4.3 Members (personally or through an authorized representative) may, for purposes reasonably related to their Interests, examine and copy (at their own cost and expense) the books and records of the Company at all reasonable business hours. 6.5 INDEMNIFICATION AND LIABILITY OF THE MEMBERS. 6.5.1 The Company shall indemnify and hold harmless each Member, its Affiliates, and subsidiaries, and all officers, directors, employees, shareholders and agents of any of the foregoing (individually, an "INDEMNITEE") to the full extent permitted by law from and against any and all losses, claims, demands, costs, damages, liabilities, expenses of any nature (including attorneys' fees and disbursements), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, in which the Indemnitee may be involved, or threatened to be involved as a party or otherwise, relating to the performance or nonperformance of any act concerning the activities of the Company, if (i) the Indemnitee acted in good faith and in a manner he believed to be in, or not contrary to, the best interests of the Company, and (ii) the Indemnitee's conduct did not constitute gross negligence or willful misconduct. The termination of an action, suit or proceeding by judgment, order, settlement, or upon a plea of nolo contendere or its equivalent, shall not, in and of itself, create a presumption or otherwise constitute evidence that the Indemnitee acted in a manner contrary to that specified in clauses (i) or (ii) above. 6.5.2 Any indemnification provided hereunder shall be satisfied solely out of the assets of the Company, as an expense of the Company. No Member shall be subject to personal liability by reason of these indemnification provisions. 6.5.3 The provisions of this Paragraph 6.5 are for the benefit of the Indemnitees and shall not be deemed to create any rights for the benefit of any other Person. 6.5.4 Neither a Member, nor the subsidiaries nor Affiliates of any Member nor the officers, directors, employees or agents of any of the foregoing shall be liable to the Company or to any other Member for any losses sustained or liabilities incurred as a result of any act or omission of any Member or any such other Person if (i) the act or failure to act of the Member or such other Person was in good faith and in a manner he believed to be in, or not contrary to, the best interests of the Company, and (ii) the conduct of the Member or such other Person did not constitute gross negligence or willful misconduct. 6.5.5 To the extent that a Member, or any Affiliate or subsidiary of any Member, or any officer, director, employee or agent of any of the foregoing (each, a "RESPONSIBLE PARTY") 19 has, at law or in equity, duties (including, without limitation, fiduciary duties) to the Company, or to any other Member or other Person bound by the terms of this Agreement, such Responsible Parties acting in accordance with this Agreement shall not be liable to the Company, any Member, or any such other Person for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict the duties of a Responsible Party otherwise existing at law or in equity, are agreed by all parties hereto to replace such other duties to the greatest extent permitted under applicable law. 6.5.6 Whenever a Responsible Party is required or permitted to make a decision, take or approve an action, or omit to do any of the foregoing: (a) in its discretion, under a similar grant of authority or latitude, or without an express standard of behavior (including, without limitation, standards such as "reasonable" or "good faith"), then such Responsible Party shall be entitled to consider only such interests and factors, including its own, as it desires, and shall have no duty or obligation to consider any other interests or factors whatsoever, or (b) with an express standard of behavior (including, without limitation, standards such as "reasonable" or "good faith"), then such Responsible Party shall comply with such express standard but shall not be subject to any other, different or additional standard imposed by this Agreement or otherwise applicable law. 6.6 COVENANT NOT TO COMPETE. No Member (for the purposes of this Paragraph 6.6, the term "Member" shall include Summit Care) shall (and each Member shall cause each of its officers, directors, partners, shareholders, and owners not to), directly or indirectly, (i) engage in a business concerned in whole or part with providing pharmacy services in competition with the Business of the Company in the County of Travis, State of Texas, or (ii) be or become interested in any Person engaged in a business concerned in whole or part with providing pharmacy services in competition with the Business of the Company in the County of Travis, State of Texas as a partner, shareholder, principal, trustee, employee, consultant or in any other relationship or capacity. Members agree to maintain in confidence, and not to disclose to any third party, any ideas, methods, developments, inventions, improvements and business plans and information which are the confidential information of the Company. In the event the agreement in this Paragraph 6.6 shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it shall be interpreted to extend only over the maximum period of time for which it may be enforceable and/or over the maximum geographical area as to which it may be enforceable and/or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action. Members acknowledge that a breach of the covenants contained in this Paragraph 6.6 will cause irreparable damage to the Company, the exact amount of which will be difficult to ascertain, and that the remedies at law for any such breach will be inadequate. Accordingly, the Members agree that if any Member breaches the covenant contained in this Paragraph 6.6, in addition to any other remedy which may be available at law or in equity, the Company shall be entitled to specific performance and injunctive relief, without posting bond or other security. Except as set forth below, the provisions of this Paragraph 6.6 shall survive for so long as the Company is in existence and no longer. Notwithstanding the preceding sentence, the provisions of this Paragraph 6.6 shall terminate and cease to apply (i) immediately upon the withdrawal of either APS or SCPI as a Member with the consent of the other, as contemplated by the second sentence of Paragraph 7.4 hereof and (ii) on November 30, 1998 in the event that either APS or SCPI withdraws from the Company (A) prior to November 30, 1998 and (B) without the consent of the other party; provided, however, that in the event either APS or SCPI exercises its buy/sell right under Paragraph 7.10 hereof, 20 the provisions of the first two paragraphs of this Paragraph 6.6 shall apply to the selling party only (as though the buying party were the Company) and shall terminate on the date that is the second (2nd) anniversary of the closing of the sale contemplated by Paragraph 7.10 hereof 6.7 SERVICES. Subject to the other provisions of this Article VI, APS shall provide to the Company without charge administrative support services reasonably requested by the Company to maintain operations in the ordinary course of business, including, without limitation, payroll, accounting and risk management services. ARTICLE 7 INTERESTS AND TRANSFERS OF INTERESTS 7.1 TRANSFERS. No Member or Assignee may Transfer all or any portion of its Membership Interest or Economic Interest (or beneficial interest therein) without the prior written consent of a Majority in Interest. Any purported Transfer which is not in accordance with this Agreement shall be null and void. 7.2 FURTHER RESTRICTIONS. Notwithstanding any contrary provision in this Agreement, any otherwise permitted Transfer shall be null and void if: (a) such Transfer would cause a technical termination of the Company for federal or state, if applicable, income tax purposes; (b) such Transfer would, in the opinion of counsel to the Company, cause the Company to cease to be classified as a partnership for federal or state income tax purposes; (c) such Transfer requires the registration of such Interest to be transferred pursuant to any applicable federal or state securities laws; (d) such Transfer causes the Company to become a "Publicly Traded Partnership," as such term is defined in Sections 469(k)(2) or 7704(b) of the Code; (e) such Transfer subjects the Company to regulation under the Investment Company Act of 1940, the Investment Advisers Act of 1940 or the Employee Retirement Income Security Act of 1974, each as amended; (f) such Transfer results in a violation of applicable laws or any applicable regulation, rule or policy of any federal, state or local entity; (g) such Transfer causes the revaluation or reassessment of the value of any Company Asset resulting in a material amount of federal, state or local tax liability; (h) all approvals and authorizations required in connection with such Transfer have not been obtained; (i) such Transfer is made to any Person who lacks the legal right, power or capacity to own such Interest to be transferred; or 21 (j) the Company does not receive written instruments (including, without limitation, copies of any instruments of Transfer and such Assignee's consent to be bound by this Agreement as an Assignee) that are in a form satisfactory to a Majority in Interest on or prior to the closing of such Transfer. 7.3 RIGHTS OF ASSIGNEES. Until such time, if any, as a transferee of any permitted Transfer pursuant to this Article 7 is admitted to the Company as a Substitute Member pursuant to Paragraph 7.6: (i) such transferee shall be an Assignee only, and only shall receive, to the extent transferred, the distributions and allocations of income, gain, loss, deduction, credit, or similar item to which the Member which transferred its Interest would be entitled, and (ii) such Assignee shall not be entitled or enabled to exercise any other rights or powers of a Member, such other rights, including, without limitation, management and voting rights, remaining with the transferring Member. In such a case, the transferring Member shall remain a Member even if it has transferred its entire Economic Interest to one or more Assignees. In the event any Assignee desires to make a further assignment of any Economic interest, such Assignee shall be subject to all of the provisions of this Agreement to the same extent and in the same manner as any Member desiring to make such an assignment. 7.4 ADMISSIONS AND WITHDRAWALS. No Person shall be admitted to the Company as a Member except in accordance with Paragraph 3.4 (in the case of Persons obtaining an interest in the Company directly from the Company) or Paragraph 7.6 (in the case of transferees in a permitted Transfer of an interest in the Company from another Person). Except as otherwise specifically set forth in Paragraph 7.7, no Member shall be entitled to retire or withdraw from being a Member of the Company without the written consent of a Majority in Interest. Any purported admission or withdrawal which is not in accordance with this Agreement shall be null and void. 7.5 PAYMENT UPON WITHDRAWAL OF MEMBER. If any Member withdraws from the Company with the consent of a Majority in Interest (other than pursuant to Paragraph 7.7), then such Member automatically shall receive from the Company a payment equal to the Member's Capital Account balance as adjusted as of the effective date of the written election of withdrawal (the "TERMINATION PAYMENT"). The Termination Payment shall be paid on the effective date of the written election of withdrawal. If any Member attempts to withdraw from the Company (other than pursuant to Paragraph 7.7) without the consent of a Majority in Interest, such withdrawing Member shall not be entitled to any Termination Payment or any other compensation whatsoever in consideration for its terminated Membership Interest. 7.6 ADMISSION OF ASSIGNEES AS SUBSTITUTE MEMBERS. 7.6.1 An Assignee shall become a Substitute Member only if and when each of the following conditions are satisfied: (a) the assignor of the Interest transferred sends written notice to each Member requesting the admission of the Assignee as a Substitute Member and setting forth the name and address of the Assignee, the Percentage Interest transferred, and the effective date of the Transfer; (b) a Majority in Interest consents in writing to such admission; and (c) the Members receive from the Assignee (i) such information concerning the Assignee's financial capacities and investment experience as may 22 reasonably be requested by the Members, and (ii) written instruments (including, without limitation, copies of any instruments of Transfer and such Assignee's consent to be bound by this Agreement as a Substitute Member) that are in a form satisfactory to the Members. (d) at the request of a Majority in Interest, an opinion of counsel to Assignee is delivered, acceptable to a Majority in Interest, with respect to the validity, binding effect and enforceability of the assignment, of this Agreement against such Assignee and such other matters as a Majority in Interest shall reasonably request. 7.6.2 Upon the admission of any Substitute Member, the Tax Matters Partner shall amend Exhibit A to reflect the name, address and Percentage Interest, corresponding to such Substitute Member and to eliminate or adjust, if necessary, the name, address and Percentage Interest corresponding to the predecessor of such Substitute Member. 7.7 WITHDRAWAL OF MEMBERS. If a Member has transferred all of its Membership Interest to one or more Assignees, then such Member shall automatically be deemed withdrawn from the Company, with no further action by any party required, if and when all such Assignees have been admitted as Substitute Members in accordance with this Agreement. 7.8 CONVERSION OF MEMBERSHIP INTEREST. Upon the Incapacity of a Member (and the subsequent continuation of the business of the Company pursuant to Paragraph 8.2(c), such Incapacitated Member's Membership Interest shall automatically be converted to an Economic Interest only, and such Incapacitated Member (or its executor, administrator, trustee or receiver, as applicable) shall thereafter be deemed an Assignee for all purposes hereunder, with the same Economic Interest as was held by such Incapacitated Member prior to its Incapacity, but without any other rights of a Member unless the holder of such Economic Interest is admitted as a Substitute Member pursuant to Paragraph 7.6. 7.9 RIGHT OF FIRST REFUSAL. 7.9.1 RECEIPT OF BONA FIDE OFFER. If any Member shall receive a Bona Fide Offer to purchase any or all of its Membership Interest, and it is willing to accept such Bona Fide Offer, then such Member shall make the offer described in Paragraph 7.9.2 (the "Offer by Transferor"). 7.9.2 OFFER BY TRANSFEROR. The Offer by Transferor shall consist of a written offer to Transfer all of the Membership Interest proposed to be Transferred by the transferor (the "Transferor") and shall be given to the Company and to the remaining Members. The Offer by Transferor shall include a statement of intention to Transfer and shall disclose all the terms of the proposed Transfer, including the name and address of the transferee under the Bona Fide Offer (the "Transferee"), and shall be accompanied by a copy of the Bona Fide Offer. 7.9.3 ACCEPTANCE OF OFFER BY TRANSFEROR. Within thirty (30) days after its receipt of the Offer by Transferor, the Company may, at its option, elect to purchase all of the Membership Interest proposed to be Transferred. The decision of the Company as to the acceptance or non- acceptance of said offer shall be determined by a majority in interest of the Non-Transferring Members. If the Company does not elect to purchase the Membership Interest proposed to be Transferred pursuant to the Offer by Transferor, the Company shall, within five (5) business days following delivery of written notice of its election to the Transferor, or within five (5) days following 23 the expiration of the above-described thirty (30)-day period, deliver written notice of its election to the Non-Transferring Members. The Non- Transferring Members may, within forty-five (45) days after the receipt of said notice from the Company, at the Non-Transferring Members' option, purchase all of the Membership Interests proposed to be Transferred pursuant to the Offer by Transferor, pro rata in accordance with the Percentage Interests held by the Members electing to purchase such Membership Interests. The Non-Transferring Members shall exercise their election to purchase by giving written notice of such election to the Transferor and to the Company. In either event, such notice of election shall specify a date for the closing of the purchase, which shall be not more than thirty (30) days after the date of such notice. If any consideration to be received by the Transferor under the Bona Fide Offer is property other than cash, the time periods for acceptance of the Offer by Transferor by the Company, or the Non-Transferring Members, and the closing date shall be extended and shall begin running effective the day after the fair market value of such consideration is determined in accordance with Paragraph 7.9.4. 7.9.4 PURCHASE PRICE. The purchase price for the Membership Interest proposed to be Transferred pursuant to the Offer by Transferor shall in no event exceed the purchase price stated in the Bona Fide Offer. If any consideration to be received by the Transferor under the Bona Fide Offer is property other than cash, the value shall be computed on the basis of the fair market value of such non-cash consideration. Such fair market value shall be determined by agreement among the Transferor and either the Non-Transferring Members purchasing such Interest, or the Company, as applicable, or if they are unable to agree, as determined by the average of the appraisals of two (2) independent qualified appraisers, one being selected by the Transferor and the other by the Non-Transferring Members purchasing such Interest, the cost of such appraisal being shared equally by Transferor and the Company. 7.9.5 CLOSING OF PURCHASE. The closing of the purchase contemplated by Paragraph 7.9.3 shall take place at the principal office of the Company. The Company or the Non-Transferring Members shall have the option of paying the purchase price on the same terms as the Bona Fide Offer or as follows: ten percent (10%) down payment in cash at closing and the balance by a promissory note, payable in twelve (12) equal, quarterly annual installments of principal, plus interest on the unpaid balance, with the first installment due ninety (90) days after the closing, and each successive installment paid on the first (lst) day of every third month thereafter. The promissory note shall bear interest at a rate equal to two percent (2%) above the "prime rate," as announced in the Wall Street Journal from time to time, or the successor to such rate if such rate is no longer published, and shall provide that: (i) the maker shall have the privilege of prepaying all or any part thereof, at any time, without penalty; and (ii) a default in any payment shall cause the remaining unpaid balance to become due and payable immediately. The promissory note shall be secured by a pledge of all of the Membership Interests being purchased. If the maker of the promissory note is the Company, such promissory note shall be personally endorsed by the remaining Members. 7.9.6 TRANSFER AFTER OFFER. If the Membership Interests are not purchased by the Company or the Non-Transferring Members as provided in this Article 7, the Transferor shall, for a period of three (3) months after the earlier to occur of (i) the date of any written notice given by all Non- Transferring Members of their election not to purchase such Membership Interest and (ii) the date on which the period during which the Non- Transferring Members may elect to purchase such Membership Interest expires, be free to Transfer the Membership Interests to the Transferee, upon the terms disclosed in the Offer by Transferor. 7.9.7 PROHIBITED TRANSFERS VOID. 24 (i) Any purported Transfer in violation of this Agreement shall be null and void and shall not transfer any interest in, or title to, the Membership Interests transferred to the purported Transferee. The Company shall not be required to treat as owner of the Membership Interests, or to pay distributions to, any Transferee to whom any of such Membership Interests shall have been purportedly sold or Transferred. (ii) In addition, and without in any way intending to validate, approve or otherwise render a Transfer in violation of this Agreement other than null and void, the Company first, and the remaining Members (pro rata in accordance with the Percentage Interests held by those electing the option to purchase hereinafter described) second, shall have the option to purchase all or any portion of the Membership Interests attempted to be transferred to a Transferee in violation of a restriction on Transfer contained in this Agreement for the price and on the same terms and conditions described in Paragraphs 7.9.4 and 7.9.5; provided, however, that the Company and the Non-Transferring Members may pay the purchase price by delivery of a promissory note representing the entire purchase price. To exercise this option, the Company must give the Transferee written notice within thirty (30) days after the Company is notified of the purported Transfer. In the event the Company does not elect to exercise this option, the Company shall, within ten (10) business days following the expiration of the foregoing thirty (30)-day period, notify the Non-Transferring Members of its election. The Non- Transferring Members must give the Transferee written notice, within thirty (30) days following the receipt of notice from the Company, of their election to purchase all or any portion of the Membership Interest purportedly held by the Transferee. The Transferee's sale obligation pursuant to this paragraph may be specifically enforced by the Company or any Non-Transferring Member. 7.10 BUY AND SELL RIGHTS. 7.10.1 Any Member (the "Offeror") may, at any time, make a buy- sell offer (the "Offer") to any other Member (the "Offeree") by notifying the Offeree in writing of the exercise of this right, and stating in such notice the gross sales price for the Company, as determined by the Offeror (the "Company Price"), which Company Price shall be used in the calculation procedures set forth in Paragraph 7.10.2 hereof, and the terms under which the Offeror is willing either to buy all of the Membership Interest owned by the Offeree or to sell to the Offeree all of the Membership Interest owned by the Offeror, with the price and any terms being the same for both the purchase and the sale. Except as set forth in Paragraph 7.10.2, the Offer shall not be revocable once the aforesaid notice has been delivered to the Offeree. 7.10.2 Within thirty (30) days after receipt by the Offeree of the Offeror's written notice of the Offer, the Offeree shall send the Offeror a written notice stating whether the Offeree elects (i) to purchase from the Offeror all of the Offeror's Membership Interest, at the price (as determined pursuant hereto) and under the terms stated in the Offer, or (ii) to sell to the Offeror all of the Offeree's Membership Interest at the price (as determined pursuant hereto) and under the terms stated in the Offer. If the Offeree shall fail to notify the Offeror whether he elects to buy or sell within the time period specified above, such failure shall be deemed to be an election to sell all Membership Interest owned by the Offeree to the Offeror at the price (as determined pursuant hereto) and under the terms specified in the Offer. The Offeror shall be entitled to revoke the Offer by giving the Offeree written notice of the withdrawal prior to the earlier of (i) the date the Offeree gives the Offeror written notice of his election to purchase or to sell pursuant to this Paragraph, or (ii) the date on which the Offeree shall be deemed to have elected to sell his Membership Interest to 25 the Offeror. The price payable to the Offeror or the Offeree, as the case may be, shall be the product of the Company Price and the Percentage Interest held by the selling Member. 7.10.3 The closing of the sale contemplated by this Paragraph 7.10 shall be held at the principal office of the Company (or at such other place as the Offeror and the Offeree may in writing agree) no later than thirty (30) days after the expiration of the notice period specified in Paragraph 7.10.2. Unless otherwise stated in the Offer, the purchasing Member shall deliver payment in full in cash for the purchase of the Membership Interest. A Member selling its Interest pursuant to 7.10.2 hereof shall deliver all appropriate documents of transfer at closing and shall convey its Membership Interest to the buying Member, or its nominee, free and clear of all liens, claims, encumbrances or other charges of any kind whatsoever. In the event the Membership Interest is conveyed to a nominee of the buying Member, the admission of such nominee to the Company as a successor to the selling Member shall occur, and for all purposes shall be deemed to have occurred immediately prior to the transfer by the selling Member of its Membership Interest. 7.11 OPTION TO PURCHASE UPON FUNDAMENTAL CHANGE. 7.11.1 In the event of the occurrence of a Fundamental Change with respect to a Member (the "Affected Member"), the Company shall have the option to purchase from the Affected Member, and the Affected Member shall sell to the Company upon the exercise of such option, all of the Membership Interest owned by the Affected Member. The Company may exercise such option upon the consent of a majority in interest of the Unaffected Members. If the Company does not elect to exercise the option provided herein, the Unaffected Members may, at the option of such Unaffected Members purchase all Membership Interest of the Affected Member which the Company does not elect to purchase. Such options shall be exercised by either the Company or the Unaffected Members by giving written notice to the Affected Member within ninety (90) days after the receipt of notice to the Company and the Unaffected Members of the occurrence of such Fundamental Change. 7.11.2 PURCHASE PRICE. The purchase price of the Membership Interest to be purchased pursuant to Paragraph 7.11.1 shall be the book value of such Membership Interest, including previous adjustments contemplated by the definition of Gross Asset Value, as of the last day of the month preceding the date of the Fundamental Change, as determined by the regularly employed outside accountant serving the Company at such time, or if none, by a public accountant selected by the Company and the Affected Member, or if they are unable to agree, by a public accountant chosen by two public accountants, one being selected by the Affected Member and one by the Company. At any time after the date of this Agreement, the Members shall have the right to agree unanimously upon the value of the Membership Interest of each Member and determine the purchase price of each Membership Interest for purposes of Paragraph 7.11.1, in which event, the Tax Matters Partner shall place the purchase price of each Membership Interest on Exhibit A attached hereto, which shall be initialed by all of the Members. The purchase price so determined shall be reviewed by the Members each year or at any other time determined by all of the Members and shall either be confirmed or adjusted by the unanimous agreement of all Members. If all Members are unable to agree with respect to the purchase price of any Membership Interest, the Tax Matters Partner shall delete such purchase price from Exhibit A. In the event the Members allow a period of eighteen (18) months to lapse without either revaluing or confirming such purchase price or are unable to unanimously agree on the revaluing or confirmation of such purchase price, the purchase price shall then become the book value of the Membership Interest as appraised by the Company's 26 regularly employed outside accountant or such other accountant as may be selected pursuant to the above-described procedure. 7.11.3 PAYMENT OF PURCHASE PRICE. The purchase price under this Paragraph 7.11 shall be payable in cash at closing. 7.11.4 CLOSING. The closing of any purchase and sale under Paragraph 7.11.1 shall take place at the office of the Company at a date designated by the Company, or the Unaffected Members, as applicable, which shall not be more than ninety (90) days after the date of determination of the purchase price of the Membership Interest as set forth in Paragraph 7.11.2. ARTICLE 8 DISSOLUTION, LIQUIDATION, AND TERMINATION OF THE COMPANY 8.1 LIMITATIONS. The Company may be dissolved, liquidated, and terminated only pursuant to the provisions of this Article 8, and the parties hereto do hereby irrevocably waive any and all other rights they may have to cause a dissolution of the Company or a sale or partition of any or all of the Company Assets. 8.2 EXCLUSIVE CAUSES. Notwithstanding the Act, the following and only the following events shall cause the Company to be dissolved, liquidated, and terminated: (a) Any transaction the result of which is the ownership of one hundred percent (100%) of all the Membership Interests of the Company by a single Member, unless such Member elects to continue the business of the Company by admitting another Member within thirty (30) days thereafter; (b) The occurrence of a Terminating Capital Transaction; (c) The Incapacity of any Member, unless a Majority of Remaining Members votes to continue the Company within ninety (90) days following the occurrence of any such Incapacity; (e) The written consent of a Majority in Interest; (f) Judicial dissolution; or (g) Upon the seventh (7th) anniversary of the date of this Agreement. Any dissolution of the Company other than as provided in this Paragraph 8.2 shall be a dissolution in contravention of this Agreement. 8.3 EFFECT OF DISSOLUTION. The dissolution of the Company shall be effective on the day on which the event occurs giving rise to the dissolution, but the Company shall not terminate until it has been wound up and its assets have been distributed as provided in Paragraph 8.5 of this Agreement. Notwithstanding the dissolution of the Company, prior to the termination of the Company, the business of the Company and the affairs of the Members, as such, shall continue to be governed by this Agreement. 27 8.4 NO CAPITAL CONTRIBUTION UPON DISSOLUTION. Each Member shall look solely to the assets of the Company, its Capital Contribution thereto, its Capital Account and its share of Net Profits or Net Losses for all distributions with respect to the Company, and shall have no recourse therefor (upon dissolution or otherwise) against any other Member. Accordingly, in the event the Company is "liquidated" within the meaning of Regulations Section 1.704- 1(b)(2)(H)(g), if any Member has a deficit balance in its Capital Account (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which the liquidation occurs), then such Member shall have no obligation to make any Capital Contribution with respect to such deficit, and such deficit shall not be considered a debt owed to the Company or to any other person for any purpose whatsoever. 8.5 LIQUIDATION. 8.5.1 Upon dissolution of the Company, the Members shall liquidate the assets of the Company, and after allocating (pursuant to Article 5 of this Agreement) all income, gain, loss and deductions resulting therefrom, shall apply and distribute the proceeds thereof as follows: (a) First, to the payment of the obligations of the Company, to the expenses of liquidation, and to the setting up of any Reserves for contingencies which a Majority in Interest may consider necessary. (b) Thereafter, to the Members in accordance with the positive balances in the Members' respective Capital Accounts, determined after taking into account all Capital Account adjustments for the Company taxable year during which such liquidation occurs (other than those made as a result of the distributions set forth in this Paragraph 8.5.1(b) of this Agreement), by the end of the taxable year in which such liquidation occurs or, if later, within 90 days after the date of the liquidation. 8.5.2 Notwithstanding Paragraph 8.5.1 of this Agreement, in the event that a Majority in Interest determines that an immediate sale of all or any portion of the Company Assets would cause undue loss to the Members, in order to avoid such loss to the extent not then prohibited by the Act, the Members may either defer liquidation of and withhold from distribution for a reasonable time any Company Assets except those necessary to satisfy the Company's debts and obligations, or distribute the Company Assets to the Members in kind. ARTICLE 9 MISCELLANEOUS 9.1 AMENDMENTS. 9.1.1 Each Additional Member and Substitute Member shall become a signatory hereto by signing such number of counterpart signature pages to this Agreement, and such other instruments, in such manner, as the Members shall determine. By so signing, each Additional Member and Substitute Member, as the case may be, shall be deemed to have adopted and to have agreed to be bound by all of the provisions of this Agreement. 28 9.1.2 Amendments to this Agreement may be made only as set forth in Paragraph 6.1.15. 9.1.3 In making any amendments, there shall be prepared and filed by, or for, the Members such documents and certificates as may be required under the Act and under the laws of any other jurisdiction applicable to the Company. 9.2 ACCOUNTING AND FISCAL YEAR. Subject to Code Section 448, the books of the Company shall be kept on such method of accounting for tax and financial reporting purposes as may be determined by a Majority in Interest. The fiscal year of the Company shall end on September 30 of each year, or on such other date permitted under the Code as a Majority in Interest shall determine. 9.3 MEETINGS. At any time, and from time to time, a Majority in Interest may, but shall not be required to, call meetings of the Members. Written notice of any such meeting shall be given to all Members not less than five (5) nor more than forty-five (45) days prior to the date of such meeting. Each Member may authorize any other Person (whether or not such other Person is a Member) to act as a proxy for it or on its behalf on all matters in which the Member is entitled to participate. Each proxy must be signed by the Member or such Member's attorney-in-fact. All other provisions governing, or otherwise relating to, the holding of meetings of the Members, shall from time to time be established by a Majority in Interest. 9.4 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof and fully supersedes any and all prior or contemporaneous agreements or understandings between the parties hereto pertaining to the subject matter hereof. 9.5 FURTHER ASSURANCES. Each of the parties hereto does hereby covenant and agree on behalf of itself, its successors, and its assigns, without further consideration, to prepare, execute, acknowledge, file, record, publish, and deliver such other instruments, documents and statements, and to take such other action as may be required by law or reasonably necessary to effectively carry out the purposes of this Agreement. 9.6 NOTICES. Any notice, consent, payment, demand, or communication required or permitted to be given by any provision of this Agreement shall be in writing and shall be (a) delivered personally to the Person or to an officer of the Person to whom the same is directed, or (b) sent by facsimile or registered or certified mail, return receipt requested, postage prepaid, addressed as follows: if to the Company, to the Company at the address set forth in Paragraph 1.3 hereof, or to such other address as the Company may from time to time specify by notice to the Members; if to a Member, to such Member at the address set forth in Exhibit A, or to such other address as such Member may from time to time specify by notice to the Company. Any such notice shall be deemed to be delivered, given and received for all purposes as of: (i) the date so delivered, if delivered personally, (ii) upon receipt, if sent by facsimile, or (iii) on the date of receipt or refusal indicated on the return receipt, if sent by registered or certified mail, return receipt requested, postage and charges prepaid and properly addressed. 9.7 TAX MATTERS. 9.7.1 APS shall be designated and shall operate as the "Tax Matters Partner" (as defined in Code Section 6231). 29 9.7.2 The Member designated as "Tax Matters Partner" may make all elections for federal income and all other tax purposes (including, without limitation, pursuant to Section 754 of the Code) except as expressly provided otherwise in this Agreement; provided, however, that upon the reasonable request of any Member transferring its Membership Interest as permitted hereunder, the Tax Matters Partner, on behalf of the Company, shall make the election pursuant to Section 754 of the Code requested by such Member, as permitted by the Code. 9.7.3 Income tax returns of the Company shall be prepared by the accountant selected by a Majority in Interest. Such income tax returns shall be prepared at the Company's expense. 9.8 GOVERNING LAW. This Agreement, including its existence, validity, construction, and operating effect, and the rights of each of the parties hereto, shall be governed by and construed in accordance with the laws of the State of Delaware without regard to otherwise governing principles of conflicts of law. 9.9 ARBITRATION. The parties hereto agree to submit to arbitration any and all matters in dispute and in controversy among them concerning the terms and provisions of this Agreement. All such disputes and controversies shall be resolved, determined and adjudged by the arbitrators, all pursuant to the rules of the American Arbitration Association. The selection of arbitrators and the arbitration procedure shall be according to the Rules of the American Arbitration Association; however, the arbitrators shall have no authority to grant any relief which is inconsistent with this Paragraph 9.9 or any other provision of this Agreement. 9.10 CONSTRUCTION. This Agreement shall be construed as if all parties prepared this Agreement. 9.11 CAPTIONS - PRONOUNS. Any titles or captions contained in this Agreement are for convenience only and shall not be deemed part of the text of this Agreement. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as appropriate. 9.12 BINDING EFFECT. Except as otherwise expressly provided herein, this Agreement shall be binding on and inure to the benefit of the Members, their heirs, executors, administrators, successors and all other Persons hereafter holding, having or receiving an interest in the Company, whether as Assignees, Substitute Members or otherwise. 9.13 SEVERABILITY. In the event that any provision of this Agreement as applied to any party or to any circumstance, shall be adjudged by a court of competent jurisdiction to be void, unenforceable or inoperative as a matter of law, then the same shall in no way affect any other provision in this Agreement, the application of such provision in any other circumstance or with respect to any other party, or the validity or enforceability of this Agreement as a whole. 9.14 CONFIDENTIALITY. Each Party hereto agrees that the provisions of this Agreement, all understandings, agreements and other arrangements between and among the parties, and all other nonpublic information received from or otherwise relating to, the Company shall be confidential, and shall not be disclosed or otherwise released to any other Person (other than another party hereto), without the written consent of a Majority in Interest. The obligations of the parties hereunder shall not apply to the extent that the disclosure of information otherwise determined to be confidential is required by applicable law, provided that, prior to disclosing such confidential information, a party shall notify the Company 30 thereof, which notice shall include the basis upon which such party believes the information is required to be disclosed. 9.15 COUNTERPARTS. This Agreement may be executed in any number of multiple counterparts, each of which shall be deemed to be an original copy and all of which shall constitute one agreement, binding on all parties hereto. 9.16 NO REFERRALS. There exists no agreement or understanding between the Company and any Member, or among any Members, or any affiliates of any Member, that any Member shall order, refer or purchase goods or services from the Company, or arrange for the ordering, referring or purchasing of such goods or services from the Company. Likewise, there exists no agreement or understanding between the Company and any Member, or among any Members, or any affiliates of any Member, that the Company shall order, refer or purchase goods or services from any Member, or arrange for the ordering referring or purchasing of such goods or services from any Member. [SIGNATURE PAGE FOLLOWS) 31 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. AMERICAN PHARMACEUTICAL SERVICES, INC. By: /s/ WILLIAM R. KORSLIN ----------------------------------- William R. Korslin SUMMIT CARE PHARMACY, INC. By:____________________________________ -------------------- Its: ------------------------------------ ACKNOWLEDGED AND AGREED THIS ___ DAY OF __________, 1996 FOR THE PURPOSES OF PARAGRAPH 6.6 HEREOF. SUMMIT CARE CORPORATION By: --------------------------- --------------------------- Its: --------------------------- S-1 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. AMERICAN PHARMACEUTICAL SERVICES, INC. By: ------------------------------------ William R. Korslin SUMMIT CARE PHARMACY, INC. By: /s/ DERWIN L. WILLIAMS ------------------------------------ Derwin L. Williams Its: Sr. Vice President, Finance ------------------------------------ ACKNOWLEDGED AND AGREED THIS 30th DAY OF NOVEMBER, 1996 FOR THE PURPOSES OF PARAGRAPH 6.6 HEREOF. SUMMIT CARE CORPORATION By: /s/ DERWIN L. WILLIAMS ---------------------------- Derwin L. Williams ---------------------------- Its: Sr. Vice President, Finance --------------------------- S-1 EXHIBIT A MEMBERS, CAPITAL CONTRIBUTIONS, AND PERCENTAGE INTERESTS
Purchase Price for each Membership Initial Capital Interest (Pursuant Percentage Member Contribution to Paragraph 7.11) Interest ------ --------------- ------------------- ---------- American Pharmaceutical Services, Inc. Those assets that American 50% 1771 W. Diehl Road, Suite 210 Pharmaceutical Services, Inc. Naperville, Illinois 60563 uses in the conduct of its business of providing drugs, pharmaceutical supplies and pharmacy consulting to long term care facilities in the Austin, Texas area from the pharmacy located at 2324 Ridgepoint Drive, Suite G-1, Austin, Texas 78754 (Gross Asset Value = $3,000,000 (1) Summit Care Pharmacy, Inc. $1,500,000 50% 22607 Old Canal Road Yorba Linda, California 92887
- ---------- (1) APS's Capital Account will be adjusted in accordance with Paragraph 2.10 hereof to reflect the distribution provided for in Paragraph 4.1.3 hereof. SCHEDULE I STATE OF DELAWARE CERTIFICATE OF FORMATION OF APS-SUMMIT CARE PHARMACY, L.L.C. FIRST: The name of the limited liability company is: APS-SUMMIT CARE PHARMACY, L.L.C. SECOND: Its registered office in the State of Delaware is to be located at: 1209 Orange Street Wilmington, DE 19801 The county of New Castle and its registered agent at such address is: The Corporation Trust Company In Witness Whereof, the undersigned has executed this Certificate of Formation of APS-SUMMIT CARE PHARMACY, L.L.C. this 27th day of November, 1996. AMERICAN PHARMACEUTICAL SERVICES, INC., a Delaware corporation By:___________________________ Name:_________________________ Title:________________________ SUMMIT CARE PHARMACY, INC., a California corporation By:___________________________ Name:_________________________ Title:________________________ =============================================== ASSET CONTRIBUTION AGREEMENT BY AND BETWEEN AMERICAN PHARMACEUTICAL SERVICES, INC., a Delaware Corporation AND APS - SUMMIT CARE PHARMACY, L.L.C., a Delaware Limited Liability Company =============================================== TABLE OF CONTENTS
Page ASSET CONTRIBUTION AGREEMENT............................................. 1 RECITALS................................................................. 1 AGREEMENT................................................................ 1 ARTICLE I - CONTRIBUTION OF ASSETS....................................... 1 1.1 Contributed Assets...................................... 1 (a) Leasehold Interests............................... 2 (b) Purchased Contracts............................... 2 (c) Inventories....................................... 2 (d) Personal Property, Fixtures and Equipment......... 2 (e) Governmental Licenses and Permits................. 3 (f) Intangible Assets................................. 3 (g) Names............................................. 3 (h) Goodwill.......................................... 3 (i) Facility Records.................................. 3 (j) Customer Lists.................................... 3 (k) Noncompetition Covenant........................... 3 1.2 Excluded Assets......................................... 3 1.3 Nonassumption of Agreements............................. 4 ARTICLE II - ASSUMED LIABILITIES......................................... 4 2.1 Assumed Liabilities..................................... 4 2.2 Unassumed - Liabilities................................. 4 ARTICLE III - FINANCIAL ARRANGEMENTS AND CLOSING......................... 4 3.1 Asset Value............................................. 4 3.2 Capital Account Balance................................. 5 3.3 Payment to APS.......................................... 5 3.4 Allocation.............................................. 5 3.5 Closing................................................. 5 3.6 Closing Deliveries...................................... 5
i ARTICLE IV - CLOSING CONDITIONS AND DOCUMENTS............................ 6 4.1 Conditions to Obligations of LLC............................ 6 4.2 Conditions to Obligations of APS............................ 8 ARTICLE V - NONCOMPETITION COVENANT...................................... 9 5.1 Covenant................................................ 9 5.2 Modification............................................ 9 5.3 Remedies................................................ 9 ARTICLE VI - REPRESENTATIONS AND WARRANTIES OF APS....................... 10 6.1 Title to Contributed Assets............................. 10 6.2 Compliance With Licensing Requirements................. 10 6.3 Compliance With Laws.................................... 10 6.4 Condition of Personal Property.......................... 11 6.5 Books and Records....................................... 11 6.6 Leases and Other Material Agreements.................... 11 6.7 Taxes................................................... 11 6.8 Governmental Investigations and Proceedings............. 11 6.9 No Conflict or Violation................................ 11 6.10 Material Misstatements.................................. 11 6.11 No Condemnation......................................... 12 6.12 No Assessments.......................................... 12 6.13 Financial Statements................................... 12 6.14 Hazardous Material...................................... 12 6.15 Insurance............................................... 13 6.16 Zoning.................................................. 13 6.17 Litigation.............................................. 13 6.18 Authorization........................................... 13 6.19 Corporate Existence and Qualification................... 13 6.20 Access to Records....................................... 13 ARTICLE VII - REPRESENTATIONS AND WARRANTIES OF LLC...................... 14 7.1 No Conflict or Violation................................ 14 7.2 Litigation.............................................. 14 7.3 Authorization........................................... 14 7.4 Corporate Existence and Qualification................... 14
ii ARTICLE VIII - POSTCLOSING AGREEMENTS.................................... 14 8.1 Books and Records and Financial Information............. 14 8.2 Sales and Use Taxes..................................... 15 ARTICLE IX - INDEMNIFICATION............................................. 15 9.1 Indemnification by APS.................................. 15 9.2 Indemnification by LLC.................................. 16 ARTICLE X - MISCELLANEOUS................................................ 17 10.1 Notices................................................. 17 10.2 Referrals............................................... 18 10.3 Counterparts............................................ 18 10.4 Construction............................................ 18 10.5 Gender and Number....................................... 18 10.6 Waiver.................................................. 18 10.7 Further Assurances...................................... 18 10.8 Confidentiality......................................... 18 10.9 Time of Essence......................................... 19 10.10 Survival................................................ 19 10.11 Supersedes Agreement.................................... 19 10.12 Commissions............................................. 19 10.13 Attorneys' Fees and Costs............................... 19 10.14 Arbitration............................................. 19 10.15 Interpretation.......................................... 20 10.16 Severability............................................ 20 10.17 Binding................................................. 20 10.18 Facsimile Copies........................................ 20 10.19 Force Majeure........................................... 20 10.20 No Obligations To Third Parties......................... 21
iii ASSET CONTRIBUTION AGREEMENT This Asset Contribution Agreement (the "Agreement") is entered into as of November 27, 1996 (the "Execution Date"), by and between American Pharmaceutical Services, Inc., a Delaware corporation ("APS"), and APS - Summit Care Pharmacy, L.L.C., a Delaware limited liability company ("LLC"). APS and LLC are sometimes hereinafter referred to collectively as "Parties" and individually as "Party". RECITALS A. APS is the owner and operator of a pharmacy (the "Facility") located at 2324 Ridgepoint Drive, Suite G-1, Austin, Texas 78754 (the "Premises"). B. APS owns certain "Contributed Assets" (as defined in Section 1. 1 of this Agreement) which are used or usable in connection with the operation of the Facility. C. APS and Summit Care Pharmacy, Inc., a California corporation ("Summit Care") (a) have formed LLC for the purpose of engaging in the business of operating a pharmacy to provide pharmacy and IV therapy services and (b) have entered into that certain Limited Liability Company Agreement, of even date herewith (the "LLC Agreement"), to govern the ownership and operations of LLC. D. Pursuant to the LLC Agreement, APS will contribute to LLC, as its initial capital contribution, the Contributed Assets, on the terms and conditions set forth in this Agreement. E. APS desires to contribute the Contributed Assets to LLC, and LLC desires to receive the Contributed Assets from APS, upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the terms and conditions set forth herein, the Parties agree as follows: AGREEMENT ARTICLE I CONTRIBUTION OF ASSETS 1.1 Contributed Assets. At the Closing (as defined in Section 3.5 hereof) of the transactions contemplated by this Agreement, in reliance upon the representations and warranties and agreements of APS herein, APS shall contribute to LLC, and LLC shall accept from APS, all right, title and interest 1 of APS in the following assets, rights and interests of APS relating to the Facility, all of which are to be contributed by APS at Closing in accordance with the provisions of Section 3.5 hereof, excluding only the "Excluded Assets" defined in Section 1.2 hereof. (All of the assets, rights and interests to be contributed and delivered by APS to LLC pursuant to Section 3.6 are hereinafter collectively referred to as the "Contributed Assets"): (a) Leasehold Interests. All of APS's leasehold interest (including all security deposits, and any options to extend such leasehold, to expand the leased premises, to purchase such premises or otherwise) as lessee of the Facility pursuant to the lease (the "Lease") under which APS, as lessee, has been granted the leasehold interest by the owner of the Premises as lessor, and all improvements owned by APS on the Closing Date, if any, to real property and the buildings leased by APS with respect to the Facility (collectively, the "Leasehold Interests"). To effectuate the transfer of the Leasehold Interests hereunder, APS agrees to execute and deliver at Closing (i) an Assignment of Lease executed by APS in substantially the form attached as Exhibit A hereto; and (ii) a "Consent to Assignment of Lease" executed by the lessor of the Premises in substantially the form attached as Exhibit B hereto. (b) Purchased Contracts. All right, title and interest of APS in, to and under the contracts relating exclusively to the operations of the Facility (collectively, the "Purchased Contracts"), including but not limited to (i) all assignable agreements between APS and third-party payors (collectively, the "Payor Contracts"), (ii) all assignable agreements with suppliers to which APS is a party (collectively, the "Supplier Contracts"), (iii) all assignable agreements with nursing homes (collectively, the "Facility Contracts") and (iv) the contracts (including the Payor Contracts, the Supplier Contracts, and the Facility Contracts) listed on Schedule 1.1(b) hereto. (c) Inventories. All of APS's inventories held for use in connection with the Facility on the Closing Date and maintained in the ordinary course of the business of the Facility, including, without limitation, all medical supplies, equipment and drugs (all such items, collectively, the "Inventory"). (d) Personal Property, Fixtures and Equipment. All right, title and interest of APS in and to all furniture, fixtures, furnishings, tools, machinery, equipment including, without limitation, all computer hardware, computer software, supplies, billing and office support equipment, telecommunications equipment and records necessary to operate, prepare and collect bills and maintain the Facility, appliances and all other tangible personal property of every kind and description 2 and any interest therein necessary to the operations of the Facility and owned or leased by APS and exclusively used in or related to the operation of the Facility on the Closing Date, whether or not located at the Facility, and whether or not reflected as capital assets on the accounting records of APS (all such items, collectively, the "Personal Property"), including, but not limited to, those items listed on Schedule 1.1(d) hereto. (e) Governmental Licenses and Permits. All right, title and interest of APS in, to and under all agreements, licenses, permits, consents, authorizations, certificates and other rights of every kind and character relating exclusively to the Facility of any regulatory, administrative or other governmental agency or body issued to or held by APS necessary or incidental to the operations of the Facility as of the Closing Date, to the extent the same are transferable (all such items, collectively the "Governmental Licenses and Permits"). A listing of the Facility's license and permit numbers is set forth on Schedule 1.1(e) hereto. (f) Intangible Assets. All right, title and interest of APS in, to and under the technology, data, symbols, copyrights and registrations thereof, trade names, trademarks, trademark registrations, trademark applications, service marks, service mark registrations, service mark applications, telephone numbers, licenses, and other intangible rights and privileges used by APS exclusively in connection with the operation of the Facility on the Closing Date. (g) Names. A license to use the name set forth on Schedule 1.1(g). (h) Goodwill. The goodwill and going concern value of APS's interest in the Facility. (i) Facility Records. Copies of all books and records, computer tapes, disks and data relating exclusively to the Facility and the Contributed Assets, (collectively, the "Facility Records"), as listed on Schedule 1.1(i) hereto. (j) Customer Lists. All right, title and interest of APS in all customer lists relating to the operation of the Facility. (k) Noncompetition Covenant. The Noncompetition Covenant described in Article V of this Agreement. 1.2 Excluded Assets. Notwithstanding any other provision of this Agreement, the Contributed Assets shall include only the assets, rights and interests of APS specifically described in this Agreement and expressly shall not include (and APS does not hereby contribute to LLC) any other assets, rights or interests 3 of APS, including, without limitation: (i) any cash, securities, bank accounts or safe deposit boxes; or (ii) any accounts receivable arising with respect to goods sold or services rendered by APS prior to the Closing Date. 1.3 Nonassumption of Agreements. Except for the obligations under the Purchased Contracts accruing on and after the Closing Date, LLC shall not assume any agreements or obligations, whether express or implied, that exist between APS and any of APS's current or former employees, or any third party, and nothing in this Agreement is intended to be or shall be construed as an assumption by LLC of any rights, obligations or liabilities of any kind under any such agreements. ARTICLE II ASSUMED LIABILITIES 2.1 Assumed Liabilities. Except as specified in Section 2.2 hereof, as of the Closing Date, LLC hereby agrees to assume, satisfy or perform when due all sums owed to trade vendors and service providers for goods and services purchased in the ordinary course of operations of the Facility (the "Accounts Payable") for goods delivered to LLC or services performed for LLC after the Closing Date (the "Assumed Liabilities"). 2.2 Unassumed Liabilities. Other than the Assumed Liabilities, LLC shall not assume, nor shall LLC or any of its affiliates be deemed to have assumed or guaranteed, any other liability or obligation of any nature of APS, or claims of such liability or obligation, whether accrued, matured or unmatured, liquidated or unliquidated, fixed or contingent, known or unknown arising out of (i) acts or occurrences prior to the Closing, (ii) liabilities or obligations relating to the Contributed Assets prior to the Closing, or (iii) any other liability or obligation of APS (all such items (i) through (iii) of this Section 2.2, collectively, the "Unassumed Liabilities"). The Unassumed Liabilities specifically include, without limitation, all Accounts Payable for goods delivered to APS or services performed for APS prior to the Closing Date and also include any liabilities or obligations of APS with respect to APS's employees earned prior to the Closing Date, whether or not any of APS's employees become employees of LLC. ARTICLE III FINANCIAL ARRANGEMENTS AND CLOSING 3.1 Asset Value. The Parties agree that the fair market value of the Contributed Assets is Three Million Dollars ($3,000,000.00). In exchange for APS's contribution of the Contributed Assets to LLC pursuant to the terms and conditions of this Agreement, APS will receive from LLC the consideration described in Sections 3.2 and 3.3 of this Article. 3.2 Capital Account Balance. In exchange for the Contributed Assets contributed by APS to LLC in accordance with this Agreement, in addition to the consideration described in initial capital account credit in LLC equal to One Million Five Hundred Thousand Dollars ($1,500,000.00) and (b) a membership interest in LLC that represents a fifty percent (50%) ownership interest in LLC. 3.3 Payment to APS. In exchange for the Contributed Assets contributed by APS to LLC in accordance with this Agreement, in addition to the consideration described in Section 3.2 above, APS will receive payment from LLC in the amount of One Million Five Hundred Thousand Dollars ($1,500,000.00), to be paid in immediately available funds on the Closing Date described below. 3.4 Allocation. The Three Million Dollar ($3,000,000.00) value of the Contributed Assets agreed upon by the Parties shall be applied and allocated as set forth on Schedule 3.4 hereto. As an inducement for APS and LLC to enter into this Agreement, the Parties agree that the values assigned to the items included in this Agreement and set forth on Schedule 3.4 are fair and equitable and have been bargained for separately. In addition, the Parties agree to cooperate in filing reports relating to such allocation, as and when required by law, including IRS Form 8594. Furthermore, the Parties acknowledge and agree that APS and LLC shall report to federal and state tax authorities any additionally required information relating to the noncompetition covenant described herein or other agreements between APS and LLC. APS and LLC agree to cooperate with each other in the preparation of any such additional reports. 3.5 Closing. The closing of the transactions contemplated under this Agreement (the "Closing") shall take place by mail on or prior to November 30, 1996 (the "Closing Date"). The Closing Date may be extended upon the mutual agreement of the Parties hereto. The transfer of the Contributed Assets by APS to LLC shall be deemed to be effective as of 11:59 p.m., Texas time, on the Closing Date. 3.6 Closing Deliveries. At the Closing, APS shall execute and deliver to LLC all instruments, documents and records set forth in Section 4.1 hereof required by that Section to be delivered by APS as a condition to LLC's obligation to accept the Contributed Assets; and LLC shall execute and deliver to APS all instruments, documents and records set forth in Section 4.2 hereof required by that Section to be delivered by LLC as a condition to APS's obligation to accept the Contributed Assets. For purposes of this Agreement, the term "Transaction Documents" shall refer to this Agreement and to the Assignment 5 of Lease and Consent to Assignment of Lease, the General Conveyance and Assignment of Interests described below and such other instruments of transfer necessary to vest title and possession in and to the Contributed Assets in LLC as of the Closing Date. ARTICLE IV CLOSING CONDITIONS AND DOCUMENTS 4.1 Conditions to Obligations of LLC. LLC's obligation to accept the Contributed Assets shall be expressly conditioned upon satisfaction, or, in the alternative, waiver by LLC of the following conditions: (a) All of the terms, covenants and conditions of this Agreement to be complied with and performed by APS on or before the Closing Date shall have been duly complied with and performed by APS in all material respects. (b) The representations and warranties made by APS herein shall be correct in all material respects as of the Closing Date, with the same force and effect as though such representations and warranties had been made as of the Closing Date. (c) On or before the Closing Date, the Board of Directors of APS shall have voted to authorize the Transaction Documents, and the transactions described therein, and the Secretary or Assistant Secretary of APS shall have delivered to LLC a certified copy of the resolutions of its Board of Directors to such effect; APS shall have executed the Assignment of Lease and obtained the executed Consent to Assignment of Lease, in substantially the forms attached hereto as Exhibits A and B, respectively, on or before the Closing Date. (d) On or before the Closing Date, APS shall have executed an Employee Services Agreement in substantially the form attached as Exhibit D hereto. (e) The Facility shall not have been adversely affected in any material way as the result of any fire, accident or other casualty (whether or not insured) or by any act of God. (f) There shall not have been material adverse change in the operations, financial condition, or regulatory or licensing status of APS since the Execution Date of this Agreement nor shall APS have received any reports, surveys, citations or correspondence from licensing authorities (collectively, "Reports") affecting the Facility for the period prior to the 6 Closing Date, except such Reports as to which LLC has had a reasonable opportunity to review and not disapprove. (g) APS shall have delivered to LLC a certificate to the effect that, as of the Closing Date, the conditions set forth in subsections (a) and (b) of this Section 4.1 have been satisfied. (h) On or before the Closing Date, APS shall have and Acceptance and Assignment of Interests and Assumption of Liabilities in substantially the form attached hereto as Exhibit C and incorporated herein by this reference (the "General Conveyance"), which General Conveyance shall be effective to transfer to LLC the Contributed Assets free and clear of all liens and encumbrances, other than the Permitted Encumbrances set forth on Schedule 6.1. (i) On or before the Closing Date, APS and Summit Care shall have executed and delivered to LLC that certain LLC Agreement by and between APS and Summit Care. Additionally, on or before the Closing Date, Summit Care shall have contributed cash in the amount of One Million Five Hundred Thousand Dollars ($1,500,000.00) to LLC in accordance with the LLC Agreement. (j) APS shall have made available for delivery at the Facility the Purchased Contracts. (k) APS shall have made available for delivery at the Facility the Facility Records. (l) No action, suit, or proceeding before any court or transactions described in this Agreement or to the consummation thereof as provided herein, shall have been instituted or threatened on or before the Closing Date. (m) APS shall have delivered to LLC any additional instruments, signed and properly acknowledged by APS, if appropriate, as may be necessary for APS to comply with this Agreement. (n) To the extent required herein, APS shall have obtained all necessary consents or approvals of all third parties (except parties to nursing home contracts) whose consent or approval is required in order for APS to consummate the transactions contemplated by the Transaction Documents. (o) On or before the Closing Date, APS shall assign or cause to be assigned to LLC all of APS's existing warranties of any contractors and 7 suppliers who have provided either labor, services, equipment and/or materials to the Facility to the extent assignable. 4.2 Conditions to Obligations of APS. APS's obligation to contribute the Contributed Assets shall be expressly conditioned upon satisfaction, or in the alternative, waiver by APS, of the following conditions: (a) All of the terms, covenants and conditions of this Agreement to be complied with and performed by LLC on or before the Closing Date shall have been duly complied with and performed in all material respects. (b) The representations and warranties made by LLC herein shall be correct in all material respects as of the Closing Date, with the same force and effect as though such representations and warranties had been made as of the Closing Date. (c) LLC shall have executed and delivered all documents and agreements which it is obligated hereby to execute. (d) On or before the Closing Date, LLC shall have executed an Employee Services Agreement in substantially the form attached as Exhibit D hereto. (e) The Facility shall not have been adversely affected in any material way as the result of any fire, accident or other casualty (whether or not insured) or by any act of God. (f) LLC shall have delivered to APS a certificate to the effect that, as of the Closing Date, the conditions set forth in subsections (a) and (b) of this Section 4.2 have been satisfied. (g) On or before the Closing Date, LLC shall have executed and delivered to APS the General Conveyance. (h) On or before the Closing Date, APS and Summit Care shall have executed and delivered to LLC that certain LLC Agreement by and between APS and Summit Care. Additionally, on or before the Closing Date, Summit Care shall have contributed cash in the amount of One Million Five Hundred Thousand Dollars ($1,500,000.00) to LLC in accordance with the LLC Agreement. (i) No action, suit, or proceeding before any court or any governmental body or authority pertaining to the transactions described in this Agreement or to the consummation thereof as provided herein, shall have been instituted or threatened on or before the Closing Date. 8 LLC shall have delivered to APS any additional instruments, signed and properly acknowledged by LLC, if appropriate, as may be necessary for LLC to comply with this Agreement. ARTICLE V NONCOMPETITION COVENANT 5.1 Covenant. APS shall not directly or indirectly carry on or engage in the business of providing pharmacy services or otherwise compete with LLC at or in connection with any location in the County of Travis, State of Texas, whether on its own account, or solely or jointly with others as an agent, consultant, stockholder, member, investor, or general or limited partner of any corporation, general partnership, limited partnership, limited liability company or any other entity, or in any other relationship or capacity. Except as set forth below, the provisions of this Article V shall survive for so long as LLC is in existence and no longer. Notwithstanding the preceding sentence, the provisions of this Article V shall terminate and cease to apply (i) immediately upon the withdrawal of either APS or Summit Care as a "Member" of LLC (as "Member" is defined in the LLC Agreement) with the consent of the other, as contemplated by the second sentence of Paragraph 7.4 of the LLC Agreement and (ii) on November 30, 1998 in the event that either APS or Summit Care withdraws from LLC (A) prior to November 30, 1998 and (B) without the consent of the other party; provided, however, that in the event either APS or Summit Care exercises its buy/sell right under Paragraph 7. 10 of the LLC Agreement, the provisions of this Article V shall apply to the selling party only (as though the buying party were LLC) and shall terminate on the date that is the second (2nd) anniversary of the closing of the sale contemplated by Paragraph 7.10 of the LLC Agreement. 5.2 Modification. Although APS and LLC consider the restrictions contained herein to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or geographical territory or any other restriction contained in this Article is an unreasonable or otherwise unenforceable restriction, the above provisions shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such other extent as such court may determine or indicate to be reasonable. 5.3 Remedies. The Parties to this Agreement further acknowledge and agree that LLC's remedy at law for a breach or threatened breach of any of the provisions of the above covenant not to compete would be inadequate and, in recognition of that fact, in the event of a breach or threatened breach by APS of the provisions of this Article, LLC shall be entitled to, without posting any bond, and APS agrees not to oppose any request for, equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy which may be 9 available. Nothing contained herein shall be construed as prohibiting LLC from pursuing any other remedies available to LLC for such breach or threatened breach until any such injunction is granted. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF APS APS hereby makes the following representations and warranties to LLC as of the Execution Date and the Closing Date: 6.1 Title to Contributed Assets. Except as disclosed on Schedule 6.1 (collectively, the "Permitted Encumbrances"), no claims, liens, imperfections of title, security interests or other encumbrances have attached to any of the Contributed Assets, nor has any action or event occurred which will impair APS's ability to deliver valid and marketable title to the Contributed Assets. APS has taken all reasonably necessary action to maintain and protect any trademarks or trade names used in connection with the Facility. Set forth on Schedule 6. 1A hereto are lien search results showing certain UCC Financing Statements listing APS as debtor which APS believes were filed against it in error, but for which APS specifically indemnifies and holds harmless LLC pursuant to the provisions of Section 9.1 hereof. 6.2 Compliance With Licensing Requirements. Except as specified in Schedule 6.2 hereof, the Facility has been operated in substantial compliance with the applicable laws, rules, requirements, and regulations of the State of Texas and of the federal government for licensing and certification of the Facility. Except as set forth on Schedule 6.2 hereof, all requirements or recommendations of all applicable licensing or certification authorities regarding the Facility have been or at the Closing shall have been fully complied with. As of the Closing, all material State licenses, permits and Medicare and Medicaid billing agreements and certification necessary to operate the Facility and to obtain payment shall have been obtained by APS, shall be in full force and effect, and shall not be the subject of any revocation or termination action by the issuing agencies. 6.3 Compliance With Laws. To the knowledge of APS, no action or event has occurred which would cause the Facility to be out of substantial compliance with any applicable federal, state or local laws, rules and regulations, including without limitation, all federal, state or local health, fire and safety, seismic safety, zoning, or labor laws, ordinances, rules or regulations applicable to the Facility, all requirements of the Occupational Safety and Health Act and its Texas equivalent and regulations promulgated under such legislation and all orders, judgments and decrees of any tribunal under such legislation that apply to the Facility, the consequences of violation of which could have a material adverse effect on the operations of the Facility. 10 6.4 Condition of Personal Property. AU Personal Property has been maintained and repaired by APS in the ordinary course of APS's business operations. 6.5 Books and Records. APS's Financial Statements and other financial books and records for the Facility have been maintained in accordance with APS's usual and customary accounting practices applied on a consistent basis and are true and correct in all material aspects. 6.6 Leases and Other Material Agreements. Except as disclosed on Schedule 6.6 hereto, APS has not entered into any leases, subleases, management agreements or management contracts affecting the Facility, other than the Lease. To the knowledge of APS, nothing has occurred which would cause any of the Purchased Contracts listed on Schedule 1.1(b) not to be legal, valid, binding, enforceable and in full force and effect. APS has not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the Lease other than to LLC. 6.7 Taxes. All federal, state and local taxes (other than real and personal property taxes and any transfer taxes arising out of the transfer contemplated herein), fees and assessments of whatever nature upon the Contributed Assets being sold to LLC hereunder which are due and payable by reason of the transactions contemplated by this Agreement have been or shall be paid by APS. 6.8 Governmental Investigations and Proceedings. Except as disclosed on Schedule 6.8 hereto, there is no current or pending litigation, proceeding, vendor hold or similar lien on state or federal payments to APS, or arbitration or governmental investigation with respect to APS and relating to the Facility, which, if decided adversely to APS, could have a material and adverse impact on the operations of the Facility. 6.9 No Conflict or Violation. The execution, delivery and performance of the Transaction Documents by APS will not result in any breach or violation or constitute a default under any material agreement or other instrument to which APS is a party or result in the termination of, or accelerate the performance required by, or cause the acceleration of the maturity of any such material agreement or other instrument. 6.10 Material Misstatements. No representation or warranty by APS contained in this Agreement and no records, writing, certificate, list or other instrument furnished or to be furnished to LLC pursuant hereto or in connection with the transactions contemplated hereby contains or will contain any untrue statement of a material fact. 11 6.11 No Condemnation. No condemnation action has been taken or to APS's knowledge has been threatened with respect to the Facility or any part thereof. 6.12 No Assessments. The Facility has not been the subject of any assessments for work or improvements either completed or to be completed, and APS has no knowledge or belief that there is any pending or contemplated assessment or other specified tax or assessment relating to the Facility. 6.13 Financial Statements. Schedule 6.13 attached hereto sets forth the profit and loss statements of APS for APS's two (2) most recent fiscal years for the Facility (the "Financial Statements"). The Financial Statements have been prepared in accordance with APS's usual and customary accounting practices consistently followed by APS throughout the periods indicated, and fairly present the financial position and results of operations of APS for the respective periods indicated. In addition, on or before the Closing, APS shall promptly provide LLC with all such additional monthly profit and loss statements for the Facility through September 1996 as are prepared by APS in APS's normal course of business in accordance with APS' usual and customary accounting practices consistently followed by APS throughout the periods indicated. 6.14 Hazardous Material. APS has not placed any underground storage tanks on the real property upon which the Facility is located in which any Hazardous Material (as defined below) has been or is being stored, nor has APS spilled, disposed of, discharged, or released any Hazardous Material into, upon, from, or over such real property or into or upon ground or surface water on such real property. APS has not incorporated any asbestos- containing materials into the buildings or interior improvements that are part of such real property, nor has it located any electrical transformer, fluorescent light fixture with ballasts, or other equipment containing PCBs on such real property. As used in this paragraph, "Hazardous Material" means any hazardous or toxic substance, material, or waste that is regulated by any federal authority or by any state or local governmental authority where the substance, materials, or waste is located. Except as set forth on Schedule 6.14 hereto, APS has operated the Facility in material compliance with all federal, state and local environmental protection laws and regulations and has not received any notice of nor has been cited for any violation of any such law or regulation and is aware of no such pending or threatened citation. There is no pending audit with respect to the Facility known to APS by any federal, state, or local governmental authority with respect to groundwater, soil, or air monitoring; the storage, burial, release, transportation, or disposal of Hazardous Materials; or the use of underground storage tanks by APS, related to the Facility. APS has no agreement with any third party or federal, state, or local governmental authority relating to any such environmental matter or any environmental cleanup. 12 6.15 Insurance. APS has maintained and now maintains (1) insurance on all of the assets of the Facility of a type customarily insured, covering property damage and loss of income by fire and other casualty, and (2) adequate insurance protection against all liabilities, claims, and risks against which it is customary to insure. APS is not in default with respect to payment of premiums on any such policy. No claim is pending under any such policy which if decided adversely to APS would materially and adversely effect the business, condition, operations (financially or otherwise), or results of operations of the Facility. 6.16 Zoning. APS has not commenced, nor received notice of the commencement of, any proceeding that would affect the present zoning or other land use classification of the property where the Facility is located. 6.17 Litigation. Except as set forth on Schedule 6.17 attached hereto, APS (a) is not subject to any outstanding injunction, judgment, order, decree, ruling or charge or (b) is not a party nor to APS's knowledge is threatened to be made a party to any action, suit, proceeding, hearing, audit or investigation relating to the Facility or the Purchased Assets of, in or before any court or quasijudicial or administrative agency of any federal, state, local or foreign jurisdiction or before any arbitrator that is reasonably likely to result in a material adverse change with respect to the business, condition, operations (financial or otherwise) or results of operation of the Facility or the Contributed Assets. 6.18 Authorization. APS has full power and authority to execute and deliver the Transaction Documents and to perform its obligations thereunder. The Transaction Documents constitute the valid and legally binding obligation of APS, enforceable against APS in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, or similar laws relating to creditors' rights and to principles of equity generally. 6.19 Corporate Existence and Qualification. APS is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, and has all necessary corporate powers to own its properties and to carry on its business as now owned and operated by it. 6.20 Access to Records. APS shall have provided LLC, its agents, counsel, and accountants, through APS's counsel, reasonable access to all records maintained by APS at the Facility applicable to the Contributed Assets and the Facility and necessary to enable LLC to consummate the transactions described herein. 13 ARTICLE VII REPRESENTATIONS AND WARRANTIES OF LLC LLC hereby represents and warrants to APS as follows: 7.1 No Conflict or Violation. To the actual knowledge of LLC, there is no impediment or reason, including threatened or pending litigation, which would preclude LLC from executing and delivering the Transaction Documents, from performing its obligations thereunder or from consummating the transactions contemplated hereunder. 7.2 Litigation. LLC (a) is not subject to any outstanding injunction, judgment, order, decree, ruling or charge or (b) is not a party nor to LLC's knowledge is threatened to be made a party to any action, suit, proceeding, hearing, audit or investigation in or before any court or quasi-judicial or administrative agency of any federal, state, local or foreign jurisdiction or before any arbitrator that is reasonably likely to result in a material adverse change with respect to the business, condition, operations (financial or otherwise) or results of operation of the Facility or the Contributed Assets. 7.3 Authorization. LLC has all necessary power and authority and has taken all action necessary to enter into this Agreement and to consummate the transactions contemplated hereby and to perform its obligations hereunder. The Transaction Documents have been duly executed and delivered by LLC and are the legal, valid and binding obligations of LLC enforceable against LLC in accordance with their terms, except as may be limited by bankruptcy, insolvency, or similar laws relating to creditors' rights and to principles of equity generally. 7.4 Corporate Existence and Qualification. LLC is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware, and has all necessary corporate power to own its properties and to carry on its business as now owned and operated by it. ARTICLE VIII POSTCLOSING AGREEMENTS 8.1 Books and Records and Financial Information. Following the Closing Date, APS agrees to provide, promptly upon reasonable request by LLC, access to any books, records, computer tapes, disks and data related to the Contributed Assets and the Facility, which were not purchased by LLC as Facility Records, and such financial information of APS related to the Contributed Assets and the Facility with respect to any period prior to the Closing Date as LLC or its auditors shall request in connection with any filings or reports LLC and its 14 affiliates are required to file, or any tax inquiry or audit, as a result of the transactions contemplated hereby. 8.2 Sales and Use Taxes. All sales and use taxes arising out of the transfer of the Contributed Assets imposed by any local, state or federal agency shall be paid by the party required to collect them under the statute imposing such taxes. ARTICLE IX INDEMNIFICATION 9.1 Indemnification by APS. (a) APS shall indemnify and hold LLC (including, for purposes of this Article IX, any members, officers, affiliates, agents and employees of LLC, and its or their successors and assigns) harmless against any claims, demands, damages, losses, expenses and liabilities, including without limitation, reasonable attorneys' fees (collectively, the "Liabilities") suffered by LLC, arising out of or resulting from (i) any breach by APS (including, for purposes of this Article IX, any officers, directors, affiliates, agents and employees of APS, and its or their successors and assigns) of this Agreement, (ii) any inaccuracy or misrepresentation in or breach of any of the representations, warranties, covenants or agreements made by APS herein, (iii) any inaccuracy or misrepresentation in any certificate or document delivered by APS in accordance with the provisions of this Agreement, (iv) any Unassumed Liabilities, or (v) any citation violations issued by the State of Texas which relate to surveys of the Facility, if any, conducted prior to the Closing. APS shall indemnify and hold LLC harmless from and against any and all liabilities arising out of the acts or omissions of APS in connection with the operation of the Facility prior to the Closing. For purposes of this Section 9.1(a), the indemnification by APS provided herein shall be in force and effect for a period of two (2) years from the Closing Date, or until the expiration of the statute of limitations applicable to the specific matter indemnified against, whichever is greater. The obligation of APS to indemnify LLC shall be limited to the amount of One Million Five Hundred Thousand Dollars ($1,500,000.00). (b) Upon obtaining knowledge thereof, LLC shall promptly notify APS of any claim or demand which such party has determined has given or could give rise to a right of indemnification under this Agreement. If such claim or demand relates to a claim or demand asserted by a third party against such party and if APS acknowledges APS's obligations to indemnify and hold harmless hereunder, APS shall have the right to employ such counsel as is reasonably acceptable to LLC to defend any such claim or demand asserted against such party. LLC shall have the right at its own expense to participate in the defense of any such claim or demand. So long as APS is defending in good faith any such claim or demand, LLC shall not settle such claim or demand, without the consent of APS, which shall not be unreasonably withheld. LLC shall make available to APS all records and other materials required by APS for its use in contesting any claim or demand asserted by a third party against LLC. Whether or not APS so elects to defend any such claim or demand, LLC shall not have any obligation to do so and LLC shall not waive any right that LLC may have against APS hereunder with respect to any such claim or demand by electing or failing to elect to defend any such claim or demand. 9.2 Indemnification by LLC. (a) LLC shall indemnify and hold APS harmless from and against any and all Liabilities arising out of or resulting from (i) any breach by LLC of this Agreement; (ii) the acts or omissions of LLC after the Closing; (iii) the failure by LLC to pay or otherwise discharge any Assumed Liabilities or any obligation incurred or accrued subsequent to the Closing relating to the Facility or the Purchased Assets; (iv) any inaccuracy or misrepresentation in or breach of any of the representations, warranties, covenants or agreements made by LLC herein; or (v) any inaccuracy or misrepresentation in any certificate or document delivered by LLC in accordance with the provisions of this Agreement. For purposes of this Section 9.2(a), the indemnification by LLC provided herein shall be in force and effect for a period of two (2) years from the Closing Date, or until expiration of the statute of limitations applicable to the specific matter indemnified against, whichever is greater. The obligation of LLC to indemnify APS shall be limited to the amount of One Million Five Hundred Thousand Dollars ($1,500,000.00). (b) Upon obtaining knowledge thereof, APS shall promptly notify LLC of any claim or demand which such party has determined has given or could give rise to a right of indemnification under this Agreement. If such claim or demand relates to a claim or demand asserted by a third party against such party and if LLC acknowledges LLC's obligations to indemnify and hold harmless hereunder, LLC shall have the right to employ such counsel as is reasonably acceptable to APS to defend any such claim or demand asserted against such party. APS shall have the right at its own expense to participate in the defense of any such claim or demand. So long as LLC is defending in good faith any such claim or demand, APS shall not settle such claim or demand, without the consent of LLC, which shall not be unreasonably withheld. APS shall make available to LLC all records and other materials required by 16 LLC for its use in contesting any claim or demand asserted by a third party against APS. Whether or not LLC so elects to defend any such claim or demand, APS shall not have any obligation to do so and APS shall not waive any right that APS may have against LLC hereunder with respect to any such claim or demand by electing or failing to elect to defend any such claim or demand. ARTICLE X MISCELLANEOUS 10.1 Notices. All notices required or permitted to be given hereunder shall be personally delivered or sent by registered or certified mail, return receipt requested, or sent by overnight courier, or sent by both facsimile and mail, addressed to the Parties as follows: If to LLC: APS - Summit Care Pharmacy, L.L.C. 2324 Ridgepoint Drive, Suite G-1 Austin, Texas 78754 Attention: President With a copy to: Hooper, Lundy & Bookman, Inc. 1875 Century Park East, Suite 1600 Los Angeles, CA 90067-2799 Telephone: (310) 551-8111 Telecopier: (310) 551-8181 If to APS: American Pharmaceutical Services, Inc. 1771 W. Diehl Road, Suite 210 Naperville, Illinois 60563 Attn: William Korslin, President Telephone: (630) 305-8000 Telecopier: (630) 305-8190 With a copy to: American Pharmaceutical Services, Inc. 1771 W. Diehl Road, Suite 210 Naperville, Illinois 60563 Attn: Chris Mollet, Vice President and General Counsel Telephone: (630) 305-8000 Telecopier: (630) 305-8190 17 With a copy to: Latham & Watkins 233 So. Wacker Drive, Suite 5800 Chicago, Illinois 60606 Telephone: (312) 876-7700 Telecopier:(312) 993-9767 If mailed, notices shall be deemed received as of the date of receipt indicated by the postal service, or, if the addressee refuses to accept delivery, as of the date of such refusal of attempted delivery. If personally delivered, notices shall be deemed received as of the date of delivery. Either Party may change its address for purposes of this Agreement by giving notice thereof in accordance with this Section 10.1. 10.2 Referrals. Neither Party shall have any obligation to make referrals to the other Party. The potential for referrals between the Parties has played no role in determining the consideration described in Sections 3.2 and 3.3 of this Agreement or in the decision to enter into this Agreement. 10.3 Counterparts. This Agreement may be executed simultaneously or in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement. 10.4 Construction. APS and LLC acknowledge that each Party and its counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. 10.5 Gender and Number. The masculine, feminine and neuter gender and the singular or plural number shall each be deemed to include the other whether the context so indicates. 10.6 Waiver. Waiver by a Party of the performance of any covenant, condition or promise of any Party shall not invalidate this Agreement, nor shall it be considered to be a waiver by such Party of any other covenant, condition or promise contained herein. The waiver of either or both Parties of the time for performing any act shall not be construed as a waiver of any other act required to be performed at a later date. 10.7 Further Assurances. APS and LLC agree to execute such further documents and instruments as shall be necessary to fully carry out the terms of this Agreement or to vest, perfect or confirm in LLC the title to the Contributed Assets as of the Closing Date. 10.8 Confidentiality. The Parties agree to keep all information contained in this Agreement confidential. Additionally, the Parties agree to keep confidential all nonpublic information provided by one Party to the other Party including, 18 but not limited to, information of both a technical and financial nature relating to the business operations of the Parties and subsidiary or other affiliated entities. Provided, however, that the information to be kept confidential shall not include (i) information which has come within the public domain through no fault or action of either Party; (ii) information which rightfully becomes available to a Party on a nonconfidential basis prior to its disclosure in relation to this Agreement and the transactions contemplated hereunder; or (iii) information which rightfully becomes available to a Party on a nonconfidential basis from any third party, the disclosure of which to that Party did not violate any contractual or legal obligation the third party has to the other Party, its members, subsidiaries or other affiliated entities with respect to such information. For purposes of this Section only, the term "Party" shall include Summit Care. Notwithstanding the above, nothing in this Section shall prohibit a Party from providing information when legally required to do so by a law enforcement, licensing, or other governmental agency or entity. 10.9 Time of Essence. Time is of the essence of each and every provision of this Agreement. 10.10 Survival. The representations and warranties in this Agreement shall survive the Closing for a period of two (2) years. 10.11 Supersedes Agreement. This Agreement and the Schedules and Exhibits attached hereto express the complete agreement of the Parties and supersede all prior written or oral agreements between APS and LLC regarding the Facility and the Contributed Assets, except that the Agreement shall be entered into and construed in compliance with the LLC Agreement. 10.12 Commissions. No fees or commissions are due or payable to any brokers, finders or other agents of the Parties hereto. 10.13 Attorneys' Fees and Costs. In the event either Party commences legal action or arbitration to interpret or enforce this Agreement, or for damages for any alleged breach hereof, the prevailing party in such action shall be entitled to recover from the nonprevailing party reasonable attorney's fees and costs as awarded by the court. 10.14 Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach hereof, shall be settled by arbitration in accordance with the Rules of the American Arbitration Association, at its Austin, Texas office, or at its office nearest to Austin. Notwithstanding the foregoing, LLC and APS shall endeavor to agree on an arbitrator within ten (10) business days (the "Arbitrator Selection Period") after the initiation of the arbitration proceeding (the "Proceeding"), the cost and expenses of which shall be shared fifty percent (50%) by APS and fifty percent (50%) by the other members of LLC, collectively. If APS and LLC are unable to agree on an arbitrator, then 19 within ten (10) business days after the expiration of the Arbitrator Selection Period, each of APS and LLC shall select an arbitrator (together, the "Chosen Arbitrators"), the costs and expenses of each of which shall be paid solely by the Party that selected such Chosen Arbitrator. Within 5 business days after the Chosen Arbitrators have been selected, they shall together choose a third arbitrator (together with the Chosen Arbitrators, the "Panel"), the costs and expenses of which shall be shared fifty percent (50%) by APS and fifty percent (50%) by the other members of LLC, collectively. Each Party shall submit its case in writing, setting forth the facts and its arguments with respect to the matter or matters that are the subject of the Proceeding, to the Arbitrator or the Panel, as the case may be, within thirty (30) days after the initiation of the Proceeding. Hearings in the Proceeding shall commence within thirty (30) days after the last such submission. The Arbitrator or the Panel, as the case may be, shall deliver its opinion within thirty (30) days after the completion of the arbitration hearings. Judgment upon the award rendered by the Arbitrator or the Panel, as the case may be, may be entered in any court having jurisdiction thereof. 10.15 Interpretation. This agreement shall be governed by and construed in accordance with the laws of the State of Texas. 10.16 Severability. If any provision of this Agreement or any application thereof to any person or circumstances shall to any extent be invalid, the remainder of this Agreement (including the application of such provision to persons or circumstances other than those to which it is held invalid) shall not be affected thereby, and each provision of this Agreement shall be valid and enforced to the fullest extent permitted by law. 10.17 Binding. This Agreement shall be binding upon, and inure to the benefit of the Parties hereto and their respective heirs, executors, administrators, successors in interest and permitted assigns. 10.18 Facsimile Copies. Signed, faxed documents shall constitute originals. 10.19 Force Majeure. In the event that either Party is unable to consummate the transactions contemplated herein by the Closing Date or within any extension of the Closing Date granted hereunder due to (i) losses to the Facility by reason of strike, fire, flood, earthquake, accident or other calamity of such character as to interfere materially with the conduct of the business and operations of the Facility regardless of whether or not such loss shall have been insured, (ii) the outbreak or escalation of hostilities between the United States and any foreign power or of any other insurrection or armed conflict involving the United States or the declaration by the United States of a national emergency which makes it impracticable or inadvisable to consummate the transactions contemplated hereby, then either Party may extend the Closing Date until such condition no longer makes it impracticable 20 or inadvisable to consummate the transactions contemplated hereby but in any event, the Closing Date shall not be extended pursuant to this section for a period longer than 30 days. 10.20 No Obligations To Third Parties. The execution and delivery of this Agreement shall not be deemed to confer any rights or benefits upon any person or entity other than as specified herein. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the Execution Date first written above. APS: AMERICAN PHARMACEUTICAL SERVICES, INC., a Delaware corporation By: [SIG] ------------------------------------- Its: President ------------------------------------ LLC: APS-SUMMIT CARE PHARMACY, L.L.C., a Delaware limited liability company By: American Pharmaceutical Services, Inc., a Delaware corporation, its member By: [SIG] --------------------------------- Its: President -------------------------------- By: Summit Care Pharmacy, Inc., a California corporation, its member By: --------------------------------- Its: -------------------------------- Acknowledged and Agreed this ___ day of _____________, 1996, for the purposes of Sections 5.1 and 10.8 hereof only. SUMMIT CARE PHARMACY, INC., a California corporation By: -------------------------- Its: ------------------------- 21 or inadvisable to consummate the transactions contemplated hereby but in any event, the Closing Date shall not be extended pursuant to this section for a period longer than 30 days. 10.20 No Obligations To Third Parties. The execution and delivery of this Agreement shall not be deemed to confer any rights or benefits upon any person or entity other than as specified herein. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the Execution Date first written above. APS: AMERICAN PHARMACEUTICAL SERVICES, INC., a Delaware corporation By: ------------------------------------- Its: ------------------------------------ LLC: APS-SUMMIT CARE PHARMACY, L.L.C., a Delaware limited liability company By: American Pharmaceutical Services, Inc., a Delaware corporation, its member By: --------------------------------- Its: -------------------------------- By: Summit Care Pharmacy, Inc., a California corporation, its member By: DERWIN L. WILLIAMS --------------------------------- Its: Sr. Vice President, Finance -------------------------------- Acknowledged and Agreed this 30th day of November 1996, for the purposes of Sections 5.1 and 10.8 hereof only. SUMMIT CARE PHARMACY, INC., a California corporation By: DERWIN L. WILLIAMS ---------------------------- Its: Sr. Vice President, Finance --------------------------- 21 EXHIBIT A ASSIGNMENT OF LEASE [SEE ATTACHED] ASSIGNMENT AND ASSUMPTION OF LEASE This ASSIGNMENT AND ASSUMPTION OF LEASE (the "Assignment") is made as of November 30,1996 by AMERICAN PHARMACEUTICAL SERVICES, INC., a Delaware corporation ("Assignor"), APS-SKILLED CARE PHARMACY, L.L.C., a Delaware limited liability company ("Assignee"), and PROMONTORY INVESTORS, LTD., a Texas limited partnership ("Landlord"), as successor in interest to Pension Realty Income Trust A. RECITALS A. Lease. Pursuant to that certain Lease, dated as of April 11, 1994 (the "Lease"), by and between Landlord, as lessor, and Assignor, as successor in interest to Abbey Pharmaceutical Services, Inc., as lessee, Landlord leased to Assignor certain real property located at 2324 Ridgepoint Drive, Suite G-1, Austin, Texas, 78754 (the "Property"). The entire right, title and interest of Assignor under the Lease is referred to herein as the "Leasehold Estate." B. Purpose. Pursuant to (i) that certain Limited Liability Company Agreement of APS-Summit Care Pharmacy, L.L.C., dated as of the date hereof, by and between Assignor and Summit Care Pharmacy, Inc. a California corporation ("SCPI"), and (ii) that certain Asset Contribution Agreement, dated as of the date hereof, by and between Assignor and Assignee, Assignor and SCPI have formed Assignee and provided for the contribution of all of the assets of Assignor's pharmacy business that is conducted at the Property to Assignee, and Assignee wishes to assume the obligations of the Lease and have all of Assignor's rights under the Lease assigned to Assignee. AGREEMENT NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Assignor, Assignee and Landlord mutually agree as follows: 1. Assignment. Assignor hereby sets over, transfers and assigns unto Assignee, effective as of the date hereof, all of Assignor's right, title and interest in and to the Leasehold Estate, for the balance of the term thereof, with the full benefit of all the powers and of all the covenants and provisions contained therein. This assignment includes an assignment of all right, title and interest of Assignor in and to the improvements at the Property. The execution of this Assignment shall not release Assignor from Assignor's obligations as lessee under the Lease. 2. Assumption. In consideration of the foregoing assignment, Assignee hereby accepts the foregoing assignment and agrees to make all of the payments and to otherwise observe, keep and perform all the terms, covenants and conditions to be made, observed, kept and performed by Assignor, as lessee under the Lease, as fully as though Assignee were originally named in the Lease as the lessee. 3. Consent. Landlord hereby consents to the terms of this Assignment and acknowledges that Assignee shall forthwith be the lessee under the Lease. 4. Assignor's Warranties. Assignor hereby represents and warrants to Assignee that: (a) At the time of this Assignment, Assignor is the lawful owner of that interest in and to the Leasehold Estate assigned hereby and Assignor has the right, power and authority to assign the same to Assignee. (b) Assignor has not previously assigned, transferred or conveyed any of its right, title or interest in or to the Leasehold Estate. (c) The Lease is free and clear of any and all liens, charges, encumbrances and claims whatsoever. 5. Landlord's Warranties. Landlord hereby represents and warrants to Assignee that: (a) The term of the Lease began June 1, 1994 and will expire May 31, 1999. (b) The current minimum rent in the amount of $5,156.02 per month and all other sums due thereunder, have been paid in accordance with the terms of the Lease through the date hereof, and Landlord holds no security deposit with respect to the Lease. (c) To the best of Landlord's knowledge, as of the date hereof, Landlord is entitled to no penalties, interest or offset under the Lease. (d) As of the date hereof, the Lease is in full force and effect and, to the best of Landlord's knowledge, no default exists thereunder. (e) Landlord has not assigned, hypothecated, pledged or otherwise transferred all or any portion of its interest under the Lease except to Equitable of Iowa or its affiliate under a first mortgage loan. (f) The copy of the Lease attached hereto as Exhibit A is a true and correct copy of the Lease. The Lease has not been modified or amended except as indicated on Exhibit A. The Lease constitutes the only agreement relating to the lease of the Leasehold Estate from Landlord to Assignor. 6. Tenant's Sign. Assignee agrees that it will remove its sign from the exterior facade of the Property within thirty (30) days after the date hereof. If Assignee replaces such sign, the new sign will comply with Landlord's sign specifications, a copy of which has been delivered to Assignee prior to the execution of this document. 2 7. Miscellaneous. Each party agrees that it will execute and deliver such additional documents as are necessary or reasonable to give effect to this Assignment or any provisions hereof If any party refers this Assignment to an attorney to assist in its enforcement, the prevailing party in any action on the dispute shall be entitled to an award of its costs and attorneys' fees incurred in connection therewith. This Assignment shall be governed by the law of the State of Texas. This Assignment shall be binding upon, and shall inure to the benefit of, the heirs, successors, assigns and personal representatives of the parties. This Assignment may be executed in one or more counterparts, each of which is an original and all of which constitute one agreement. [SIGNATURE PAGE FOLLOWS] 3 IN WITNESS WHEREOF, the parties hereto have executed this Assignment as of the date first above written. "Assignor" AMERICAN PHARMACEUTICAL SERVICES, INC., a Delaware corporation By:__________________________________ Name:________________________________ Title:_______________________________ "Assignee" APS-SKILLED CARE PHARMACY, L.L.C., a Delaware limited liability company By: American Pharmaceutical Services, Inc., a Delaware corporation, Member By:_____________________________ Name:___________________________ Title:__________________________ By: Summit Care Pharmacy, Inc., a California corporation, Member By:_____________________________ Name:___________________________ Title:__________________________ "Landlord" PROMONTORY INVESTORS, LTD., a Texas limited partnership By: Cameron Road Investors, Ltd., a Texas limited liability company By:_____________________________ Name: Mark S. Scher Title: Director S-1 EXHIBIT A THE LEASE Attached. A-1 EXHIBIT B CONSENT TO ASSIGNMENT OF LEASE [SEE EXHIBIT A] EXHIBIT C GENERAL CONVEYANCE AND ACCEPTANCE AND ASSIGNMENT OF INTERESTS AND ASSUMPTION OF LIABILITIES [SEE ATTACHED] GENERAL CONVEYANCE AND ACCEPTANCE AND ASSIGNMENT OF INTERESTS AND ASSUMPTION OF LIABILITIES This General Conveyance and Acceptance and Assignment of Interests and Assumption of Liabilities (the "General Conveyance") is hereby entered into and delivered by and between American Pharmaceutical Services, Inc., a Delaware corporation ("APS"), and APS-Summit Care Pharmacy, L.L.C., a Delaware limited liability company ("LLC"), effective as of November 30, 1996, in connection with that certain Asset Contribution Agreement of even date herewith (the "Asset Contribution Agreement"). The terms of the Asset Contribution Agreement are hereby incorporated herein by this reference. For valuable consideration, the receipt and adequacy of which are hereby acknowledged, APS hereby contributes, transfers and assigns to LLC, in accordance with the terms of the Asset Contribution Agreement, all of APS's rights, title and interest in and to the Contributed Assets (as defined in Article I of the Asset Contribution Agreement). In accordance with the terms of the Asset Contribution Agreement, LLC hereby accepts the Contributed Assets and assumes the Assumed Liabilities (as defined in Article II of the Asset Contribution Agreement). APS hereby covenants and agrees to take all steps reasonably necessary to establish the record of LLC's title to the Contributed Assets contributed, transferred and assigned in accordance with this General Conveyance. This General Conveyance is executed in, and shall be governed by, the laws of the State of Texas. IN WITNESS WHEREOF, the parties have executed this General Conveyance effective as of the date first written above. AMERICAN PHARMACEUTICAL APS-SUMMIT CARE PHARMACY, L.L.C., SERVICES, INC., a a Delaware limited liability company Delaware corporation By: American Pharmaceutical Services, Inc. a Delaware corporation, its member By:_____________________________ By:_________________________________ Its:____________________________ Its:________________________________ By: Summit Care Pharmacy, Inc., a California corporation, its member By:_________________________________ Its:________________________________ EXHIBIT D EMPLOYEE SERVICES AGREEMENT [SEE ATTACHED] EMPLOYEE SERVICES AGREEMENT This Employee Services Agreement (the "Agreement") is made as of this 30th day of November, 1996 by and between APS-Summit Care Pharmacy, L.L.C., a Delaware limited liability company ("Joint Venture"), and American Pharmaceutical Services, Inc., a Delaware corporation ("APS"). RECITALS A. Joint Venture was formed pursuant to that certain Limited Liability Agreement, dated as of the date hereof (the "LLC Agreement"), by and between APS and Summit Care Pharmacy, Inc., a California corporation. B. Joint Venture owns and operates a pharmacy located at 2324 Ridgepoint Drive, Suite G-1, Austin, Texas (the "Pharmacy") providing pharmaceutical supplies and services to long-term care facilities that are located in the Austin, Texas area (the "Business"). C. Joint Venture desires that APS provide, and APS desires to provide, employee services to operate the Business in the ordinary course of business according to the terms and provisions of this Agreement. AGREEMENT 1. Provision of Employee Services. APS shall make commercially reasonable efforts to provide to Joint Venture, at the request of Joint Venture, the services of APS employees that are reasonably necessary to operate the Business in a manner consistent with its past operation and with its reasonable business needs (the "Employee Services"). The employees providing the Employee Services (the "Leased Employees") shall work on-site at the Pharmacy during its regular business hours and shall also be available during non-business hours, consistent with APS personnel policies, with the past operation of the Business and with its reasonable business needs. The Leased Employees shall hold all such licenses or other professional qualifications as are reasonably necessary for the operation of the Business in the ordinary course of business. 2. Compensation for Employee Services. APS shall be solely responsible for paying the costs of providing the Employee Services (the "Employee Costs"), including, without limitation, (i) the salaries or wages, as applicable, of the Leased Employees, including, without limitation, vacation pay, sick pay, payroll taxes and severance costs, (ii) the cost of employee benefits programs for the Leased Employees, to the extent such benefits are customarily provided to APS employees, including, without limitation, health insurance, life insurance, disability insurance, worker's compensation insurance, malpractice insurance, other customary insurance, retirement programs and profit sharing plans, and (iii) a reasonable allocation for the overhead costs of APS in employing the Leased Employees. Joint Venture shall reimburse to APS the amount of all Employee Costs during the term of this Agreement. As soon as practicable after the end of each calendar month, APS shall deliver to Joint Venture a statement setting forth the Employee Costs that are attributable to such month. Joint Venture shall pay the Employee Costs reflected on such statement on or before the fifth (5th) day after receipt of such statement. 1 3. Employee Management. Subject to the provisions of Section I hereof and except as otherwise required by applicable law, Joint Venture shall supervise and manage the day-to-day duties of the Leased Employees and be liable for their actions in such capacity. Joint Venture hereby agrees to comply with all applicable laws and regulations and to follow APS personnel policies with respect to the Leased Employees. APS, in its sole discretion, shall make all hiring and termination decisions, establish and pay all wages, salaries and compensation, determine staffing levels, individual work hours, personnel policies and employee benefit programs for all of the Leased Employees, all consistent with APS's personnel policies. APS shall consult with Joint Venture on such matters, but all final decisions shall be those of APS, in its sole discretion. 4. Ownership of Employee Records. All records and information relating to the Leased Employees shall remain the property of APS. 5. Term. This Agreement shall commence on the date hereof and shall terminate on the date that APS ceases to hold at least fifty percent (50%) of the membership interests in Joint Venture. 6. Indemnity by Joint Venture. Joint Venture hereby indemnifies, saves and holds harmless APS, its affiliates and subsidiaries, and its and its affiliates' and subsidiaries' respective officers, directors, principals, attorneys, agents or other representatives (collectively, "APS Indemnified Parties") from and against all costs, losses, liabilities, damages, lawsuits, deficiencies, claims and expenses (whether or not arising out of third party claims), including, without limitation, interest, penalties, reasonable attorneys' fees and all amounts paid in investigation, defense or settlement of any of the foregoing incurred in connection with or arising out of the actions of the Leased Employees while leased to Joint Venture pursuant hereto or the Leased Employees' employment on-site at the Clinic, including, without limitation, claims for discrimination, harassment and workplace injury. Nothing contained herein is intended to relieve any APS Indemnified Party of its respective obligations arising as a result of APS's status as a member in Joint Venture. 7. Indemnity by APS. APS hereby indemnifies, saves and holds harmless Joint Venture, its affiliates and subsidiaries, and its and its affiliates' and subsidiaries' respective officers, directors, principals, attorneys, agents or other representatives (collectively, "Joint Venture Indemnified Parties") from and against all costs, losses, liabilities, damages, lawsuits, deficiencies, claims and expenses (whether or not arising out of third party claims), including, without limitation, interest, penalties, reasonable attorneys' fees and all amounts paid in investigation, defense or settlement of any of the foregoing incurred in connection with or arising out of the failure by APS to timely pay any Employee Costs as contemplated by the first sentence of Section 2 hereof or any decisions by APS to fire or otherwise discipline Leased Employees to the extent that a Majority in Interest (as defined in the "LLC Agreement") did not agree with such decision to fire or discipline. 8. No Liability. In no event shall APS, or its successors and assigns, representatives, agents, advisors, partners, consultants, affiliates, contractors, counsel, shareholders, directors, officers and employees, be liable to Joint Venture under or in connection 2 with this Agreement under any theory of tort, contract, strict liability or other legal or equitable theory for any damages, direct or indirect, consequential or otherwise except for such damages that result from the recklessness or willful misconduct of APS and except for the intentional repudiation by APS of its obligations hereunder when such intentional repudiation is not reasonable under the existing circumstances. Nothing contained herein is intended to relieve any APS Indemnified Party of its respective obligations arising as a result of APS's status as a member in Joint Venture. 9. Assignment and No Third Party Beneficiaries. Neither this Agreement nor any of the rights or obligations hereunder may be assigned by any party without the prior written consent of the other party. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, and no other person shall have any right, benefit or obligation under this Agreement as a third party beneficiary or otherwise. 10. Choice of Law. This Agreement shall be construed, interpreted and the rights of the parties determined in accordance with the laws of the State of Texas (without reference to the choice of law provisions of Texas law). 11. Entire Agreement; Amendments and Waivers. This Agreement together with all exhibits to be attached hereto constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes or will supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties. To the extent that the provisions of the exhibits to be attached hereto conflict with the provisions of this Agreement, the provisions of this Agreement shall control. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. No amendment, supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 12. Notices. All notices, requests, and other communications which may be given under this Agreement (other than orders hereunder, which shall be placed as provided herein) shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted if transmitted by telecopy; the day after being sent, if sent for next day delivery by recognized overnight delivery service (e.g., FedEx); and upon receipt, if sent by certified or registered mail, return receipt requested. In each case notice shall be given as follows: If to Joint Venture, addressed to: APS-Summit Care Pharmacy, L.L.C. 2324 Ridgepoint Drive, Suite G-1 Austin, TX 78754 Telecopy Number:__________________ 3 Attention: Terry Davis with a copy to the same address: Attention: Jesse Martinez If to APS, addressed to: American Pharmaceutical Services, Inc. Diehl Road, Suite 210 Naperville, IL 60563 Telecopy Number: (708) 305-0824 Attention: President with a copy to the same address: Attention: General Counsel 13. Counterparts. This Agreement may be executed 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. 14. Relationship. Nothing herein shall be deemed to create a partnership, joint venture or other similar relationship. Joint Venture and APS shall not be construed as partners of each other by reason of this Agreement, and neither shall have the power to bind or obligate the other except as specifically set forth herein. [SIGNATURE PAGE FOLLOWS] 4 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. AMERICAN PHARMACEUTICAL SERVICES, INC., a Delaware corporation By:_____________________________ Name:___________________________ Title:__________________________ APS-SKILLED CARE PHARMACY, L.L.C., a Delaware limited liability company By: American Pharmaceutical Services, Inc., a Delaware corporation, Member By:_____________________________ Name:___________________________ Title:__________________________ By: Summit Care Pharmacy, Inc., a California corporation, Member By:_____________________________ Name:___________________________ Title:__________________________ S-1 SCHEDULE 1.1(b) PURCHASED CONTRACTS [SEE ATTACHED] CUSTOMER/SERVICE SEGMENTS 9/30/96
---------- Area/Reg. Territ. Facility Name City SL AFFIL. C RX - --------- ------- ------------------- ---------------- -- ------ --- ---- C/MS P-CONS Aldwyche Group Austin TX LCA X X C/MS CTX Alexander CC Austin TX LCA X X C/MS P-PHRM Arbor Austin TX PCA X C/MS CTX Arboretum S. Marcos TX X X C/MS P-PHRM Austin Manor Austin TX 3927 X X C/MS CTX Austin NC Austin TX X X C/MS CTX B. Gardens Austin TX Mart X X C/STX P-PHRM Barton House Austin TX X C/MS CTX Bastrop Nursing Bastrop TX LCA X X C/MS CTX Brazos Valley Geri College Station TX LCA X X C/MS P-PHRM Canon Oaks Austin TX PCA X C/MS P-PHRM Capital City Austin TX PCA X C/MS P-PHRM Cent Tx Treatment Austin TX X C/MS CTX CI-Lagrange Lagrange TX LCA X X C/MS CTX CI-Liano Liano TX LCA X X C/MS P-PHRM Clairmont Austin TX X C/MS P-PHRM Concept Six Austin TX X X C/MS Crestview Methodist Brian TX C/MS CTX Crestview Manor Belton TX LCA X X C/STX SAN Deer Creek Nursing Wimberly TX LCA X X C/STX P-PHRM Four Seasons Austin TX X C/MS CTX Gracy Woods Austin TX X C/MS Gracy Woods II Austin TX LCA X C/STX P-PHRM Heartland Austin YX HCR X X C/MS CTX Heritage Park Austin TX HCCI X X C/MS Home Patients Austin TX X C/MS P-PHRM Indian Wells Austin TX X X C/MS P-PHRM Lalla Austin TX X C/MS P-PHRM M. Johnson N C Austin TX X X C/MS P-CONS M.L. Southpointe Austin TX X X C/MS CTX Marbridge Manchaca TX X X C/MS P-PHRM Mary Lee Res Ctr Austin TX X C/MS P-CONS Marywood Group Austin TX LCA X C/MS P-PHRM Mason CC Mason TX 3927 X C/MS P-PHRM Monte Siesta Austin TX X C/MS CTX Oak Manor NC Flatonia TX Summit C/MS CTX Oakland Manor Giddings TX Summit C/MS P-CONS Parkfield Group Austin TX LCA X X C/MS CTX Pecan Grove Austin TX X X C/MS P-CONS Pendleton Group Austin TX LCA X X C/MS CTX Pflugerville HC Pflugerville TX X C/MS P-PHRM Regency Village Austin TX X X C/MS P-PHRM Renaissance Georgetown TX X C/MS CTX Retirement & NC Austin TX X X C/MS P-PHRM River Gardens New Brauniels TX X X C/MS CTX River Haven Georgetown TX X X C/MS P-PHRM Scissortail Austin TX X X C/MS P-PHRM Settlement Home Austin TX X C/MS CTX Sierra Health Austin TX Sierra X C/MS P-CONS Silverway Group Austin TX LCA X X C/MS P-PHRM Skyview Austin TX X X C/MS CTX Southwood Austin TX Summit X C/MS P-PHRM Stratford House Austin TX X C/MS P-PHRM Summit HCC Austin TX X X C/MS CTX Sweetbriar Taylor Taylor TX LCA X X C/MS CTX The Hearthstone Roundrock TX LCA X X ??? CT ???????? TX X X C/MS P-CONS Wagon Crossing Austin TX LCA X X C/STX P-PHRM Walnut Hills Austin TX X X C/MS CTX Westminster HC Austin TX X X
SCHEDULE 1.1(d) PERSONAL PROPERTY, FIXTURES AND EQUIPMENT [SEE ATTACHED] November 19, 1996 Page 1 9:23 AM American Pharmamceutical Services DEPRECIATION EXPENSE REPORT as of 09/30/1996
- -------------------------------------------------------------------------------------- In Svc Acquired Dep P Est Salvage/ Depreciable Thru Prior Acc SYS No Ext Date Value Meth T Life Sect 179 Basis Date Depreciati - -------------------------------------------------------------------------------------- Book: Book 6 FY: September 000085 000 10/01/94 4206.02 SLMM P 04 07 0.00 4206.02 08/96 917. 000086 000 10/01/94 3923.73 SLMM P 04 08 0.00 3923.73 08/96 840. 000087 000 10/01/94 2376.87 SLMM P 04 10 0.00 2376.87 08/96 491. 000088 000 10/01/94 4632.48 SLMM P 04 11 0.00 4632.48 08/96 942. 000089 000 07/01/94 69600.00 SLMM P 04 10 0.00 69600.00 08/96 14400. 000090 000 10/01/94 18191.29 SLMM P 04 09 0.00 18191.29 08/96 3829. 000091 000 10/01/94 3062.40 SLMM P 04 10 0.00 3062.40 08/96 633. 000092 000 10/01/94 905.91 SLMM P 04 11 0.00 905.91 08/96 184. 000093 000 10/01/94 7440.00 SLMM P 02 03 0.00 7440.00 08/96 3288. 000094 000 10/01/94 16137.00 SLMM P 02 09 0.00 16137.00 08/96 5868. 000095 000 10/01/94 1095.56 SLMM P 02 10 0.00 1095.56 08/96 386. 000370 000 10/01/94 276.98 SLMM P 04 06 0.00 276.98 08/96 61. 000371 000 10/01/94 34.88 SLMM P 04 06 0.00 34.88 08/96 7. 000372 000 10/01/94 2.78 SLMM P 04 08 0.00 2.78 08/96 0. 000373 000 10/01/94 133.90 SLMM P 04 06 0.00 133.90 08/96 29. 000374 000 10/01/94 56.84 SLMM P 04 07 0.00 56.84 08/96 12. 000375 000 10/01/94 226.24 SLMM P 04 06 0.00 226.24 08/96 50. 000376 000 10/01/94 138.22 SLMM P 04 06 0.00 138.22 08/96 30. 000377 000 10/01/94 988.20 SLMM P 04 06 0.00 988.20 08/96 219. 000378 000 10/01/94 1312.20 SLMM P 04 06 0.00 1312.20 08/96 291. 000379 000 10/01/94 2102.26 SLMM P 04 06 0.00 2102.26 08/96 467. 000380 000 10/01/94 1341.19 SLMM P 04 06 0.00 1341.19 08/96 298. 000381 000 10/01/94 6268.75 SLMM P 04 03 0.00 6268.75 08/96 1475. 000663 000 10/01/94 97.90 SLMM P 04 06 0.00 97.90 08/96 21. 000664 000 10/01/94 144.96 SLMM P 04 06 0.00 144.96 08/96 32. 000666 000 10/01/94 4291.50 SLMM P 02 03 0.00 4291.50 08/96 1907. 000667 000 10/01/94 5922.50 SLMM A 01 02 0.00 5922.50 11/95 2369. 000668 000 10/01/94 3742.99 SLMM A 02 06 0.00 3742.99 08/96 1497. 000669 000 10/01/94 6742.35 SLMM A 02 06 0.00 6742.35 08/96 2696. 000670 000 10/01/94 3240.00 SLMM A 02 03 0.00 3240.00 07/96 1440. 000671 000 10/01/94 5359.50 SLMM A 02 03 0.00 5359.50 07/96 2382. 001103 000 03/01/95 1495.30 SLMM P 05 00 0.00 1495.30 08/96 174. 001104 000 05/01/95 1674.00 SLMM P 05 00 0.00 1674.00 08/96 139. 001105 000 12/01/94 3122.00 SLMM P 05 00 0.00 3122.00 08/96 520. 001106 000 10/01/94 17426.80 SLMM P 04 00 0.00 17426.80 08/96 0. 001107 000 10/01/94 1561.00 SLMM P 04 00 0.00 1561.00 08/96 0. 001108 000 10/01/94 5855.00 SLMM P 04 00 0.00 5855.00 08/96 0. 001109 000 10/01/94 3155.34 SLMM P 05 00 0.00 3155.34 08/96 105. 001110 000 10/01/94 43.38 SLMM P 05 00 0.00 43.38 08/96 1. 001111 000 08/01/95 2550.00 SLMM P 05 00 0.00 2550.00 08/96 85. 001112 000 10/01/94 4152.80 SLMM P 05 00 0.00 4152.80 08/96 622. 001113 000 01/01/95 3141.61 SLMM P 05 00 0.00 3141.60 08/96 471. 001114 000 05/01/95 1475.74 SLMM P 05 00 0.00 1475.74 08/96 122. 001115 000 07/01/95 3190.32 SLMM P 05 00 0.00 3190.32 08/96 159. 001116 000 10/01/94 1595.16 SLMM P 05 00 0.00 1595.16 08/96 26. 001117 000 10/01/94 187.89 SLMM P 02 00 0.00 187.89 08/96 0. 002811 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0. 002812 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 08/96 0.
November 19, 1996 9:23 A.M. Page 2 American Pharmaceutical Services DEPRECIATION EXPENSE REPORT as of 09/30/1996
- ----------------------------------------------------------------------------------- In Svc Acquired Dep P Est Salvage/ Depreciable SYS No. Ext Date Value Meth T Life Sect 179 Basis - --------------------------------------------------- ------------------------------ 002814 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002815 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002816 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002817 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002818 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002819 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002820 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002821 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002822 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002823 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002824 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002825 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002826 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002837 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002842 000 10/01/94 0.00 SLMM P 01 00 0.00 0.00 002843 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002844 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002845 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002846 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002847 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002848 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002849 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002850 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002854 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002855 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 002856 000 10/01/94 0.00 SLMM P 10 00 0.00 0.00 003042 000 10/01/94 16308.48 SLMM A 03 02 0.00 16308.48 003091 000 10/01/94 17190.22 SLMM A 03 04 0.00 17190.22 003338 000 10/01/94 15859.49 SLMM R 04 10 0.00 15859.49 003339 000 10/01/94 1497.37 SLMM P 04 10 0.00 1497.37 003340 000 10/01/94 7947.31 SLMM P 04 10 0.00 7947.31 003341 000 10/01/94 8475.38 SLMM P 04 10 0.00 8475.38 003342 000 10/01/94 1489.63 SLMM P 05 00 0.00 1489.63 003343 000 10/01/94 4632.48 SLMM P 04 11 0.00 4632.48 003344 000 02/01/95 444.18 SLMM A 02 00 0.00 444.18 003345 000 04/01/95 17466.81 SLMM A 04 00 0.00 17466.81 003346 000 09/09/95 17722.38 SLMM A 03 04 0.00 17722.38 003347 000 12/01/95 15885.61 SLMM A 03 04 0.00 15885.61 003348 000 10/01/94 6850.25 SLMM P 02 09 0.00 6850.25 003349 000 10/01/94 4067.91 SLMM P 02 09 0.00 4067.91 003350 000 10/01/94 252.96 SLMM P 02 10 0.00 252.96 003351 000 10/01/94 760.77 SLMM P 02 10 0.00 760.77 003358 000 02/01/96 584.00 SLMM P 05 00 0.00 584.00 003359 000 10/01/95 2954.00 SLMM P 05 00 0.00 2954.00 003360 000 12/01/95 5866.00 SLMM P 05 00 0.00 5866.00 003361 000 01/01/96 722.86 SLMM P 05 00 0.00 722.86 003662 000 10/01/94 2395.88 SLMM P 01 02 0.00 2395.88 003664 000 10/01/94 19.51 SLMM P 01 01 0.00 19.51 003665 000 10/01/94 68.23 SLMM P 01 01 0.00 68.23
- ------------------------------------------------- Current Year Curr Accum to Date Depreciation Key - ------------------------------------------------- 002814 0.00 0.00 002815 0.00 0.00 002816 0.00 0.00 002817 0.00 0.00 002818 0.00 0.00 002819 0.00 0.00 002820 0.00 0.00 002821 0.00 0.00 002822 0.00 0.00 002823 0.00 0.00 002824 0.00 0.00 002825 0.00 0.00 002826 0.00 0.00 002837 0.00 0.00 002842 0.00 0.00 002843 0.00 0.00 002844 0.00 0.00 002845 0.00 0.00 002846 0.00 0.00 002847 0.00 0.00 002848 0.00 0.00 002849 0.00 0.00 002850 0.00 0.00 002854 0.00 0.00 002855 0.00 0.00 002856 0.00 0.00 003042 5150.04 10300.09 003091 5157.11 10314.18 003338 3281.28 6562.55 003339 309.84 619.64 003340 1644.26 3288.53 003341 1753.56 3507.09 003342 306.46 614.66 003343 942.24 1884.44 003344 222.12 370.18 003345 4411.06 6550.04 003346 5759.77 5759.77 003347 3971.40 3971.40 003348 2491.00 4982.00 003349 1479.24 2958.48 003350 89.28 178.56 003351 268.55 537.06 003358 77.87 77.87 003359 590.80 590.80 003360 977.70 977.70 003361 108.45 108.45 003662 319.44 1277.79 d 003664 1.44 5.78 d 003665 5.04 20.20 d
November 19, 1996 Page 3 9:23 AM American Pharmaceutical Services DEPRECIATION EXPENSE REPORT as of 09/30/1996
- ---------------------------------------------------------------------------------------------- Depre- D In Svc Acquired Dep P Est Salvage/ ciable Thru Prior Accum c SYS No Ext Date Value Meth T Life Sec 179 Basis Date Depreciation T - ---------------------------------------------------------------------------------------------- 003666 000 10/01/94 61.71 SLMM P 01 01 0.00 61.71 10/95 13.71 003667 000 10/01/94 784.80 SLMM P 01 01 0.00 784.80 10/95 174.40 003668 000 10/01/94 162.34 SLMM P 01 01 0.00 162.34 10/95 36.08 003671 000 06/01/96 1821.08 SLMM P 10 00 0.00 1821.08 08/96 0.00 003687 000 09/30/96 16900.65 SLMM A 03 04 0.00 16900.65 00/00 0.00 003807 000 09/30/96 1431.41 SLMM P 05 00 0.00 1431.41 00/00 0.00 003808 000 09/30/96 1554.00 SLMM P 05 00 0.00 1554.00 00/00 0.00 Count= 104 --------- ---- --------- -------- -- Grand Total 396799.44 0.00 396799.44 75867.46 76 Less disposals and transfers 18014.47 0.00 18014.47 7393.04 --------- ---- --------- -------- -- Net 378784.97 0.00 378784.97 68474.42 76 ========= ==== ========= ======== ==
- ----------------------------Calculation Assumptions--------------------------------- Book Short Years Midquarter Convention Adjustment Convention ------ ----------- --------------------- --------------------- Book 6 [N] [N] Immediate
- -----------------------------Asset Grouping/Sorting---------------------------- Group: Location 125 Include Assets that meet the following conditions: Location is 125 Sort Assets by: - --------------------------------------Key-------------------------------------- d: Asset has been disposed of. SCHEDULE 1.1 (e) LICENSES AND PERMITS 1. Texas Pharmacy License No.: 15974, expires 05/31/97 2. Medicaid No.: 350045 3. DEA No.: BA-4304109, expires 06/30/97 4. NABP No.: 4591637 5. NHIC No.: VP3500457 6. Texas Controlled Substances Registration Certificate No.: X0088579, expires 08/31/97 SCHEDULE 1.1(g) LICENSED NAME AMERICAN PHARMACEUTICAL SERVICES SCHEDULE 1.1 (i) FACILITY RECORDS Copies of all books and records, computer tapes, disks and data located at the Facility that relate exclusively to the Facility and the Contributed Assets. SCHEDULE 3.4 ALLOCATION
DESCRIPTION AMOUNT - ----------- ------ Inventories $ 388,403 Fixed Assets 198,214 Capital Leases (46,036) ---------- Total Net Assets $ 540,581 ========== Goodwill $2,459,419 ---------- Total Value of Contributed Assets $3,000,000 ==========
SCHEDULE 6.1 PERMITTED ENCUMBRANCES NONE. EXHIBIT 6.1A FINANCING STATEMENT FILINGS
Debtor Name Records Searched Type of Secured Party Search ============================================================================ American Secretary of State UCC Cash Flow Pharmaceutical State of Texas Management, Services, Inc. Inc. American Secretary of State Federal Internal Pharmaceutical State of Texas Tax Revenue Services, Inc., a Lien Service, Corporation Dallas, Texas American Secretary of State Federal Pharmaceutical State of Texas Tax Internal Services, Inc., a Lien Revenue Corporation Service, Dallas, Texas
Debtor Name Scope of Lien Date Conti Filed Assi ================================================================================================================= American All accounts, instruments, 4/3/92 N/A Pharmaceutical documents, inventory, equipment, Services, Inc. intangibles, all goods and inventory, books, records, etc. N/A American Taxes due for periods ending 1/29/93 Pharmaceutical 6/30/92 and 9/30/92 in the total Services, Inc., a amount of $109,239.48 plus interest Corporation and penalties American Pharmaceutical Taxes due for periods ending 5/26/93 N/A Services, Inc., a 6/30/92, 9/30/92 and 12/31/92 in the Corporation total amount of $161,528.71 plus interest and penalties
SCHEDULE 6.2 NONCOMPLIANCE WITH LICENSING REQUIREMENTS NONE. SCHEDULE 6.6 LEASES AND OTHER MATERIAL AGREEMENTS [SEE ATTACHED] American Pharmaceutical Services Vehicle Lease Schedule As of September 30, 1996
PURCH TRM ORIGINAL UNIT# BR YR MAKE MODEL SERIAL NUMBER DATE MOS COST - ------ -- -- ---- ----- ------------- ---- --- ---- 9409 #025 1994 FORD VAN IFTDA14U9RZB34046 08/10/94 40 17,166.84 9411 #025 1995 FORD VAN IFTDA14U8SZA00733 09/13/94 40 17,190.22 9516 #025 1995 FORD VAN IFTDA14UXSZA91066 07/24/95 40 17,722.39 9506 #025 1995 FORD VAN IFTDA14U4SZA35043 03/20/95 40 17,466.81 9528 #025 1995 FORD VAN IFTDA14U7SZC21093 12/25/95 36 15,885.61 96018 #025 1996 FORD ESCORT IFASP1536TW148995 06/30/96 13,318.91 ----------- AUSTIN TOTAL 98,750.78 ------------
NET ORGNL MNTHLY REMN PRIN LEASE BOOK INT PRN PYMT MOS ON OBLGTN CUR LT UNIT# VALUE RATE (DEPR) LEASE 12/31/94 PRTN PRTN ------ ----- ---- ------ ----- -------- ---- ---- 9409 6,624.09 414.01 16 6,624.16 4,968.12 1,656.04 9411 7,616.91 400.85 19 7,616.15 4,810.20 2,805.95 9516 12,521.48 417.38 30 12,521.40 5,008.56 7,512.84 9506 10,457.86 418.31 25 10,457.75 5,019.72 5,438.03 9528 12,955.67 417.92 31 12,955.52 5,015.04 7,940.48 96018 13,318.91 0.00 1 0.00 0.00 0.00 --------- -------- --------- --------- --------- AUSTIN TOTAL 63,494.20 2,068.47 50,174.98 24,821.64 25,353.34 - ------------
DUPLICATE [ARI LOGO] MOTOR VEHICLE LEASE AGREEMENT AUTOMOTIVE RENTALS, INC. (ARI) hereby leases to AMERICAN PHARMACEUTICAL SERVICES, INC. (Lessee), the vehicle referred to herein for the rental set forth herein. This Lease Agreement and any assignment hereof is subject to all the terms and conditions of the Agreement dated 10/13/94 between ARI and Lessee covering the leasing of vehicles to Lessee all of which are incorporated herein by reference. ARI hereby assigns to CORESTATES BANK NA AGENT (Assignee) all right, title and interest of ARI in and to all moneys due and to become due under this Lease Agreement and ARI hereby authorizes Assignee to collect all such moneys when due, either in the name of Assignee or ARI. Lessee hereby agrees to this assignment. To induce Assignee to accept on assignment of ARI's rights hereunder, Lessee agrees that upon such assignment all rights and remedies of ARI hereunder shall vest in and be exercisable by Assignee that Lessee will render performance of Lessee's obligation hereunder to Assignee rather than ARI and that the rights of Assignee to rentals and other sums due hereunder shall not be subject to any defense (except payment), off-set, counter-claim or recoupment of Lessee whatsoever arising from the breach of warranty or representation relating to the motor vehicle whether made by the manufacturer thereof, ARI or any other person, or arising from the breach or failure of ARI to observe or perform the provisions of this Lease Agreement or any other agreement between ARI and Lessee or arising from any course whatsoever. Lessee also agrees that nothing (including termination of this Lease Agreement) except full payment to Assignee of the Capitalized Value set forth below, with interest to date of such payment as specified below, shall be sufficient to terminate liability of Lessee to make payment to Assignee under this Lease Agreement. Lessee also agrees to continue to make prompt payment to Assignee of the rentals due hereunder even if bankruptcy, reorganization, arrangement, insolvency, liquidation or dissolution proceedings are instituted by or against ARI and regardless whether a trustee or receiver in any such proceedings shall assume or reject this Lease Agreement or other agreement between ARI and Lessee. Lessee also agrees that Assignee does not assume any obligations arising hereunder and Lessee will look solely to ARI for the performance of any such obligations.
- ---------------------------------------------------------------------------------------------------------- VEHICLE INFORMATION - ---------------------------------------------------------------------------------------------------------- YR & MAKE - 1995 FORD MODEL - A14 C VAN VEHICLE # - 0025-09528 ENGINE - 6 CYL. 3.0 LITER EXT COLOR - OXFORD WHITE LESSEE # - 0647-00 SERIAL # - 1FTDA14U7SZC21093 DELIVERY DATE - 12/25/95 REVISION DATE:02/13/96 REVISION NO: 02 - ---------------------------------------------------------------------------------------------------------- S = SIDEBILLED D = DEALER INSTALLED EQUIPMENT - ---------------------------------------------------------------------------------------------------------- VINYL INT DUAL BUCKETS P215/75R14 BSW FXD SD DOOR GLS SWING LOCK MIRR MANUAL AIR COND RADIO AM/FM CAS D 000000 - ---------------------------------------------------------------------------------------------------------- COST - ---------------------------------------------------------------------------------------------------------- CAPPED CAPPED CAPPED DESCRIPTION AMOUNT DESCRIPTION AMOUNT DESCRIPTION AMOUNT - ---------------------------------------------------------------------------------------------------------- BASE COST 14,783.35 P&H 150.00 SIDEBILL 225.00- MODAGRAFICS BODY CST1 14.24 DLR INSTL ITEMS 225.00 SALES TAX 938.02 TOTAL COST 15,885.61 - ---------------------------------------------------------------------------------------------------------- LEASE INFORMATION - ---------------------------------------------------------------------------------------------------------- OPEN END LEASE - PERIOD BEGINS: 01/96 TOTAL CAPITALIZATION: 15,885.61 * * * * * * RATES BELOW REFLECT DEPRECIATION AND ADMINISTRATIVE FEE ONLY * * * * * * RATE AMT 1ST-12TH MONTH .02868 $455.60 PER MONTH DEPRECIATION PERIOD 36 MONTHS @ $441.30 13TH-24TH MONTH .02868 $455.60 PER MONTH 25TH-36TH MONTH .02868 $455.60 PER MONTH FINANCIAL INFO INT-TYPE: FLOAT INDEX: COMM PAPER FACTOR-SCHEDULE: 107 - ---------------------------------------------------------------------------------------------------------- CENTMARTINE
MAILING AMERICAN PHARMACEUTICAL DRIVER NAME: TERRY DAVIS ADDRESS: ATTN: LISA DILLON ADDRESS: AMERICAN PHARMACEUTICALS 1771 W DIEHL ROAD 2524 RIDGEPOINT DR. SUITE 210 SUITE R1 NAPERVILLE IL 60563 AUSTIN TX 78754 Date 02/05/96 By [SIG] ------------ -------------------------- Authorized Signature DUPLICATE MOTOR VEHICLE LEASE AGREEMENT [ARI LOGO] AUTOMOTIVE RENTALS, INC. (ARI) hereby leases to AMERICAN PHARMACEUTICAL SERVICES, INC. (Lessee), the vehicle referred to herein for the rental set forth herein. This Lease Agreement and any assignment hereof is subject to all the terms and conditions of the Agreement dated 10/13/94 between ARI and Lessee covering the leasing of vehicles to Lessee all of which are incorporated herein by reference. ARI hereby assigns to CORESTATES BANK NA AGENT (Assignee) all right, title and interest of ARI in and to all moneys due and to become due under this Lease Agreement and ARI hereby authorizes Assignee to collect all such moneys when due, either in the name of Assignee or ARI. Lessee hereby agrees to this assignment. To induce Assignee to accept on assignment of ARI's rights hereunder, Lessee agrees that upon such assignment all rights and remedies of ARI hereunder shall vest in and be exercisable by Assignee that Lessee will render performance of Lessee's obligation hereunder to Assignee rather than ARI and that the rights of Assignee to rentals and other sums due hereunder shall not be subject to any defense (except payment), off-set, counter-claim or recoupment of Lessee whatsoever arising from the breach of warranty or representation relating to the motor vehicle whether made by the manufacturer thereof, ARI or any other person, or arising from the breach or failure of ARI to observe or perform the provisions of this Lease Agreement or any other agreement between ARI and Lessee or arising from any course whatsoever. Lessee also agrees that nothing (including termination of this Lease Agreement) except full payment to Assignee of the Capitalized Value set forth below, with interest to date of such payment as specified below, shall be sufficient to terminate liability of Lessee to make payment to Assignee under this Lease Agreement. Lessee also agrees to continue to make prompt payment to Assignee of the rentals due hereunder even if bankruptcy, reorganization, arrangement, insolvency, liquidation or dissolution proceedings are instituted by or against ARI and regardless whether a trustee or receiver in any such proceedings shall assume or reject this Lease Agreement or other agreement between ARI and Lessee. Lessee also agrees that Assignee does not assume any obligations arising hereunder and Lessee will look solely to ARI for the performance of any such obligations. - ---------------------------------------------------------------------------------------------------------- VEHICLE INFORMATION - ---------------------------------------------------------------------------------------------------------- YR & MAKE - 1995 FORD MODEL - AEROSTAR VEHICLE # - 0043-09601 ENGINE - 6 CYL. 3.3 LITER EXT COLOR - WHITE LESSEE # - 0647-00 SERIAL # - 1FTDA14U2SZC22734 DELIVERY DATE - 01/27/96 REVISION DATE:04/17/96 REVISION NO: 02 - ---------------------------------------------------------------------------------------------------------- S = SIDEBILLED D = DEALER INSTALLED EQUIPMENT - ---------------------------------------------------------------------------------------------------------- CLOTH INT 004200 STD AIR COND TINT GLASS ALL AM-FM STEREO PWR STEERING PWR DISC BRAKES CRUISE/TILT DUAL BUCKETS FRT LIC PLATE FXD SD DOOR GLS - ---------------------------------------------------------------------------------------------------------- COST - ---------------------------------------------------------------------------------------------------------- CAPPED CAPPED CAPPED DESCRIPTION AMOUNT DESCRIPTION AMOUNT DESCRIPTION AMOUNT - ---------------------------------------------------------------------------------------------------------- BASE COST 16,940.35 P&H 150.00 MODAGRAFICS BODY CST1 14.15 FLEET INCENTIVE 1,000.00- TOTAL COST 16,104.50 - ---------------------------------------------------------------------------------------------------------- LEASE INFORMATION - ---------------------------------------------------------------------------------------------------------- OPEN END LEASE - PERIOD BEGINS: 02/96 TOTAL CAPITALIZATION: 16,104.50 * * * * * * RATES BELOW REFLECT DEPRECIATION AND ADMINISTRATIVE FEE ONLY * * * * * * RATE AMT 1ST-12TH MONTH .02868 $461.88 PER MONTH DEPRECIATION PERIOD 36 MONTHS @ $447.38 13TH-24TH MONTH .02868 $461.88 PER MONTH 25TH-36TH MONTH .02868 $461.88 PER MONTH FINANCIAL INFO INT-TYPE: FLOAT INDEX: COMM PAPER FACTOR-SCHEDULE: 107 - ---------------------------------------------------------------------------------------------------------- CENTMARTINE
MAILING AMERICAN PHARMACEUTICAL DRIVER NAME: JOHN KEELING ADDRESS: ATTN: LISA DILLON ADDRESS: 34921 US HWY 19 NORTH 1771 W DIEHL ROAD PALM HARBOR FL 34684 SUITE 210 NAPERVILLE IL 60563 Date 02/02/96 By [SIG] ------------ -------------------------- Authorized Signature DUPLICATE [ARI LOGO] MOTOR VEHICLE LEASE AGREEMENT AUTOMOTIVE RENTALS, INC. (ARI) hereby leases to AMERICAN PHARMACEUTICAL SERVICES, INC. (Lessee), the vehicle referred to herein for the rental set forth herein. This Lease Agreement and any assignment hereof is subject to all the terms and conditions of the Agreement dated 10/13/94 between ARI and Lessee covering the leasing of vehicles to Lessee all of which are incorporated herein by reference. ARI hereby assigns to CORESTATES BANK NA AGENT (Assignee) all right, title and interest of ARI in and to all moneys due and to become due under this Lease Agreement and ARI hereby authorizes Assignee to collect all such moneys when due, either in the name of Assignee or ARI. Lessee hereby agrees to this assignment. To induce Assignee to accept on assignment of ARI's rights hereunder, Lessee agrees that upon such assignment all rights and remedies of ARI hereunder shall vest in and be exercisable by Assignee that Lessee will render performance of Lessee's obligation hereunder to Assignee rather than ARI and that the rights of Assignee to rentals and other sums due hereunder shall not be subject to any defense (except payment), off-set, counter-claim or recoupment of Lessee whatsoever arising from the breach of warranty or representation relating to the motor vehicle whether made by the manufacturer thereof, ARI or any other person, or arising from the breach or failure of ARI to observe or perform the provisions of this Lease Agreement or any other agreement between ARI and Lessee or arising from any course whatsoever. Lessee also agrees that nothing (including termination of this Lease Agreement) except full payment to Assignee of the Capitalized Value set forth below, with interest to date of such payment as specified below, shall be sufficient to terminate liability of Lessee to make payment to Assignee under this Lease Agreement. Lessee also agrees to continue to make prompt payment to Assignee of the rentals due hereunder even if bankruptcy, reorganization, arrangement, insolvency, liquidation or dissolution proceedings are instituted by or against ARI and regardless whether a trustee or receiver in any such proceedings shall assume or reject this Lease Agreement or other agreement between ARI and Lessee. Lessee also agrees that Assignee does not assume any obligations arising hereunder and Lessee will look solely to ARI for the performance of any such obligations.
- ---------------------------------------------------------------------------------------------------------- VEHICLE INFORMATION - ---------------------------------------------------------------------------------------------------------- YR & MAKE - 1995 FORD MODEL - A14 C VAN VEHICLE # - 0025-09516 ENGINE - 6 CYL. 3.0 LITER EXT COLOR - OXFORD WHITE LESSEE # - 0647-00 SERIAL # - 1FTDA14UXSZA91066 DELIVERY DATE - 07/24/95 REVISION DATE:00/00/00 REVISION NO: 00 - ---------------------------------------------------------------------------------------------------------- S = SIDEBILLED D = DEALER INSTALLED EQUIPMENT - ---------------------------------------------------------------------------------------------------------- VINYL INT DUAL BUCKETS P215/75R14 BSW FXD SD DOOR GLS MANUAL AIR COND AM/FM STEREO 0053000 - ---------------------------------------------------------------------------------------------------------- COST - ---------------------------------------------------------------------------------------------------------- CAPPED CAPPED CAPPED DESCRIPTION AMOUNT DESCRIPTION AMOUNT DESCRIPTION AMOUNT - ---------------------------------------------------------------------------------------------------------- BASE COST 16,191.35 P&H 150.00 MODAGRAFICS BODY CST1 14.08 DLR INSTL ITEMS 355.00 SALES TAX 1,011.95 TOTAL COST 17,722.38 - ---------------------------------------------------------------------------------------------------------- LEASE INFORMATION - ---------------------------------------------------------------------------------------------------------- OPEN END LEASE - PERIOD BEGINS: 08/95 TOTAL CAPITALIZATION: 17,722.38 * * * * * * RATES BELOW REFLECT DEPRECIATION AND ADMINISTRATIVE FEE ONLY * * * * * * RATE AMT 1ST-12TH MONTH .02590 $459.01 PER MONTH DEPRECIATION PERIOD 40 MONTHS @ $443.06 13TH-24TH MONTH .02590 $459.01 PER MONTH 25TH-36TH MONTH .02590 $459.01 PER MONTH FINANCIAL INFO INT-TYPE: FLOAT INDEX: COMM PAPER FACTOR-SCHEDULE: 107 - ---------------------------------------------------------------------------------------------------------- CENTMARTINE
MAILING AMERICAN PHARMACEUTICAL DRIVER NAME: TERRY DAVIS ADDRESS: ATTN: LISA DILLON ADDRESS: 2324 RIDGEPOINT DR. 1771 W DIEHL ROAD SUITE 41 SUITE 210 AUSTIN TX 78754 NAPERVILLE IL 60563 Date 09/21/95 By [SIG] ------------ -------------------------- Authorized Signature DUPLICATE MOTOR VEHICLE LEASE AGREEMENT [ARI LOGO] AUTOMOTIVE RENTALS, INC. (ARI) hereby leases to AMERICAN PHARMACEUTICAL SERVICES, INC. (Lessee), the vehicle referred to herein for the rental set forth herein. This Lease Agreement and any assignment hereof is subject to all the terms and conditions of the Agreement dated 10/13/94 between ARI and Lessee covering the leasing of vehicles to Lessee all of which are incorporated herein by reference. ARI hereby assigns to CORESTATES BANK NA AGENT (Assignee) all right, title and interest of ARI in and to all moneys due and to become due under this Lease Agreement and ARI hereby authorizes Assignee to collect all such moneys when due, either in the name of Assignee or ARI. Lessee hereby agrees to this assignment. To induce Assignee to accept on assignment of ARI's rights hereunder, Lessee agrees that upon such assignment all rights and remedies of ARI hereunder shall vest in and be exercisable by Assignee that Lessee will render performance of Lessee's obligation hereunder to Assignee rather than ARI and that the rights of Assignee to rentals and other sums due hereunder shall not be subject to any defense (except payment), off-set, counter-claim or recoupment of Lessee whatsoever arising from the breach of warranty or representation relating to the motor vehicle whether made by the manufacturer thereof, ARI or any other person, or arising from the breach or failure of ARI to observe or perform the provisions of this Lease Agreement or any other agreement between ARI and Lessee or arising from any course whatsoever. Lessee also agrees that nothing (including termination of this Lease Agreement) except full payment to Assignee of the Capitalized Value set forth below, with interest to date of such payment as specified below, shall be sufficient to terminate liability of Lessee to make payment to Assignee under this Lease Agreement. Lessee also agrees to continue to make prompt payment to Assignee of the rentals due hereunder even if bankruptcy, reorganization, arrangement, insolvency, liquidation or dissolution proceedings are instituted by or against ARI and regardless whether a trustee or receiver in any such proceedings shall assume or reject this Lease Agreement or other agreement between ARI and Lessee. Lessee also agrees that Assignee does not assume any obligations arising hereunder and Lessee will look solely to ARI for the performance of any such obligations.
- ---------------------------------------------------------------------------------------------------------- VEHICLE INFORMATION - ---------------------------------------------------------------------------------------------------------- YR & MAKE - 1995 FORD MODEL - A14 C VAN VEHICLE # - 0025-09506 ENGINE - 6 CYL. 3.0 LITER EXT COLOR - OXFORD WHITE LESSEE # - 0647-00 SERIAL # - 1FTDA14U4SZA35043 DELIVERY DATE - 03/20/95 REVISION DATE:08/16/95 REVISION NO: 02 - ---------------------------------------------------------------------------------------------------------- S = SIDEBILLED D = DEALER INSTALLED EQUIPMENT - ---------------------------------------------------------------------------------------------------------- VINYL INT 000000 SWING LOCK MIRR MANUAL AIR COND CRUISE/TILT AM/FM STEREO DUAL BUCKETS P215/75R14 BSW FRONT LICENSE 3.73 AXLE RATIO FXD SD DOOR GLS - ---------------------------------------------------------------------------------------------------------- COST - ---------------------------------------------------------------------------------------------------------- CAPPED CAPPED CAPPED DESCRIPTION AMOUNT DESCRIPTION AMOUNT DESCRIPTION AMOUNT - ---------------------------------------------------------------------------------------------------------- BASE COST 15,955.35 P&H 150.00 MODAGRAFICS BODY CST1 9.25 DLR INSTL ITEMS 355.00 SALES TAX 977.21 TOTAL COST 17,466.81 - ---------------------------------------------------------------------------------------------------------- LEASE INFORMATION - ---------------------------------------------------------------------------------------------------------- OPEN END LEASE - PERIOD BEGINS: 04/95 TOTAL CAPITALIZATION: 17,466.81 * * * * * * RATES BELOW REFLECT DEPRECIATION AND ADMINISTRATIVE FEE ONLY * * * * * * RATE AMT 1ST-12TH MONTH .02590 $452.39 PER MONTH DEPRECIATION PERIOD 40 MONTHS @ $436.67 13TH-24TH MONTH .02590 $452.39 PER MONTH 25TH-36TH MONTH .02590 $452.39 PER MONTH 37TH-40TH MONTH .02590 $452.39 PER MONTH FINANCIAL INFO INT-TYPE: FLOAT INDEX: COMM PAPER FACTOR-SCHEDULE: 107 - ---------------------------------------------------------------------------------------------------------- CENTMARTINE
MAILING AMERICAN PHARMACEUTICAL DRIVER NAME: TERRY DAVIS ADDRESS: ATTN: LISA GREENE ADDRESS: 2324 RIDGEPOINT DR. 1771 W DIEHL ROAD SUITE E1 SUITE 210 AUSTIN TX 78754 NAPERVILLE IL 60563 Date 04/24/95 By [SIG] ------------ -------------------------- Authorized Signature DUPLICATE [ARI LOGO] MOTOR VEHICLE LEASE AGREEMENT AUTOMOTIVE RENTALS, INC. (ARI) hereby leases to AMERICAN PHARMACEUTICAL SERVICES, INC. (Lessee), the vehicle referred to herein for the rental set forth herein. This Lease Agreement and any assignment hereof is subject to all the terms and conditions of the Agreement dated 10/13/94 between ARI and Lessee covering the leasing of vehicles to Lessee all of which are incorporated herein by reference. ARI hereby assigns to CORESTATES BANK NA AGENT (Assignee) all right, title and interest of ARI in and to all moneys due and to become due under this Lease Agreement and ARI hereby authorizes Assignee to collect all such moneys when due, either in the name of Assignee or ARI. Lessee hereby agrees to this assignment. To induce Assignee to accept on assignment of ARI's rights hereunder, Lessee agrees that upon such assignment all rights and remedies of ARI hereunder shall vest in and be exercisable by Assignee that Lessee will render performance of Lessee's obligation hereunder to Assignee rather than ARI and that the rights of Assignee to rentals and other sums due hereunder shall not be subject to any defense (except payment), off-set, counter-claim or recoupment of Lessee whatsoever arising from the breach of warranty or representation relating to the motor vehicle whether made by the manufacturer thereof, ARI or any other person, or arising from the breach or failure of ARI to observe or perform the provisions of this Lease Agreement or any other agreement between ARI and Lessee or arising from any course whatsoever. Lessee also agrees that nothing (including termination of this Lease Agreement) except full payment to Assignee of the Capitalized Value set forth below, with interest to date of such payment as specified below, shall be sufficient to terminate liability of Lessee to make payment to Assignee under this Lease Agreement. Lessee also agrees to continue to make prompt payment to Assignee of the rentals due hereunder even if bankruptcy, reorganization, arrangement, insolvency, liquidation or dissolution proceedings are instituted by or against ARI and regardless whether a trustee or receiver in any such proceedings shall assume or reject this Lease Agreement or other agreement between ARI and Lessee. Lessee also agrees that Assignee does not assume any obligations arising hereunder and Lessee will look solely to ARI for the performance of any such obligations.
- ---------------------------------------------------------------------------------------------------------- VEHICLE INFORMATION - ---------------------------------------------------------------------------------------------------------- YR & MAKE - 1995 FORD MODEL - A14 C VAN VEHICLE # - 0025-09411 ENGINE - 6 CYL. 3.0 LITER EXT COLOR - OXFORD WHITE LESSEE # - 0647-01 SERIAL # - 1FTDA14U8SZA00733 DELIVERY DATE - 10/13/94 REVISION DATE:00/00/00 REVISION NO: 00 - ---------------------------------------------------------------------------------------------------------- S = SIDEBILLED D = DEALER INSTALLED EQUIPMENT - ---------------------------------------------------------------------------------------------------------- VINYL INT S/DR FIXED GLS STD AIR COND 1860#PAYLOAD TINT GLASS ALL S/LK PLR MIRROR RADIO AM/FM STE D 004200 PWR STEERING PWR DISC BRAKES STD TRIM DUAL BUCKETS P215/TIRES 3.73 AXLE RATIO - ---------------------------------------------------------------------------------------------------------- COST - ---------------------------------------------------------------------------------------------------------- CAPPED CAPPED CAPPED DESCRIPTION AMOUNT DESCRIPTION AMOUNT DESCRIPTION AMOUNT - ---------------------------------------------------------------------------------------------------------- BASE COST 16,347.85 P&H 150.00 DLR INSTL ITEMS 290.00 FLEET INCENTIVE 400.00- INCENTIVE 2 200.00- SALES TAX 1,002.37 TOTAL COST 17,190.22 - ---------------------------------------------------------------------------------------------------------- LEASE INFORMATION - ---------------------------------------------------------------------------------------------------------- OPEN END LEASE - PERIOD BEGINS: 10/94 TOTAL CAPITALIZATION: 17,190.22 * * * * * * RATES BELOW REFLECT DEPRECIATION AND ADMINISTRATIVE FEE ONLY * * * * * * RATE AMT 1ST-12TH MONTH .02570 $441.79 PER MONTH DEPRECIATION PERIOD 40 MONTHS @ $429.76 13TH-24TH MONTH .02570 $441.79 PER MONTH 25TH-36TH MONTH .02570 $441.79 PER MONTH 37TH-40TH MONTH .02570 $441.79 PER MONTH FINANCIAL INFO INT-TYPE: FLOAT INDEX: COMM PAPER FACTOR-SCHEDULE: 108A - ----------------------------------------------------------------------------------------------------------
CENTMARTINEZ 320 MAILING AMERICAN PHARMACEUTICAL DRIVER NAME: TERRY DAVIS ADDRESS: ATTN: LISA GREENE ADDRESS: 2324 RIDGEPOINT DR. 1771 W DIEHL ROAD SUITE E1 SUITE 210 AUSTIN TX 78754 NAPERVILLE IL 60563 Date 10/14/94 By [SIG] ------------ -------------------------- Authorized Signature DUPLICATE [ARI LOGO] MOTOR VEHICLE LEASE AGREEMENT AUTOMOTIVE RENTALS, INC. (ARI) hereby leases to ABBEY PHARMACEUTICAL SERVICES (Lessee), the vehicle referred to herein for the rental set forth herein. This Lease Agreement and any assignment hereof is subject to all the terms and conditions of the Agreement dated 05/28/92 between ARI and Lessee covering the leasing of vehicles to Lessee all of which are incorporated herein by reference. ARI hereby assigns to CORESTATES BANK NA AGENT (Assignee) all right, title and interest of ARI in and to all moneys due and to become due under this Lease Agreement and ARI hereby authorizes Assignee to collect all such moneys when due, either in the name of Assignee or ARI. Lessee hereby agrees to this assignment. To induce Assignee to accept on assignment of ARI's rights hereunder, Lessee agrees that upon such assignment all rights and remedies of ARI hereunder shall vest in and be exercisable by Assignee that Lessee will render performance of Lessee's obligation hereunder to Assignee rather than ARI and that the rights of Assignee to rentals and other sums due hereunder shall not be subject to any defense (except payment), off-set, counter-claim or recoupment of Lessee whatsoever arising from the breach of warranty or representation relating to the motor vehicle whether made by the manufacturer thereof, ARI or any other person, or arising from the breach or failure of ARI to observe or perform the provisions of this Lease Agreement or any other agreement between ARI and Lessee or arising from any course whatsoever. Lessee also agrees that nothing (including termination of this Lease Agreement) except full payment to Assignee of the Capitalized Value set forth below, with interest to date of such payment as specified below, shall be sufficient to terminate liability of Lessee to make payment to Assignee under this Lease Agreement. Lessee also agrees to continue to make prompt payment to Assignee of the rentals due hereunder even if bankruptcy, reorganization, arrangement, insolvency, liquidation or dissolution proceedings are instituted by or against ARI and regardless whether a trustee or receiver in any such proceedings shall assume or reject this Lease Agreement or other agreement between ARI and Lessee. Lessee also agrees that Assignee does not assume any obligations arising hereunder and Lessee will look solely to ARI for the performance of any such obligations.
- ---------------------------------------------------------------------------------------------------------- VEHICLE INFORMATION - ---------------------------------------------------------------------------------------------------------- YR & MAKE - 1994 FORD MODEL - A14 C VAN VEHICLE # - -09409 ENGINE - 6 CYL. 3.0 LITER EXT COLOR - WHITE LESSEE # - 0847-01 SERIAL # - 1FTDA14U9RZB34046 DELIVERY DATE - 08/10/94 REVISION DATE:00/00/00 REVISION NO: 00 - ---------------------------------------------------------------------------------------------------------- S = SIDEBILLED D = DEALER INSTALLED EQUIPMENT - ---------------------------------------------------------------------------------------------------------- VINYL INT 004200 TD AIR COND INT GLASS ALL AM-FM STEREO PWR STEERING PWR DISC BRAKES STD TRIM DUAL BUCKETS FIXED GLS S/D STLD WHEEL CVRS - ---------------------------------------------------------------------------------------------------------- COST - ---------------------------------------------------------------------------------------------------------- CAPPED CAPPED CAPPED DESCRIPTION AMOUNT DESCRIPTION AMOUNT DESCRIPTION AMOUNT - ---------------------------------------------------------------------------------------------------------- BASE COST 16,415.85 P&H 150.00 FLEET INCENTIVE 400.00- SALES TAX 1,000.99 TOTAL COST 17,166.84 - ---------------------------------------------------------------------------------------------------------- LEASE INFORMATION - ---------------------------------------------------------------------------------------------------------- OPEN END LEASE - PERIOD BEGINS: 08/94 TOTAL CAPITALIZATION: 17,166.84 * * * * * * RATES BELOW REFLECT DEPRECIATION AND ADMINISTRATIVE FEE ONLY * * * * * * RATE AMT 1ST-12TH MONTH .02570 $441.19 PER MONTH DEPRECIATION PERIOD 40 MONTHS @ $429.17 13TH-24TH MONTH .02570 $441.19 PER MONTH 25TH-36TH MONTH .02570 $441.19 PER MONTH 37TH-40TH MONTH .02570 $441.19 PER MONTH FINANCIAL INFO INT-TYPE: FLOAT INDEX: COMM PAPER FACTOR-SCHEDULE: 108A - ---------------------------------------------------------------------------------------------------------- CENTMARTINEZ 320
MAILING AMERICAN PHARMACEUTICAL DRIVER NAME: TERRY DAVIS ADDRESS: ATTN: LISA GREENE ADDRESS: 2324 RIDGEPOINT DR. 1771 W DIEHL ROAD SUITE G1 SUITE 210 AUSTIN TX 78754 NAPERVILLE IL 60563 Date 08/11/94 By [SIG] ------------ -------------------------- Authorized Signature SCHEDULE 6.8 PENDING GOVERNMENT INVESTIGATIONS NONE. SCHEDULE 6.13 FINANCIAL STATEMENTS [SEE ATTACHED] AMERICAN PHARMACEUTICAL SERVICES, INC. Austin September 30, 1995
Desc October November December January February March April May June July - ------------------------------------------------------------------------------------------------------------------------------------ Revenue Enteral 56,691 56,261 50,513 40,722 40,381 43,913 54,765 49,889 53,384 56,409 Wholesale 6,574 11,202 9,729 11,585 11,890 10,456 10,616 13,512 10,265 14,748 Billing Service Fee 1,000 1,100 1,000 520 890 450 770 810 1,790 660 Option 10,231 7,074 8,968 8,125 10,282 11,779 9,240 13,187 14,619 13,153 ------- ------- ------- ------- ------- ------ ------ ------ ------ ------ Enteral Total 74,496 75,637 70,210 60,952 63,443 66,598 75,391 77,398 80,058 84,970 Urological 17,150 18,886 20,417 18,130 17,805 8,879 16,996 15,583 20,641 23,689 Wholesale 0 0 0 0 0 0 0 0 0 0 ------- ------- ------- ------- ------ ------ ------ ------ ------ ------ Urological Total 17,150 18,886 20,417 18,130 17,805 8,879 16,996 15,583 20,641 23,689 Orthotics 9,514 8,244 5,616 4,017 5,003 0 0 0 3,006 3,409 Wholesale 0 0 0 0 0 0 0 0 0 0 ------- ------- ------- ------- ------ ------ ------- ------ ------ ------ Orthotics Total 9,514 8,244 5,616 4,017 5,003 0 0 0 3,006 3,409 Wound Care Part B 3,930 253 3,184 (493) 3,682 5,484 2,757 9,893 2,003 41,375 Wound Care Non B/Whse 0 0 0 0 0 56 258 450 (256) 371 -------- ------- ------- ------- ------ ------ ------ ------ ------ ----- Wound Care Total 3,930 253 3,184 (493) 3,682 5,540 3,015 10,343 1,747 41,746 I.V. 3,420 5,376 10,281 7,610 11,726 26,079 5,791 7,964 14,379 17,159 Pharmacy 146,380 150,807 149,769 151,196 123,581 155,678 159,676 179,227 185,874 58,415 Medicaid 99,573 107,073 129,104 126,595 119,478 150,463 117,363 135,263 128,952 81,335 Contractual Allowance (6,876) (11,571) (16,346) (16,347) (16,347) (30,093) (23,473) (27,053) (25,791) 36,267) Consulting 6,907 5,640 5,061 5,157 5,474 15,340 9,660 16,177 13,673 16,012 Correctional 0 0 0 0 0 0 0 0 0 0 Corr. Billing Serv. Fee 0 0 0 0 0 0 0 0 0 0 Oxygen 0 0 0 0 0 0 0 0 0 0 Oxygen Medicaid 0 0 0 0 0 0 0 0 0 0 Retail 21,906 13,231 11,506 12,288 21,541 20,450 9,358 32,078 5,074 (4,940) Other (92) 0 0 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------ Pharmacy Total 267,798 265,180 279,094 278,889 253,727 311,838 272,594 335,692 307,982 14,555 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------ Total Revenue 376,308 373,576 388,802 369,105 355,386 418,934 373,787 446,980 427,813 85,528 Contractual Allowance % (6.9%) (10.6%) (12.7%) (12.9%) (13.7%) (20.0%) (20.0%) (20.0%) (20.0%) (20.0%)
Desc August September YTD Actuals - --------------------------------------------------------------------- Revenue Enteral 61,139 74,608 638,675 Wholesale 13,434 10,961 134,972 Billing Service Fee 770 470 10,230 Option 4,975 7,284 118,917 ------- ------ ------- Enteral Total 80,318 93,323 902,794 Urological 15,944 16,973 211,093 Wholesale 0 0 0 ------ ------ ------- Urological Total 15,944 16,973 211,093 Orthotics 0 0 38,809 Wholesale 0 0 0 ------ ------ ------- Orthotics Total 0 0 38,809 Wound Care Part B 21,099 33,076 126,243 Wound Care Non B/Whse 690 1,092 2,661 ------ ------- ------- Wound Care Total 21,789 34,168 128,904 I.V. 9,022 13,841 132,648 Pharmacy 206,236 188,738 1,957,667 Medicaid 149,080 149,448 1,593,727 Contractual Allowance (29,816) (29,890) (269,870) Consulting 16,639 15,671 131,611 Correctional 0 0 0 Corr. Billing Serv. Fee 0 0 0 Oxygen 0 0 0 Oxygen Medicaid 0 0 0 Retail 8,063 (258) 150,307 Other 0 0 (92) Pharmacy Total 352,292 323,909 3,563,550 ------- ------- --------- Total Revenue 479,365 482,214 4,977,796 Contractual Allowance % (20.0%) (20.0%) (16.9%)
Page 1 AMERICAN PHARMACEUTICAL SERVICES, INC. Austin September 30, 1995
Desc October November December January February March April May June July - ---------------------------------------------------------------------------------------------------------------------------------- COGS Enteral 29,242 34,793 23,236 18,732 18,575 20,200 25,192 22,949 24,556 25,948 Wholesale 3,391 0 4,475 5,329 5,469 4,810 4,883 6,216 4,722 6,784 Option 5,278 0 4,585 3,977 5,139 7,783 4,604 6,438 7,548 6,354 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Enteral Total 37,911 34,793 32,296 28,038 29,183 32,793 34,679 35,603 36,826 39,086 Urological 12,540 8,688 9,392 8,340 8,190 4,084 7,818 7,168 9,495 10,897 Wholesale 0 0 0 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Urological Total 12,540 8,688 9,392 8,340 8,190 4,084 7,818 7,168 9,495 10,897 Orthotics 0 3,792 2,584 1,848 2,301 0 0 0 1,383 1,568 Wound Care 0 116 1,465 (227) 1,694 2,546 1,658 5,689 961 22,960 I.V. 0 1,882 3,598 2,663 4,104 9,127 2,027 2,787 5,033 6,005 Pharmacy 170,221 169,221 178,669 178,473 161,861 193,317 226,693 146,588 188,680 194,650 Contractual Allowance 0 0 0 0 0 0 0 0 0 0 Correctional 0 0 0 0 0 0 0 0 0 0 Oxygen 0 0 0 127 0 0 0 174 0 0 Retail 0 0 0 0 0 0 0 0 0 0 Other 17,293 3,303 4,861 2,270 2,046 (6,592) 877 (206) 1,617 921 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Pharmacy Total 187,514 172,524 183,530 180,870 163,907 186,725 227,570 146,556 190,297 195,571 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total COGS 237,965 221,795 232,865 221,532 209,379 235,277 273,752 197,803 243,995 276,067
Desc August September YTD Actuals - ---------------------------------------------------------------- COGS Enteral 26,124 4,152 275,699 Wholesale 6,180 5,042 57,301 Option 2,643 3,567 57,916 ------- ------- --------- Enteral Total 36,947 12,761 390,916 Urological 7,334 7,808 101,754 Wholesale 0 0 0 ------- ------- --------- Urological Total 7,334 7,808 101,754 Orthotics 0 0 13,476 Wound Care 11,984 21,408 70,256 I.V. 3,158 4,845 45,229 Pharmacy 218,845 200,841 2,228,059 Contractual Allowance 0 0 0 Correctional 0 0 0 Oxygen 0 0 301 Retail 0 0 0 Other 1,805 2,504 30,699 ------- ------- --------- Pharmacy Total 220,650 203,345 2,259,059 ------- ------- --------- Total COGS 280,073 150,167 2,680,690
Page 2 AMERICAN PHARMACEUTICAL SERVICES, INC. Austin September 30, 1995
Desc October November December January February March April - ------------------------------------------------------------------------------------------------------------ Gross Profit Enteral 27,449 21,468 27,277 21,990 21,806 23,713 29,573 Wholesale 3,183 11,202 5,254 6,256 6,421 5,646 5,733 Billing Service Fee 1,000 1,100 1,000 520 890 450 770 Option 4,953 7,074 4,383 4,148 5,143 3,996 4,636 ------- ------- ------- ------- ------- ------- ------- Total Enteral 36,585 40,844 37,914 32,914 34,260 33,805 40,712 Urological 4,610 10,198 11,025 9,790 9,615 4,795 9,178 Wholesale 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- ------- Total Urological 4,610 10,198 11,025 9,790 9,615 4,795 9,178 Total Orthotics 9,514 4,452 3,032 2,169 2,702 0 0 Total Wound Care 3,930 137 1,719 (266) 1,988 2,992 1,357 Total I.V. 3,420 3,494 6,683 4,947 7,622 16,952 3,764 Pharmacy 75,732 88,659 100,204 99,318 81,198 112,824 50,346 Contractual Allowance (6,876) (11,571) (16,346) (16,347) (16,347) (30,093) (23,473) Consulting 6,907 5,640 5,061 5,157 5,474 15,340 9,660 Correctional 0 0 0 0 0 0 0 Oxygen 0 0 0 (127) 0 0 0 Retail 21,906 13,231 11,506 12,288 21,541 20,450 9,368 Other (17,385) (3,303) (4,861) (2,270) (2,046) 6,592 (877) ------- ------- ------- ------- ------- ------- ------- Total Pharmacy 80,284 92,656 95,564 98,019 89,820 125,113 45,024 ------- ------- ------- ------- ------- ------- ------- Total Gross Profit 138,343 151,781 155,937 147,573 146,007 183,657 100,035 Enteral % 49.1% 54.0% 54.0% 54.0% 54.0% 50.8% 54.0% Urological % 26.9% 54.0% 54.0% 54.0% 54.0% 54.0% 54.0% Orthotics % 100.0% 54.0% 54.0% 54.0% 54.0% 0.0% 0.0% Wound Care % 100.0% 54.2% 54.0% 54.0% 54.0% 54.0% 45.0% I.V. % 100.0% 65.0% 65.0% 65.0% 65.0% 65.0% 65.0% Pharmacy % 30.0% 34.9% 34.2% 35.1% 35.4% 40.1% 16.5% Total Gross Profit % 36.8% 40.6% 40.1% 40.0% 41.1% 43.8% 26.8%
Desc May June July August September YTD Actuals - ----------------------------------------------------------------------------------------------------- Gross Profit Enteral 26,940 28,828 30,461 33,015 70,456 362,976 Wholesale 7,296 5,543 7,964 7,254 5,919 77,671 Billing Service Fee 810 1,790 660 770 470 10,230 Option 6,749 7,071 6,799 2,332 3,717 61,001 ------- ------- ------- ------- ------- --------- Total Enteral 41,795 43,232 45,884 43,371 80,562 511,878 Urological 8,415 11,146 12,792 8,610 9,165 109,339 Wholesale 0 0 0 0 0 0 ------- ------- ------- ------- ------- --------- Total Urological 8,415 11,146 12,792 8,610 9,165 109,339 Total Orthotics 0 1,623 1,841 0 0 25,333 Total Wound Care 4,654 786 18,786 9,805 12,760 58,648 Total I.V. 5,177 9,346 11,154 5,864 8,996 87,419 Pharmacy 167,902 126,146 145,100 138,561 137,345 1,323,335 Contractual Allowance (27,053) (25,791) (36,267) (29,816) (29,890) (269,870) Consulting 16,177 13,873 16,012 16,639 15,871 131,811 Correctional 0 0 0 0 0 0 Oxygen (174) 0 0 0 0 (301) Retail 32,078 5,074 (4,940) 8,063 (258) 150,307 Other 206 (1,617) (921) (1,805) (2,504) (30,791) ------- ------- ------- ------- ------- --------- Total Pharmacy 189,136 117,685 118,984 131,642 120,564 1,304,491 ------- ------- ------- ------- ------- --------- Total Gross Profit 249,177 183,818 209,441 199,292 232,047 2,097,108 Enteral % 54.0% 54.0% 54.0% 54.0% 56.3% 56.7% Urological % 54.0% 54.0% 54.0% 54.0% 54.0% 51.8% Orthotics % 0.0% 54.0% 54.0% 0.0% 0.0% 65.3% Wound Care % 45.0% 45.0% 45.0% 45.0% 37.3% 45.5% I.V. % 65.0% 65.0% 65.0% 65.0% 65.0% 65.9% Pharmacy % 56.3% 38.2% 37.8% 37.4% 37.2% 36.6% Total Gross Profit % 55.7% 43.0% 43.1% 41.6% 48.1% 42.1%
Page 3 AMERICAN PHARMACEUTICAL SERVICES, INC. Austin September 30, 1995
Desc October November December January - ------------------------------------------------------------------------------- Salaries 72,497 91,062 79,699 81,379 Mtb Bonus 1,668 1,668 1,688 1,668 A/R Bonus (706) 0 0 0 Commissions 4,591 2,078 4,120 694 FICA Taxes 5,724 5,630 6,163 6,297 Unemployment Taxes 156 153 577 1,110 Workmen's Comp Insurance 4,328 4,204 6,403 4,995 General Insurance 1,510 1,510 5,896 390 Denver City Tax 0 0 0 0 Group Health Insurance 1,577 8,805 5,582 6,245 401K 0 98 163 110 ------- ------- ------- ------- Salaries 91,343 115,206 110,269 102,886 Vehicle GE Capital 83 0 63 68 Vehicle Repairs 0 0 0 0 Vehicle Gasoline 697 0 0 1,462 Vehicle Misc. 0 1,428 155 629 ------- -------- ------- ------- Vehicle 780 1,428 218 2,159 Travel & Lodging 883 3,465 1,781 2,683 Meats 535 219 161 334 Entertainment 255 333 497 62 Mileage 541 0 0 0 Car Allowance 1,200 1,500 1,500 1,500 Shows & Conventions 4,907 381 0 0 ------- ------- -------- ------- Travel Expense 8,321 5,898 3,939 4,579 Consulting Services 5000 1,600 610 575 Audit Fees 0 0 0 0 Legal Fees 0 0 0 0 Misc Professional Services 1,436 1,476 3,799 1,184 ------- ------- ------- ------- Professional Services 1,936 3,078 4,409 1,759 Office Space 7,584 0 6,695 6,695 Other Space Rental 91 0 91 202 ------- ------- ------- ------- Space Rental 7,675 0 6,766 6,897
Desc. June July August September - ------------------------------------------------------------------------------- C> Salaries 79,797 78,929 84,148 79,287 Mtb Bonus 4,833 3,633 4,933 5,833 A/R Bonus 184 0 0 (334) Commissions 292 1,798 2,165 1,794 FICA Taxes 5,885 7,664 6,118 6,703 Unemployment Taxes 194 186 181 119 Workmen's Comp Insurance 6,499 3,448 (1,207) 1,028 General Insurance (1,845) 2,539 3,375 2,183 Denver City Tax 0 0 0 0 Group Health Insurance 5,486 5,904 5,528 4,832 401K 245 174 174 14 ------- ------- ------- ------- Salaries 101,570 104,275 105,415 100,457 Vehicle GE Capital 1,126 1,117 1,117 1,110 Vehicle Repairs 213 1,056 1,528 1,969 Vehicle Gasoline 0 1,702 0 3,671 Vehicle Misc. 0 0 0 0 ------- ------- ------- ------- Vehicle 1,339 3,875 2,645 6,750 Travel & Lodging 4,245 2,175 1,528 1,624 Meats 320 388 278 372 Entertainment 0 144 0 338 Mileage 0 0 0 0 Car Allowance 1,500 1,500 1,500 1,500 Shows & Conventions 403 0 0 0 ------- ------- ------- ------- Travel Expense 6,468 4,207 3,306 3,834 Consulting Services 0 0 0 0 Audit Fees 0 0 0 0 Legal Fees 1,069 (138) (1,089) 75 Misc Professional Services 530 0 865 210 ------- ------- ------- ----- Professional Services 1,619 (138) (224) 285 Office Space 7,203 7,627 6,127 6,127 Other Space Rental 168 256 394 230 ------- ------- ------- ------- Space Rental 7,371 7,883 6,521 6,357
Page 4 AMERICAN PHARMACEUTICAL SERVICES, INC. Austin September 30, 1995
Desc October November December January February March ------- -------- -------- ------- -------- ----- Machine & Equipment 1,022 1,337 1,412 (73) 925 925 Furn & Fixtures 412 412 392 (926) 687 550 Vehicles 818 2,154 1,724 6,228 2,201 2,201 Leasehold Improvements 1,473 1,473 1,473 1,473 1,473 1,468 Building Improvements 0 0 0 0 0 0 Durable Medical Equip 0 0 0 0 0 0 Computer Hardware 1,358 1,358 1,321 2,900 1,395 1,395 Computer Software 0 0 0 0 0 0 ------ ------ ------ ------ ------ ------ Depreciation Expenses 5,083 6,734 6,322 9,602 6,681 6,539 Employee Relations 375 107 202 827 342 273 Temporary Services 124 0 0 0 0 0 Employee Education 1,592 63 63 63 75 119 Recruiting 1,200 1,200 1,054 1,000 0 0 Office Supplies 1,728 2,063 3,691 2,708 1,428 2,000 Independent Business 0 0 776 200 875 75 Small Equipment 0 0 0 0 0 0 Furniture & Equip Rentals 513 395 1,517 539 342 1,001 Repairs & Maintenance 52 3,159 2,162 1,135 373 495 Telephone 4,114 3,286 1,384 6,422 2,901 2,182 Cellular Phone 178 239 262 258 370 534 Advertising 583 421 307 618 935 (112) Postage 483 581 527 103 811 343 Freight 94 54 0 1,149 488 89 Janitorial 351 351 351 351 351 351 Dues/Subscription 12 0 44 0 0 40 Professional Licenses 0 0 420 0 85 0 Uniforms 0 0 0 0 0 0 Computer 0 11 0 864 2,065 907 Utilities 1,189 0 827 2,622 2,404 602 General Taxes 0 0 0 (1,580) 0 294 Tax Penalty 0 147 0 0 0 0 Donations & Contributions 0 0 0 0 0 0 Property Taxes 1,325 1,325 1,325 9,453 1,325 1,325 LTC Link 0 0 0 0 0 0 Other Misc Income 0 0 (1,706) 0 0 (500) Other Misc Expenses 0 (61) 0 17,050 0 0 ------ ------ ------ ------ ------ ------ Other Misc. Expenses 13,911 13,361 13,204 43,862 15,170 10,018 ------ ------ ------ ------ ------ ------ Total Other Expenses 37,706 30,497 34,878 68,858 40,024 37,312
YTD Desc May June July August September Actuals --- ---- ---- ------ --------- ------- Machine & Equipment 925 1,398 1,017 1,089 5,982 16,884 Furn & Fixtures 580 580 454 758 734 5,183 Vehicles 2,028 2,099 1,711 2,099 2,099 22,978 Leasehold Improvements 1,473 1,473 1,473 1,473 1,473 17,671 Building Improvements 0 0 0 0 0 0 Durable Medical Equip 0 0 0 0 0 0 Computer Hardware 1,395 1,395 1,395 1,395 1,395 18,097 Computer Software 0 0 0 0 0 0 ------ ------ ------ ------ ------ ------- Depreciation Expenses 6,401 6,945 6,050 6,814 11,683 80,813 Employee Relations 182 197 125 75 45 2,869 Temporary Services 0 0 65 100 0 289 Employee Education 66 74 72 101 66 2,420 Recruiting 0 0 0 0 0 4,454 Office Supplies 2,924 (340) 1,780 2,878 2,893 24,616 Independent Business 622 898 2,381 563 1,478 8,729 Small Equipment 9 0 0 0 0 9 Furniture & Equip Rentals 469 972 678 2,142 1,315 9,905 Repairs & Maintenance 1,870 (2,159) 587 678 619 9,297 Telephone 2,461 2,575 3,018 2,725 1,673 33,873 Cellular Phone 319 864 47 1,285 687 5,347 Advertising 1,705 677 736 689 850 7,809 Postage 734 199 428 625 287 6,902 Freight 210 972 103 16 249 3,568 Janitorial 392 351 351 0 351 3,902 Dues/Subscription 0 6 0 80 0 577 Professional Licenses 0 0 0 0 0 505 Uniforms 0 0 0 843 136 979 Computer 1,560 2,039 2,387 1,329 1,347 13,013 Utilities 2,282 1,144 1,261 1,329 1,247 15,568 General Taxes 22 0 61 13 127 (911) Tax Penalty 94 0 0 0 0 241 Donations & Contributions 0 0 0 0 0 0 Property Taxes 1,325 1,325 1,325 1,325 1,325 24,028 LTC Link 0 0 0 (594) (108) (702) Other Misc Income 0 0 0 (247) (13) (2,468) Other Misc Expenses 0 128 (582) 0 0 16,535 ------ ------ ------ ------ ------ ------- Other Misc. Expenses 17,246 9,922 14,823 15,955 14,574 191,354 ------ ------ ------ ------ ------ ------- Total Other Expenses 35,213 33,684 36,700 35,017 43,483 457,323
Page 5 AMERICAN PHARMACEUTICAL SERVICES, INC. Austin September 30, 1995
Desc October November December January February - --------------------------------------------------------------------------------- Partner Service Charges 0 0 0 0 0 Bad Debt Facility 1,663 671 1,920 2,068 2,068 Bad Debt Medicare 5,404 1,171 4,097 3,472 4,261 Bad Debt Medicaid 2,781 2,865 3,383 3,308 3,094 Bad Debt Private 5,259 3,286 4,990 5,060 4,518 Bad Debt Other 0 215 411 305 569 ------- ------- ------- ------- ------- Bad Debt 15,127 8,208 14,801 14,211 14,408 Total Operating Expense 144,178 153,911 159,948 185,955 152,451 Amortization Nondeductible 0 0 0 0 0 Amortization Deductible 0 0 0 0 0 Earnings From Operations (5,833) 2,130 (4,011) (38,382) (6,444) Interest/Income/Dividend 0 0 0 0 0 Interest Expense 338 22 182 187 164 Minority Interest 0 0 0 0 0 ------- ------- ------- ------- ------- Earnings Before Allocations (6,171) (2,152) (4,193) (38,569) (6,608) Corporate Allocations 0 0 0 0 0 ------- ------- ------- ------- ------- Earnings Before Taxes (6,171) (2,152) (4,193) (38,569) (6,608) State Income Tax 0 0 0 0 0 Federal Income Tax 0 0 0 0 0 ------- ------- ------- ------- ------- Income Tax 0 0 0 0 0 Net Income (6,171) (2,152) (4,193) (38,569) (6,608) ======= ======= ====== ======= ======
Percent to Sales ---------------- Salaries % 24.3% 30.8% 28.4% 27.9% 27.6% Vehicle % 0.2% 0.4% 0.1% 0.6% 0.3% Professional Services % 0.5% 0.6% 1.1% 0.5% 0.9% Space Rental % 2.0% 0.0% 1.7% 1.9% 2.5% Depreciation % 1.4% 1.8% 1.6% 2.6% 1.9% Other Misc. Expense % 3.7% 3.6% 3.4% 11.9% 4.3% Total Other Expenses % 10.0% 8.2% 9.0% 18.7% 11.3% Bad Debt % 4.0% 2.2% 3.8% 3.9% 4.1% Total Op. Expense % 38.3% 41.2% 41.1% 50.4% 42.9% Earnings From Operations % (1.6%) (0.6%) (1.0%) (10.4%) (1.8%) Net Income % (1.6%) (0.6%) (1.1%) (10.4%) (1.9%)
Desc August September YTD Actuals - ---------------------------------------------------------------- Partner Service Charges 0 0 0 Bad Debt Facility 2,071 1,823 22,904 Bad Debt Medicare 4,663 8,701 59,749 Bad Debt Medicaid 3,578 3,587 39,717 Bad Debt Private 4,991 6,131 63,458 Bad Debt Other 361 554 5,169 ------- ------- ------- Bad Debt 15,864 20,796 190,997 Total Operating Expense 156,296 164,736 1,927,844 Amortization Nondeductible 0 0 0 Amortization Deductible 0 0 0 Earnings From Operations 42,996 67,311 169,264 Interest/Income/Dividend 0 0 0 Interest Expense (12,568) 1,617 7,063 Minority Interest 0 0 0 ------- ------- ------- Earnings Before Allocations 55,564 65,694 162,201 Corporate Allocations 0 0 0 ------- ------- ------- Earnings Before Taxes 55,564 65,694 162,201 State Income Tax 0 0 0 Federal Income Tax 0 0 0 ------- ------- ------- Income Tax 0 0 0 Net Income 55,564 65,694 162,201 ======= ====== =======
Percent to Sales ---------------- Salaries % 22.0% 20.8% 25.7% Vehicle % 0.6% 1.4% 0.6% Professional Services % (0.0%) 0.1% 0.4% Space Rental % 1.4% 1.3% 1.6% Depreciation % 1.4% 2.4% 1.6% Other Misc. Expense % 3.3% 3.0% 3.8% Total Other Expenses % 7.3% 9.0% 9.2% Bad Debt % 3.3% 4.3% 3.8% Total Op. Expense % 32.6% 34.2% 38.7% Earnings From Operations % 9.0% 14.0% 3.4% Net Income % 11.6% 13.6% 3.3%
AMERICAN PHARMACEUTICAL SERVICES, INC. Austin September 30, 1996
Desc October November December January February - ------------------------------------------------------------------------------------ Revenue Enteral 54,452 46,134 51,198 43,299 84,699 Wholesale 12,580 12,357 11,514 11,008 9,883 Billing Service Fee 600 720 540 300 330 Option 5,214 6,453 2,508 1,590 2,596 ------- -------- ------- ------- ------- Enteral Total 72,846 85,664 65,760 56,197 97,508 Urological 12,527 13,658 13,522 16,062 14,967 Wholesale 0 0 0 0 0 ------- ------- ------- ------- ------- Urological Total 12,527 13,658 13,522 16,062 14,967 Orthotics 867 0 0 0 0 Wholesale 0 0 0 0 0 ------- ------- ------- ------- ------- Orthotics Total 867 0 0 0 0 Wound Care Part B 32,328 40,130 (6,999) 21,377 19,380 Wound Care Non B/Whlse 879 510 1,130 2,052 (121) ------- ------- ------- ------- ------- Wound Car Total 33,207 40,640 (5,869) 23,429 19,259 Vencor/Vencare 0 0 0 0 1,581 Resp Supplies 0 0 0 0 0 Concent Rentals 0 0 0 0 0 ------- ------- ------- ------- ------- Respiratory Total 0 0 0 0 1,581 I.V. 9,183 16,909 5,900 16,261 18,879 Pharmacy 209,510 164,770 192,077 214,848 200,433 Medicaid 158,068 146,975 150,098 158,402 122,383 Contractual Allowance (31,614) (29,395) (30,020) (31,680) (24,477) Consulting 18,697 16,049 10,286 8,947 13,579 Correctional 0 0 0 0 0 Corr. Billing Serv. Fee 0 0 0 0 0 Oxygen 0 0 0 0 0 Oxygen Medicaid 0 0 0 0 0 Retail 4,176 1,744 3,041 3,742 1,993 Other 0 0 0 0 0 -------- ------- ------- ------- ------- Pharmacy Total 358,837 300,143 325,482 354,259 313,911 ------- ------- ------- ------- ------- Total Revenue 487,467 437,014 404,795 466,206 466,105 Contractual Allowance % (20.0%) (20.0%) (20.0%) (20.0%) (20.0%)
Desc August September YTD Actuals - --------------------------------------------------------------------- Revenue Enteral 15,208 49,457 654,504 Wholesale 3,020 8,259 112,094 Billing Service Fee (450) 0 2,760 Option 0 0 21,168 ------- ------ ------- Enteral Total 17,778 57,716 690,546 Urological 7,014 7,335 131,849 Wholesale 0 0 0 ------ ------ ------- Urological Total 7,014 7,335 131,849 Orthotics (2,052) 0 5,553 Wholesale 0 0 0 ------ ------ ------- Orthotics Total (2,052) 0 5,533 Wound Care Part B 2,823 21,756 210,318 Wound Care Non B/Whlse (10) 338 6,280 ------ ------- ------- Wound Car Total 2,813 22,094 216,598 Vencor/Vencare 1,631 1,539 11,187 Resp Supplies 0 0 0 Concent Rentals 0 0 0 ------ ------ ------- Respiratory Total 1,631 1,539 11,187 I.V. 20,569 11,759 177,205 Pharmacy 196,643 195,336 2,360,009 Medicaid 261,053 239,651 2,346,996 Contractual Allowance (52,211) (47,930) (469,401) Consulting 13,739 13,795 163,960 Correctional 0 0 0 Corr. Billing Serv. Fee 0 0 0 Oxygen 0 0 0 Oxygen Medicaid 0 0 0 Retail 2,442 1,983 37,858 Other 408 2,361 2,835 ------- ------- --------- Pharmacy Total 424,074 405,196 4,442,279 ------- ------- --------- Total Revenue 471,827 505,639 5,675,197 Contractual Allowance % (20.0%) (20.0%) (20.0%)
AMERICAN PHARMACEUTICAL SERVICES, INC. Austin September 30, 1996
Desc October November December January February Ma - ------------------------------------------------------------------------------------ COGS Enteral 24,367 20,645 22,911 19,376 37,903 3 Wholesale 5,629 5,530 5,152 4,926 4,423 4 Option 2,602 3,210 1,365 1,113 1,617 1 ------- ------- ------- ------- ------- --- Enteral Total 32,598 29,385 29,428 25,415 44,143 9 Urological 7,720 8,417 8,333 9,899 9,224 7 Wholesale 534 (534) 0 0 0 ------- ------- ------- ------- ------- --- Urological Total 8,254 7,883 8,333 9,899 9,224 7 Orthotics 399 0 0 0 0 Wound Care 15,986 19,565 (2,825) 11,278 9,271 7 Vencor/Vencare 0 0 0 0 1,423 1 Resp Supplies 0 0 0 0 0 Concent Rentals 0 0 0 0 0 ------- ------- ------- ------- ------- --- Respiratory total 0 0 0 0 1,423 1 I.V. 3,306 6,087 2,124 5,854 6,796 6 Pharmacy 207,928 173,667 189,557 211,089 183,593 205 Contractual Allowance 0 0 0 0 0 Correctional 0 0 0 0 0 Oxygen 0 0 0 0 0 Retail 0 2,570 (2,570) 0 0 Other 676 3,335 3,128 1,289 3,243 1 ------- ------- ------- ------- ------- --- Pharmacy Total 208,604 179,572 190,115 212,378 186,836 207 ------- ------- ------- ------- ------- --- Total COGS 269,147 242,492 227,175 264,824 257,693 240
Desc May June July August September - ---------------------------------------------------------------------------------- COGS Enteral 24,448 43,962 (6,431) 5,931 19,288 Wholesale 5,888 4,059 5,937 7,780 7,601 Option 0 0 0 0 0 ------- ------- ------- ------- ------- Enteral Total 30,336 48,021 (494) 8,711 26,889 Urological 6,686 2,642 5,960 4,910 5,134 Wholesale 0 0 0 0 0 ------- ------- ------- ------- ------- Urological Total 6,686 2,642 5,960 4,910 5,134 Orthotics (143) (128) 2,809 (944) 0 Wound Care 8,924 6,919 10,424 1,407 11,047 Vencor/Vencare 785 1,959 (363) 1,468 1,320 Resp Supplies 0 0 0 0 0 Concent Rentals 0 0 0 0 0 ------- ------- ------- ------- ------- Respiratory total 785 1,959 (363) 1,468 1,320 I.V. 4,525 4,608 9,705 12,788 7,311 Pharmacy 248,789 220,210 266,053 263,312 243,381 Contractual Allowance 0 0 0 0 0 Correctional 0 0 0 0 0 Oxygen 0 0 0 0 0 Retail 0 0 0 0 0 Other 740 4,565 4 2,076 1,861 ------- ------- ------- ------- ------- Pharmacy Total 249,529 224,775 266,057 265,388 245,242 ------- ------- ------- ------- ------- Total COGS 300,642 288,796 294,098 293,728 296,943
AMERICAN PHARMACEUTICAL SERVICES, INC. Austin September 30, 1996
Desc October November December January February March April - ------------------------------------------------------------------------------------------------------------ Gross profit Enteral 30,085 25,489 28,287 23,923 46,796 3,886 27,177 Wholesale 6,951 6,827 6,362 6,082 5,460 5,714 5,010 Billing Service Fee 600 720 540 300 330 480 70 Option 2,612 3,243 1,143 477 779 848 0 ------- ------- ------- ------- ------- ------- ------- Total Enteral 40,248 36,279 36,332 30,782 53,365 10,928 32,257 Urological 4,807 5,241 5,189 6,163 5,743 4,926 4,119 Wholesale (534) 534 0 0 0 0 0 ------- ------- ------- ------- ------- ------- ------- Total Urological 4,273 5,775 5,189 6,163 5,743 4,926 4,119 Total Orthotics 468 0 0 0 0 0 653 Total Wound Care 17,221 21,075 (3,044) 12,151 9,988 8,112 6,160 Vencor/Vencare 0 0 0 0 158 252 196 Resp Supplies 0 0 0 0 0 0 0 Concent Rentals 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- ------- Respiratory Total 0 0 0 0 158 252 196 Total I.V. 5,877 10,822 3,776 10,407 12,083 11,999 17,088 Pharmacy 159,650 138,078 152,618 162,161 139,223 163,424 190,088 Contractual Allowance (31,614) (29,395) (30,020) (31,680) (24,477) (34,774) (47,130) Consulting 18,697 16,049 10,286 8,947 13,579 13,586 13,855 Correctional 0 0 0 0 0 0 0 Oxygen 0 0 0 0 0 0 0 Retail 4,176 (826) 5,611 3,742 1,993 2,133 3,022 Other (676) (3,335) (3,128) (1,289) (3,243) (1,619) (3,909) ------- ------- ------- ------- ------- ------- ------- Total Pharmacy 150,233 120,571 135,367 141,881 127,075 142,750 155,926 ------- ------- ------- ------- ------- ------- ------- Total Gross Profit 218,320 194,522 177,620 201,384 208,412 178,967 216,399 Enteral % 55.3% 55.2% 55.2% 54.8% 54.7% 52.8% 55.3% Urological % 34.1% 42.3% 38.4% 38.4% 38.4% 38.4% 38.4% Orthotics % 54.0% 0.0% 0.0% 0.0% 0.0% 0.0% 54.0% Wound Care % 51.9% 51.9% 51.9% 51.9% 51.9% 51.9% 51.9% Respiratory % 0.0% 0.0% 0.0% 0.0% 10.0% 14.0% 0 I.V. % 64.0% 64.0% 64.0% 64.0% 64.0% 64.0% 64.0% Pharmacy % 41.9% 40.2% 41.6% 40.1% 40.5% 40.8% 40.0% Total Gross Profit % 44.8% 44.5% 43.9% 43.2% 44.7% 42.6% 43.3%
Desc May June July August September YTD Actuals - ----------------------------------------------------------------------------------------------------- Gross profit Enteral 30,186 71,728 (10,058) 9,277 30,169 316,945 Wholesale 7,269 399 513 240 658 51,485 Billing Service Fee 170 (300) 300 (450) 0 2,760 Option 0 0 0 0 0 9,102 ------- ------- ------- ------- ------- --------- Total Enteral 37,625 71,827 (9,245) 9,067 30,827 380,292 Urological 4,162 1,187 2,554 2,104 2,201 48,396 Wholesale 0 0 0 0 0 0 ------- ------- ------- ------- ------- --------- Total Urological 4,162 1,187 2,554 2,104 2,201 48,396 Total Orthotics (169) (157) 3,297 (1,108) 0 2,964 Total Wound Care 9,613 7,201 10,424 1,406 11,047 111,354 Vencor/Vencare 117 299 (122) 163 219 1,282 Resp Supplies 0 0 0 0 0 0 Concent Rentals 0 0 0 0 0 0 ------- ------- ------- ------- ------- --------- Respiratory Total 117 299 (122) 163 219 1,282 Total I.V. 8,045 2,925 2,489 7,781 4,448 97,740 Pharmacy 195,399 169,781 205,758 196,384 191,606 2,064,170 Contractual Allowance (46,052) (43,856) (50,262) (52,211) (47,930) (469,401) Consulting 13,925 13,819 13,703 13,739 13,795 163,960 Correctional 0 0 0 0 0 0 Oxygen 0 0 0 0 0 0 Retail 8,783 2,466 2,333 2,442 1,983 37,858 Other (674) (4,565) (4) (1,665) 500 (23,610) ------- ------- ------- ------- ------- --------- Total Pharmacy 171,381 137,645 171,528 158,686 159,954 1,772,997 ------- ------- ------- ------- ------- --------- Total Gross Profit 230,774 220,927 180,925 178,099 206,696 2,415,045 Enteral % 55.4% 59.9% 94.9% 51.0% 53.4% 55.1% Urological % 38.4% 31.0% 30.0% 30.0% 30.0% 36.7% Orthotics % 54.2% 55.1% 54.0% 54.0% 0.0% 53.9% Wound Care % 51.9% 51.0% 50.0% 50.0% 50.0% 51.4% Respiratory % 13.0% 13.2% 25.2% 10.0% 14.2% 11.5% I.V. % 64.0% 38.8% 20.4% 37.8% 37.8% 55.2% Pharmacy % 40.7% 38.0% 39.2% 37.4% 39.5% 39.9% Total Gross Profit % 43.4% 43.3% 38.1% 37.7% 41.3% 42.6%
Page 15 AMERICAN PHARMACEUTICAL SERVICES, INC. Austin September 30, 1996
Desc October November December January February March April May - -------------------------------------------------------------------------------------------------------------------------------- Salaries 79,945 76,423 79,141 78,665 72,718 72,842 81,405 79,025 MtB Bonus 1,668 1,666 1,666 (211) 1,197 1,197 (7,181) 0 A/R Bonus 4,509 4,489 (7,873) 573 248 (231) 186 73 Commissions 1,101 3,395 3,422 1,674 2,377 2,389 1,014 1,906 FICA Taxes 5,723 5,234 5,002 6,426 5,705 5,706 5,490 5,830 Unemployment Taxes 37 87 53 1,893 855 494 243 182 Workmen's Comp Insurance 3,407 3,212 3,662 3,129 3,023 3,087 3,489 3,349 General Insurance 2,069 1,975 2,228 1,925 1,857 1,862 2,080 2,041 Denver City Tax 0 0 0 0 0 0 0 0 Group Health Insurance 5,885 4,752 5,083 5,235 5,361 (2,098) 2,992 4,669 401K 0 0 0 287 153 241 183 308 ------- ------- ------- ------- ------- ------- ------- ------- Salaries 104,342 101,233 92,384 99,596 93,494 85,489 89,901 97,383 Vehicle GE Capital 132 89 98 89 83 160 0 124 Vehicle Repairs 146 214 1,830 921 1,158 1,536 709 722 Vehicle Gasoline 0 3,785 53 4,056 1,863 10 2,372 3,377 Vehicle Misc. 0 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- ------- ------- Vehicle 278 4,088 1,981 5,068 3,104 1,706 3,081 4,223 Travel & Lodging 1,529 1,162 249 406 (158) 172 0 173 Meals 95 288 222 292 146 141 22 103 Entertainment 0 0 742 75 45 98 84 61 Mileage 0 679 1,216 1,543 1,487 1,270 1,612 1,523 Car Allowance 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 Shows & Conventions 0 8 0 0 0 0 0 0 ------- ------- -------- ------- ------- ------- ------- ------- Travel Expense 3,124 3,637 3,929 3,816 3,020 3,181 3,218 3,360 Consulting Services 0 0 2,198 1,060 0 0 0 0 Audit Fees 0 0 0 0 0 0 0 0 Legal Fees 0 0 0 216 221 325 125 549 Misc Professional Services 0 0 0 0 1,757 1,504 0 0 ------- ------- ------- ------- ------- ------- ------- ------- Professional Services 0 0 2,198 1,276 1,978 1,829 125 549 Office Space 6,127 6,127 6,127 6,127 9,321 8,430 4,530 6,480 Other Space Rental 230 301 230 230 230 230 230 230 ------- ------- ------- ------- ------ ------- ------- ------- Space Rental 6,357 6,428 6,357 6,357 9,551 8,660 4,760 6,710
Desc. June July August September YTD Actuals - ---------------------------------------------------------------------------------------------------- Salaries 77,443 87,884 70,295 76,721 932,507 Mtb Bonus 0 0 2,394 1,197 3,591 A/R Bonus 0 0 54 269 2,297 Commissions 3,028 3,482 (771) 2,618 25,635 FICA Taxes 6,377 6,478 4,384 4,889 67,244 Unemployment Taxes 92 1,388 (1,088) 174 4,410 Workmen's Comp Insurance 3,113 713 (2,769) 2,808 30,221 General Insurance 1,818 2,240 (839) 1,640 20,896 Denver City Tax 0 0 0 0 0 Group Health Insurance 4,453 4,627 4,468 5,035 50,460 401K 262 1,666 (1,721) 0 1,379 ------- ------- ------- ------- --------- Salaries 96,586 108,478 74,405 95,349 1,138,640 Vehicle GE Capital 95 87 99 161 1,217 Vehicle Repairs 2,190 338 426 1,539 11,729 Vehicle Gasoline 1,460 2,878 2,888 2,133 24,875 Vehicle Misc. 0 0 0 0 0 ------- ------- ------- ------- --------- Vehicle 3,745 3,303 3,413 3,833 37,821 Travel & Lodging 140 0 101 (605) 3,169 Meals 146 83 54 114 1,706 Entertainment 86 0 0 0 1,191 Mileage 1,077 1,396 1,072 1,476 14,351 Car Allowance 1,500 1,875 1,685 1,419 18,479 Shows & Conventions 0 0 0 0 8 ------- ------- ------- ------- --------- Travel Expense 2,949 3,354 2,912 2,404 38,904 Consulting Services 505 1,050 1,110 0 5,923 Audit Fees 0 0 0 0 0 Legal Fees 329 (1,220) 0 1,382 1,927 Misc Professional Services 1,391 0 750 0 5,402 ------- ------- ------- ----- --------- Professional Services 2,225 (170) 1,860 1,382 13,252 Office Space 6,863 7,246 6,863 6,863 81,104 Other Space Rental 135 368 0 674 3,066 ------- ------- ------- ------- --------- Space Rental 6,998 7,612 6,863 7,537 84,190
Page 16 AMERICAN PHARMACEUTICAL SERVICES, INC. Austin September 30, 1996
Desc October November December January February March April - ---------------------------------------------------------------------------------------------------- Machine & Equipment 534 1,854 2,582 1,547 1,547 1,547 1,547 Furn & Fixtures 734 490 734 893 714 1,498 882 Vehicles 2,099 3,003 3,463 2,588 2,582 2,365 2,365 Leasehold Improvements 1,473 1,473 1,473 1,473 1,473 1,473 1,473 Building Improvements 0 0 0 0 0 0 0 Durable Medical Equip 0 0 0 0 0 0 0 Computer Hardware 1,395 528 1,418 1,413 1,325 1,325 1,325 Computer Software 0 0 0 0 0 0 0 ------ ------ ------ ------ ------ ------ ------ Depreciation Expense 6,235 7,348 9,670 7,914 7,621 8,168 7,592 Employee Relations 23 16 658 163 15 194 202 Temporary Services 0 160 0 225 0 0 220 Employee Education 70 80 1,064 996 298 (904) 21 Recruiting 0 202 0 0 0 0 0 Office Supplies 184 4,072 3,192 3,390 3,358 2,002 2,050 Independent Business 95 745 900 733 1,084 54 1,100 Small Equipment 0 0 0 0 0 0 0 Furniture & Equip Rentals 1,459 443 1,266 634 1,218 517 1,007 Repairs & Maintenance 768 2,186 447 936 752 198 348 Telephone 2,738 2,307 1,680 3,167 3,312 (189) 2,619 Cellular Phone 953 342 568 1,069 305 539 1,025 Advertising 746 550 726 640 552 482 524 Postage 755 211 697 647 734 310 882 Freight 101 23 52 96 (171) 241 39 Janitorial 703 352 352 352 274 484 349 Dues/Subscription 0 15 0 100 0 342 0 Professional Licenses 0 0 0 0 0 0 0 Uniforms 0 44 0 0 0 0 0 Computer 619 744 791 677 558 1,307 1,091 Utilities 1,024 883 822 715 780 1,039 790 General Taxes 0 0 0 0 0 0 242 Tax Penalty 0 0 0 0 0 0 0 Donations & Contributions 0 0 0 0 0 0 0 Property Taxes 600 725 725 2,145 2,145 2,145 2,145 LTC Link 0 0 0 0 0 0 0 Other Misc Income (672) (63) (117) 2,860 0 0 0 Other Misc Expense 0 468 0 (24) 250 (477) 0 ------ ------ ------ ------ ------ ------ ------ Other Misc. Expenses 10,164 14,535 13,858 19,527 15,464 8,284 14,654 ------ ------ ------ ------ ------ ------ ------ Total Other Expenses 26,158 36,036 37,993 43,958 40,738 31,826 33,430
Desc May June July August September YTD Actuals - -------------------------------------------------------------------------------------------------- Machine & Equipment 1,547 1,548 1,547 1,547 1,548 18,893 Furn & Fixtures 882 913 913 913 913 10,437 Vehicles 4,748 2,762 3,095 3,095 2,750 34,895 Leasehold Improvements 1,473 1,473 1,473 1,473 1,473 17,678 Building Improvements 0 0 0 0 0 0 Durable Medical Equip 0 0 0 0 0 0 Computer Hardware 1,325 1,325 1,325 1,325 1,543 15,572 Computer Software 0 0 0 0 0 0 ------ ------ ------ ------ ------ ------- Depreciation Expense 9,975 8,021 8,353 8,353 8,225 97,473 Employee Relations 273 78 113 106 245 2,066 Temporary Services 3,095 930 560 80 1,696 6,966 Employee Education 0 83 0 14 48 1,770 Recruiting 0 167 0 0 42 411 Office Supplies 1,679 2,118 588 2,183 1,826 26,612 Independent Business 945 548 1,850 148 1,404 9,602 Small Equipment 0 0 0 0 0 0 Furniture & Equip Rentals 1,293 634 1,269 363 1,238 11,361 Repairs & Maintenance 447 707 311 896 825 8,819 Telephone 2,311 1,011 1,416 1,243 2,891 24,506 Cellular Phone 534 968 494 516 869 8,182 Advertising 335 568 455 716 559 6,853 Postage 635 42 1,055 698 759 7,425 Freight 15 34 60 13 73 576 Janitorial 0 349 698 487 352 4,752 Dues/Subscriptions 75 240 0 0 0 772 Professional Licenses 0 0 0 0 0 0 Uniforms 0 0 0 0 0 44 Computer 941 1,357 497 1,008 1,505 11,123 Utilities 1,028 1,226 13 2,720 1,150 12,190 General Taxes 54 0 0 2,597 16,338 19,252 Tax Penalty 0 0 0 0 0 0 Donations & Contributions 30 0 0 0 0 30 Property Taxes 2,135 2,135 2,135 2,135 1,118 20,288 LTC Link 0 0 0 0 0 0 Other Misc Income 445 (145) 66 (46) (3) 2,292 Other Misc Expense 128 0 21 192 (210) 348 ------ ------ ------ ------ ------ ------- Other Misc Expenses 16,398 13,045 11,571 16,065 32,695 186,260 ------ ------ ------ ------ ------ ------- Total Other Expenses 41,215 36,983 34,023 39,468 56,076 457,900
Page 17 AMERICAN PHARMACEUTICAL SERVICES, INC. Austin September 30, 1996
Desc October November December January February March April - ----------------------------------------------------------------------------------------------------------- Partner Service Charges Bad Debt Facility 2,104 2,033 1,785 1,754 1,642 1,503 1,070 Bad Debt Medicare 7,236 8,809 4,388 5,170 8,738 1,954 5,154 Bad Debt Medicaid 3,794 3,527 3,602 3,802 2,937 4,172 5,656 Bad Debt Private 6,972 5,477 6,162 6,828 8,840 6,329 6,027 Bad Debt Other 837 676 237 650 755 750 1,068 ------- ------- ------- ------- ------- ------- ------- Bad Debt 20,473 20,522 16,174 18,202 20,552 14,708 18,975 Total Operating Expense 150,973 157,791 146,551 161,754 154,784 132,023 142,306 Amortization Nondeductible 0 0 0 0 0 0 0 Amortization Deductible 0 0 0 0 0 0 0 Earnings From Operations 67,347 36,731 31,069 39,630 53,628 46,944 74,093 Interest Income/Dividend 0 0 0 0 0 0 0 Interest Expense 1,692 1,465 1,381 1,371 1,334 1,510 1,000 Minority Interest 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- ------- Earnings Before Allocation 65,655 35,266 29,688 38,259 52,294 45,434 73,093 Corporate Allocations 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- ------- Earnings Before Taxes 65,655 35,266 29,688 38,259 52,294 45,434 73,093 State Income Tax 0 0 0 0 0 0 0 Federal Income Tax 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- ------- Income Tax 0 0 0 0 0 0 0 Net Income 65,655 35,266 29,688 38,259 52,294 45,434 73,093 ======= ======= ======= ======= ======= ======= ======= Percent to Sales - ----------------- Salaries % 21.4% 23.2% 22.8% 21.4% 20.1% 20.4% 18.0% Vehicle % 0.1% 0.9% 0.5% 1.1% 0.7% 0.4% 0.6% Professional Services % 0.0% 0.0% 0.5% 0.3% 0.4% 0.0% 0.0% Space Rental % 1.3% 1.5% 1.6% 1.4% 2.0% 2.1% 1.0% Depreciation % 1.3% 1.7% 2.4% 1.7% 1.6% 1.9% 1.5% Other Misc. Expense % 2.1% 3.3% 3.4% 4.2% 3.3% 2.0% 2.9% Total Other Expenses % 5.4% 8.2% 9.4% 9.4% 8.7% 7.6% 6.7% Bad Debt % 4.2% 4.7% 4.0% 3.9% 4.4% 3.5% 3.8% Total Op. Expense % 31.0% 36.1% 36.2% 34.7% 33.2% 31.5% 28.4% Earnings From Operations % 13.5% 8.1% 7.3% 8.2% 11.2% 10.8% 14.6% Net Income % 13.5% 8.1% 7.3% 8.2% 11.2% 10.8% 14.6
AMERICAN PHARMACEUTICAL SERVICES, INC. Austin September 30, 1996
Desc May June July August September YTD Actuals - --------------------------------------------------------------------------------------------------- Partner Service Charges Bad Debt Facility 1,970 503 996 690 971 Bad Debt Medicare 5,391 10,331 98 1,832 5,014 64,115 Bad Debt Medicaid 5,526 5,263 6,031 6,268 5,752 56,328 Bad Debt Private 7,101 5,610 6,606 8,457 (78,596) (8,549) Bad Debt Other 503 301 488 823 471 7,089 ------- ------- ------- ------- ------- ------- Bad Debt 20,491 22,008 14,219 16,068 (66,388) 138,004 Total Operating Expense 159,089 155,577 156,720 129,039 85,037 1,732,544 Amortization Nondeductible 0 0 0 0 0 0 Amortization Deductible 0 0 0 0 0 0 Earnings From Operations 71,685 65,350 24,205 48,160 123,659 682,501 Interest Income/Dividend 0 0 0 0 0 0 Interest Expense 1,627 1,214 1,206 1,193 1,100 16,093 Minority Interest 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- Earnings Before Allocation 70,058 64,136 22,999 46,967 122,559 666,408 Corporate Allocations 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- Earnings Before Taxes 70,058 64,136 22,999 46,967 122,559 666,408 State Income Tax 0 0 0 0 0 0 Federal Income Tax 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- Income Tax 0 0 0 0 0 0 Net Income 70,058 64,136 22,999 46,967 122,559 666,408 ======= ======= ======= ======= ======= ======= Percent to Series - ----------------- Salaries % 18.3% 18.9% 22.8% 15.8% 18.9% 20.1% Vehicle % 0.8% 0.7% 0.7% 0.7% 0.8% 0.7% Professional Services % 0.1% 0.4% (0.0%) 0.4% 0.3% 0.2% Space Rental % 1.3% 1.4% 1.6% 1.5% 1.5% 1.5% Depreciation % 1.9% 1.6% 1.8% 1.6% 1.6% 1.7% Other Misc. Expense % 3.1% 2.6% 2.4% 3.4% 6.5% 3.3% Total Other Expenses % 7.8% 7.3% 7.2% 8.4% 11.1% 8.1% Bad Debt % 3.9% 4.3% 3.0% 3.4% (13.1%) 2.4% Total Op. Expense % 29.9% 30.5% 33.0% 27.6% 18.8% 30.5% Earnings From Operations % 13.2% 12.6% 4.6% 10.0% 24.2% 11.7% Net Income % 13.2% 12.6% 4.6% 10.0% 24.2% 11.7%
Page 18 SCHEDULE 6.14 NONCOMPLIANCE WITH ENVIROMENTAL LAWS NONE. SCHEDULE 6.17 OUTSTANDING LITIGATION NONE. EX-10.36 52 INVESTMENT AGREEMENT DATED 3/27/98 EXHIBIT 10.36 INVESTMENT AGREEMENT -------------------- This Investment Agreement (the "Agreement") is entered into as of March 27, --------- 1998 by and among Fountain View, Inc., a Delaware corporation (the "Company"), ------- and Robert M. Snukal, Sheila Snukal, William C. Scott ("Scott"), Heritage Fund ----- II, L.P. ("Heritage"), Heritage Investors II, L.L.C. ("Heritage Investors"), -------- ------------------ Heritage Fund II Investment Corporation ("HFIC"), HFV Holdings, LLC, Nassau ---- Capital Partners II L.P., NAS Partners I LLC, Paribas North America, Inc., Phoenix Home Life Mutual Insurance Company, PMI Mezzanine Fund, L.P., GS Private Equity Partners, L.P., GS Private Equity Partners Offshore, L.P. and Sutro Investment Partners V, LLC (collectively, the "Investors"). --------- Introduction ------------ This Agreement is being entered into in connection with the acquisition (the "Acquisition") of Summit Care Corporation ("Summit") by FV-SCC Acquisition ----------- ------ Corp., a wholly-owned subsidiary of the Company (the "Sub"). The Acquisition --- will be structured as (i) a tender offer by the Sub for shares of Summit (the "Offer"), followed by (ii) a merger of the Sub into Summit (the "Merger"), - ------ ------ pursuant to an Agreement and Plan of Merger by and among Summit, the Company, the Sub and Heritage dated as of February 6, 1998 (the "Merger Agreement"). ---------------- The Company will cause to be filed immediately prior to the purchase of shares of Summit stock pursuant to the Offer (the "Tender Closing") an amendment -------------- to its Certificate of Incorporation (the "Amendment") reclassifying its capital --------- stock and automatically converting the shares of its capital stock outstanding immediately prior to such amendment into shares of the reclassified capital stock of the Company. The Investors (other than HFIC) wish to invest certain amounts in the Company in return for shares of the reclassified capital stock of the Company, as more particularly described herein. HFIC wishes to purchase certain securities which may in turn be purchased by Scott and certain other parties. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: Section 1. Recapitalization. Effective at the respective times set forth --------- ---------------- below, the stock ownership of the Company will be restructured, and the new investments specified in this Agreement will be made. This Agreement constitutes a plan of reorganization, and the transactions effected hereby are intended to qualify under Sections 351 and 368(a)(1)(E) of the Internal Revenue Code of 1986, as amended (the "Code"). ---- Section 2. Investments. The Investors will make new cash and other --------- ----------- investments in the Company, as set forth on Schedule A hereto, in exchange for ---------- the issuance by the Company of the securities (the "Securities") set forth on ---------- Schedule A (the "Investment"), immediately prior to the Tender Closing, except - ---------- ---------- that (a) Scott agrees to purchase those securities which are indicated on Schedule A as being purchased by HFIC on his behalf from HFIC at the effective - ---------- time of the Merger, and (b) HFIC (or any other person or entity which HFIC may designate, and which may become an "Investor" hereunder by executing a counterpart of this Agreement) agrees to purchase certain of the Securities at the effective time of the Merger as set forth on Schedule A. Each purchase of ---------- Series A Common Stock will be at a price of approximately $126.53 per share. Scott will purchase a portion of the Securities to be acquired by him for a promissory note in a form acceptable to the Company. Section 3. Closing. The closing of the Investments will take place at the --------- ------- times specified above. The Company will give at least 24 hour telephonic or written notice of the date and time of closing. At closing, subject to the satisfaction or waiver of the conditions set forth in Section 7, (a) all payments to be made by the Investors will be made by wire transfer of immediately available funds to an account designated by the Company, (b) the Company and each Investor named in such agreements will execute (i) the Stockholders Agreement in the form of Exhibit 3(b)(i) hereto (the "Stockholders --------------- ------------ Agreement") and (ii) the Registration Rights Agreement in the form of Exhibit - --------- ------- 3(b)(ii) hereto (the "Registration Rights Agreement"), and (c) the Company will - -------- ----------------------------- issue to the Investors certificates representing the Securities acquired. The closing will be conducted in person (if necessary), at a site designated by the Company, or by mail, facsimile and delivery service. Section 4. Representations and Warranties of the Company. The Company --------- --------------------------------------------- represents and warrants to the Investors as follows: (a) Organization and Standing. The Company is a corporation duly ------------------------- organized, validly existing and in good standing under the laws of the State of Delaware. (b) Charter and By-Laws. The copies of the Certificate of ------------------- Incorporation, as amended, and the By-Laws, as amended, of the Company furnished to the Investors are true and correct in all respects. As of the Tender Closing, the Company will amend its Certificate of Incorporation in the form attached as Exhibit 4(b) hereto. ------------ -2- (c) Authorization. This Agreement, the Amendment, the Stockholders ------------- Agreement and the Registration Rights Agreement (the "Related Agreements") have ------------------ been duly authorized, executed and delivered by the Company and constitute the valid and binding obligations of the Company enforceable in accordance with their terms. (d) No Conflicts. The execution and delivery of this Agreement and ------------ the Related Agreements and the issuance of the Securities to the Investors as contemplated hereby will not (i) require any consent, authorization or approval of or filing with any governmental entity or third party, or (ii) result in any violation of, be in conflict with or constitute a default under, the charter or by-laws of the Company or any law, statute, regulation, ordinance, contract, agreement, instrument, judgment, decree or order to which the Company is a party or by which the Company is bound. (e) Compliance with Securities Laws. Subject to the accuracy of the ------------------------------- representations and warranties of the Investors contained in Section 5 hereof, the offer and sale of the Securities to the Investors hereunder constitute transactions exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the "1933 Act") and any applicable -------- state securities and blue sky laws. (f) Terms of Investment. The Company has not granted any of the ------------------- Investors (other than Heritage, Mr. and Mrs. Snukal and Mr. Scott) terms or conditions relating to their investment in the Company which are more favorable than the terms or conditions granted to any of the other Investors, except as expressly set forth in this Agreement or the Related Agreements. (g) Capitalization. After giving effect to the transactions -------------- contemplated by this Agreement, (i) Schedule B hereto sets forth all of the ---------- outstanding shares of capital stock of the Company, (ii) except as set forth in Schedule B hereto, there will be no outstanding options, warrants, convertible - ---------- securities and other rights which may afford any person or entity the right to acquire shares of any class of capital stock of the Company, or any stock appreciation or phantom stock rights or arrangements, (iii) the Company will have no obligation (contingent or otherwise) to repurchase any shares of its outstanding capital stock, other than as set forth in its Certificate of Incorporation or in the Stockholders Agreement, and (iv) the Securities will be duly authorized, validly issued and outstanding, fully paid and nonassessable, and free to the holders thereof of any liens, encumbrances and restrictions (other than under applicable securities laws or the provisions of this Agreement or the Related Agreements). -3- (h) Use of Proceeds. The Company shall use the proceeds of the --------------- Investment solely to fund the obligations of the Company or its subsidiaries relating to the Offer or the Merger, to refinance indebtedness of the Company or its subsidiaries, and for working capital. (i) Litigation. There are no suits, proceedings or investigations ---------- pending or, to the Company's knowledge, threatened against or affecting the Company or any of its subsidiaries with respect to the issuance of the Securities hereunder or seeking to enjoin or challenge the consummation thereof. (j) Registration Rights. Except for registration rights granted ------------------- pursuant to the Registration Rights Agreement to the Investors and certain other parties, the Company has not granted any person the right to require the Company to register any securities of the Company under the 1933 Act, whether on a demand basis or in connection with the registration of securities of the Company for its own account or for the account of any other person. (k) Brokers. The Company has not dealt with any broker, finder, ------- commission agent or other similar person in connection with the offer or sale of the Securities to the Investors, and the Company is under no obligation to pay any broker's fee, finder's fee, or commission in connection with such offer and sale. Section 5. Representations and Warranties of the Investors. Each of the --------- ----------------------------------------------- Investors hereby represents and warrants severally and not jointly to the Company and each holder of its securities as follows, and each Investor acknowledges that the Investor has full knowledge that such persons intend to rely on such representations and warranties: (a) Review and Agreements. THE INVESTOR HAS READ CAREFULLY AND --------------------- UNDERSTANDS THIS AGREEMENT AND THE OTHER AGREEMENTS REFERRED TO HEREIN, AND HAS CONSULTED SUCH INVESTOR'S OWN ATTORNEY, ACCOUNTANT OR INVESTMENT ADVISER WITH RESPECT TO THE INVESTMENTS CONTEMPLATED HEREBY AND THEIR SUITABILITY FOR THE INVESTOR. (b) Access to Information. The Company has made available to the --------------------- Investor, during the course of this transaction and prior to the acquisition of any Securities, the books and records of the Company and the opportunity to ask questions of and receive answers from representatives of the Company concerning the terms and conditions of the Securities and the business, affairs, operations and finances of the Company and any other matters relevant to this investment. -4- (c) Long-Term Investment. The Investor understands that the Investor -------------------- must bear the economic risk of his investment for an indefinite period of time; that the Securities have not been registered under the 1933 Act and, therefore, cannot be resold unless they are subsequently registered under the 1933 Act or unless exception from such registration is available; that the Investor is purchasing the Securities for investment for the account of the Investor and not with a view toward resale or other distribution thereof (except with respect to HFIC); that the Investor agrees not to resell or otherwise dispose of all or any part of the Securities acquired by the Investor, except as permitted by law, including, without limitation, any regulations under the 1933 Act; that the Company does not have any intention of registering the Securities under the 1933 Act or of supplying the information which may be necessary to enable the Investor to sell any Securities; and that Rule 144 under the 1933 Act may not be available as a basis for exemption from registration of any Securities thereunder until at least two years from the date of acquisition of the Securities. (d) Suitability. With respect to each Investor that is an individual: ----------- (i) such Investor has adequate means of providing for his or her current and future needs and personal contingencies and has no need for liquidity in connection with his or her acquisition of the Securities; (ii) such Investor's overall commitment to investments which are not readily marketable is not disproportionate to his or her net worth, and his or her investment in the Securities will not cause such overall commitment to become excessive; (iii) such Investor can afford a complete loss of his or her investment in the Securities; (iv) such Investor has evaluated the risks of purchasing the Securities, and has determined that the Securities are a suitable investment for him or her: and (v) such Investor has such knowledge and experience in financial, securities, investments and business matters that he or she is capable of evaluating the merits and risks of his or her acquisition of the Securities. (e) Accredited Investor. The Investor is an "accredited investor" ------------------- within the meaning of Regulation D promulgated under the 1933 Act. Section 6. Restrictions on Transfer. Each certificate representing the --------- ------------------------ Securities shall be stamped or otherwise imprinted with a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID -5- ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED. Section 7. Conditions to Closing. The obligation of each of the Investors --------- --------------------- hereunder to purchase the Securities is subject to the satisfaction at or prior to the closing of the following conditions: (a) Representations and Warranties True. The representations and ----------------------------------- warranties contained in Section 4 shall be true and accurate in all material respects on and as of the date of the Tender Closing with the same effect as though made on and as of such date. (b) No Material Adverse Change. There shall not have been a material -------------------------- adverse change in the business, financial condition or results of operations of the Company from March 1, 1998 through the date of the Tender Closing. (c) Tender Offer. The conditions precedent to the consummation of ------------ the Offer shall have been satisfied, and there shall have been no increase in the price to be paid by the Sub over $21.00 per share. (d) Execution of Related Agreements. The Company, the Investors and ------------------------------- the other parties thereto shall have executed and delivered the Related Agreements. (e) Receipt of All Investments. The Company shall have received the -------------------------- consideration specified on Schedule A from each of the other Investors (except ---------- HFIC and Mr. Scott). (g) Opinion of Counsel to Company. The Investors shall have received ----------------------------- an opinion of Choate, Hall & Stewart, counsel for the Company, dated as of date of the closing, in the form of Exhibit C hereto. --------- Section 8. Miscellaneous. --------- ------------- (a) This Agreement supersedes and overrides all other agreements among some or all of the parties with respect to the matters covered hereby (other than the surviving representations, warranties, indemnities and related provisions of the Stock Purchase and Contribution Agreement dated as of July 24, 1997 among the Company, the Robert and Sheila Snukal, HFIC and certain other parties). If the Merger Agreement is terminated before the Tender Closing, this Agreement will terminate, and be of no further force or effect. This Agreement is governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts (excluding its conflicts of laws -6- principles). Jurisdiction of any litigation arising under this Agreement shall be in California. (b) The representations and warranties contained herein this Agreement shall survive the execution, delivery and performance of this Agreement. (c) This Agreement or any term hereof may not be amended or waived except with the written consent of (i) the Company, (ii) Heritage and (iii) a majority-in-interest of the other Investors as to which the effect of such amendment or waiver (A) differs in a material and adverse manner from the effect on Heritage, or (B) would eliminate any of the material rights of such Investors provided for in this Agreement or create any material additional obligation for such Investors. Notwithstanding the foregoing, any waiver, modification or amendment which requires any Investor to make additional cash contributions to the Company shall require the consent of such Investor. (d) This Agreement may be executed in two or more counterparts, and with counterpart signature pages each of which shall be deemed an original, and all of such counterparts together constitute but one and the same agreement. One or more counterparts may be delivered by facsimile with the same force and effect as an original. -7- IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed instrument as of the date set forth above. FOUNTAIN VIEW, INC. By: /s/ Robert M. Snukal /s/ Robert M. Snukal ----------------------------- -------------------------------- (Title) Robert M. Snukal /s/ William C. Scott /s/ Sheila Snukal - -------------------------------- -------------------------------- William C. Scott Sheila Snukal HERITAGE INVESTORS II, L.L.C. HERITAGE FUND II, L.P. By Heritage Partners Management By HF Partners II, L.L.C., Company, Inc., its manager its general partner By: [SIGNATURE ILLEGIBLE] ^^ By: [SIGNATURE ILLEGIBLE] ^^ ----------------------------- -------------------------------- (title) (title) HERITAGE FUND II HFV HOLDINGS, LLC INVESTMENT CORPORATION By: ----------------------------- its Manager By: [SIGNATURE ILLEGIBLE] ^^ By: /s/ Andrew II. McQuarrie ----------------------------- ----------------------------- (title) Andrew II. McQuarrie (title) Vice President NASSAU CAPITAL PARTNERS II, L.P. PARIBAS NORTH AMERICA, INC. By Nassau Capital L.L.C., ------------------------------ its general partner By: /s/ John G. Quigley By: John G. Martinez ----------------------------- ----------------------------- John G. Quigley (title) John G. Martinez (title) Member Financial Controller PHOENIX HOME LIFE PMI MEZZANINE FUND, L.P. MUTUAL INSURANCE COMPANY By: Pacific Mezzanine Investors, L.L.C. its general partner By: John H. Beer By: /s/ Schuyler G. Lance ----------------------------- ----------------------------- (title) Schuyler G. Lance (title) Principal -8- GS PRIVATE EQUITY GS PRIVATE EQUITY PARTNERS, L.P. PARTNERS OFFSHORE, L.P. By GS Private Equity By GS Private Equity Management ------------------------------ ------------------------------ Management, LLC Offshore, Inc. --------------- -------------- its general partner its general partner By: GSAM ?anpar, LLC (its Management member) By: /s/ Donald Opatrny By: /s/ Donald Opatrny ----------------------------- ----------------------------- Director (title) Director (title) SUTRO INVESTMENT PARTNERS V, LLC NAS PARTNERS I, LLC By _____________________, By JOHN G. QUIGLEY -----------------------, its Manager its Manager By: [SIGNATURE ILLEGIBLE] ^^ By: [SIGNATURE ILLEGIBLE] ^^ ----------------------------- ----------------------------- President (title) (title) The undersigned, Karen B. Kaplan, spouse of William Scott, hereby consents to the foregoing agreement. /s/ Karen B. Kaplan ____________________________ Karen B. Kaplan -9- SCHEDULE A ----------
- --------------------------------------------------------------------- Investor Consideration Securities Acquired - ---------------------- --------------------- ---------------------- - --------------------------------------------------------------------- Heritage Fund II, $42,021,000 cash 332,101 shares of L.P. Series A Common Stock - --------------------------------------------------------------------- Heritage Investors $42,000 cash 332 shares of Series II, L.L.C. A Common Stock - --------------------------------------------------------------------- Robert M. and Sheila $5,000,000 cash (for 39,516 shares of Snukal Series A shares) Series A Common Stock $6,259 (for Series B 62,599 shares of shares) Series B Common Stock - --------------------------------------------------------------------- William C. Scott $1,437,000 cash (for 11,357 shares of (HFIC on an interim 11,357 Series A Series A Common Stock basis for 11,357 shares) (to be initially shares of Series A purchased by HFIC) Common Stock) $2,530,600 in a promissory note (for 20,000 shares of 20,000 Series B Series A Common Stock shares) 51,603 shares of $5,160 (for Series B Series B Common Stock shares) - --------------------------------------------------------------------- Heritage Fund II $15,000,000 cash 15,000 shares of Investment Series A Preferred Corporation Stock (to be purchased at the effective time of the Merger) Warrants to purchase 71,119 shares of Series C Common Stock, at an exercise price of $0.01 per share (to be purchased at the effective time of the Merger) - --------------------------------------------------------------------- HFV Holdings, LLC $2,000,000 cash 15,806 shares of Series A Common Stock - --------------------------------------------------------------------- Nassau Capital $4,969,098.40 cash 39,272 shares of Partners II L.P. Series A Common Stock - --------------------------------------------------------------------- NAS Partners I LLC $30,901.60 cash 244 shares of Series A Common Stock - --------------------------------------------------------------------- Paribas North $5,000,000 cash 39,516 shares of America, Inc. Series A Common Stock - ---------------------------------------------------------------------
-10- - --------------------------------------------------------------------- Phoenix Home Life $2,000,000 cash 15,806 shares of Mutual Insurance Series A Common Stock Company - --------------------------------------------------------------------- PMI Mezzanine Fund, $7,500,000 cash 59,274 shares of L.P. Series A Common Stock - --------------------------------------------------------------------- GS Private Equity $6,755,920 cash 53,393 shares of Partners, L.P. Series A Common Stock - --------------------------------------------------------------------- GS Private Equity $3,244,080 cash 25,639 shares of Partners Offshore, Series A Common Stock L.P. - --------------------------------------------------------------------- Sutro Investment $2,000,000 cash 15,806 shares of Partners V, LLC Series A Common Stock - ---------------------------------------------------------------------
-11- SCHEDULE B ---------- FOUNTAIN VIEW, INC. Securities Outstanding After Merger
Series A Series B Series C Series A Common Common Common Preferred -------- -------- -------- --------- Heritage Fund II L.P. 525,633 Heritage Fund II 71,119(W) 15,000 Investment Corporation Heritage Investors II 429 L.L.C. Robert and Sheila Snukal 149,484 62,599 Keith Abrahams 8,294 Stacy Abrahams 8,294 Joshua Snukal 8,294 William Scott 11,357 51,603 20,000(N) GS Private Equity 53,393 Partners, L.P. GS Private Equity 25,639 Partners Offshore, L.P. HFV Holdings, LLC 15,806 Nassau Capital Partners 39,272 II L.P. NAS Partners I LLC 244 PMI Mezzanine Fund, L.P. 59,274 Paribas North America, 39,516 Inc. Phoenix Home Life Mutual 15,806 Insurance Company Sutro Investment Partners 15,806 V, LLC Deborah Wickersham 138 Joan Chandler 138 Rosella Felipe 138 Rolando Abrina 138 John Padama 138 Myles Andrews 277 Martin Axel 277
- ------------------------------------------------------------------------------------ Series A Series B Series C Series A -------- -------- -------- Common Common Common Preferred ------ ------ ------ --------- - ------------------------------------------------------------------------------------ Norbalita Sapiandante 277 - ------------------------------------------------------------------------------------ Consolacion Padama 277 - ------------------------------------------------------------------------------------ Barbara Gale 277 - ------------------------------------------------------------------------------------ Debra Bowman 692 - ------------------------------------------------------------------------------------ Robin Necke 692 --------- ------- ------ ------ - ------------------------------------------------------------------------------------ 1,000,000 114,202 71,119 15,000 - ------------------------------------------------------------------------------------
W = Warrant N = Exchanged for Note EX-10.37 53 STOCKHOLDERS AGREEMENT DATED 4/27/98 EXHIBIT 10.37 STOCKHOLDERS AGREEMENT ---------------------- This Stockholders Agreement (the "Agreement") is entered into as of March --------- 27, 1998 by and among Fountain View, Inc., a Delaware corporation (the "Company"), Robert Snukal ("RS"), Sheila Snukal ("SS"), William Scott ("Scott"), ------- -- -- ----- Heritage Fund II, L.P. ("Heritage"), Heritage Investors II, L.L.C., Heritage -------- Fund II Investment Corporation, Keith Abrahams, Stacy Abrahams, Joshua Snukal, Debbie Wickersham, Joan Chandler, Rosella Felipe, Rolando Abrina, John Padama, Myles Andrews, Martin Axel, Norbolita Sapiandante, Consolacion Padama, Barbara Gale, Debra Bowman, Robin Necke, HFV Holdings, LLC, Nassau Capital Partners II L.P., NAS Partners I LLC, Paribas North America, Inc., Phoenix Home Life Mutual Insurance Company, PMI Mezzanine Fund, L.P., GS Private Equity Partners, L.P., GS Private Equity Partners Offshore, L.P. and Sutro Investment Partners V, LLC and any Person who hereafter becomes a stockholder of the Company as provided herein, and is consented to by Scott's spouse, Karen B. Kaplan. Introduction ------------ The purpose of this Agreement is to establish certain arrangements with respect to the management and operation of the Company and to grant certain rights and impose certain restrictions on the ownership of stock of the Company, which the parties agree are in their best interests and in the best interests of the Company. Capitalized terms used herein and not otherwise defined shall have the respective meanings given to them in Article VIII at the end of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants herein expressed, the parties hereto hereby agree as follows: ARTICLE I BOARD OF DIRECTORS; VOTING Section 1.01. Board Size. At all meetings (and written actions in lieu of ------------ ---------- meetings) of stockholders of the Company at which the number of directors of the Company is to be determined, each Stockholder shall vote all of such Stockholder's Stock to fix the number of directors of the Company at the number specified by a Majority of Investors. Section 1.02. Election of Directors. At all meetings (and written actions ------------ --------------------- in lieu of meetings) of stockholders of the Company at which directors are to be elected, each Stockholder shall vote all of such Stockholder's Stock to elect, as directors of the Company: (a) RS Directors. Two nominees of RS, which number shall be ------------ increased if necessary to insure that the nominees of RS constitute not less than twenty-five percent (25%) of the total number of directors (the "RS -- Directors"), as long as RS holds any shares of Stock. - --------- (b) Scott Directors. One nominee of Scott (the "Scott Director"), as --------------- -------------- long as Scott holds any shares of Stock. (c) Investor Directors. Such number of nominees of a Majority of ------------------ Investors as may be designated by a Majority of Investors (the "Investor -------- Directors"). - --------- Section 1.03. Removal. Each Stockholder agrees to vote such Stockholder's ------------ ------- Stock, at all meetings (and written actions in lieu of meetings) of stockholders of the Company, (a) to remove any RS Director, if so requested by RS, (b) to remove the Scott Director, if so requested by a Scott and (c) to remove any Investor Director, if so requested by a Majority of Investors. Each Stockholder agrees not to vote such Stockholder's Stock in favor of the removal of any director other than in accordance with the preceding sentence. Section 1.04. Vacancies. Each Stockholder agrees to vote such ------------ --------- Stockholder's Stock, at all meetings (and written actions in lieu of meetings) of stockholders of the Company, (a) to fill any vacancy on the Board of Directors of the Company (the "Board") caused by the resignation or removal of ----- any RS Director with a nominee selected by RS, (b) to fill any vacancy on the Board caused by the resignation or removal of the Scott Director with a nominee selected by Scott and (c) to fill any vacancy on the Board caused by the resignation or removal of any Investor Director with a nominee selected by a Majority of Investors. Section 1.05. Meetings. The Board will meet not less often than ------------ -------- quarterly. Each Director shall be given at least three days prior notice of any meeting and will be permitted to participate in any meeting by telephone. Any Director may call a meeting of the Board. Section 1.06. Observation Rights. An Investor shall be entitled to have ------------ ------------------ one observer present at any meeting of the Board if such Investor holds at least 75,000 shares of Common Stock (appropriately adjusted for stock splits, stock dividends, combinations and similar transactions) as of the date notice of such meeting is delivered. The Company shall give each Investor who is listed on the record books of the Company as holding the -2- number of shares of Stock set forth above at least three days prior notice of any meeting so that each such Investor may designate an observer to be present at such meeting. No observer pursuant to this Section 1.06 shall have any right to vote upon any matters to be considered by the Board. Section 1.07. Voting on Other Matters. If requested by Heritage, for as ------------ ----------------------- long as Heritage holds more shares of Common Stock than any other Investor, the Stockholders agree to vote their Securities on all matters to be voted upon by holders of the Company's Securities as directed by Heritage, unless the effect of such matter on such Stockholder differs materially and adversely from the effect on Heritage. Each Stockholder hereby grants Heritage an irrevocable proxy, which is coupled with an interest, to vote such Stockholder's Securities as provided in this Section. Each Qualified Stockholder shall, if such Qualified Stockholder requests, be given an opportunity to be heard by Heritage for the purpose of discussing the exercise of such proxy, provided that such opportunity shall in no way limit the scope or validity of such proxy. ARTICLE II SPECIAL PROVISIONS REGARDING SERIES B COMMON STOCK Section 2.01. General. The Company has issued to RS and SS an aggregate ------------ ------- of 62,599 shares of Series B Common Stock and has issued to Scott 51,603 shares of Series B Common Stock pursuant to which the provisions of this Article II apply. Section 2.02. Forfeiture of Series B Common Stock. Immediately prior to ------------ ----------------------------------- the consummation of a Trigger Event, a portion of the Series B Common Stock may be deemed to be entitled to remain outstanding as provided below, and upon such determination each share of Series B Common Stock that is not entitled to remain outstanding shall immediately be deemed to be forfeited by the holder thereof, without further action by the Company or the Stockholders, and shall thereafter not be outstanding. Upon any such forfeiture, the Company shall pay the holder thereof an amount equal to the price paid to the Company upon original issuance of such share. The aggregate number of shares of Series B Common Stock that are deemed to be entitled to remain outstanding shall be determined in accordance with Section 2.03 below. The number of shares of Series B Common Stock that are entitled to remain outstanding for each Stockholder who holds Series B Common Stock immediately prior to the consummation of a Trigger Event shall be (a) the total number of Series B Common Stock so held by such Stockholder multiplied by (b) a fraction of which the numerator is the aggregate number -3- of shares of Series B Common Stock that are entitled to remain outstanding and the denominator is 114,202. Section 2.03. Determination of Number of Shares of Series B Common Stock ------------ ---------------------------------------------------------- that are Entitled to Remain Outstanding. The aggregate number of shares of - --------------------------------------- Series B Common Stock that are entitled to remain outstanding shall be determined as follows in the circumstances indicated: (a) Base Case Terminal Value. If, at the time of a Trigger Event, the ------------------------ Terminal Value (as hereinafter defined) of the Company is equal to or less than the Base Case, the number of shares of Series B Common Stock that are entitled to remain outstanding shall be 0. (b) Mid Case Terminal Value. If, at the time of a Trigger Event, the ----------------------- Terminal Value of the Company is equal to the Mid Case, the number of shares of Series B Common Stock that are entitled to remain outstanding shall be 81,739. (c) Target Case Terminal Value. If, at the time of a Trigger Event, -------------------------- the Terminal Value of the Company is equal to or greater than the Target Case, the number of shares of Series B Common Stock that are entitled to remain outstanding shall be 114,202. (d) Intermediate Cases. If, at the time of a Trigger Event, the ------------------ Terminal Value of the Company is more than the Base Case but less than the Mid Case, the number of shares of Series B Common Stock that are entitled to remain outstanding shall be adjusted ratably between the amount specified in Subsection (a) above and the amount specified in Subsection (b) above. If, at the time of a Trigger Event, the Terminal Value is more than the Mid Case but less than the Target Case, the number of shares of Series B Common Stock that are entitled to remain outstanding shall be adjusted ratably between the amount specified in Subsection (b) above and the amount specified in Subsection (c) above. (e) Definition of Base Case, Mid Case and Target Case. As used herein, ------------------------------------------------- "Base Case", "Mid Case" and "Target Case" shall have the meanings specified on --------- -------- ----------- Exhibit 2.03 hereto, on the respective dates indicated. The Base Case, Mid Case - ------------ and Target Case Terminal Value targets for forfeiture of Series B shares may be changed by the Board to reflect acquisitions, dispositions, start-ups and other transactions not in the ordinary course, provided that in selecting the new targets the members of the Board approving such changes believe in good faith that the new targets are broadly consistent with the valuation methodology applied in determining the initial Terminal Value targets set forth on Exhibit ------- 2.03 hereto. Prompt notice of any change in the - ---- -4- Terminal Value targets will be given by the Company to each record holder of shares of Series B Common Stock. (f) Definition of Terminal Value. As used herein, "Terminal Value" ---------------------------- -------------- shall mean the following: (i) In the case of a Trigger Event which is a registered, underwritten public offering of shares of common stock of the Company (a "Public Offering"), Terminal Value shall mean the aggregate value of all ---------------- Common Stock and equivalents of the Company, based on the price per share at which shares of Common Stock are to be sold to the public in such offering, determined immediately prior to such offering. (ii) In the case of any other Trigger Event, Terminal Value shall mean the aggregate net proceeds (including the fair market value of any property) distributable in respect of all Common Stock and equivalents of the Company from the transaction giving rise to such Trigger Event. (iii) Definition of Trigger Event. As used herein, "Trigger --------------------------- ------- Event" shall mean any of the following: (A) the closing of a Public ----- Offering, (B) the sale of Stock in a single transaction or a series of related transactions, or a merger or consolidation of the Company as a result of which a majority of the outstanding Stock is not held by the initial parties to this Agreement and their transferees under clauses (a) through (f) of the definition of "Permitted Transfers", or (C) the sale of ------------------- all or substantially all of the consolidated assets of the Company and its Subsidiaries, approved as required by this Agreement. (g) Certain Events. In the event of any stock split, stock dividend, -------------- combination or other similar transaction affecting the Series B Common Stock, the share numbers contained in this Article shall be appropriately adjusted by the Board. ARTICLE III PREEMPTIVE RIGHTS Section 3.01. Notice of Issuance. The Company will give each Qualified ------------ ------------------ Stockholder (as hereinafter defined) at least 20 business days prior written notice of any proposed sale or issuance by the Company of any Securities, except for Exempt Issuances (as hereinafter defined). Such notice will identify the Securities to be issued, the approximate date of issuance, and the price and other terms and conditions of the issuance. -5- Such notice will also include an offer (the "Offer") to transfer to each ----- Qualified Stockholder its Proportionate Percentage (as hereinafter defined) of such Securities (the "Offered Securities") at the price and on the other terms ------------------ as are proposed for such sale or issuance, which Offer by its terms shall remain open for a period of 15 business days from the date of receipt of such notice and which offer may be accepted by any such Qualified Stockholder in such Qualified Stockholder's sole discretion. The Offer will also specify each Qualified Stockholder's Proportionate Percentage, and the manner in which it was determined. Section 3.02. Acceptance. Each Qualified Stockholder shall give notice to ------------ ---------- the Company of such Qualified Stockholder's intention to accept an Offer prior to the end of the 15-day period of such Offer, setting forth the portion of the Offered Securities which such Qualified Stockholder elects to purchase and specifying the maximum number of additional Securities such Qualified Stockholder is willing to purchase if any other Qualified Stockholder declines to purchase all of such other Qualified Stockholder's Offered Securities. If any Qualified Stockholder fails to subscribe for such Qualified Stockholder's Proportionate Percentage of the Offered Securities, the other subscribing Qualified Stockholders shall be entitled to purchase such Offered Securities as are not subscribed for by such Qualified Stockholder, up to the number of additional Securities specified in their notice in the same relative proportion in which they were initially entitled to purchase the Offered Securities. The Company shall notify each Qualified Stockholder within five days following the expiration of the 15-day period described above of the additional amount of Offered Securities which each Qualified Stockholder may purchase pursuant to the foregoing sentence and each Qualified Stockholder shall then have five days from the delivery of such notice to indicate such additional amount, if any, that such Qualified Stockholder wishes to purchase. Section 3.03. Sale to Qualified Stockholders. Upon the closing of any ------------ ------------------------------ sale or issuance as to which the Company has given notice under Section 3.01, the Qualified Stockholders shall purchase from the Company, and the Company shall sell to the Qualified Stockholders the Offered Securities subscribed for by the Qualified Stockholders at the price and on the terms specified in the Offer, which shall be the same price and terms at which all other Persons acquire such Securities in connection with such sale or issuance. Section 3.04. Sale to Third Parties. If, but only if, the Qualified ------------ --------------------- Stockholders do not subscribe for all of the Offered Securities, the Company shall have 150 days from the end of the foregoing 15- or five-day period, whichever is applicable, to -6- sell all or any part of such Offered Securities as to which Qualified Stockholders have not accepted an Offer to any other Persons, at a price and on terms and conditions which are no more favorable to such other Persons or less favorable to the Company than those set forth in the Offer. Any Offered Securities not purchased by the Qualified Stockholders or other Persons in accordance with Sections 3.03 and 3.04 may not be sold or otherwise disposed of until they are again offered to the Stockholders under the procedures specified in this Article III. Section 3.05. Exempt Issuances. As used herein, "Exempt Issuances" means ------------ ---------------- ---------------- (a) the issuance of Stock and Stock Equivalents to current employees, consultants and directors of the Company or its subsidiaries (or to former employees, consultants and directors of the Company or its subsidiaries pursuant to the exercise of outstanding stock options or similar rights), (b) the issuance of shares of Stock upon the conversion or exercise of Stock Equivalents as to which the Company complied with the provisions of this Article or was not required to comply such provisions, including without limitation the issuance of Common Stock upon the exercise of warrants to purchase Series C Common Stock issued on or about the date hereof, and (c) the issuance of Securities which the Board determines in good faith should not, in the best interests of the Company, be subject to the provisions of this Article, provided that none of such Securities are being issued to Heritage or its Affiliates. ARTICLE IV TRANSFER RESTRICTIONS FOR STOCKHOLDERS Section 4.01. No Transfer. No Stockholder (other than Heritage, as to ------------ ----------- which this Article IV shall not apply) may sell, pledge, give, assign, distribute, hypothecate, mortgage or transfer (all hereinafter referred to as "transfer") any Securities owned by such Stockholder, directly or indirectly, to - --------- any other person or entity, except (a) in the case of Management Stockholders, after the fourth anniversary of the date hereof (or, in the case or RS, the earlier date, if any, on which his employment with the Company is terminated by the Company without cause (other than upon death or disability pursuant to his employment agreement with the Company) and upon compliance with the other provisions of this Article IV, (b) in the case of Investors, other than Heritage, upon compliance with the other provisions of this Article IV, or (c) in a Permitted Transfer (as hereinafter defined) without compliance with the other provisions of this Article IV. Section 4.02. Offer to Company and Qualified Stockholders. If a ------------ ------------------------------------------- Stockholder (the "Transferring Stockholder") desires to ------------------------ -7- transfer any of such Stockholder's Securities, such Stockholder shall first offer such Securities to the Company and the other Qualified Stockholders by written notice (the "Initial Notice") stating the Securities such Stockholder -------------- desires to transfer and the proposed price (expressed in dollars) and terms of transfer (which shall be for cash payable upon the transfer). The Company and each of the other Qualified Stockholders shall then have 30 days within which to give notice (the "Return Notice") of the maximum number of such Securities they ------------- wish to acquire at the specified price and terms. Copies of each Return Notice shall be sent to the Company, to the Transferring Stockholder and to each other Qualified Stockholder. The Company shall be entitled to purchase any or all of the Securities offered. If the Company elects to purchase fewer than all of the Securities offered, each Qualified Stockholder (other than the Transferring Stockholder) shall be entitled to acquire a pro rata portion of the balance of the Securities remaining, determined in accordance with their Proportionate Percentages. If any Qualified Stockholder elects to acquire less than such Qualified Stockholder's pro rata portion of the available Securities, the other Qualified Stockholders may acquire a pro rata portion of the balance of the Securities remaining. The Company and the Qualified Stockholders shall not be entitled to acquire any Securities from the Transferring Stockholder unless they have elected, in the aggregate, to purchase all of the Securities specified in the Initial Notice. Section 4.03. Payment. The Company shall, at the close of the 30-day ------------ ------- period provided in Section 4.02 for delivery of the Return Notice, confirm by notice the Securities to be acquired by each Qualified Stockholder and by the Company. Payment for such Securities shall be delivered within 30 days thereafter at the price and on the terms specified in the Initial Notice, against receipt from the Transferring Stockholder of certificates for the Securities purchased, duly endorsed for transfer, free and clear of all liens, restrictions, claims and encumbrances, except as provided in this Agreement and under applicable securities laws. Section 4.04. Right to Sell. If, at the close of the 30-day period ------------ ------------- provided in Section 4.02 for delivery of the Return Notice, the Company and the other Qualified Stockholders have not sent notice of their intention to acquire, in the aggregate, all of the Securities offered, the Transferring Stockholder shall have 120 days to transfer the Securities specified in the Initial Notice at the price and on the terms set forth in the Initial Notice, or at a higher price than the price specified therein. After the expiration of 120 days the Transferring Stockholder may not transfer such Securities unless and until they are again -8- offered to the Company and the other Qualified Stockholders under the procedures specified in this Article IV, where applicable. Section 4.05. Legends. All certificates or instruments representing ------------ ------- Securities issued to any party to this Agreement shall bear substantially the following legends: THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE. SUCH SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED IN THE ABSENCE OF EFFECTIVE REGISTRATION STATEMENTS COVERING SUCH SECURITIES UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS THE HOLDER SHALL HAVE OBTAINED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED. THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER OBLIGATIONS CONTAINED IN A STOCKHOLDERS AGREEMENT BETWEEN THE COMPANY AND CERTAIN OF ITS STOCKHOLDERS, A COPY OF WHICH IS ON FILE WITH THE COMPANY AND WILL BE FURNISHED WITHOUT COST TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY. ARTICLE V TRANSFERS BY HERITAGE Section 5.01. Co-Sale Rights. If Heritage determines to transfer, ------------ -------------- including without limitation any transfer pursuant to a merger, consolidation or other business combination of the Company or any subsidiary with another person or entity (except pursuant to a Public Offering), all or a portion of the Common Stock held by it (any such transfer being referred to herein as a "Heritage -------- Transfer Event"), Heritage shall give prior notice thereof (the "Transfer Event - -------------- -------------- Notice") to the other Qualified Stockholders, indicating the overall value of - ------ the Company implied by the transfer, the Securities to be transferred and the value of such Securities in the proposed transfer, which value will be determined by taking the overall Company value stated in the notice and allocating that value among the Company's outstanding Securities in accordance with the liquidation provisions of the Certificate of Incorporation. Each other Qualified Stockholder shall have the right, by giving notice thereof to Heritage within 20 days after receipt of the Transfer Event Notice, to include in such transfer the same proportion of its holdings of each class of Securities as Heritage transfers of its holdings of Common Stock in such -9- transaction; provided, that each holder of Preferred Stock shall be entitled to include all of such holder's shares of Preferred Stock in any such transfer that constitutes a Trigger Event. Except as provided below, Heritage will not transfer any Securities in a transaction covered by this Section 5.01 unless the transferee also acquires any Securities requested by the other Qualified Stockholders pursuant to the preceding sentence to be included in such transfer, at the applicable values determined in accordance with the preceding paragraph (except as provided in Section 5.04 below) and terms specified in the Transfer Event Notice and in the same form of consideration received by Heritage, and as to which the other Qualified Stockholders comply with the following paragraph. In the event that more Securities are requested to be included in any transfer under this Section 5.01 than the transferee is willing to purchase, the Securities to be transferred by Heritage and the other Qualified Stockholders to such transferee shall be reduced pro rata among Heritage and such other Qualified Stockholders based on the number of Securities requested to be included in such transfer (and subject to the prior rights of holders of Preferred Stock to transfer their shares in a Trigger Event). Heritage shall have 150 days after the close of the 20-day period specified above to transfer the Securities described in the Transfer Event Notice at the price (except as provided in Section 5.04 below) and on the terms specified therein, together with any additional Securities to be included in such transfer pursuant to the preceding paragraph. Any Qualified Stockholder whose Securities are being transferred pursuant hereto, in order to be entitled to have such Securities transferred, shall deliver on no less than five business days notice from Heritage, at the time and place specified by Heritage, certificates representing the Securities to be transferred, duly endorsed for transfer to the transferee designated by Heritage, free and clear of all liens, restrictions, claims and encumbrances, except as provided in this Agreement and under applicable securities laws. Notwithstanding the foregoing, (a) this Section shall not apply to transfers by Heritage to its partners which are required by its Agreement of Limited Partnership, as amended, if such partners become parties to this Agreement, and (b) no shares of Series B Common Stock may be included in any transfer covered by this Section unless the transfer constitutes a Trigger Event. Section 5.02. Required Transfers. Each Stockholder agrees, at Heritage's ------------ ------------------ request and upon not less than 20 days prior notice from Heritage, to transfer in any transaction constituting a Heritage Transfer Event which occurs on or after the occurrence of a Trigger Event (other than any transfer to an Affiliate of Heritage), at a price (except as provided in Section 5.04 below) and on terms determined in the manner applicable to transfers -10- under Section 5.01, the same proportion of its holdings of each class of Securities as Heritage transfers of its holdings of Common Stock in such transaction, except that the holders of Preferred Stock may elect, if such Heritage Transfer Event involves a Trigger Event, to transfer all shares of Preferred Stock held by them in such transaction. Upon receipt of notice from Heritage under this Section, each Stockholder shall deliver, on not less than five business days notice from Heritage, at the time and place specified by Heritage, certificates representing the Securities to be transferred, duly endorsed for transfer to the transferee designated by Heritage, free and clear of all liens, restrictions, claims and encumbrances, except as provided in this Agreement and under applicable securities laws. Section 5.03. Certain Obligations Relating to Transfer Events. The ------------ ----------------------------------------------- Stockholders will (a) cooperate with Heritage in all respects in the consummation of any Heritage Transfer Event, (b) vote their Securities in favor of any Heritage Transfer Event, if requested by Heritage, and (c) execute all agreements, documents and instruments required by Heritage, which agreements, documents and instruments will be substantially similar to those executed by Heritage to consummate such Heritage Transfer Event, provided, however, that any -------- ------- indemnification obligations of the Investors shall be several and not joint and that such indemnification obligations shall be limited for each Investor to the amount of proceeds received by such Investor in such Heritage Transfer Event. Section 5.04. Treatment of Stock Equivalents. For purposes of Sections ------------ ------------------------------ 5.01 and 5.02, Stock Equivalents shall be deemed to be the same class of Stock as the Securities for which they are exercisable or into which they are convertible, but the price payable for them in connection with a Heritage Transfer Event shall be reduced by the exercise price thereof or other consideration required to be paid to the Company to acquire the underlying Stock. ARTICLE VI INITIAL PUBLIC OFFERING Section 6.01. Recapitalization in Connection with Initial Public Offering. ------------ ----------------------------------------------------------- Notwithstanding anything to the contrary contained in this Agreement or in the Certificate of Incorporation, in connection with an initial Public Offering of the Company, the Company will recapitalize its Common Stock into a single class of Common Stock effective immediately prior to such Public Offering, in accordance with Section 6.02. In connection with any such recapitalization, the Stockholders will -11- (a) cooperate with a Majority of Investors in all respects and enter into any transaction reasonably required to effect such recapitalization, (b) vote their Stock in favor of any such transaction reasonably required to consummate such recapitalization, if requested by a Majority of Investors, and not exercise any dissenter's rights or rights to seek an appraisal under Delaware law in connection with such recapitalization effective upon the initial Public Offering, and (c) execute all agreements, documents and instruments reasonably required by a Majority of Investors, consistent with this Section 6.01, whereby such Stockholders shall (i) undertake all actions reasonably necessary to effectuate the recapitalization of its Common Stock into a single class of Common Stock and (ii) agree not to sell, grant any option for the purchase of, or otherwise dispose of any Securities (other than those included in such registration) for such period as may be requested by the managing underwriter of any public offering of the Company's Securities (not to exceed (A) 180 days thereafter, in the case of the initial public offering of the Company's Common Stock or (B) 90 days thereafter, in the case of any other registration). Section 6.02. Determination of Number of Shares. Upon such ------------ --------------------------------- recapitalization, each share of Common Stock (including, in the case of Series B Common Stock, only shares that are entitled to remain outstanding in accordance with Article II) will be converted into a number of shares of Common Stock determined by dividing (a) the amount that would be distributed in respect of such share upon a liquidation of the Company in accordance with the Certificate of Incorporation, assuming an amount of cash available to distribute equal to the aggregate value of all common equity and equivalents of the Company (but not any preferred stock) immediately prior to such Public Offering, based on the price per share at which shares of Common Stock are to be sold to the public in such Public Offering (the "Per Share Offering Price"), by (ii) the Per Share ------------------------ Offering Price. In order to facilitate the Public Offering, the Board may determine in good faith its estimate of the Per Share Offering Price in advance of the Public Offering, and the parties agree that the foregoing adjustment may be made on the basis of that estimate. Each share of Series B Common Stock not entitled to remain outstanding in accordance with Article II will be canceled. Section 6.03. Termination. This Agreement will terminate upon the ------------ ----------- consummation of an initial Public Offering by the Company. ARTICLE VII MISCELLANEOUS -12- Section 7.01. Affiliate Transactions. The Company will not, and will not ------------ ---------------------- permit any of its subsidiaries to, engage in any transaction with any Affiliate of the Company other than (a) as expressly contemplated by this Agreement, (b) issuances of securities in compliance with (or which are exempt from) Article III or (c) those transactions that are on a commercially-reasonable, arms-length basis and that are approved by a disinterested majority of the Board. Section 7.02. Information. The Company will provide to each Qualified ------------ ----------- Stockholder the following reports: (a) Monthly Reports. As soon as available, a consolidated balance --------------- sheets of the Company as at the end of such period and the related consolidated statement of operations for such period and for the portion of the Company's fiscal year ended on the last day of such month, in each case setting forth in comparative form the corresponding figures for the same period and portion of the next preceding fiscal year. (b) Quarterly Reports. As soon as available, a consolidated balance ----------------- sheet of the Company as at the end of such period and the related consolidated statements of operations, stockholders' equity and cash flows for such period and for the portion of the Company's fiscal year ended on the last day of such quarter, in each case setting forth in comparative form the corresponding figures for the same period. (c) Annual Reports. As soon as available, a consolidated balance -------------- sheet of the Company as at the end of such year and the related consolidated statements of income, stockholders' equity and cash flows for such year, in each case setting forth in comparative form the corresponding figures for the next preceding fiscal year, accompanied by the report on such consolidated financial statements of national independent certified public accountants selected by the Board. (d) Securities Filings. As promptly as practicable and in any event ------------------ within five days after the same are available, copies of all periodic and special reports, documents and registration statements which the Company furnishes or files with the Securities and Exchange Commission or any securities exchange. (e) Board of Directors Information. As promptly as practicable, ------------------------------ copies of all information furnished by the Company to its directors in connection with meetings of the Board. (f) Other Information. Such other information relating to the Company ----------------- as from time to time may reasonably be requested. -13- Section 7.03. Inspection. The Company will permit any person designated ------------ ---------- by a Qualified Stockholder, on reasonable notice and during normal business hours, to visit and inspect any of the properties, books and records of the Company or its subsidiaries and to discuss issues relating to the Company with the Company's management. Section 7.04. Other Activities of Stockholders and Directors. The ------------ ---------------------------------------------- Stockholders and their Affiliates may engage in and possess interests in other business ventures and investment opportunities, except as provided in any employment agreement between such Stockholder and the Company. Neither the Company nor any other Stockholder shall have any rights in or to such ventures or opportunities or the income or profits therefrom by reason of this Agreement. Section 7.05. Option Pool. Following the merger of FV-SCC Acquisition ------------ ----------- Corp., a wholly-owned subsidiary of the Company, into Summit Care Corporation, the Company expects to create and put into effect a management option program to provide incentives to employees, other than RS and Scott. Section 7.06. Failure to Deliver Securities. If any Stockholder fails to ------------ ----------------------------- deliver any Securities to be acquired, Transferred or exchanged hereunder, the acquiror may elect to establish a segregated account in the amount of the price to be paid therefor, such account to be turned over to such Stockholder upon delivery of instruments Transferring the Securities. If a segregated account is so established, the Company shall take such action as is appropriate to Transfer record title to the Securities from such Stockholder to the acquiror. Each Stockholder hereby irrevocably grants the Company a power of attorney to effectuate the purposes of this Section. Section 7.07. Requirement to Sign Agreement. Unless waived by the Board, ------------ ----------------------------- notwithstanding anything to the contrary contained in this Agreement, no Person shall acquire any Securities, whether by Transfer from a Stockholder, issuance by the Company or otherwise, and whether or not any such Securities are subject to vesting or similar restrictions, unless such Person first becomes a signatory to this Agreement as a Stockholder, agreeing to be bound by all the terms of this Agreement. The Company shall not issue any Securities or transfer any Securities on its books which have been issued or transferred in violation of this Agreement, or treat as the owner of such Securities, or accord the right to vote as such owner or pay dividends to, any Person to which any such Securities shall have been issued or transferred in violation of this Agreement. Section 7.08. Exercise of Contractual Rights. The Company and its ------------ ------------------------------ Stockholders recognize, acknowledge and agree that the -14- Stockholders have substantial financial interests in the Company to preserve and that the exercise by them of any of their respective rights under this Agreement or any of the other agreements contemplated hereby shall not be deemed to constitute a lack of good faith, a breach of fiduciary duties or unfair dealing. Section 7.09. Specific Enforcement. Each Stockholder expressly agrees ------------ -------------------- that the other Stockholders and the Company would be irreparably damaged if this Agreement is not specifically enforced. Upon a breach or threatened breach of the terms or provisions of this Agreement by any Stockholder, the other Stockholders and the Company shall, in addition to all other remedies, each be entitled to a temporary or permanent injunction, and/or decree for specific performance, in accordance with the provisions hereof, without the necessity of proof of actual charges or the posting of a bond or other security. Section 7.10. Successors and Assigns. Subject to the restrictions on ------------ ---------------------- Transfers set forth herein, this Agreement shall be binding upon and shall inure to the benefit of the Stockholders and their respective successors, successors- in-title, heirs and assigns, and each and every successor-in-interest to any Stockholder shall hold all Securities subject to all of the terms and provisions of this Agreement. None of the provisions of this Agreement shall be for the benefit of or enforceable by any creditor of any Stockholder, or any creditor of the Company other than a Stockholder who is such a creditor of the Company. Section 7.11. Waivers, Amendments, Etc. Except as otherwise provided ------------ ------------------------ herein, no waiver, modification or amendment of this Agreement shall be valid or binding unless such waiver, modification or amendment is in writing and duly executed by (a) the Company, (b) Heritage, (c) a Majority of Investors (other than Heritage) as to which the effect of such waiver, modification or amendment (A) differs in a material and adverse manner from the effect on Heritage, or (B) would eliminate any of the material rights of such Investors provided for in this Agreement, including but not limited to any rights under Sections 7.02 or 7.03 hereof, or create any material additional obligation for such Investors, and (d) a Majority of Management Stockholders as to which the effect of such waiver, modification or amendment (A) differs in a material and adverse manner from the effect on Heritage, or (B) would eliminate any of the material rights of such Management Stockholders provided for in this Agreement, including but not limited to any rights under Sections 7.02 or 7.03 hereof, or create any material additional obligation for such Management Stockholders. Notwithstanding the foregoing, any waiver, modification or amendment which requires any Investor or Management Stockholder to make additional cash contributions to -15- the Company shall require the consent of such Investor or Management Stockholder. Section 7.12. Notices. All notices under this Agreement shall be in ------------ ------- writing. Any notice shall be deemed to have been duly given upon receipt if delivered personally, mailed, certified mail, return receipt requested, sent by facsimile, with verification of receipt and written confirmation provided by another means permitted hereunder, or sent by nationally recognized overnight delivery service, to the parties hereto at the addresses set forth on Exhibit A. --------- Upon notice from any Stockholder of a change in address, the Board will cause Exhibit A to be amended to reflect the new address of such Stockholder. The - --------- address of any new Stockholder shall be added by the Board to Exhibit A. --------- Section 7.13. Governing Law. This Agreement and the rights and ------------ ------------- obligations of the parties hereunder shall be governed by and interpreted, construed and enforced in accordance with the internal laws of the Commonwealth of Massachusetts and with the General Corporation Law of the State of Delaware. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision hereof shall be prohibited by or invalid under any such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating or nullifying the remainder of such provision or any other provisions of this Agreement. Section 7.14. Headings. The headings of Articles and Sections herein are ------------ -------- inserted for convenience of reference only and shall be ignored in the construction or interpretation hereof. Section 7.15. Counterparts. This Agreement may be executed in any number ------------ ------------ of counterparts, and with counterpart signature pages, all of which together shall for all purposes constitute one Agreement, binding on the Company and all the Stockholders notwithstanding that not all Stockholders have signed the same counterpart. Any of the initial parties to this Agreement listed in the preamble hereto who does not sign a counterpart signature page to this Agreement on the date hereof may become a party to this Agreement after the date hereof by signing a counterpart signature page hereto. Section 7.16. Entire Agreement. This Agreement embodies the entire ------------ ---------------- agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter, including without limitation (a) the Agreement dated as of February 6, 1998 by and among the Company, RS, SS, Scott and -16- Heritage Fund II, L.P. and (b) the Stockholders Agreement dated as of August 1, 1997 originally by and among the Company, RS, SS and Heritage Fund II Investment Corporation. ARTICLE VIII DEFINITIONS For purposes of this Agreement, the following terms shall have the following respective meanings: Act shall have the meaning specified in Section 4.05. --- Affiliate shall have the meaning given to it in Rule 405 promulgated under --------- the Securities Act. Agreement shall mean this Stockholders Agreement, as amended from time to --------- time. Base Case shall have the meaning specified in Section 2.03. --------- Board shall have the meaning specified in Section 1.04. ----- Business Day shall mean any day on which businesses are generally open in ------------ Los Angeles, California. Certificate of Incorporation shall mean the Certificate of Incorporation of ---------------------------- the Company, as amended from time to time. Code shall mean the Internal Revenue Code of 1986, as amended. ---- Common Stock shall mean all classes and series of common stock of the ------------ Company. Company shall have the meaning specified in the Preamble, and shall also ------- include any successor entity to the Company. Exempt Issuances shall have the meaning specified in Section 3.05. ---------------- Heritage shall have the meaning specified in the preamble to this -------- Agreement. Initial Notice shall have the meaning specified in Section 4.02. -------------- Investors shall mean Heritage, Heritage Investors II L.L.C., Heritage Fund --------- II Investment Corporation, HFV Holdings, LLC, Nassau Capital Partners II L.P., NAS Partners I LLC, Paribas North America, Inc., Phoenix Home Life Mutual Insurance Company, -17- PMI Mezzanine Fund, L.P., GS Private Equity Partners, L.P., GS Private Equity Partners Offshore, L.P. and Sutro Investment Partners V, LLC and each other Stockholder that first becomes a Stockholder as a result of acquiring Stock from Heritage or from another Investor. Investor Directors shall have the meaning specified in Section 1.02. ------------------ Majority of Management Stockholders shall mean Management Stockholders who ----------------------------------- hold a majority of the Common Stock held by all Management Stockholders. Majority of Investors shall mean Investors who hold a majority of the --------------------- Common Stock held by all Investors; provided that any decision, determination or actions to be made or taken by a Majority of Investors shall be made or taken by Heritage as long as Heritage holds more shares of Common Stock than any other Investor. Management Stockholders shall mean all Stockholders that are not Investors. ----------------------- Mid Case shall have the meaning specified in Section 2.03. -------- Offer shall have the meaning specified in Section 3.01. ----- Offered Securities shall have the meaning specified in Section 3.01. ------------------ Permitted Transfers shall mean any of the following: ------------------- (a) Transfers of Securities of a Stockholder to the trustees of a trust revocable by such Stockholder alone, the beneficiaries of which consist solely of such Stockholder and transferees enumerated in clause (d) below; (b) Transfers of Securities between a Stockholder and such Stockholder's guardian or conservator; (c) Transfers of Securities of a deceased Stockholder to such Stockholder's executors or administrators or to trustees under such Stockholder's will and thereafter to transferees enumerated in clause (d) below; (d) Transfers of Securities of a Stockholder to the spouse of such Stockholder, to any of such Stockholder's children or their issue (or to custodians for the benefit of minor children or issue), or to such Stockholder's parents or siblings; -18- (e) Transfers of Securities by any Stockholder which is a corporation, partnership, limited liability company or other entity to any owner or Affiliate of such Stockholder, provided that such Stockholder may not transfer Securities to more than (i) a total of five (5) of its owners or Affiliates pursuant to this clause (e) before January 1, 2004 (unless such transfer relates to a liquidation or winding-up of such Stockholder, in which case the maximum number specified in this clause (i) shall be 16), and (ii) a total of fifteen (16) of its owners or Affiliates pursuant to this clause (e) after January 1, 2005; (f) Transfers of Securities by Heritage Fund II Investment Corporation to any other Person within one year of the date hereof; and (g) Transfers of Securities pursuant to Articles II, V or VI; provided, however that Securities Transferred pursuant to clauses (a) - (e) may - -------- not be further Transferred under such clauses except to a Person that would have been a permitted transferee thereof from the initial Stockholder who held such Securities. Per Share Offering Price shall have the meaning specified in Section 6.03. ------------------------ Person shall mean any natural person, corporation, limited liability ------ company, partnership, trust or other entity. Proportionate Percentage of a Stockholder shall mean a fraction of which ------------------------ (a) the numerator is the number of then outstanding shares of Common Stock held by such Stockholder, on a fully-diluted basis, and (b) the denominator is the total number of then outstanding shares of Common Stock, on a fully-diluted basis. Public Offering shall have the meaning specified in Section 2.03. --------------- Qualified Stockholder shall mean any Stockholder then holding more than --------------------- 10,000 shares of Stock (assuming the exercise or conversion of all Stock Equivalents held by such Stockholder, and appropriately adjusted for stock splits, stock dividends, combinations and other similar transactions); provided that (a) all shares of Stock held by a Stockholder and any transferees of such Stockholder under clause (e) of the definition of Permitted Transfers shall be aggregated for purposes of determining whether any of them is a Qualified Stockholder, (b) all shares of Stock held by GS Private Equity Partners, L.P. and GS Private Equity Partners Offshore, L.P. shall be aggregated for purposes of determining whether any of them is a Qualified Stockholder, and (c) all shares of Stock held by Nassau Capital Partners II L.P. -19- and NAS Partners I LLC shall be aggregated for purposes of determining whether any of them is a Qualified Stockholder. Return Notice shall have the meaning specified in Section 4.02. ------------- RS shall mean Robert Snukal. -- Scott shall mean William Scott. ----- Securities shall mean all Stock, Stock Equivalents and all other equity ---------- securities of the Company, and any debt securities issued together with warrants or similar rights. Securities Act shall mean the Securities Act of 1933, as amended. -------------- Series A Common Stock shall mean any of the Series A Common Stock and any --------------------- Stock into which any of the same shall have been converted or exchanged. Series B Common Stock shall mean any of the Series B Common Stock and any --------------------- Stock into which any of the same shall have been converted or exchanged. Series C Common Stock shall mean any of the Series C Common Stock and any --------------------- Stock into which any of the same shall have been converted or exchanged. SS shall mean Sheila Snukal. -- Stock shall mean all outstanding capital stock of the Company. ----- Stock Equivalents shall mean any equity or debt security convertible into ----------------- or exchangeable for any Stock, or any right, warrant or option to acquire any Stock or such convertible or exchangeable equity interest or security. Stockholder shall mean each Person who holds any Stock. ----------- Target Case shall have the meaning specified in Section 2.03. ----------- Terminal Value shall have the meaning specified in Section 2.03. -------------- transfer shall have the meaning specified in Section 4.01. -------- Transferring Stockholder shall have the meaning specified in Section 4.02. ------------------------ -20- Trigger Event shall have the meaning specified in Section 2.03. ------------- -21- IN WITNESS WHEREOF, the parties hereto have signed and sworn to this Agreement as of the date first above written. FOUNTAIN VIEW, INC. By: /s/ Robert Snukal /s/ Robert Snukal --------------------------- ------------------------------ Robert Snukal, President Robert Snukal /s/ William Scott /s/ Sheila Snukal - ------------------------------ ------------------------------ William Scott Sheila Snukal HERITAGE INVESTORS II, L.L.C. HERITAGE FUND II, L.P. By Heritage Partners Management By HF Partners II, L.L.C., Company Inc., its manager its general partner By: [SIGNATURE ILLEGIBLE] ^^ By: [SIGNATURE ILLEGIBLE] ^^ --------------------------- ------------------------------ (title) (title) /s/ Keith Abrahams Stacy Abrahams - ------------------------------ ------------------------------ Keith Abrahams Stacy Abrahams /s/ Joshua Snukal HERITAGE FUND II - ------------------------------ INVESTMENT CORPORATION Joshua Snukal /s/ Debbie Wickersham By: [SIGNATURE ILLEGIBLE] ^^ - ------------------------------ --------------------------- Debbie Wickersham (title) /s/ Joan Chandler /s/ Rosellla Felipe - ------------------------------ ------------------------------ Joan Chandler Rosella Felipe /s/ Rolando Abrina /s/ John Padama - ------------------------------ ------------------------------ Rolando Abrina John Padama /s/ Myles Andrews /s/ Martin Axel - ------------------------------ ------------------------------ Myles Andrews Martin Axel /s/ Norbolita Sapiandante /s/ Consolacion Padama - ------------------------------ ------------------------------ Norbolita Sapiandante Consolacion Padama -22- /s/ Barbara Gale /s/ Debra Bowman - ------------------------------ ------------------------------ Barbara Gale Debra Bowman /s/ Robin Necke HFV HOLDINGS, LLC - ------------------------------ Robin Necke By _______________________, its Manager By: /s/ Andrew H. McQuarrie -------------------------- Andrew H. McQuarrie (title) Vice President NASSAU CAPITAL PARTNERS II L.P. PARIBAS NORTH AMERICA, INC. By Nassau Capital L.L.C -------------------------, its general partner By: /s/ John G. Quigley By: /s/ John G. Martinez --------------------------- --------------------------- Member (title) JOHN G. MARTINEZ (title) FINANCIAL CONTROLLER PHOENIX HOME LIFE PMI MEZZANINE FUND, L.P. MUTUAL INSURANCE COMPANY By _____________________, its general partner By: [SIGNATURE ILLEGIBLE] ^^ By: /s/ Schuyler G. Lance --------------------------- --------------------------- (title) Schuyler G. Lance, (title) Principal GS PRIVATE EQUITY GS PRIVATE EQUITY PARTNERS, L.P. PARTNERS OFFSHORE, L.P. By GS PRIVATE EQUITY MANAGEMENT, By GS PRIVATE EQUITY MANAGEMENT LLC OFFSHORE, INC: ---------------------------- ---------------------------- its general partner its general partner By GSAM GEN - PARLLC (its managing member) By: /s/ Donald Opatrny By: /s/ Donald Opatrny --------------------------- --------------------------- DONALD OPATRNY (title) DONALD OPATRNY (title) -23- SUTRO INVESTMENT PARTNERS V, LLC NAS PARTNERS I LLC By Sutro Group, Inc. By John G. Quigley ---------------------------, ----------------------------, its Manager its Manager By: [SIGNATURE ILLEGIBLE] ^^ By: [SIGNATURE ILLEGIBLE] ^^ --------------------------- --------------------------- (title) (title) The undersigned, Karen B. Kaplan, spouse of William Scott, hereby consents to the foregoing agreement. /s/ Karen B. Kaplan ------------------------------ Karen B. Kaplan -24- EXHIBIT A Addresses for Notice -------------------- If to Heritage, Heritage Investors, L.L.C. or Heritage Fund II Investment Corporation: c/o Heritage Partners, Inc. 30 Rowes Wharf, Suite 300 Boston, MA 02110 Attn: Mark J. Jrolf with a copy to: Choate, Hall & Stewart Exchange Place 53 State Street Boston, Massachusetts 02109 Attn: Stephen M. L. Cohen, Esq. If to RS, SS, Keith Abrahams, Stacy Abrahams or Joshua Snukal: Mr. Robert Snukal c/o Fountain View Management, Inc. 11900 W. Olympic Blvd. Los Angeles, CA 90064 with a copy to: David Bloom, Esq. Law Offices of David Bloom 3325 Wilshire Boulevard, 9th Floor Los Angeles, CA 90010 If to Scott: William C. Scott 12612 Promontory Road Los Angeles, CA 90049 If to Nassau Capital Partners II L.P. NAS Partners I LLC: c/o Nassau Capital Funds L.P. 22 Chambers Street Princeton, NJ 08542 Attn: Mr. Thomas Barnds -25- If to Sutro Investment Partners V, LLC: c/o Sutro & Co., Incorporated 11150 Santa Monica Boulevard Suite 1500 Los Angeles, CA 90025 Attn: Mr. Joseph A. Boystack If to Paribas North America, Inc.: c/o Paribas 787 7th Avenue New York, NY 10019 Attn: Mr. Steve Alexander If to HFV Holdings, LLC: HFV Holdings, LLC 824 Market Street, Suite 900 Wilmington, DE 19801 Attn: Mr. Andrew H. McQuarrie with a copy to: The Hillman Company 1900 Grant Building Pittsburgh, PA 15219 Attn: H. Vaughan Blaxter, III and Mr. R. Alan Wright If to GS Private Equity Partners, L.P. GS Private Equity Partners c/o Goldman Sachs & Co. Offshore, L.P.: 85 Broad Street New York, NY 10004 Attn: Ms. Elizabeth Varley Camp If to Phoenix Home Life Mutual Insurance Company: c/o Phoenix Duff & Phelps 56 Prospect Street Hartford, CT 06115 Attn: Mr. Paul Chute If to PMI Mezzanine Fund, L.P.: c/o Pacific Mezzanine Group 610 Newport Center Drive Suite 1100 Newport Beach, CA 92660 Attn: Mr. Sky Lance If to the Company: Fountain View Management, Inc. 11900 W. Olympic Blvd. Los Angeles, CA 90064 Attn: President -26- with copies to: Heritage, RS and Choate, Hall & Stewart, in each case at their respective addresses set forth above -27- EXHIBIT 2.03 The following constitute the Base Case, Mid Case and Target Case, at the indicated times (all numbers in thousands):
Determination Date Base Case Mid Case Target Case ------------------ --------- --------- ----------- 4/1/98 through 6/30/98 126,534 136,345 140,167 7/1/98 through 9/30/98 133,101 157,055 171,750 10/1/98 through 12/31/98 139,667 177,765 203,333 1/1/99 through 3/31/99 146,234 198,476 234,916 4/1/99 through 6/30/99 152,801 219,186 288,499 7/1/99 through 9/30/99 173,526 243,074 298,999 10/1/99 through 12/31/99 194,252 266,982 331,498 1/1/00 through 3/31/00 214,977 290,850 363,998 4/1/00 through 6/30/00 235,702 314,738 396,497 7/1/00 through 9/30/00 245,053 340,397 430,655 10/1/00 through 12/31/00 254,403 366,056 464,812 1/1/01 through 3/31/01 263,754 391,714 498,970 4/1/01 through 6/30/01 273,104 417,373 533,127 7/1/01 through 9/30/01 287,174 450,009 577,406 10/1/01 through 12/31/01 301,244 482,645 621,685 1/1/02 through 3/31/02 315,314 515,281 665,964 4/1/02 through 6/30/02 329,384 547,917 710,243 7/1/02 through 9/30/02 345,976 576,531 746,058 10/1/02 through 12/31/02 362,568 605,145 781,874 1/1/03 through 3/31/03 379,159 633,759 817,689 4/1/03 through 6/30/03 395,751 662,373 853,504 7/1/03 through 9/30/03 420,485 716,191 938,854 10/1/03 through 12/31/03 445,220 770,009 1,024,205 1/1/04 through 3/31/04 469,954 823,825 1,109,555 4/1/04 through 6/30/04 494,689 877,644 1,194,908 7/1/04 through 9/30/04 525,607 948,953 1,314,396 10/1/04 through 12/31/04 556,525 1,020,261 1,433,887
-28-
Determination Date Base Case Mid Case Target Case ------------------ --------- --------- ----------- 1/1/05 through 3/31/05 587,443 1,091,570 1,553,377 4/1/05 through 6/30/05 618,361 1,162,878 1,672,868 7/1/05 through 9/30/05 657,008 1,257,362 1,840,155 10/1/05 through 12/31/05 695,658 1,351,846 2,007,441 1/1/06 through 3/31/06 734,304 1,446,330 2,174,728 4/1/06 through 6/30/06 772,951 1,540,814 2,342,015 7/1/06 through 9/30/06 821,261 1,666,005 2,576,216 10/1/06 through 12/31/06 869,570 1,791,196 2,810,418 1/1/07 through 3/31/07 917,880 1,916,388 3,044,619 4/1/07 through 6/30/07 966,189 2,041,579 3,278,821 7/1/07 through 9/30/07 1,026,576 2,207,457 3,606,703 10/1/07 through 12/31/07 1,086,963 2,373,335 3,934,585 1/1/08 through 3/31/08 1,147,349 2,539,214 4,262,467 4/1/08 through 6/30/08 1,207,736 2,705,092 4,590,349 7/1/08 through 9/30/08 1,283,220 2,924,881 5,049,384 10/1/08 through 12/31/08 1,358,703 3,144,669 5,508,419 1/1/09 through 3/31/09 1,434,187 3,364,458 5,967,454 4/1/09 through 6/30/09 1,509,670 3,584,247 6,426,489
-29- EX-10.38 54 REGISTRATION RIGHTS AGREEMENT DATED 4/27/98 EXHIBIT 10.38 REGISTRATION RIGHTS AGREEMENT ----------------------------- This Registration Rights Agreement (the "Agreement") is entered into as of --------- this 27th day of March, 1998 by and among Fountain View, Inc., a Delaware corporation (the "Company"), Heritage Fund II, L.P., Heritage Investors II, ------- L.L.C. and Heritage Fund II Investment Corporation (collectively, "Heritage"), -------- Robert Snukal, Sheila Snukal Keith Abrahams, Stacy Abrahams and Joshua Snukal (collectively, the "Snukals"), William Scott ("Scott"), HFV Holdings, LLC, ------- ----- Nassau Capital Partners II L.P., NAS Partners I LLC, Paribas North America, Inc., Phoenix Home Life Mutual Insurance Company, PMI Mezzanine Fund, L.P., GS Private Equity Partners, L.P., GS Private Equity Partners Offshore, L.P. and Sutro Investment Partners V, LLC. Introduction ------------ This Agreement is being entered into in connection with the proposed acquisition (the "Acquisition") of Summit Care Corporation ("Summit") by the ----------- ------ Company. This Agreement replaces and supersedes the Registration Rights Agreement entered into by and among the Company, Heritage Fund II Investment Corporation and the certain of the Snukals dated August 1, 1997. Certain capitalized terms used herein are defined in Section 4 hereof. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: Section 1. Demand Registration Rights. --------- -------------------------- (a) At any time, if holders of more than 30% of the Investor Registrable Securities or the Snukal Registrable Securities request the Company to file a registration statement under the Securities Act of 1933, as amended (the "Act"), for a firm commitment underwritten public offering of not less than --- 30% of the Investor Registrable Securities or the Snukal Registrable Securities (or any lesser percentage if the anticipated aggregate offering price of such offering, net of underwriting discounts and commissions, exceeds $12,000,000), as the case may be, the Company shall (i) within 10 days notify all holders of Registrable Securities of such request and (ii) use its best efforts to so register under the Act the Investor Registrable Securities or the Snukal Registrable Securities initially requested to be registered and the Registrable Securities of all other holders who request within 20 days after receiving the Company's notice that their Registrable Securities be included therein. Notwithstanding the foregoing, the holders of Snukal Registrable Securities shall not be entitled to initiate a registration under this Section 1 until after the Company's first underwritten public offering of Common Stock (the "IPO"). The Company is --- obligated to effect a maximum of two such demand registrations requested by holders of Investor Registrable Securities and one such demand registrations requested by holders of Snukal Registrable Securities, none of which shall be within the same six-month period. (b) If the underwriter managing the offering determines that, because of marketing considerations, all of the Registrable Securities requested to be registered may not be included in the offering, the underwriter may reduce the number of Registrable Securities included therein. Such reduction shall be applied first to shares other than Registrable Securities. In the event the request for registration is made by the holders of the Snukal Registrable Securities, such reduction shall next be applied pro rata among the holders of the Investor Registrable Securities based upon the number of shares requested by each such holder to be included in the registration; if this reduction is insufficient, any remaining reduction shall be applied pro rata among the holders of the Snukal Registrable Securities and Scott Registrable Securities based upon the number of shares requested by each such holder to be included in the registration. In all other events, such reduction shall next be applied pro rata among the Snukal Registrable Securities and Scott Registrable Securities based upon the number of shares requested by each such holder to be included in the registration; if this reduction is insufficient, any remaining reduction shall be applied pro rata among the holders of the Investor Registrable Securities based upon the number of shares requested by each such holder to be included in the registration. If any such reduction results in the inclusion of less than 50% of the Registrable Securities requested to be included therein by the holders that initiated such registration, such registration shall not reduce the number of registrations available to such holders under this Section 1. (c) If the Company includes in any registration required under this Section 1 a number of shares other than Registrable Securities that exceeds the number of Registrable Securities to be included, then such registration shall be deemed to be a registration under Section 2 instead of this Section 1. In all other cases where the Company includes in such registration any shares other than Registrable Securities, such registration shall remain subject to this Section 1, provided that in no event shall other shares be included in such -------- registration if such inclusion would (i) prevent holders of Registrable Securities from registering all Registrable -2- Securities requested by them or (ii) adversely affect the offering price of the Registrable Securities in such registration. Section 2. Piggyback Registration Rights. --------- ----------------------------- (a) Whenever the Company proposes to register any Common Stock for its own or others' account under the Act, other than a registration relating to employee benefit plans or a registration solely relating to shares to be sold under Rule 145 under the Act, the Company shall give each holder of Registrable Securities prompt written notice of its intent to do so. Upon the written request of any such holder given within 20 days after receipt of such notice, the Company will use its best efforts to cause to be included in such registration all of the Registrable Securities which such holder requests. (b) If the Company is advised in writing in good faith by any managing underwriter of the securities being offered pursuant to any registration statement under this Section 2 that, because of marketing considerations, the number of shares to be sold by persons other than the Company is greater than the number of such shares which can be offered without adversely affecting the offering, the Company may reduce the number of shares offered for the accounts of such persons to a number deemed satisfactory by such managing underwriter. Such reduction shall be applied first to shares other than Registrable Securities. Such reduction shall next be applied pro rata among the Snukal Registrable Securities and Scott Registrable Securities based upon the number of shares requested by each such holder to be included in the registration. If this reduction is insufficient, any remaining reduction shall be applied pro rata among the holders of the Investor Registrable Securities based upon the number of shares requested by each such holder to be included in the registration. Section 3. Form S-3 Registration Rights. If, at a time when Form S-3 is --------- ---------------------------- available for such registration, the Company shall receive from any holder of Registrable Securities a written request or requests that the Company effect a registration on Form S-3 of any of such holder's Registrable Securities, the Company will promptly give written notice of the proposed registration to all other holders of Registrable Securities and, as soon as practicable, effect such registration and all related qualifications and compliances as may be requested and as would permit or facilitate the sale and distribution of all Registrable Securities as are specified in such request and any written requests of other holders given within 20 days after receipt of such notice. The Company shall have no obligation to effect a registration under this Section 3 (a) unless the aggregate offering price of the Registrable Securities requested to be sold -3- pursuant to such registration is expected to be equal to or greater than $3,000,000 and (b) more often than once in any six-month period. Any registration under this Section 3 will not be counted as a registration under Section 1 above. Section 4. Definitions. --------- ----------- (a) As used herein, "Investor Registrable Securities" means all ------------------------------- shares of Common Stock of the Company held by Heritage and HFV Holdings, LLC, Nassau Capital Partners II L.P., NAS Partners I LLC, Paribas North America, Inc., Phoenix Home Life Mutual Insurance Company, PMI Mezzanine Fund, L.P., GS Private Equity Partners, L.P., GS Private Equity Partners Offshore, L.P. and Sutro Investment Partners V, LLC, or in the name of their nominees, at any time, including without limitation any other shares of Common Stock of the Company acquired (or which may be acquired upon the exercise or conversion of securities for or into shares of Common Stock) prior to the IPO by Heritage and HFV Holdings, LLC, Nassau Capital Partners II L.P., NAS Partners I LLC, Paribas North America, Inc., Phoenix Home Life Mutual Insurance Company, PMI Mezzanine Fund, L.P., GS Private Equity Partners, L.P., GS Private Equity Partners Offshore, L.P. and Sutro Investment Partners V, LLC, or in the name of their nominees, pursuant to any preemptive right, right of first refusal or otherwise, and any other shares of Common Stock of the Company issued in respect of any of such securities (as a result of stock splits, stock dividends, reclassifications, recapitalizations or other events); provided, however, that -------- ------- such securities shall cease to be Investor Registrable Securities upon (i) any sale pursuant to a registration statement under the Act or (ii) any sale pursuant to Rule 144 under the Act. (b) As used herein, "Snukal Registrable Securities" means all shares ----------------------------- of Common Stock of the Company held by the Snukals at any time, including without limitation any other shares of Common Stock of the Company acquired (or which may be acquired upon the exercise or conversion of securities for or into shares of Common Stock) by the Snukals prior to the IPO pursuant to any preemptive right, right of first refusal or otherwise, and any other shares of Common Stock of the Company issued in respect of any of such securities (as a result of stock splits, stock dividends, reclassifications, recapitalizations or other events); provided, however, that such securities shall cease to be Snukal -------- ------- Registrable Securities upon (i) any sale pursuant to a registration statement under the Act or (ii) any sale pursuant to Rule 144 under the Act. (c) As used herein, "Scott Registrable Securities" means all shares ---------------------------- of Common Stock of the Company held by Scott at any time, including without limitation any other shares of Common Stock of the Company acquired (or which may be acquired upon the -4- exercise or conversion of securities for or into shares of Common Stock) by Scott prior to the IPO pursuant to any preemptive right, right of first refusal or otherwise, and any other shares of Common Stock of the Company issued in respect of any of such securities (as a result of stock splits, stock dividends, reclassifications, recapitalizations or other events); provided, however, that -------- ------- such securities shall cease to be Scott Registrable Securities upon (i) any sale pursuant to a registration statement under the Act or (ii) any sale pursuant to Rule 144 under the Act. Although the Company shall only be obligated to register shares of Common Stock, the Company shall use all reasonable efforts to cause the underwriters in any offering to purchase any warrants from the holders of Registrable Securities, in lieu of requiring such holders to exercise such warrants and sell the underlying shares of Common Stock. (d) As used herein, "Registrable Securities" means the Investor ---------------------- Registrable Securities, the Snukal Registrable Securities and the Scott Registrable Securities. (e) As used herein, "Common Stock" means the class of common stock ------------ into which shares of the Company's Common Stock are exchanged or converted pursuant to Article VI of the Stockholders Agreement dated as of March 27, 1998 by and among the parties hereto (as amended from time to time, the "Stockholders ------------ Agreement"), and any replacement class(es) of common stock of the Company into - --------- which such Common Stock is exchanged or converted. (f) Whenever reference is made in this Agreement to the request or consent of holders of a certain percentage of the Investor Registrable Securities, Snukal Registrable Securities, Scott Registrable Securities or Registrable Securities, (i) the determination of such percentage shall include shares of Common Stock issuable upon conversion of any convertible securities or exercise of any options, warrants or other rights that are held by persons or entities who are holders of Investor Registrable Securities, Snukal Registrable Securities, Scott Registrable Securities or Registrable Securities, as the case may be, or who would be holders of Investor Registrable Securities, Snukal Registrable Securities, Scott Registrable Securities or Registrable Securities, as the case may be, upon the conversion or exercise of such convertible securities, options, warrants or other rights, (ii) Heritage shall be deemed to hold a majority of the Investor Registrable Securities as long as Heritage holds more Investor Registrable Securities than any other holder of Investor Registrable Securities, and (iii) at any time after the seventh (7th) anniversary of the date hereof, if the Company has not previously completed an IPO, notwithstanding the provisions of clause (ii) above, the holders of a majority of those Investor Registrable Securities other than the Investor Registrable Securities held by Heritage shall be entitled to act on behalf of -5- the holders of Investor Registrable Securities pursuant to Section 1 without reference to the shares of Investor Registrable Securities held by Heritage. Section 5. Selection of Underwriter. The underwriter of any offering --------- ------------------------ under Section 1 shall be selected by holders of a majority of the Registrable Securities initiating such registration, provided that such underwriter shall be -------- reasonably acceptable to the Company. The underwriter of any offering requested under Section 2 shall be selected by the Company. Section 6. Registration Procedures. If and whenever the Company is --------- ----------------------- required by the provisions of this Agreement to use its best efforts to effect the registration of any of the Registrable Securities under the Act, the Company shall: (a) as expeditiously as possible (and, in the case of a registration under Section 1, within 60 days of any request thereunder) file with the Securities and Exchange Commission (the "Commission") a registration statement, ---------- in form and substance required by the Act, with respect to such Registrable Securities and use its best efforts to cause that registration statement to become effective; (b) as expeditiously as possible, prepare and file with the Commission any amendments and supplements to the registration statement and the prospectus included in the registration statement as may be necessary to keep the registration statement effective, in the case of a firm commitment underwritten public offering, until completion of the distribution of all securities described therein and, in the case of any other offering, until the earlier of the sale of all Registrable Securities covered thereby or 120 days after the effective date thereof; (c) as expeditiously as possible, furnish to each holder that requested that Registrable Securities be included in such registration, such reasonable numbers of copies of the prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as such holder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities owned by such holder; (d) as expeditiously as possible, use its best efforts to register or qualify the Registrable Securities covered by the registration statement under the securities or Blue Sky laws of such states as the holders thereof shall reasonably request, and do any and all other acts and things that may be necessary or desirable to enable the holders thereof to consummate the public sale or other disposition in such states of the Registrable -6- Securities owned by the holders; provided, however, that the Company shall not -------- ------- be required in connection with this paragraph (d) to qualify as a foreign corporation or execute a general consent to service of process in any jurisdiction; (e) in connection with each registration pursuant to Sections 1, 2 and 3 above covering an underwritten public offering, the Company and each participating holder agrees to enter into a written agreement with the managing underwriter in such form and containing such provisions (including, if the underwriter so requests, customary contribution provisions on the part of the Company) as are customary in the securities business for such an arrangement between such underwriter and companies of the Company's size and investment stature, provided that the holders shall not be obligated to enter into any such -------- underwriting agreement if the indemnification or contribution provisions thereof are more burdensome on such holder than those contained herein or if any standback requirement therein is for a period that exceeds the period required by this Agreement; (f) at the request of any participating holder, the Company will furnish to each underwriter, if any, and the participating holders, a legal opinion of its counsel and a letter from its independent certified public accountants, each in customary form and substance, at such time or times as such documents are customarily provided in the type of offering involved; (g) whenever the Company is registering any Common Stock under the Act and a holder of Registrable Securities is selling securities under such registration or determines that it may be a controlling person under the Act, the Company will keep such holder advised in writing of the initiation, progress and completion of such registration, will allow such holder and such holders's counsel to participate in the preparation of the registration statement and to have access to all relevant corporate records, documents and information, will include in the registration statement such information as such holder may reasonably request and will take all such other action as such holder may reasonably request; (h) whenever the Company is registering any Common Stock under the Act and a holder of Registrable Securities is selling securities under such registration, and the Company obtains knowledge that the registration statement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained therein not misleading, the Company will promptly notify each such holder of such statement or omission; -7- (i) each holder of Registrable Securities included in a registration shall furnish to the Company such information regarding such holder and the distribution proposed by such holder as the Company may reasonably request in writing and as shall be required in connection with the registration, qualification or compliance referred to in this Agreement; (j) as of the effective date of any registration statement relating thereto, cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed, and, if not so listed, to be listed on the New York Stock Exchange or the NASDAQ Stock Market National Market System; and (k) as of the effective date of any registration statement relating thereto, provide a transfer agent and registrar for all such Registrable Securities. Section 7. Expenses. The Company will pay all expenses incurred by the --------- -------- Company in complying with this Agreement, including, without limitation, all registration and filing fees, exchange listing fees, printing expenses, transfer taxes, fees and expenses of counsel for the Company and the fees and expenses of one counsel selected by the holders of a majority of the Registrable Securities to be included in such registration to represent them, state Blue Sky fees and expenses, and the expense of any special audits incident to or required by any such registration, but excluding underwriting discounts and selling commissions relating to the sale of the Registrable Securities. Section 8. Notification. The Company shall promptly notify each holder of --------- ------------ Registrable Securities covered by any registration statement of any event which results in the prospectus included in such registration statement, as then in effect, containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. Section 9. Indemnification and Contribution. --------- -------------------------------- (a) Indemnification by the Company. The Company shall indemnify and ------------------------------ hold harmless each holder of Registrable Securities included in any registration, its officers, directors and partners, each underwriter of the Registrable Securities being sold by such holder, and each controlling person of any of the foregoing, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering, circular, or other document relating to such Registrable Securities (or in any -8- related registration statement, notification or the like) or any 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 any violation by the Company of the Act, or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any applicable state securities laws, or any rule or ------------ regulation promulgated thereunder, applicable to the Company and relating to action or inaction required of the Company in connection with any registration, qualification or compliance contemplated by this Agreement, and will reimburse each such holder, each of its officers, directors and partners, and each such underwriter and controlling person for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, whether or not resulting in liability; provided, however, that the Company will not be liable in any such case to the - -------- ------- extent that any such claim, loss, damage or liability (i) arises out of or is based on any untrue statement or omission based upon and in conformity with written information furnished to the Company by such holder or underwriter and stated to be specifically for use therein, or (ii) results solely from the failure of such holder to deliver a copy of the registration statement, prospectus, offering circular or any amendments or supplements thereto after the Company has furnished such holder with a sufficient number of copies thereof. (b) Indemnification by the Holders of Registrable Securities. Each -------------------------------------------------------- participating holder of Registrable Securities shall indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each underwriter of the Registrable Securities, each other participating holder of Registrable Securities, its officers, directors and partners, and each controlling person of any of the foregoing, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular, or other document relating to the Registrable Securities (or in any related registration statement, notification or the like) or any 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 by the failure of such holder to deliver a copy of the registration statement, prospectus, offering circular, or any amendments or supplements thereto after the Company has furnished the holder with a sufficient number of copies thereof, and will reimburse the Company and each such director, officer or controlling person for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, provided, however, that no holder -------- ------- of Registrable Securities will be liable in any such case except to -9- the extent that any such claim, loss, damage or liability arises out of any untrue statement or omission based upon and in conformity with written information furnished to the Company by such holder and stated to be specifically for use therein, and provided, further, that no holder of -------- ------- Registrable Securities will be liable under this Section for losses, costs, damages or expenses exceeding in the aggregate the net proceeds to such holder in such offering. (c) Procedures for Indemnification. Each party entitled to ------------------------------ indemnification under Subsection (a) or (b) (the "Indemnified Party") shall give ----------------- notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided, that counsel for the Indemnifying Party, who shall conduct the defense - -------- of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld); and, provided, further, that the failure of any Indemnified Party to give notice as - -------- ------- provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement. The Indemnified Party may participate in such defense at such party's expense; provided, however, that the Indemnifying Party shall pay -------- ------- such expense if the Indemnified Party shall believe in good faith that representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between the Indemnified Party and any other party represented by such counsel in such proceeding. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation, and no Indemnified Party shall consent to entry of any judgment or settle such claim or litigation without the prior written consent of the Indemnifying Party. (d) Contribution. If the indemnification provided for in Subsections ------------ (a) or (b) is unavailable to any indemnified party thereunder in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to in such Sections, then each person or entity that would have been an indemnifying party thereunder shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and such indemnified -10- party on the other. The relative fault shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or such indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, or whether such losses, claims, damages or liabilities (or actions in respect thereof) arose out of the action or failure to act of one or more of such parties. Notwithstanding the foregoing, (i) no holder of Registrable Securities will be required to contribute any amount in excess of the net proceeds to such holder of all Registrable Securities sold by such holder pursuant to such registration statement, and (ii) no person or entity guilty of fraudulent misrepresentation, within the meaning of Section 11(f) of the Act, shall be entitled to contribution from any person or entity who is not guilty of such fraudulent misrepresentation. Section 10. Reports Under Exchange Act. With a view to making available ---------- -------------------------- to the holders of Registrable Securities the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the Commission that may at any time permit a holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to use its best efforts to satisfy the requirements of all such rules and regulations (including the requirements for public information, registration under the Exchange Act and timely reporting to the Commission) at the earliest possible date (but in any event not later than 90 days) after the effective date of the registration statement for its first registered public offering. The Company will furnish to each holder of Registrable Securities, whenever requested, a written statement as to its compliance with the reporting requirements of Rule 144, the Act and the Exchange Act, a copy of its most recent annual or quarterly report, and such other reports and information filed by the Company as any holder of Registrable Securities may reasonably request in connection with the sale of Registrable Securities without registration. Section 11. Additional Registration Rights. If a majority of the ---------- ------------------------------ Company's Board of Directors (the "Board") believes in good faith that rights ----- should be granted to new investors in the Company who are acquiring, in the aggregate, at least 15% of the Company's stock to (a) require the Company to initiate the registration of any securities or (b) require the Company to include in any registration securities owned by such new investors (the "Additional Rights"), the Board may in its discretion grant such Additional - ------------------ Rights, subject to such terms and conditions as the Board may determine. The Board may grant such Additional Rights even though such Additional Rights may -11- impair or limit the right of the parties to this Agreement, provided, however, -------- ------- that the Board shall not grant any such Additional Rights which impair or limit the rights of any party to this Agreement to a materially greater extent than other parties to this Agreement without the consent of such party. Section 12. Lock-Up Agreement. Each holder of Registrable Securities, and ---------- ----------------- any other holder of Common Stock described in Section 11(b) hereof, agrees that in connection with any public offering of the Company's Common Stock, and upon the request of the managing underwriter in such offering, such holder will not sell, grant any option for the purchase of, or otherwise dispose of any of the Company's securities held by such holder (other than those included in such registration) without the prior written consent of such underwriter, for such period of time as may be requested by such underwriter (not to exceed (a) 180 days after the effective date of such registration, in the case of the initial public offering of the Company's Common Stock or (b) 90 days after the effective date of such registration, in the case of any other registration). The obligation of the holders of Registrable Securities under this Section 12 is conditional upon the agreement of all of the Company's officers and directors and of all persons holding 5% or greater of the Company's capital stock to be bound by the terms of this Section 12. Section 13. Notices. All notices, demands, requests or other ---------- ------- communications hereunder shall be in writing and shall be deemed to have been duly given if delivered in person, or by United States mail, certified or registered with return receipt requested, or by facsimile, with verification of receipt and written confirmation provided by another means permitted hereunder, or by nationally recognized overnight courier service, to the addresses of the respective parties for notices in accordance with the Stockholders Agreement (or, if the address of a holder of Registrable Securities is not included therein, at the address of such holder on the Company's stock records). Section 14. Successors and Assigns. This Agreement shall be binding upon ---------- ---------------------- and inure to the benefit of the parties hereto and their respective successors and assigns, including any subsequent holders of Investor Registrable Securities, Snukal Registrable Securities, Scott Registrable Securities or . Section 15. Survival. This Agreement, including without limitation the ---------- -------- obligation of the parties under Section 9 hereof, shall survive indefinitely. Section 16. Severability and Governing Law. If any provision of this ---------- ------------------------------ Agreement is rendered void, invalid or unenforceable by any court of law for any reason, such invalidity or unenforceability shall not void or render invalid or -12- unenforceable any other provision of this Agreement. This Agreement is governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts. Section 17. Amendments, Etc. This Agreement may be amended or waived only ---------- --------------- with the written consent of (a) the Company, (b) Heritage, (c) holders of a majority of the Investor Registrable Securities other than Heritage, (d) holders of a majority of the Snukal Registrable Securities, (e) holders of a majority of the Scott Registrable Securities and (f) holders of a majority of other Registrable Securities, except that no consent under clauses (c), (d), (e) or (f) shall be required (i) for any amendment relating to the grant of Additional Rights or (ii) in the case of each such clause, for any amendment which (A) does not materially and adversely affect the holders of Registrable Securities described therein in a manner which is materially different from the effect on Heritage, or (B) does not eliminate any material right provided for in this Agreement to which the holders of Registrable Securities described therein are entitled or does not create any material additional obligation for such holders. Notwithstanding the foregoing, any waiver, modification or amendment which requires any holder of Registrable Securities to make additional cash contributions to the Company shall require the consent of such holder. Section 18. Counterparts. This Agreement may be executed in one or more ---------- ------------ counterparts, and with counterpart signature pages, each of which shall be an original, but all of which together shall constitute one in the same Agreement. -13- IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as a sealed instrument as of the date first above written. FOUNTAIN VIEW, INC. By: /s/ Robert Snukal /s/ Robert Snukal ---------------------------- ------------------------------- Robert Snukal, President Robert Snukal /s/ William Scott /s/ Sheila Snukal - ------------------------------- ------------------------------- William Scott Sheila Snukal HERITAGE INVESTORS II, L.L.C. HERITAGE FUND II, L.P. By Heritage Partners Management By HF Partners II, L.L.C., Company Inc., its manager its general partner By: [SIGNATURE ILLEGIBLE] ^^ By: [SIGNATURE ILLEGIBLE] ^^ ---------------------------- ---------------------------- (title) (title) /s/ Keith Abrahams /s/ Stacy Abrahams - ------------------------------- ------------------------------- Keith Abrahams Stacy Abrahams /s/ Joshua Snukal HERITAGE FUND II - ------------------------------- Joshua Snukal INVESTMENT CORPORATION By: [SIGNATURE ILLEGIBLE] ^^ ---------------------------- (title) SUTRO INVESTMENT HFV HOLDINGS, LLC PARTNERS V, LLC By Sutro Group Inc., By _______________________, ---------------------- its general partner its Manager By: [SIGNATURE ILLEGIBLE] ^^ By: /s/ Andrew H. McQuarrie ---------------------------- ----------------------------- President (title) Andrew H. McQuarrie (title) Vice President -14- NASSAU CAPITAL PARTNERS II L.P. PARIBAS NORTH AMERICA, INC. By Nassau Capital L.L.C. ----------------------, its general partner By: /s/ John G. Quigley By: /s/ John G. Martinez ---------------------------- --------------------------- (title) John G. Martinez (title) Financial Countroller PHOENIX HOME LIFE PMI MEZZANINE FUND, L.P. MUTUAL INSURANCE COMPANY By _____________________, its general partner By: /s/ John H. Beer By: /s/ Schuyler G. Lance ---------------------------- -------------------------- (title) Schuyler G. Lance (title) Principal GS PRIVATE EQUITY GS PRIVATE EQUITY PARTNERS, L.P. PARTNERS OFFSHORE, L.P. By GS Private Equity Management, LLC By GS Private Equity Management ---------------------------------- ----------------------------- Offshore, Inc. -------------- its general partner its general partner By: /s/ Donald Opatriny By: /s/ Donald Opatriny ---------------------------- ---------------------------- Director (title) Director (title) NAS PARTNERS I LLC By /s/ John G. Quigley ----------------------, its Manager By: [SIGNATURE ILLEGIBLE] ^^ ---------------------------- (title) -15- EX-10.39 55 EMPLOY. AGREE. BETWEEN FOUNTAIN VIEW & R. SNUKAL EXHIBIT 10.39 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement (the "Agreement") is made as of March 27, 1998 --------- between Fountain View, Inc., a Delaware corporation (the "Company") and Robert ------- M. Snukal (the "Executive"). --------- Introduction ------------ This Agreement is being entered into in connection with the proposed acquisition (the "Acquisition") of Summit Care Corporation ("Summit") by the ----------- ------ Company. The Acquisition and related transactions and the investments and acquisitions entered into on August 1, 1997 among the Executive, the Company, Heritage Fund II Investment Corporation, are referred to collectively herein as the "Transactions". ------------ The Company desires to retain the services of the Executive and the Executive wishes to be employed by the Company. The Executive is a stockholder, director and officer of the Company, and has had full access to information concerning the Company. The disclosure of such information or the engaging in competitive activities would cause substantial harm to the Company. This Agreement replaces and supersedes the Employment Agreement made as of August 1, 1997 by and among Fountain View Holdings, Inc., Heritage Fund II Investment Corporation and the Executive. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: Section 1. Term. The Company shall employ the Executive for a term --------- ---- commencing on the date of the closing of the Offer and continue for a period of five (5) years, unless earlier terminated pursuant to Section 7 (the "Employment ---------- Period"). This Agreement shall automatically renew at the end of the Employment - ------ Period for up to five additional one year terms, unless either party hereto provides written notice of termination to the other party not less than thirty (30) days prior to the end of the Employment Period or the end of any subsequent renewal period. Section 2. Duties. The Executive shall be employed as the Chief Executive --------- ------ Officer of the Company, with such duties of an executive nature as the Board of Directors of the Company (the "Board") shall determine. The Executive will ----- report to the Board. Section 3. Full Time. During the term of this Agreement, the Executive --------- --------- shall use the Executive's best efforts to promote the interests of the Company and the direct and indirect subsidiaries of the Company, and shall devote substantially the Executive's full business time and efforts to their business and affairs. The Executive may engage in other business activities that do not interfere materially with the performance of the Executive's duties, services and responsibilities hereunder. Section 4. Compensation. The Executive shall be entitled to compensation --------- ------------ as follows: (a) Base Salary. During the term of the Executive's employment with ----------- the Company, the Executive will receive a salary at the rate of $500,000 annually (the "Base Salary"), payable in equal installments not less than bi- ----------- weekly in arrears. The Company shall withhold from compensation payable to the Executive all applicable federal, state and local withholding taxes. The Base Salary will be subject to annual consumer price adjustments. (b) Bonus. In addition to the payment of the Base Salary and the ----- other payments and benefits available to the Executive under this Agreement, while the Executive is employed by the Company, the Company will pay to the Executive for each fiscal year incentive compensation (the "Bonus") in an amount ----- of (i) an annual bonus of $250,000 if the Company achieves Base Case EBITDA and (ii) up to an additional bonus of $250,000 determined ratably based on the Company's EBITDA being between the Base Case and the Target Case, such Bonus payable within 120 days after the end of such fiscal year, as determined by the Board, in its discretion. Payments with respect to partial percentages will be prorated. [The payment of the Bonus shall be prorated for any partial fiscal year during the term of this Agreement.- Question re year one?] (c) Definition of Base Case, Mid Case and Target Case. As used ------------------------------------------------- herein, "Base Case", "Mid Case" and "Target Case" shall have the meanings --------- -------- ----------- specified on Exhibit A hereto, on the respective dates indicated, and may be --------- changed by approval of the Company's Board to reflect acquisitions, dispositions, start-ups and other transactions not in the ordinary course, provided that in selecting the new targets the members of the Board approving such changes believe in good faith that the new targets are broadly consistent with the valuation methodology applied in determining the initial EBITDA targets set forth on Exhibit A hereto. --------- Section 5. Benefits. In addition to salary and Bonus, the Executive shall --------- -------- be entitled to receive reasonable and customary fringe benefits in an amount not less than the greater of those benefits that are generally and customarily available to the -2- Company's executive and managerial employees and those benefits that are generally and customarily available to Summit's executive and managerial employees. Such benefits include health insurance and vacation time in accordance with the Company or Summit's policies, consistent with prior practices. The Company will also reimburse the Executive for the cost of an automobile, including fuel, maintenance and insurance expenses relating thereto, not to exceed $600 per month. The Executive will be entitled to reimbursement of all reasonable expenses incurred in the ordinary course of business on behalf of the Company, subject to presentation of appropriate documentation, in accordance with policies approved by the Board. Section 6. Confidentiality and Non-Competition. In consideration of, and --------- ----------------------------------- as a condition to, the Transactions, and in consideration of the mutual promises contained herein, and to preserve the goodwill of the Company and its direct and indirect subsidiaries (collectively, the "Companies"), the Executive agrees as --------- follows: (a) The Executive will not at any time, directly or indirectly, disclose or divulge, except as reasonably required in connection with the performance of the executive's duties for the Companies, any Confidential Information (as hereinafter defined) acquired by the executive during the executive's affiliation with or employment by the Companies. As used herein, "Confidential Information" means all trade secrets and all other proprietary or - ------------------------- non-public information of a business, financial, marketing, technical or other nature pertaining to the Companies or their affairs and all information of others that the Companies have agreed not to disclose; provided, that -------- Confidential Information shall not include any information which has entered or enters the public domain through no fault of the Executive or which the Executive is required to disclose by law or legal process. (b) The Executive shall make no use whatsoever, directly or indirectly, of any Confidential Information, except as reasonably required in connection with the performance of the executive's duties for the Companies. (c) Upon the Companies' request at any time and for any reason, the Executive shall immediately deliver to the Companies all materials (including all copies) in the executive's possession which contain or relate to Confidential Information. (d) All inventions, developments or improvements made by the Executive, either alone or in conjunction with others, at any time or at any place during the term of the executive's employment by the Companies, whether or not reduced to writing or practice during such term, which relate to the business in which the Companies are engaged or in which the Companies intend to -3- engage, or which were developed or made in whole or in part using the Companies' facilities, shall be the exclusive property of the Companies. The Executive shall promptly disclose any such invention, development or improvement to the Companies, and, at the request and expense of the Companies, shall assign all of the executive's rights to the same to the Companies. The Executive shall sign all instruments necessary for the filing and prosecution of any applications for or extension or renewals of letters patent of the United States or any foreign country which the Companies desire to file. (e) All copyrightable work by the Executive during the term of the Executive's employment by the Company which relates to the businesses in which the Companies are engaged is intended to be "work made for hire" as defined in Section 101 of the Copyright Act of 1976, and shall be the property of the Companies. If the copyright to any such copyrightable work is not the property of the Companies by operation of law, the Executive will, without further consideration, assign to the Companies all right, title and interest in such copyrightable work and will assist the Companies and their nominees in every way, at the Companies' expense, to secure, maintain and defend for the Companies' benefit copyrights and any extensions and renewals thereof on any and all such work including translations thereof in any and all countries, such work to be and to remain the property of the Companies whether copyrighted or not. (f) Prior to the termination of the Executive's employment with the Companies, and for the greater of five years after the date of the Agreement or three years after such termination, the Executive will not directly or indirectly, individually or as a consultant to, or Executive, officer, director, stockholder, partner or other owner or participant in any business entity, engage in or assist any other person to engage in the businesses of skilled nursing facilities, assisted living facilities, inpatient or outpatient therapy services, pharmacies, urological supplies, enteral feeding supplies and orthodics anywhere in the counties of the State of California identified on Schedule A hereto or in Arizona, Texas or any other state within the United - ---------- States; provided, however, that the Executive may own not more than a 5% equity -------- ------- interest in any publicly-traded company. (g) Prior to the termination of the Executive's employment with the Companies, and for the greater of five years after the date of the Agreement or two years after such termination, the Executive will not directly or indirectly, individually or as a consultant to, or as employee, officer, director, stockholder, partner or other owner or participant in any business entity other than the Companies, solicit or endeavor to entice away from the Companies, or otherwise materially -4- interfere with the business relationship of the Companies with, (i) any person who is, or was within the one-year period immediately prior to the termination of the Executive's employment by the Companies, employed by, a consultant to or associated with the Companies or (ii) any person or entity who is, or was within the two-year period immediately prior to the termination of the Executive's employment by the Companies, a customer, client of or supplier to the Companies. (h) Without limiting the remedies available to the Companies, the Executive acknowledges that a breach of any of the covenants contained in this Section 6 could result in irreparable injury to the Companies for which there might be no adequate remedy at law, and that, in the event of such a breach or threat thereof, the Companies shall be entitled to obtain a temporary restraining order and/or a preliminary injunction and a permanent injunction restraining the executive from engaging in any activities prohibited by this Section 6 or such other equitable relief as may be required to enforce specifically any of the covenants of this Section 6. The provisions of this Section 6 shall survive the termination of this Agreement and shall continue thereafter indefinitely in full force and effect in accordance with the terms of this Section 6. Section 7. Termination. --------- ----------- (a) The Executive's employment with the Company may be terminated at any time by the Company with cause or without cause or in the event of the death or Disability of the Executive. As used herein, "cause" shall mean the ----- reasonable and good faith determination by a majority of the Board (other than the Executive), after reasonable notice to the Executive and after the Executive has had an opportunity to present his view of the relevant facts and circumstances to the Board, that the Executive has (i) breached any material term of this Agreement, which breach has not been cured by the Executive within 20 days after notice to him or her by any of the Companies, (ii) engaged in criminal acts or acts of moral turpitude causing injury to the Companies or their reputations or (iii) engaged in material acts of dishonesty affecting the Companies. As used herein, "disability" shall mean illness (mental or physical) ---------- or accident which, in the good faith and reasonable determination of a majority of the Board, based on the report of a reputable physician, renders him unable to perform his duties for six months during any 12-month period. (b) If the Executive's employment is terminated hereunder for any reason, the Company shall have no further obligation to make any payments or provide any benefits to the Executive hereunder except for (i) payments of Base Salary that had accrued but had not been paid prior to the date of -5- termination, (ii) payments of Bonus that had been earned by the Executive but not paid prior to the date of termination, and (iii) if the Executive's employment is terminated by the Company without cause (other than on death or Disability), but only as long as the Executive remains in material compliance with the provisions of Section 6, continuation of the Executive's Base Salary (plus an additional $25,000 annually in the case of such termination of both the Executive and Sheila Snukal) for the duration of the Executive's scheduled term of employment (excluding any renewal periods not then commenced). (c) The provisions of Section 6 shall survive the termination of the Executive's employment in accordance with its terms. Section 8. Enforceability, etc. This Agreement shall be interpreted so as --------- ------------------- to be effective under applicable law, but if any portion hereof is prohibited or invalid, such portion shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. If any one or more of the provisions contained in this Agreement are for any reason held to be excessively broad as to duration, geographical scope, activity or subject, such provisions shall be construed by limiting and reducing them so as to be enforceable to the maximum extent permitted under applicable law. Section 9. Notices. Any notice or other communication given pursuant to --------- ------- this Agreement shall be in writing and shall be personally delivered, sent by overnight courier or express mail, or mailed by first class certified or registered mail, postage prepaid, return receipt requested as follows: (a) If to the Company: Fountain View, Inc. 11900 W. Olympic Boulevard, Suite 680 Los Angeles, CA 90064 With copies to: Heritage Partners, Inc. 30 Rowes Wharf, Suite 300 Boston, MA 02110 Attn: Mark J. Jrolf and Stephen M. L. Cohen, Esq. Choate, Hall & Stewart Exchange Place 53 State Street -6- Boston, MA 02109-2891 (b) If to the Executive: Robert Snukal c/o Fountain View, Inc. 11900 W. Olympic Boulevard, Suite 680 Los Angeles, CA 90064 With a copy to: David Bloom, Esq. Law Offices of David Bloom 3325 Wilshire Boulevard 9th Floor Los Angeles, CA 90010 or to such other address as the parties shall have designated by notice to the other party. Section 10. Governing Law. This Agreement shall be governed by and ---------- ------------- construed in accordance with the laws of the State of California without regard to the choice of law provisions thereof. Section 11. Amendments and Waivers. No amendment or waiver of this ---------- ---------------------- Agreement or any provision hereof shall be binding upon the party against whom enforcement of such amendment or waiver is sought unless it is made in writing and signed by or on behalf of such party. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate as a waiver by that party of the same or any subsequent breach of any provision of this Agreement by the other party. Section 12. Binding Effect; Assignment. This Agreement shall be binding ---------- -------------------------- on and inure to the benefit of the parties hereto and their respective heirs, executors and administrators, successors and assigns. This Agreement may not be assigned in whole or in part by either party (whether by operation of law or otherwise, including by merger or consolidation). Section 13. Entire Agreement. This Agreement constitutes the final and ---------- ---------------- entire agreement of the parties with respect to the matters covered hereby, and replaces and supersedes all other agreements and understandings relating thereto. Section 14. Counterparts. This Agreement may be executed in any number of ---------- ------------ counterparts, and with counterpart signature pages, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. -7- IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument as of the date first above written. FOUNTAIN VIEW, INC. By /s/ Robert M. Snukal -------------------------- (Title) /s/ Robert M. Snukal -------------------------- Robert M. Snukal -8- Exhibit B EBITDA Targets (000) Base Mgmt Upside ---- ---- ------ 30-Jun-99 45,188 47,314 47,314 30-Jun-00 53,581 57,101 59,320 30-Jun-01 56,499 67,030 71,287 30-Jun-02 60,395 78,196 85,390 30-Jun-03 65,080 87,063 95,621 -9- EXHIBIT B Identified Counties - ------------------- Alameda Orange Alpine Placer Amador Plumas Butte Riverside Calaveras Sacramento Colusa San Benito Contra Costa San Bernardino Del Norte San Diego El Dorado San Francisco Fresno San Joaquin Glenn San Luis Obispo Humboldt San Mateo Imperial Santa Barbara Inyo Santa Clara Kern Santa Cruz Kings Shasta Lake Sierra Lassen Siskiyou Los Angeles Solano Madera Sonoma Marin Stanislaus Mariposa Sutter Mendocino Tehama Merced Trinity Modoc Tulare Mono Tuolumne Monterey Ventura Napa Yolo Nevada Yuba -10- Exhibit B EBITDA Targets Base Mgmt Upside ---- ---- ------ 30-Jun-99 45,188 47,314 47,314 30-Jun-00 53,581 57,101 59,320 30-Jun-01 56,499 67,030 71,287 30-Jun-02 60,395 78,196 85,390 30-Jun-03 65,080 87,063 95,621 EX-10.40 56 EMPLOY. AGREE. BETWEEN FOUNTAIN VIEW & S. SNUKAL EXHIBIT 10.40 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement (the "Agreement") is made as of March 27, 1998 --------- between Fountain View, Inc., a Delaware corporation (the "Company") and Sheila ------- Snukal (the "Executive"). --------- Introduction ------------ This Agreement is being entered into in connection with the proposed acquisition (the "Acquisition") of Summit Care Corporation ("Summit") by the ----------- ------ Company. The Acquisition and related transactions and the investments and acquisitions entered into on August 1, 1997 among the Executive, the Company, Heritage Fund II Investment Corporation are referred to collectively herein as the "Transactions". ------------ The Company desires to retain the services of the Executive and the Executive wishes to be employed by the Company. The Executive is a stockholder, director and officer of the Company, and has had full access to information concerning the Company. The disclosure of such information or the engaging in competitive activities would cause substantial harm to the Company. This Agreement replaces and supersedes the Employment Agreement made as of August 1, 1997 by and among Fountain View Holdings, Inc., Heritage Fund II Investment Corporation and the Executive. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: Section 1. Term. The Company shall employ the Executive for a term --------- ---- commencing on the date of the closing of the Offer and continue for a period of five (5) years, unless earlier terminated pursuant to Section 7 (the "Employment ---------- Period"). This Agreement shall automatically renew at the end of the Employment - ------ Period for up to five additional one year terms, unless either party hereto provides written notice of termination to the other party not less than thirty (30) days prior to the end of the Employment Period or the end of any subsequent renewal period. Section 2. Duties. The Executive shall be employed as the Executive Vice --------- ------ President of the Company, with such duties of an executive nature as the Board of Directors of the Company (the "Board") shall determine. The Executive will ----- report to the President. Section 3. Full Time. During the term of this Agreement, the Executive --------- --------- shall use the Executive's best efforts to promote the interests of the Company and the direct and indirect subsidiaries of the Company and shall devote substantially the Executive's full business time and efforts to their business and affairs. The Executive may engage in other business activities that do not interfere materially with the performance of the Executive's duties, services and responsibilities hereunder. Section 4. Compensation. The Executive shall be entitled to compensation --------- ------------ as follows: (a) Base Salary. During the term of the Executive's employment with ----------- the Company, the Executive will receive a salary at the rate of $225,000 annually (the "Base Salary"), payable in equal installments not less than bi- ----------- weekly in arrears. The Company shall withhold from compensation payable to the Executive all applicable federal, state and local withholding taxes. The Base Salary will be subject to annual consumer price adjustments. (b) Bonus. In addition to the payment of the Base Salary and the ----- other payments and benefits available to the Executive under this Agreement, while the Executive is employed by the Company, the Company will pay to the Executive for each fiscal year incentive compensation (the "Bonus") in an amount ----- up to $125,000 determined ratably based on the Company's EBITDA being between the Base Case and the Target Case, such Bonus payable within 120 days after the end of such fiscal year, as determined by the Board, in its discretion (with the approval of a director of the Company who is an employee of Heritage Partners Management Company, Inc). Payments with respect to partial percentages will be prorated. The payment of the Bonus shall be prorated for any partial fiscal year during the term of this Agreement. (c) Definition of Base Case, Mid Case and Target Case. As used ------------------------------------------------- herein, "Base Case", "Mid Case" and "Target Case" shall have the meanings --------- -------- ----------- specified on Exhibit A hereto, on the respective dates indicated, and may be --------- changed by approval of the Company's Board to reflect acquisitions, dispositions, start-ups and other transactions not in the ordinary course, provided that in selecting the new targets the members of the Board approving such changes believe in good faith that the new targets are broadly consistent with the valuation methodology applied in determining the initial EBITDA targets set forth on Exhibit A hereto. --------- Section 5. Benefits. In addition to salary and Bonus, the Executive shall --------- -------- be entitled to receive reasonable and customary fringe benefits in an amount not less than the greater of those benefits that are generally and customarily available to the -2- Company's executive and managerial employees and those benefits that are generally and customarily available to Summit's executive and managerial employees. Such benefits include health insurance and vacation time in accordance with the Company or Summit's policies, consistent with prior practices. The Company will also reimburse the Executive for the cost of an automobile, including fuel, maintenance and insurance expenses relating thereto, not to exceed $600 per month. The Executive will be entitled to reimbursement of all reasonable expenses incurred in the ordinary course of business on behalf of the Company, subject to presentation of appropriate documentation, in accordance with policies approved by the Board. Section 6. Confidentiality and Non-Competition. In consideration of, and --------- ----------------------------------- as a condition to, the Transactions, and in consideration of the mutual promises contained herein, and to preserve the goodwill of the Company and its direct and indirect subsidiaries (collectively, the "Companies"), the Executive agrees as --------- follows: (a) The Executive will not at any time, directly or indirectly, disclose or divulge, except as reasonably required in connection with the performance of the executive's duties for the Companies, any Confidential Information (as hereinafter defined) acquired by the executive during the executive's affiliation with or employment by the Companies. As used herein, "Confidential Information" means all trade secrets and all other proprietary or - ------------------------- non-public information of a business, financial, marketing, technical or other nature pertaining to the Companies or their affairs and all information of others that the Companies have agreed not to disclose; provided, that -------- Confidential Information shall not include any information which has entered or enters the public domain through no fault of the Executive or which the Executive is required to disclose by law or legal process. (b) The Executive shall make no use whatsoever, directly or indirectly, of any Confidential Information, except as reasonably required in connection with the performance of the executive's duties for the Companies. (c) Upon the Companies' request at any time and for any reason, the Executive shall immediately deliver to the Companies all materials (including all copies) in the executive's possession which contain or relate to Confidential Information. (d) All inventions, developments or improvements made by the Executive, either alone or in conjunction with others, at any time or at any place during the term of the executive's employment by the Companies, whether or not reduced to writing or practice during such term, which relate to the business in which the Companies are engaged or in which the Companies intend to -3- engage, or which were developed or made in whole or in part using the Companies' facilities, shall be the exclusive property of the Companies. The Executive shall promptly disclose any such invention, development or improvement to the Companies, and, at the request and expense of the Companies, shall assign all of the executive's rights to the same to the Companies. The Executive shall sign all instruments necessary for the filing and prosecution of any applications for or extension or renewals of letters patent of the United States or any foreign country which the Companies desire to file. (e) All copyrightable work by the Executive during the term of the Executive's employment by the Company which relates to the businesses in which the Companies are engaged is intended to be "work made for hire" as defined in Section 101 of the Copyright Act of 1976, and shall be the property of the Companies. If the copyright to any such copyrightable work is not the property of the Companies by operation of law, the Executive will, without further consideration, assign to the Companies all right, title and interest in such copyrightable work and will assist the Companies and their nominees in every way, at the Companies' expense, to secure, maintain and defend for the Companies' benefit copyrights and any extensions and renewals thereof on any and all such work including translations thereof in any and all countries, such work to be and to remain the property of the Companies whether copyrighted or not. (f) Prior to the termination of the Executive's employment with the Companies, and for the greater of five years after the date of the Agreement or three years after such termination, the Executive will not directly or indirectly, individually or as a consultant to, or Executive, officer, director, stockholder, partner or other owner or participant in any business entity, engage in or assist any other person to engage in the businesses of skilled nursing facilities, assisted living facilities, inpatient or outpatient therapy services, pharmacies, urological supplies, enteral feeding supplies and orthodics anywhere in the counties of the State of California identified on Schedule A hereto or in Arizona, Texas or any other state within the United - ---------- States; provided, however, that the Executive may own not more than a 5% equity -------- ------- interest in any publicly-traded company. (g) Prior to the termination of the Executive's employment with the Companies, and for the greater of five years after the date of the Agreement or two years after such termination, the Executive will not directly or indirectly, individually or as a consultant to, or as employee, officer, director, stockholder, partner or other owner or participant in any business entity other than the Companies, solicit or endeavor to entice away from the Companies, or otherwise materially -4- interfere with the business relationship of the Companies with, (i) any person who is, or was within the one-year period immediately prior to the termination of the Executive's employment by the Companies, employed by, a consultant to or associated with the Companies or (ii) any person or entity who is, or was within the two-year period immediately prior to the termination of the Executive's employment by the Companies, a customer, client of or supplier to the Companies. (h) Without limiting the remedies available to the Companies, the Executive acknowledges that a breach of any of the covenants contained in this Section 6 could result in irreparable injury to the Companies for which there might be no adequate remedy at law, and that, in the event of such a breach or threat thereof, the Companies shall be entitled to obtain a temporary restraining order and/or a preliminary injunction and a permanent injunction restraining the executive from engaging in any activities prohibited by this Section 6 or such other equitable relief as may be required to enforce specifically any of the covenants of this Section 6. The provisions of this Section 6 shall survive the termination of this Agreement and shall continue thereafter indefinitely in full force and effect in accordance with the terms of this Section 6. Section 7. Termination. --------- ----------- (a) The Executive's employment with the Company may be terminated at any time by the Company with cause or without cause or in the event of the death or Disability of the Executive. As used herein, "cause" shall mean the ----- reasonable and good faith determination by a majority of the Board (other than the Executive), after reasonable notice to the Executive and after the Executive has had an opportunity to present his view of the relevant facts and circumstances to the Board, that the Executive has (i) breached any material term of this Agreement, which breach has not been cured by the Executive within 20 days after notice to him or her by any of the Companies, (ii) engaged in criminal acts or acts of moral turpitude causing injury to the Companies or their reputations or (iii) engaged in material acts of dishonesty affecting the Companies. As used herein, "disability" shall mean illness (mental or physical) ---------- or accident which, in the good faith and reasonable determination of a majority of the Board, based on the report of a reputable physician, renders him unable to perform his duties for six months during any 12-month period. (b) If the Executive's employment is terminated hereunder for any reason, the Company shall have no further obligation to make any payments or provide any benefits to the Executive hereunder except for (i) payments of Base Salary that had accrued but had not been paid prior to the date of -5- termination, (ii) payments of Bonus that had been earned by the Executive but not paid prior to the date of termination and (iii) if the Executive's employment is terminated by the Company without cause (other than on death or Disability), but only as long as the Executive remains in material compliance with the provisions of Section 6, the continuation of the Executive's Base Salary (plus an additional $25,000 annually in the case of such termination of both the Executive and Robert Snukal) for the duration of the Executive's scheduled term of employment (excluding any renewal periods not then commenced). (c) If Robert Snukal is terminated without cause pursuant to Section 7 of the Employment Agreement made as of March __, 1998 between the Company, Heritage and Robert Snukal, the Executive has the option, but not the obligation, to deem her employment to have been terminated without cause and receive the severance referred to in this Section of this Agreement. (d) The provisions of Section 6 shall survive the termination of the Executive's employment in accordance with its terms. Section 8. Enforceability, etc. This Agreement shall be interpreted so as --------- ------------------- to be effective under applicable law, but if any portion hereof is prohibited or invalid, such portion shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. If any one or more of the provisions contained in this Agreement are for any reason held to be excessively broad as to duration, geographical scope, activity or subject, such provisions shall be construed by limiting and reducing them so as to be enforceable to the maximum extent permitted under applicable law. Section 9. Notices. Any notice or other communication given pursuant to --------- ------- this Agreement shall be in writing and shall be personally delivered, sent by overnight courier or express mail, or mailed by first class certified or registered mail, postage prepaid, return receipt requested as follows: (a) If to the Company: Fountain View, Inc. 11900 W. Olympic Boulevard, Suite 680 Los Angeles, CA 90064 With copies to: Heritage Partners, Inc. 30 Rowes Wharf, Suite 300 Boston, MA 02110 Attn: Mark J. Jrolf -6- and Stephen M. L. Cohen, Esq. Choate, Hall & Stewart Exchange Place 53 State Street Boston, MA 02109-2891 (b) If to the Executive: Sheila Snukal c/o Fountain View, Inc. 11900 W. Olympic Boulevard, Suite 680 Los Angeles, CA 90064 With a copy to: David Bloom, Esq. Law Offices of David Bloom 3325 Wilshire Boulevard 9th Floor Los Angeles, CA 90010 or to such other address as the parties shall have designated by notice to the other party. Section 10. Governing Law. This Agreement shall be governed by and ---------- ------------- construed in accordance with the laws of the State of California without regard to the choice of law provisions thereof. Section 11. Amendments and Waivers. No amendment or waiver of this ---------- ---------------------- Agreement or any provision hereof shall be binding upon the party against whom enforcement of such amendment or waiver is sought unless it is made in writing and signed by or on behalf of such party. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate as a waiver by that party of the same or any subsequent breach of any provision of this Agreement by the other party. Section 12. Binding Effect; Assignment. This Agreement shall be binding ---------- -------------------------- on and inure to the benefit of the parties hereto and their respective heirs, executors and administrators, successors and assigns. This Agreement may not be assigned in whole or in part by either party (whether by operation of law or otherwise, including by merger or consolidation). Section 13. Entire Agreement. This Agreement constitutes the final and ---------- ---------------- entire agreement of the parties with respect to the matters covered hereby, and replaces and supersedes all other agreements and understandings relating thereto. -7- Section 14. Counterparts. This Agreement may be executed in any number of ---------- ------------ counterparts, and with counterpart signature pages, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. -8- IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument as of the date first above written. FOUNTAIN VIEW, INC. By /s/ [SIGNATURE ILLEGIBLE]^^ ------------------------------ (Title) /s/ [SIGNATURE ILLEGIBLE]^^ --------------------------------- Sheila Snukal -9- IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument as of the date first above written. FOUNTAIN VIEW, INC. By /S/ SIGNATURE ILLEGIBLE^^ ------------------------------ (Title) ---------------------------------- Sheila Snukal -9- EXHIBIT B. EBITDA Targets (000) ----------------------- Base Mgmt Upside ----------------------- 30-Jun-?? 4/,1?? 47,??4 47,??? 30-Jun-00 53,581 57,101 59,??? 30-Jun-01 ??,??? ??,??? 712??? 30-Jun-02 ??,??? 7?,1?? 85,??? 30-Jun-03 ??,0?0 ??,??? ??,?21 EXHIBIT B Identified Counties ------------------- Alameda Orange Alpine Placer Amador Plumas Butte Riverside Calaveras Sacramento Colusa San Benito Contra Costa San Bernardino Del Norte San Diego El Dorado San Francisco Fresno San Joaquin Glenn San Luis Obispo Humboldt San Mateo Imperial Santa Barbara Inyo Santa Clara Kern Santa Cruz Kings Shasta Lake Sierra Lassen Siskiyou Los Angeles Solano Madera Sonoma Marin Stanislaus Mariposa Sutter Mendocino Tehama Merced Trinity Modoc Tulare Mono Tuolumne Monterey Ventura Napa Yolo Nevada Yuba -11- EX-10.41 57 EMPLOY. AGREE. BETWEEN FOUNTAIN VIEW & W. SCOTT EXHIBIT 10.41 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement (the "Agreement") is made as of March 27, 1998 --------- between Fountain View, Inc., a Delaware corporation (the "Company"), and William ------- C. Scott (the "Executive"). --------- Introduction ------------ This Agreement is being entered into in connection with the proposed acquisition (the "Acquisition") of Summit Care Corporation ("Summit") by the ----------- ------ Company by means of the merger (the "Merger") of a wholly-owned subsidiary of ------ the Company with and into Summit. The Acquisition and related transactions are referred to collectively herein as the "Transactions". ------------ The Company desires to retain the services of the Executive and the Executive wishes to be employed by the Company. The Executive is a stockholder, director and officer of the Company, and has had full access to information concerning the Company. The disclosure of such information or the engaging in competitive activities would cause substantial harm to the Company. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: Section 1. Term. The Company shall employ the Executive for a term --------- ---- commencing on the date of the closing of the Merger and continue for a period of five (5) years, unless earlier terminated pursuant to Section 7 (the "Employment ---------- Period"). This Agreement shall automatically renew at the end of the Employment - ------ Period for up to five additional one year terms, unless either party hereto provides written notice of termination to the other party not less than thirty (30) days prior to the end of the Employment Period or the end of any subsequent renewal period. Section 2. Duties. The Executive shall be employed as the Chairman of the --------- ------ Company, with such duties of an executive nature as the Board of Directors of the Company (the "Board") shall determine. The Executive will report to the ----- Board. Section 3. Full Time. During the term of this Agreement, the Executive --------- --------- shall use the Executive's best efforts to promote the interests of the Company and the direct and indirect subsidiaries of the Company, and shall devote substantially the Executive's full business time and efforts to their business and affairs. The Executive may engage in other business activities that do not interfere materially with the performance of the Executive's duties, services and responsibilities hereunder. Section 4. Compensation. The Executive shall be entitled to compensation --------- ------------ as follows: (a) Base Salary. During the term of the Executive's employment with ----------- the Company, the Executive will receive a salary at the rate of $450,000 annually (the "Base Salary"), payable in equal installments not less than bi- ----------- weekly in arrears. The Company shall withhold from compensation payable to the Executive all applicable federal, state and local withholding taxes. The Base Salary will be subject to annual consumer price adjustments. (b) Bonus. In addition to the payment of the Base Salary and the ----- other payments and benefits available to the Executive under this Agreement, while the Executive is employed by the Company, the Company will pay to the Executive for each fiscal year incentive compensation (the "Bonus") in an amount ----- of (i) an annual bonus of $200,000 if the Company achieves Base Case EBITDA and (ii) up to an additional bonus of $150,000 determined ratably based on the Company's EBITDA being between the Base Case and the Target Case, such Bonus payable within 120 days after the end of such fiscal year, as determined by the Board, in its discretion (with the approval of a director of the Company who is an employee of Heritage Partners Management Company, Inc). Payments with respect to partial percentages will be prorated. The payment of the Bonus shall be prorated for any partial fiscal year during the term of this Agreement. (c) Definition of Base Case, Mid Case and Target Case. As used ------------------------------------------------- herein, "Base Case", "Mid Case" and "Target Case" shall have the meanings --------- -------- ----------- specified on Exhibit A hereto, on the respective dates indicated, and may be --------- changed by approval of the Company's Board to reflect acquisitions, dispositions, start-ups and other transactions not in the ordinary course, provided that in selecting the new targets the members of the Board approving such changes believe in good faith that the new targets are broadly consistent with the valuation methodology applied in determining the initial EBITDA targets set forth on Exhibit A hereto. --------- Section 5. Benefits. In addition to salary and Bonus, the Executive shall --------- -------- be entitled to receive reasonable and customary fringe benefits in an amount not less than the greater of those benefits that are generally and customarily available to the Company's executive and managerial employees and those benefits that are generally and customarily available to Summit's executive and managerial employees. Such benefits include health insurance and vacation time in accordance with the Company or Summit's policies, consistent with prior practices. The Company -2- will also reimburse the Executive for the cost of an automobile, including fuel, maintenance and insurance expenses relating thereto, not to exceed $600 per month. The Executive will be entitled to reimbursement of all reasonable expenses incurred in the ordinary course of business on behalf of the Company, subject to presentation of appropriate documentation, in accordance with policies approved by the Board. Section 6. Confidentiality and Non-Competition. In consideration of, and --------- ----------------------------------- as a condition to, the Transactions, and in consideration of the mutual promises contained herein, and to preserve the goodwill of the Company and its direct and indirect subsidiaries (collectively, the "Companies"), the Executive agrees as --------- follows: (a) The Executive will not at any time, directly or indirectly, disclose or divulge, except as reasonably required in connection with the performance of the executive's duties for the Companies, any Confidential Information (as hereinafter defined) acquired by the executive during the executive's affiliation with or employment by the Companies. As used herein, "Confidential Information" means all trade secrets and all other proprietary or - ------------------------- non-public information of a business, financial, marketing, technical or other nature pertaining to the Companies or their affairs and all information of others that the Companies have agreed not to disclose; provided, that -------- Confidential Information shall not include any information which has entered or enters the public domain through no fault of the Executive or which the Executive is required to disclose by law or legal process. (b) The Executive shall make no use whatsoever, directly or indirectly, of any Confidential Information, except as reasonably required in connection with the performance of the executive's duties for the Companies. (c) Upon the Companies' request at any time and for any reason, the Executive shall immediately deliver to the Companies all materials (including all copies) in the executive's possession which contain or relate to Confidential Information. (d) All inventions, developments or improvements made by the Executive, either alone or in conjunction with others, at any time or at any place during the term of the executive's employment by the Companies, whether or not reduced to writing or practice during such term, which relate to the business in which the Companies are engaged or in which the Companies intend to engage, or which were developed or made in whole or in part using the Companies' facilities, shall be the exclusive property of the Companies. The Executive shall promptly disclose any such invention, development or improvement to the Companies, and, at the request and expense of the Companies, shall assign all of the -3- executive's rights to the same to the Companies. The Executive shall sign all instruments necessary for the filing and prosecution of any applications for or extension or renewals of letters patent of the United States or any foreign country which the Companies desire to file. (e) All copyrightable work by the Executive during the term of the Executive's employment by the Company which relates to the businesses in which the Companies are engaged is intended to be "work made for hire" as defined in Section 101 of the Copyright Act of 1976, and shall be the property of the Companies. If the copyright to any such copyrightable work is not the property of the Companies by operation of law, the Executive will, without further consideration, assign to the Companies all right, title and interest in such copyrightable work and will assist the Companies and their nominees in every way, at the Companies' expense, to secure, maintain and defend for the Companies' benefit copyrights and any extensions and renewals thereof on any and all such work including translations thereof in any and all countries, such work to be and to remain the property of the Companies whether copyrighted or not. (f) Prior to the termination of the Executive's employment with the Companies, and for the greater of five years after the date of the Agreement or three years after such termination, the Executive will not directly or indirectly, individually or as a consultant to, or Executive, officer, director, stockholder, partner or other owner or participant in any business entity, engage in or assist any other person to engage in any business which competes with the Business of any of the Companies or any business in which any of the Companies is planning to engage anywhere in the counties of the State of California identified on Schedule A hereto or in Arizona, Texas or any other ---------- state within the United States; provided, however, that the Executive may own -------- ------- not more than a 5% equity interest in any publicly-traded company. (g) Prior to the termination of the Executive's employment with the Companies, and for the greater of five years after the date of the Agreement or two years after such termination, the Executive will not directly or indirectly, individually or as a consultant to, or as employee, officer, director, stockholder, partner or other owner or participant in any business entity other than the Companies, solicit or endeavor to entice away from the Companies, or otherwise materially interfere with the business relationship of the Companies with, (i) any person who is, or was within the one-year period immediately prior to the termination of the Executive's employment by the Companies, employed by, a consultant to or associated with the Companies or (ii) any person or entity who is, or was within the two-year period immediately prior to the -4- termination of the Executive's employment by the Companies, a customer, client of or supplier to the Companies. (h) Without limiting the remedies available to the Companies, the Executive acknowledges that a breach of any of the covenants contained in this Section 6 could result in irreparable injury to the Companies for which there might be no adequate remedy at law, and that, in the event of such a breach or threat thereof, the Companies shall be entitled to obtain a temporary restraining order and/or a preliminary injunction and a permanent injunction restraining the executive from engaging in any activities prohibited by this Section 6 or such other equitable relief as may be required to enforce specifically any of the covenants of this Section 6. The provisions of this Section 6 shall survive the termination of this Agreement and shall continue thereafter indefinitely in full force and effect in accordance with the terms of this Section 6. Section 7. Termination. --------- ----------- (a) The Executive's employment with the Company may be terminated at any time by the Company with cause or without cause or in the event of the death or Disability of the Executive. As used herein, "cause" shall mean the ----- reasonable and good faith determination by a majority of the Board (other than the Executive), after reasonable notice to the Executive and after the Executive has had an opportunity to present his view of the relevant facts and circumstances to the Board, that the Executive has (i) breached any material term of this Agreement, which breach has not been cured by the Executive within 20 days after notice to him or her by any of the Companies, (ii) engaged in criminal acts or acts of moral turpitude causing injury to the Companies or their reputations or (iii) engaged in material acts of dishonesty affecting the Companies. As used herein, "disability" shall mean illness (mental or physical) ---------- or accident which, in the good faith and reasonable determination of a majority of the Board, based on the report of a reputable physician, renders him unable to perform his duties for six months during any 12-month period. (b) If the Executive's employment is terminated hereunder for any reason, the Company shall have no further obligation to make any payments or provide any benefits to the Executive hereunder except for (i) payments of Base Salary that had accrued but had not been paid prior to the date of termination, (ii) payments of Bonus that had been earned by the Executive but not paid prior to the date of termination and (iii) if the Executive's employment is terminated by the Company without cause (other than on death or Disability), but only as long as the Executive remains in material compliance with the provisions of Section 6, the Executive's Base Salary for the -5- duration of the Executive's scheduled term of employment, such amount to be reduced by the amount, if any, that the Executive is then due under the Summit Special Severance Plan adopted by Summit in connection with the Acquisition (the "Summit Severance Plan"). --------------------- (c) The provisions of Section 6 shall survive the termination of the Executive's employment in accordance with its terms. Section 8. Enforceability, etc. This Agreement shall be interpreted so as --------- ------------------- to be effective under applicable law, but if any portion hereof is prohibited or invalid, such portion shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. If any one or more of the provisions contained in this Agreement are for any reason held to be excessively broad as to duration, geographical scope, activity or subject, such provisions shall be construed by limiting and reducing them so as to be enforceable to the maximum extent permitted under applicable law. Section 9. Notices. Any notice or other communication given pursuant to --------- ------- this Agreement shall be in writing and shall be personally delivered, sent by overnight courier or express mail, or mailed by first class certified or registered mail, postage prepaid, return receipt requested as follows: (a) If to the Company: Fountain View, Inc. 11900 W. Olympic Boulevard, Suite 680 Los Angeles, CA 90064 With copies to: Heritage Partners, Inc. 30 Rowes Wharf, Suite 300 Boston, MA 02110 Attn: Mark J. Jrolf and Stephen M. L. Cohen, Esq. Choate, Hall & Stewart Exchange Place 53 State Street Boston, MA 02109-2891 -6- (b) If to the Executive: William C. Scott c/o Summit Care Corporation 2600 W. Magnolia Road Burbank, California 91505-3031 With a copy to: or to such other address as the parties shall have designated by notice to the other party. Section 10. Governing Law. This Agreement shall be governed by and ---------- ------------- construed in accordance with the laws of the State of California without regard to the choice of law provisions thereof. Section 11. Amendments and Waivers. No amendment or waiver of this ---------- ---------------------- Agreement or any provision hereof shall be binding upon the party against whom enforcement of such amendment or waiver is sought unless it is made in writing and signed by or on behalf of such party. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate as a waiver by that party of the same or any subsequent breach of any provision of this Agreement by the other party. Section 12. Binding Effect; Assignment. This Agreement shall be binding ---------- -------------------------- on and inure to the benefit of the parties hereto and their respective heirs, executors and administrators, successors and assigns. This Agreement may not be assigned in whole or in part by either party (whether by operation of law or otherwise, including by merger or consolidation). Section 13. Entire Agreement. This Agreement constitutes the final and ---------- ---------------- entire agreement of the parties with respect to the matters covered hereby, and replaces and supersedes all other agreements and understandings relating thereto. Section 14. Counterparts. This Agreement may be executed in any number of ---------- ------------ counterparts, and with counterpart signature pages, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 15. Effect on Severance Plan. The execution and performance of ---------- ------------------------ this Agreement and the termination of the Executive's employment with Summit will not constitute an event -7- entitling the Executive to payments under the Summit Severance Plan until such time, if any, as the Executive's employment with the Company is terminated. -8- IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument as of the date first above written. FOUNTAIN VIEW, INC. By /s/ [SIGNATURE ILLEGIBLE]^^ ------------------------------- (Title) /s/ William C. Scott --------------------------------- William C. Scott -9- EXHIBIT B EBITDA TARGETS (ooo) - --------------
?? ?? ?? -------------------------- 30-Jun-99 45,1?? 47,314 47,314 30-Jun-00 53,581 57,101 59,320 30-Jun-01 5?,??? 67,030 7?,287 30-Jun-02 60,3?3 78,196 85,390 30-Jun-03 66,0?0 87,??? ??,?21
EXHIBIT B Identified Counties ------------------- Alameda Orange Alpine Placer Amador Plumas Butte Riverside Calaveras Sacramento Colusa San Benito Contra Costa San Bernardino Del Norte San Diego El Dorado San Francisco Fresno San Joaquin Glenn San Luis Obispo Humboldt San Mateo Imperial Santa Barbara Inyo Santa Clara Kern Santa Cruz Kings Shasta Lake Sierra Lassen Siskiyou Los Angeles Solano Madera Sonoma Marin Stanislaus Mariposa Sutter Mendocino Tehama Merced Trinity Modoc Tulare Mono Tuolumne Monterey Ventura Napa Yolo Nevada Yuba -11- EX-10.42 58 PROMISSORY NOTE AND PLEDGE AGREEMENT DATED 4/16/98 EXHIBIT 10.42 PROMISSORY NOTE AND PLEDGE AGREEMENT ------------------------------------ $2,530,600 April 16, 1998 For value received, William Scott (the "Maker") promises to pay to Fountain ----- View, Inc. (the "Company"), the sum of Two Million Five Hundred Thirty Thousand ------- Six Hundred and 00/100 Dollars ($2,530,600.00). The unpaid principal balance of this Note, plus interest thereon at an annual rate of five and seven-tenths percent (5.7%), compounded annually, shall be due and payable on the earlier to occur of (i) April 15, 2007, or (ii) the sale or transfer by the Maker of the Pledged Shares (as defined below). Failure to repay all of the principal and interest owed under this Note upon such date shall constitute an event of default ("Event of Default"). The Maker may prepay ---------------- the principal balance of this Note, plus all accrued interest thereon, at any time without penalty. For the purposes of securing payment of this Note, the Maker pledges and delivers over to the Company 20,000 shares of the Series A Common Stock of the Company, represented by stock certificate number 8 (hereinafter, the "Pledged ------- Shares") and grants to the Company a security interest in the Pledged Shares. - ------ The Company shall have recourse to the Maker for the payment of up to $1,012,240.00 of the principal amount hereof and for the payment of all interest accrued thereon. The Company shall be without recourse to the Maker for the payment of all other principal of this Note and shall look solely to the Pledged Shares for the payment of such amounts. The Maker hereby represents, warrants and covenants to the Company that: (a) The Maker has good title to the Pledged Shares, free and clear of all claims, mortgages, pledges, liens, security interests and other encumbrances of every nature whatsoever, other than those under applicable securities law or those set forth herein or in the Stockholders Agreement dated as of March 27, 1998 among Heritage Fund II, L.P., Heritage Investors II, L.L.C., Heritage Fund II Investment Corporation, Robert Snukal, Sheila Snukal, the Maker and certain other parties, as amended from time to time (the "Stockholders Agreement"). ---------------------- (b) If any additional shares of capital stock or other securities of the Company are acquired by the Maker after the date hereof as the result of any stock dividend or stock distribution with respect to the Pledged Shares, the same shall constitute Pledged Shares and shall be deposited and pledged with the Company as provided for herein. (c) The Maker will not sell, convey or otherwise dispose of any of the Pledged Shares, nor will the Maker create, incur or permit to exist any pledge, mortgage, lien, charge, encumbrance or any security interest whatsoever with respect to any of the Pledged Shares or the proceeds thereof, other than liens on and security interests in the Pledged Shares created hereby and restrictions contained in the Stockholders Agreement or under applicable securities laws. Upon the occurrence of an Event of Default, the Company shall have all of the rights and remedies provided by law, including, without limitation, those provided by the Uniform Commercial Code. In case there shall exist an Event of Default, but subject to the provisions of the Uniform Commercial Code or other applicable law, the Company may cause all or any of the Pledged Shares to be transferred into its name or into the name of its nominee or nominees. Upon the occurrence of an Event of Default, the Company shall have the right at any time or times thereafter to sell, resell, assign and deliver all or any of the Pledged in one or more parcels at any exchange or broker's board or at public or private sale. Unless the Pledged Shares threaten to decline speedily in value or are of a type customarily sold on a recognized market, the Company will give the Maker at least ten (10) days' prior written notice of the time and place of any public sale thereof or of the time after which any private sale or any other intended disposition thereof is to be made. Any such notice shall be deemed to meet any requirement hereunder or under any applicable law (including the Uniform Commercial Code) that reasonable notification be given of the time and place of such sale or other disposition. Such notice may be given without any demand of performance or other demand, all such demands being hereby expressly waived by the Maker. All such sales shall be at such commercially reasonable price or prices as the Company shall deem best and either for cash or on credit or for future delivery (without assuming any responsibility for credit risk). At any such sale or sales the Company may purchase any or all of the Pledged Shares to be sold thereat upon such terms as the Company may deem best. Upon any such sale or sales the Pledged Shares so purchased shall be held by the purchaser absolutely free from any claims or rights of whatsoever kind or nature, including any equity of redemption and any similar rights, all such equity of redemption and any similar rights being hereby expressly waived and released by the Maker, other than restrictions under the Stockholders Agreement or applicable securities law. In the event any consent, approval or authorization of any governmental agency will be necessary to effectuate any such sale or sales, the Maker shall execute all such applications or other -2- instruments as may be required. The proceeds of any such sale or sales, together with any other additional collateral security at the time received and held hereunder, shall be received and applied: first, to the payment of all costs and expenses of such sale, including reasonable attorneys' fees; second, to the payment of the amount owed hereunder to which the Company does not have recourse against the Maker; third, to the payment of the amount owed hereunder to which the Company does have recourse against the Maker, and any surplus thereafter remaining shall be paid to the Maker or to whomever may be legally entitled thereto. The Maker recognizes that the Company may be unable to effect a public sale of all or a part of the Pledged Shares by reason of certain prohibitions contained in the Securities Act of 1933, but may be compelled to resort to one or more private sales to a restricted group of purchasers, each of whom will be obligated to agree, among other things, to acquire such Pledged Shares for its own account, for investment and not with a view to the distribution or resale thereof. The Maker acknowledges that private sales so made may be at prices and upon other terms less favorable to the seller than if such Pledged Shares were sold at public sales, and that the Company has no obligation to delay sale of any such Pledged Shares for the period of time necessary to permit such Pledged Shares to be registered for public sale under the Securities Act of 1933. The Maker agrees that any such private sales shall not be deemed to have been made in a commercially unreasonable manner solely because they shall have been made under the foregoing circumstances. This agreement shall be governed by the internal laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the undersigned has executed this agreement this 16th day of April, 1998. /s/ William Scott ----------------------- William Scott -3- EX-10.43 59 SUPPLEMENTAL SIGNATURE PAGE DATED 5/4/98 EXHIBIT 10.43 SUPPLEMENTAL SIGNATURE PAGE TO FOUNTAIN VIEW, INC. INVESTMENT AGREEMENT Reference is hereby made to that certain Investment Agreement dated as of March 27, 1998 (the "Investment Agreement") by and among Fountain View, Inc. -------------------- (the "Company"), Robert Snukal, Sheila Snukal, William Scott, Heritage Fund II, ------- L.P. ("Heritage"), Heritage Investors II, L.L.C., Heritage Fund II Investment -------- Corporation ("HFIC"), and certain other parties. ---- Preliminary Statement --------------------- HFIC has purchased certain securities of the Company (the "Securities") ---------- pursuant to the Investment Agreement. HFIC desires to transfer certain of the Securities to Baylor Health Care System ("Baylor") and Buckner Foundation ------ ("Buckner"), and Baylor and Buckner wish to purchase such Securities from HFIC. ------- The Company and HFIC desire that such purchase and sale be consummated, and have agreed to make certain representations and warranties to Baylor and Buckner hereunder. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, HFIC, Baylor and Buckner hereby agree as follows: 1. Additional Parties; Purchase of Securities. By its execution of this ------------------------------------------ Supplemental Signature Page, (a) each of Baylor and Buckner is hereby added as a party to the Investment Agreement, shall be deemed to make the representations of an Investor therein, and shall have the rights and obligations thereunder as an Investor, on a pari passu basis with the other Investors party thereto, and (b) each of Baylor and Buckner agrees to purchase from HFIC, and HFIC agrees to sell, the following Securities for the consideration indicated, to be paid on the date hereof to HFIC by wire transfer of immediately available funds:
Investor Securities Purchased Consideration -------- -------------------- ------------- Baylor 9,873 shares of Series A $10,000,000 Preferred Stock and Warrants to purchase 54,999 shares of Series C Common Stock Buckner 2,469 shares of Series A $ 2,500,000 Preferred Stock and Warrants to purchase 4,267 shares of Series C Common Stock
2. Representations of the Company. The Company hereby represents and ------------------------------ warrants to Baylor and Buckner as follows: (a) Each of the representations and warranties of the Company contained in the Investment Agreement is true and correct in all respects as of the date of this Supplemental Signature Page. (b) Each of the statements of the Company contained in the Offering Circular issued by the Company in connection with its issuance of $120,000,000 of 11 1/4% Senior Subordinated Notes due 2008 is true and correct in all material respects as of the date of this Supplemental Signature Page, other than those statements contained therein which are made as of a stated date, which statements are true and correct in all material respects as of such stated date. (c) Assuming the due execution and delivery by Baylor and Buckner of (i) this Supplemental Signature Page, (ii) the Amendment No. 1 to Stockholders Agreement dated the date hereof by and among the Company, Heritage, Baylor and Buckner (the "Stockholders Amendment"), (iii) the Amendment No. 1 to ---------------------- Registration Rights Agreement dated the date hereof by and among the Company, Heritage, Baylor, Buckner and certain other parties (the "Registration Rights ------------------- Amendment"), and (iv) the Stock and Warrant Powers dated the date hereof made by - --------- HFIC in favor of Baylor and Buckner (the "Powers", and collectively with this ------ Supplemental Signature Page, the Stockholders Amendment and the Registration Rights Amendment, the "Baylor Documents"), such Baylor Documents (A) have been ---------------- duly executed and delivered by all persons and entities necessary to amend the Investment Agreement, the Stockholders Agreement and the Registration Rights Agreement (each as defined in the Investment Agreement) (collectively, the "Original Documents") as such Original Documents are purported to be amended in ------------------ the Baylor Documents, and (B) convey to Baylor and Buckner all of the rights purported to be granted to Baylor and Buckner thereunder, and make Baylor and Buckner parties to the Original Documents, as amended, in accordance with the terms thereof. (d) As of the date this Supplemental Signature Page, the Company will amend its Certificate of Incorporation in the form attached as Exhibit A hereto, --------- which amendment has been duly authorized by all requisite corporate action on behalf of the Company. 3. Representations of HFIC. HFIC hereby represents and warrants to ----------------------- Baylor and Buckner that HFIC is the record and beneficial owner of the Securities, with good and marketable title to such Securities, free and clear of all liens, security interests, claims or other encumbrances, other than restrictions under applicable securities laws and the Stockholders Agreement referred to in the Investment Agreement. 2 4. Covenant and Guaranty of Heritage. By its execution of this --------------------------------- Supplemental Signature Page, Heritage hereby (a) covenants to use commercially reasonable efforts to cause the Company to comply in all respects with the obligations of the Company set forth in Section 2 of the Amendment No. 1 to Stockholders Agreement dated the date hereof by and among the Company, Heritage, Baylor and Buckner, and (b) guarantees HFIC's obligations with respect to the representations and warranties contained in Section 3 above. 5. Survival. The representations and warranties contained in Section -------- 2(a) and Section 3 of this Supplemental Signature Page shall survive the execution, delivery and performance of this Supplemental Signature Page. The representations and warranties contained in Section 2(b) of this Supplemental Signature Page shall not survive the execution, delivery and performance of this Supplemental Signature Page. 6. Miscellaneous. This Supplemental Signature Page (a) shall be binding ------------- upon and enforceable against the parties and their successors and permitted assigns, (b) shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without giving effect to conflicts of laws principles, and (c) may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall be considered one and the same instrument. 3 IN WITNESS WHEREOF, this Supplemental Signature Page to Fountain View, Inc. Investment Agreement has been executed as a sealed instrument as of the 4th day of May, 1998. FOUNTAIN VIEW, INC. ---------------------------------------- By: /s/ Robert Snukal ------------------------------------- Name: Robert Snukal Title: President BAYLOR HEALTH CARE SYSTEM By: /s/ William S. Carter ------------------------------------- Name: William S. Carter Title: Executive Vice President BUCKNER FOUNDATION By: /s/ H. Allen Jordan ------------------------------------- Name: H. Allen Jordan Title: Senior Vice President & Chief Financial Officer HERITAGE FUND II, L.P. By: HF Partners II, L.L.C., its general partner By: /s/ [SIGNATURE ILLEGIBLE]^^ ------------------------------------- Name: Title: HERITAGE FUND II INVESTMENT CORPORATION By: /s/ [SIGNATURE ILLEGIBLE]^^ ------------------------------------- Name: Title: 4 EX-10.44 60 AMENDMENT #1 TO STOCKHOLDERS AGREEMENT 5/4/98 EXHIBIT 10.44 AMENDMENT NO. 1 TO FOUNTAIN VIEW, INC. STOCKHOLDERS AGREEMENT This Amendment No. 1 to Stockholders Agreement (the "Amendment") is entered --------- into as of May 4, 1998 by and among (i) Fountain View, Inc., a Delaware corporation (the "Company"), (ii) Heritage Fund II, L.P. ("Heritage"), (iii) ------- -------- Baylor Health Care System ("Baylor"), and (iv) Buckner Foundation ("Buckner"). ------ ------- Preliminary Statement --------------------- Reference is hereby made to that certain Stockholders Agreement dated as of March 27, 1998 (the "Original Agreement") by and among the Company, Robert ------------------ Snukal, Sheila Snukal, William Scott, Heritage, Heritage Investors II, L.L.C., Heritage Fund II Investment Corporation ("HFIC"), and certain other parties. ---- HFIC has purchased certain securities of the Company (the "Securities") ---------- pursuant to the terms of an Investment Agreement dated as of March 27, 1998. HFIC desires to transfer certain of the Securities to Baylor and Buckner, and Baylor and Buckner wish to purchase such Securities from HFIC. The Company and Heritage desire that such purchase and sale be consummated, and wish to amend the Original Agreement to add Baylor and Buckner as a party thereto and to make certain other changes. All capitalized terms used but not defined in this Amendment shall have the meanings set forth in the Original Agreement. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Additional Party. By its execution of this Amendment, each of Baylor ---------------- and Buckner is hereby added as a party to the Original Agreement, and shall have the rights and obligations thereunder as an Investor, on a pari passu basis with the other Investors. 2. Amendment to Original Agreement. Effective as of the date hereof, the ------------------------------- Original Agreement is hereby amended as follows: 2.1. Amendment to Section 1.02. Section 1.02 of the Original ------------------------- Agreement is hereby amended by deleting the text thereof in its entirety and inserting in lieu thereof the following: "Section 1.02. Election of Directors. At all meetings (and written ------------ --------------------- actions in lieu of meetings) of stockholders of the Company at which directors are to be elected, each Stockholder shall vote all of such Stockholder's Stock to elect, as directors of the Company: (a) RS Directors. Two nominees of RS, which number shall be ------------ increased if necessary to insure that the nominees of RS constitute not less than twenty-five percent (25%) of the total number of directors (the "RS Directors"), as long as RS holds any shares of Stock. ------------- (b) Scott Director. One nominee of Scott (the "Scott -------------- ----- Director"), as long as Scott holds any shares of Stock. -------- (c) Baylor Director. One nominee of Baylor Health Care System --------------- ("Baylor") (the "Baylor Director"), as long as Baylor holds any shares of ------ --------------- Stock or Stock Equivalents. (d) Investor Directors. Such number of nominees of a Majority ------------------ of Investors as may be designated by a Majority of Investors (the "Investor -------- Directors")." --------- 2.2. Amendment to Section 1.03. Section 1.03 of the Original ------------------------- Agreement is hereby amended by deleting the first sentence thereof in its entirety and inserting in lieu thereof the following: "Each Stockholder agrees to vote such Stockholder's Stock, at all meetings (and written actions in lieu of meetings) of stockholders of the Company, (a) to remove any RS Director, if so requested by RS, (b) to remove the Scott Director, if so requested by a Scott, (c) to remove the Baylor Director, if so requested by Baylor, and (d) to remove any Investor Director, if so requested by a Majority of Investors." 2.3. Amendment to Section 1.04. Section 1.04 of the Original ------------------------- Agreement is hereby amended by deleting the text thereof in its entirety and inserting in lieu thereof the following: "Section 1.04. Vacancies. Each Stockholder agrees to vote such ------------ --------- Stockholder's Stock, at all meetings (and written actions in lieu of meetings) of stockholders of the Company, (a) to fill any vacancy on the Board of Directors of the Company (the "Board") caused by the resignation ----- or removal of any RS Director with a nominee selected by RS, (b) to fill any vacancy on the Board caused by the resignation or removal of the Scott Director with a nominee selected by Scott, (c) to fill any vacancy on the Board caused by the resignation or removal of the Baylor Director with a nominee selected by Baylor, and (d) to fill any vacancy on the Board caused by the resignation or removal of any Investor Director with a nominee selected by a Majority of Investors." 2 2.4. Amendment to Section 5.01. Section 5.01 of the Original ------------------------- Agreement is hereby amended by deleting clause (a) of the fourth paragraph thereof in its entirety and inserting in lieu thereof the following: "this Section shall not apply to transfers by Heritage to its partners which are required by Article X of its Agreement of Limited Partnership, as in effect on May 4, 1998, a true and correct copy of which Article X has been delivered to Baylor, if such partners become parties to this Agreement, and". 2.5. Amendment to Section 5.03. Section 5.03 of the Original ------------------------- Agreement is hereby amended by (a) inserting the word "reasonably" in clause (c) thereof following the words "all agreements, documents and instruments" and before the words "required by Heritage", and (b) deleting the words following "provided, however," in their entirety and inserting in lieu thereof the words - --------- ------- "that any obligation of the Investors with respect to indemnification or representations, warranties and covenants shall be several and not joint and that such obligations shall be limited for each Investor to the amount of proceeds received by such Investor in such Heritage Transfer Event (other than proceeds received with respect to shares of Preferred Stock held by such Investor, except with respect to indemnification relating to title, authority to transfer and similar matters relating to the sale of such shares of Preferred Stock)." 2.6. Addition of New Section 7.04A. The Original Agreement is hereby ----------------------------- amended by adding a new Section 7.04A as follows after Section 7.04 thereof: "Section 7.04A. Issuance of Certain Shares of Stock by the Company and its ------------- ---------------------------------------------------------- Subsidiaries. The Company will not, at any time when any shares of Series ------------ A Preferred Stock are outstanding, without the prior written consent of the holders of a majority of the shares of Series A Preferred Stock then outstanding, (i) issue any shares of preferred stock or other equity securities having rights or preferences which are senior to or pari passu with the rights and preferences applicable to the Series A Preferred Stock with respect to liquidation, dividends or redemption, or (ii) permit any of its subsidiaries (other than any subsidiary whose assets or gross revenues, combined with the assets or gross revenues of all other subsidiaries which have issued equity securities since April 30, 1998, did not exceed twenty percent (20%) of the Company's consolidated assets or gross revenues, respectively, at any time within the preceding twelve months) to issue any shares of their capital stock to any Person other than the Company or any other subsidiary of the Company. Notwithstanding the foregoing, the Company may issue any Stock without regard to the restrictions contained in this 3 Section 7.04A if at the time of such issuance (A) the aggregate amount of outstanding indebtedness of the Company, determined in accordance with generally accepted accounting principles, including the issuance of Series A Preferred Stock and any preferred stock to which this Section 7.04A is applicable, is not more than four (4) times the EBITDA (as defined below) of the Company for the Company's four most recently completed fiscal quarters, and (B) the Fixed Charge Coverage Ratio of the Company, including the issuance of Series A Preferred Stock and any preferred stock to which this Section 7.04A is applicable, is not less than 2.0 to 1. The term "EBITDA" as used in this Section 7.04A shall mean consolidated net income, after restoring thereto amounts deducted with respect to interest, taxes, depreciation, amortization and other non-cash charges. The term "Fixed Charge Coverage Ratio" as used in this Section 7.04A shall have the meaning set forth in the Offering Circular of the Company dated April 9, 1998 with respect to the Company's 11 1/4% Senior Subordinated Notes due 2008." 2.7. Addition of New Section 7.04B. The Original Agreement is hereby ----------------------------- amended by adding a new Section 7.04B as follows after Section 7.04A thereof: "Section 7.04B. Payment of Certain Dividends and Redemptions with Respect ------------- --------------------------------------------------------- to Capital Stock. The Company will not, at any time when any shares of ---------------- Series A Preferred Stock are outstanding, without the prior written consent of the holders of a majority of the shares of Series A Preferred Stock then outstanding, (i) pay any amounts to the holders of shares of capital stock of the Company (other than shares of Series A Preferred Stock or shares of preferred stock issued pursuant to Section 7.04A hereof) in respect of a redemption or repurchase of such shares which exceed in the aggregate, collectively with any other payments made under clause (i) or (ii) of this Section 7.04B, the Section 7.04B Amount (as defined below), or (ii) pay any amounts to the holders of shares of capital stock of the Company (other than shares of Series A Preferred Stock or shares of preferred stock issued pursuant to Section 7.04A hereof) in respect of a dividend or distribution (A) while any dividends with respect to shares of Series A Preferred Stock remain accrued but not yet paid, unless the Company shall at such time pay a dividend with respect to the shares of Series A Preferred Stock in an aggregate amount equal to the amount of the proposed payment under this clause (ii) multiplied by a fraction, the numerator of which is the amount ------------- of accrued but not yet paid dividends owed with respect to shares of Series A Preferred Stock and the denominator of which is the Section 7.04B Amount, and (B) which exceed in the aggregate, collectively with any other payments made under clause (i) or clause (ii) of this Section 7.04B, the Section 7.04B Amount. Any payments made with 4 respect to shares of Series A Preferred Stock pursuant to clause (ii)(A) above shall be excluded in determining whether the Section 7.04B Amount has been exceeded. The term "Section 7.04B Amount" as used herein shall mean $20,000,000." 2.8. Addition of New Definition. Article VIII of the Original -------------------------- Agreement is hereby amended by inserting the following definitions: "Baylor" shall have the meaning specified in Section 1.02. ------ "Baylor Director shall have the meaning specified in Section 1.02. --------------- "Buckner" shall have the meaning specified in Section 1.02. ------- "Series A Preferred Stock" shall mean the 15,000 shares of Series A ------------------------ Preferred Stock of the Company issued by the Company on March 27, 1998. 2.9. Definition of Majority of Investors. The definition of the term ----------------------------------- "Majority of Investors" in Article VIII of the Original Agreement is hereby amended by deleting the text thereof in its entirety and inserting in lieu thereof the following: "Majority of Investors shall mean Investors who hold a majority of the --------------------- Common Stock held by all Investors (assuming the exercise or conversion of all Stock Equivalents held by all Investors); provided that any decision, determination or actions to be made or taken by a Majority of Investors shall be made or taken by Heritage as long as Heritage holds more shares of Common Stock than any other Investor." 2.10. Definition of Permitted Transfers. The definition of the term --------------------------------- "Permitted Transfers" in Article VIII of the Original Agreement is hereby amended by deleting the text thereof in its entirety and inserting in lieu thereof the following: "Permitted Transfers shall mean any of the following: ------------------- (a) Transfers of Securities of a Stockholder to the trustees of a trust revocable by such Stockholder alone, the beneficiaries of which consist solely of such Stockholder and transferees enumerated in clause (d) below; (b) Transfers of Securities between a Stockholder and such Stockholder's guardian or conservator; (c) Transfers of Securities of a deceased Stockholder to such Stockholder's executors or administrators or to trustees under such Stockholder's will and thereafter to transferees enumerated in clause (d) below; 5 (d) Transfers of Securities of a Stockholder to the spouse of such Stockholder, to any of such Stockholder's children or their issue (or to custodians for the benefit of minor children or issue), or to such Stockholder's parents or siblings; (e) Transfers of Securities of any Stockholder which is a corporation, partnership, limited liability company or other entity to any owner or Affiliate of such Stockholder, provided that such Stockholder may not transfer Securities to more than (i) a total of five (5) of its owners or Affiliates pursuant to this clause (e) before January 1, 2004 (unless such transfer relates to a liquidation or winding-up of such Stockholder, in which case the maximum number specified in this clause (i) shall be 16), and (ii) a total of sixteen (16) of its owners or Affiliates pursuant to this clause (e) after January 1, 2005; (f) Transfers of warrants to purchase Series C Common Stock of the Company by Baylor to any broker or agent retained by Baylor or Buckner with respect to their investment in the Company (up to a maximum of 20,742 shares of Series C Common Stock in the aggregate) or transfers of Securities of Baylor to Baylor Health Care System Foundation (in any amount); (g) Transfers of Securities by Heritage Fund II Investment Corporation to any other Person; and (h) Transfers of Securities pursuant to Articles II, V or VI; provided, however that Securities Transferred pursuant to clauses (a) - (f) -------- may not be further Transferred under such clauses except to a Person that would have been a permitted transferee thereof from the initial Stockholder who held such Securities." 2.11. Definition of Proportionate Percentage. The definition of the -------------------------------------- term "Proportionate Percentage" in Article VIII of the Original Agreement is hereby amended by deleting the text thereof in its entirety and inserting in lieu thereof the following: "Proportionate Percentage of a Stockholder shall mean a fraction of which ------------------------ (a) the numerator is the number of then outstanding shares of Common Stock held by such Stockholder (assuming the exercise or conversion of all Stock Equivalents held by such Stockholder), and (b) the denominator is the total number of then outstanding shares of Common Stock (assuming the exercise or conversion of all Stock Equivalents held by all stockholders)." 6 2.12. Definition of Qualified Stockholder. The definition of the ----------------------------------- term "Qualified Stockholder" in Article VIII of the Original Agreement is hereby amended by deleting the text thereof in its entirety and inserting in lieu thereof the following: "Qualified Stockholder shall mean any Stockholder then holding more than --------------------- 10,000 shares of Stock (assuming the exercise or conversion of all Stock Equivalents held by such Stockholder, and appropriately adjusted for stock splits, stock dividends, combinations and other similar transactions); provided that (a) all shares of Stock held by a Stockholder and any transferees of such Stockholder under clause (e) of the definition of Permitted Transfers shall be aggregated for purposes of determining whether any of them is a Qualified Stockholder, (b) all shares of Stock held by GS Private Equity Partners, L.P. and GS Private Equity Partners Offshore, L.P. shall be aggregated for purposes of determining whether any of them is a Qualified Stockholder, (c) all shares of Stock held by Nassau Capital Partners II L.P. and NAS Partners I LLC shall be aggregated for purposes of determining whether any of them is a Qualified Stockholder, and (d) all shares of Stock held by Baylor, Buckner and each transferee of Baylor or Buckner permitted under clause (f) of the definition of Permitted Transfers shall be aggregated for purposes of determining whether any of them is a Qualified Stockholder." 2.13. Definition of Stockholder. The definition of the term ------------------------- "Stockholder" in Article VIII of the Original Agreement is hereby amended by deleting the text thereof in its entirety and inserting in lieu thereof the following: "Stockholder" shall mean each Person who holds any Stock (including Baylor ----------- or Buckner, as long as they shall hold any Stock or Stock Equivalents)." 3. Survival. Except as specifically set forth herein, the Original -------- Agreement shall remain in full force and effect. This Amendment shall be deemed part of, and construed in accordance with, the Original Agreement. 4. Miscellaneous. This Amendment shall be binding upon and enforceable ------------- against the parties and their successors and permitted assigns. This Amendment shall not be amended, modified, revised, supplemented, or terminated unless mutually agreed in writing by all of the parties hereto. This Amendment shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without giving effect to conflicts of laws principles. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall be considered one and the same instrument. 7 IN WITNESS WHEREOF, this Amendment No. 1 to Stockholders Agreement has been executed as a sealed instrument as of the day and year first above written. FOUNTAIN VIEW, INC. By:/s/ Robert Snukal ---------------------- Robert Snukal, President BAYLOR HEALTH CARE SYSTEM By:/s/ William S. Carter ----------------------- Name: William S. Carter Title: E.V. - Pres. BUCKNER FOUNDATION By:/s/ H. Allen Jordan ----------------------- Name: H. Allen Jordan Title: Senior Vice President & Chief Financial Officer HERITAGE FUND II, L.P. By: HF Partners II, L.L.C., its general partner By:[SIGNATURE ILLEGIBLE]^^ ------------------------ Name: Title: 8 EX-10.45 61 AMENDMENT #1 TO REGISTRATION RIGHTS AGREEMENT 5/4/98 EXHIBIT 10.45 AMENDMENT NO. 1 TO FOUNTAIN VIEW, INC. REGISTRATION RIGHTS AGREEMENT This Amendment No. 1 to Registration Rights Agreement (the "Amendment") is --------- entered into as of May 4, 1998 by and among (i) Fountain View, Inc., a Delaware corporation (the "Company"), (ii) Heritage Fund II, L.P., Heritage Investors II, ------- L.L.C. and Heritage Fund II Investment Corporation (collectively, "Heritage"), -------- (iii) Baylor Health Care System ("Baylor"), and (iv) Buckner Foundation ------ ("Buckner"). ------- Preliminary Statement --------------------- Reference is hereby made to that certain Registration Rights Agreement dated as of March 27, 1998 (the "Original Agreement") by and among the Company, ------------------ Robert Snukal, Sheila Snukal, William Scott, Heritage, and certain other parties. Heritage Fund II Investment Corporation ("HFIC") has purchased certain ---- securities of the Company (the "Securities") pursuant to the terms of an ---------- Investment Agreement dated as of March 27, 1998. HFIC desires to transfer certain of the Securities to Baylor and Buckner, and Baylor and Buckner wish to purchase such Securities from HFIC. The Company and Heritage desire that such purchase and sale be consummated, and wish to amend the Original Agreement to add Baylor and Buckner as a party thereto and to make certain other changes. All capitalized terms used but not defined in this Amendment shall have the meanings set forth in the Original Agreement. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Additional Party. By its execution of this Amendment, each of Baylor ---------------- and Buckner is hereby added as a party to the Original Agreement, and shall have the rights and obligations thereunder as a holder of Investor Registrable Securities, on a pari passu basis with the other holders of Investor Registrable Securities. 2. Provision of Notices. The Company hereby covenants and agrees that, -------------------- for as long as Baylor or Buckner, respectively, holds warrants to purchase Common Stock of the Company and until such time as Baylor or Buckner, respectively, holds any shares of Common Stock of the Company, the Company will provide Baylor or Buckner, respectively, with copies of all written notices given by the Company to holders of Registrable Securities pursuant to the Original Agreement, at the same time and in the same manner as such written notices are provided to holders of Registrable Securities. 3. Amendment to Original Agreement. Effective as of the date hereof, the ------------------------------- Original Agreement is hereby amended as follows: 3.1. Definition of Investor Registrable Securities. The term --------------------------------------------- "Investor Registrable Securities" as used in the Original Agreement is hereby amended to include within the definition thereof all shares of Common Stock of the Company held by Baylor or Buckner, including all shares of Common Stock issuable to Baylor or Buckner (or any of their permitted transferees under the Stockholders Agreement referred to in the Original Agreement) pursuant to warrants to purchase Series C Common Stock held by Baylor or Buckner, subject to the the terms and conditions applicable to Investor Registrable Securities as set forth in Section 4(a) of the Original Agreement, and the names "Baylor Health Care System" and "Buckner Foundation" (and the names of any of their permitted transferees under the Stockholders Agreement referred to in the Original Agreement) are hereby inserted into the list of holders of Investor Registrable Securities appearing in the Original Agreement. 3.2. New Section 19. A new Section 19 to the Original Agreement is -------------- hereby added as follows: "Section 19. Addition of Subsequent Holders. Any person who acquires ---------- ------------------------------ any shares of Registrable Securities in compliance with the terms and conditions of the Stockholders Agreement on or after the date hereof shall be entitled to become a party to this Agreement upon such person's execution of a counterpart to, or other written agreement to be bound by and to comply with all of the provisions of, this Agreement, and upon execution of such counterpart or other written agreement shall become a holder of Registrable Securities for purposes of this Agreement, such Registrable Securities to be of the same type (i.e., Investor Registrable Securities, Snukal Registrable Securities or Scott Registrable Securities) as were held by the transferor from whom such person acquired such shares." 4. Survival. Except as specifically set forth herein, the Original -------- Agreement shall remain in full force and effect. This Amendment shall be deemed part of, and construed in accordance with, the Original Agreement. 5. Miscellaneous. This Amendment shall be binding upon and enforceable ------------- against the parties and their successors and permitted assigns. This Amendment shall not be amended, modified, revised, supplemented, or terminated unless mutually agreed in writing by all of the parties hereto. This Amendment shall be governed by and construed in accordance with the laws of the Commonwealth of 2 Massachusetts, without giving effect to conflicts of laws principles. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall be considered one and the same instrument. 3 IN WITNESS WHEREOF, this Amendment No. 1 to Registration Rights Agreement has been executed as a sealed instrument as of the day and year first above written. FOUNTAIN VIEW, INC. By: /s/ Robert Snukal ------------------------------- Robert Snukal, President BAYLOR HEALTH CARE SYSTEM By: /s/ William S. Carter ------------------------------- Name: William S. Carter Title: Executive Vice President BUCKNER FOUNDATION By: /s/ H. Allen Jordan ------------------------------- Name: H. Allen Jordan Title: Senior Vice President & Chief Financial Officer HERITAGE FUND II, L.P. By: Heritage Partners Management Company Inc., its general partner By: /s/ SIGNATURE ILLEGIBLE ^^ ------------------------------- Name: Title: HERITAGE INVESTORS II, L.L.C. By: HF Partners II, L.L.C., its manager By: /s/ SIGNATURE ILLEGIBLE ^^ ------------------------------- Name: Title: HERITAGE FUND II INVESTMENT CORPORATION By: /s/ SIGNATURE ILLEGIBLE ^^ ------------------------------- Name: Title: EX-10.46 62 WARRANTS TO PURCHASE SERIES C COMMON STOCK EXHIBIT 10.46 THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE "SECURITIES LAWS"), AND MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS (1) REGISTERED UNDER THE SECURITIES LAWS OR (2) EXEMPT FROM REGISTRATION UNDER THE SECURITIES LAWS AND THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER OBLIGATIONS CONTAINED IN A STOCKHOLDERS AGREEMENT DATED AS OF MARCH 27, 1998 AMONG THE COMPANY AND CERTAIN OF ITS STOCKHOLDERS, A COPY OF WHICH IS ON FILE WITH THE COMPANY AND WILL BE FURNISHED WITHOUT COST TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE SECRETARY. No. C-1 Warrant to Purchase 70,622 Shares of Series C Common Stock FOUNTAIN VIEW, INC. Warrant ------- Void after April 16, 2008 Fountain View, Inc., a Delaware corporation (the "Company"), hereby ------- certifies that, for value received, Heritage Fund II Investment Corporation or its permitted assigns (the "Holder"), is entitled, subject to the terms set ------ forth below, to purchase from the Company at any time on or after April 16, 1998, but in any event not later than 5:00 p.m., Eastern time, on April 16, 2008 (the "Expiration Date"), up to 70,622 fully paid and nonassessable shares of the --------------- Company's Series C Common Stock at the purchase price (the "Warrant Price") of ------------- $.01 per share and otherwise in accordance with the terms hereof. Section 1. Certain Definitions. As used herein, the following terms have --------- ------------------- the meanings set forth below: "Stockholders Agreement" means the Stockholders Agreement dated as of March ---------------------- 27, 1998 among the Company, Heritage Fund II, L.P., Heritage Investors II, L.L.C., Heritage Fund II Investment Corporation, Robert Snukal, Sheila Snukal, William Scott and certain other parties, as amended from time to time. Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Stockholders Agreement. Section 2. Exercise. This Warrant shall be exercisable in full or in part --------- -------- at any time prior to the Expiration Date. Except as otherwise provided in Sections 7 and 8, this Warrant shall be exercisable by delivery by the Holder to the Company of notice of exercise setting forth the number of shares for which the Warrant is being exercised and payment in cash or by check of the Warrant Price for each share for which this Warrant is being exercised. Section 3. Delivery of Stock Certificates, etc. on Exercise. As soon as --------- ------------------------------------------------ practicable after the exercise of this Warrant, and in any event within three business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, (i) a certificate or certificates for the number of fully paid and nonassessable shares of Series C Common Stock to which the Holder shall be entitled on such exercise, and (ii) a new Warrant to purchase all of the shares, if any, to which the Holder shall be entitled to receive in connection with the portion of the Warrant not so exercised. Section 4. Adjustment for Stock Splits, Stock Dividends, --------- --------------------------------------------- Recapitalizations, etc. The Warrant Price and the number of shares of Series C - ---------------------- Common Stock issuable upon exercise of this Warrant shall be appropriately adjusted to reflect any stock dividend, stock split, combination of shares, reclassification, recapitalization or other similar event affecting the number of outstanding shares of Series C Common Stock. In case of any adjustment or readjustment in the Warrant Price or number of shares of Series C Common Stock issuable on the exercise of this Warrant, the Company will promptly give written notice thereof to the Holder in the form of a certificate, certified and confirmed by the president or treasurer of the Company, setting forth such adjustment and showing in reasonable detail the facts upon which such adjustment or readjustment is based. Section 5. Adjustment for Conversions, Reclassifications, Mergers, etc. --------- ----------------------------------------------------------- In case of any capital reorganization or any reclassification of the capital stock of the Company or in case of the consolidation or merger of the Company with or into another corporation or the conveyance of all or substantially all of the assets of the Company to another corporation, this Warrant shall thereafter be exercisable for the number of shares of stock or other securities or property to which a holder of the number of shares of Series C Common Stock of the Company deliverable upon exercise of the Warrant would have been entitled to upon such conversion, reorganization, reclassification, consolidation, merger or conveyance. Section 6. Reservation of Shares. The Company (a) will at all times --------- --------------------- reserve and keep available a number of its authorized shares of Series C Common Stock free from all preemptive or similar rights therein, which will be sufficient to permit the -2- exercise of this Warrant, and (b) will take such action as may be necessary or appropriate so that all shares of Series C Common Stock issued pursuant to the exercise of this Warrant will, upon issuance, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, except for certain restrictions on transfer set forth in the Stockholders Agreement and under applicable securities laws. Section 7. Net Issue Exercise. In lieu of exercising this Warrant in --------- ------------------ accordance with Section 2, the Holder may elect to receive shares equal to the value of this Warrant (to the extent exercised) by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to the Holder a number of shares of the Company's Series C Common Stock equal to the quotient obtained by dividing (a) the value of the aggregate number of shares of Series C Common Stock for which this Warrant is then exercised (determined by subtracting the aggregate Warrant Price for such shares immediately prior to surrender from the aggregate Fair Market Value (as hereinafter defined) of such shares), by (b) the Fair Market Value of one share of Series C Common Stock immediately prior to surrender. For purposes of this Section, the "Fair Market Value" of the Company's Series C Common Stock shall mean (i) if the Company has consummated a registered public offering of its common stock, the average of the closing sale prices of each share of common stock into which the Company's Series C Common Stock was converted for the ten (10) business days preceding the date upon which Fair Market Value is to be determined, or (ii) if the Company has not consummated a registered public offering of its common stock, the fair market value of each share of Series C Common Stock, as determined in good faith by the Company's Board of Directors. In the event of the surrender of this Warrant, as described above, certificates for the shares of stock issuable thereon shall be delivered to the Holder as soon as possible and in any event within three days of receipt of notice of surrender. If the Warrant is not exercised in full pursuant to such surrender, a replacement warrant for the portion of the Warrant not so exercised shall be issued in accordance with Section 3. Section 8. Surrender of Preferred Stock. Upon the exercise of this --------- ---------------------------- Warrant by any holder of shares of the Company's Series A Preferred Stock (the "Preferred Stock"), such holder may, at its option, surrender a portion of such Preferred Stock to the Company, together with written instructions from such holder to apply all or a specified portion of the Liquidation Value (as defined in the Company's Certificate of Incorporation) of the Preferred Stock against the payment of some or all of the Warrant Price required upon such exercise, in which case the Company will -3- accept such specified portion of the Preferred Stock in lieu of a like amount of cash payment. In the event of the surrender of Preferred Stock, as described above, certificates for the number of shares of Series C Common Stock issuable hereunder shall be delivered to the holder hereof as soon as possible and in any event within three days of notice of surrender of the Preferred Stock, together with a certificate therefor, duly endorsed for transfer and together with this Warrant, and a certificate for the balance of the Preferred Stock surrendered to the Company with such notice shall also be issued to the holder hereof as soon as possible and in any event within such two-day period. Section 9. Exchange of Warrants. On surrender for exchange of this --------- -------------------- Warrant, properly endorsed, to the Company, and subject to the restrictions on transfer set forth in the Stockholders Agreement, the Company at its expense will issue and deliver to or on the order of the holder thereof a new Warrant of like tenor, in the name of such holder or as such holder may direct, calling in the aggregate on the face thereof for the number of shares of Series C Common Stock called for on the face of the Warrant so surrendered. Section 10. Replacement of Warrants. On receipt of evidence reasonably ---------- ----------------------- satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. Section 11. Notices. Any notice or other communication given pursuant to ---------- ------- this Warrant shall be in writing and shall be personally delivered, sent by nationally recognized overnight courier or express mail, or mailed by first class certified or registered mail, postage prepaid, return receipt requested, to the Company, at its address as it appears in the Stockholders Agreement and (b) to the Holder, at such Holder's address as it appears in the Stockholders Agreement (or, if not specified therein, at such Holder's address as it appears in the records of the Company), unless otherwise indicated by the Company or such Holder, as the case may be, in each case with any copies required by the Stockholders Agreement. Section 12. Fractional Shares. The number of shares of Series C Common ---------- ----------------- Stock to be issued upon exercise of this Warrant shall be rounded to the nearest whole share, with any fractional shares disregarded. -4- Section 13. Legend. A legend setting forth or referring to the ---------- ------ restrictions described on page 1 of this Warrant shall be placed on any replacement hereof and any certificate representing securities issued pursuant to the exercise of this Warrant. Section 14. No Rights as Shareholder. This Warrant shall not entitle the ---------- ------------------------ holder to any voting rights or any other rights as a shareholder of the Company, except the rights stated herein. Section 15. Investment Intent. By accepting this Warrant, the holder ---------- ----------------- represents that it is acquiring this Warrant for investment and not with a view to or for sale in connection with any distribution thereof. The Holder represents that it is an accredited investor as defined in Regulation D under the Securities Act. Section 16. Miscellaneous. This Warrant and any term hereof may be ---------- ------------- amended, modified or waived only by an instrument in writing signed by the Company and the Holder. This Warrant shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware and the internal laws of the Commonwealth of Massachusetts (without regard for its conflicts of laws principles). IN WITNESS WHEREOF, this Warrant has been executed and delivered as a sealed instrument as of the date first above written. FOUNTAIN VIEW, INC. By:/s/ Robert Snukal ----------------------------- Robert Snukal, President -5- FORM OF EXERCISE NOTICE (To be signed only on exercise of Warrant) TO: FOUNTAIN VIEW, INC. The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, ___________* shares of Series C Common Stock of Fountain View, Inc., and herewith makes payment of $______ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to _______________, whose address is _________________________________. Dated: __________, ____ _____________________________ (Signature must conform in all respects to name of holder specified on the face of the Warrant) * Insert here the number of shares as to which the Warrant is being exercised. -6- FORM OF ASSIGNMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto __________________ the right represented by the within Warrant to purchase ______ shares of Series C Common Stock of Fountain View, Inc. to which the within Warrant relates, and appoints _________________ its attorney to transfer such right on the books of Fountain View, Inc. with full power of substitution in the premises. The undersigned represents and warrants that this transfer is permitted by the restrictions contained in the Warrant, and acknowledges that Fountain View, Inc. is entitled to require compliance with those restrictions as a condition to recognition of this transfer. This Warrant is and remains subject to the restrictions set forth in the Stockholders Agreement referenced in the Warrant. Dated: __________, ____ _____________________________ (Signature must conform in all respects to name of holder specified on the face of the Warrant) -7- THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE "SECURITIES LAWS"), AND MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS (1) REGISTERED UNDER THE SECURITIES LAWS OR (2) EXEMPT FROM REGISTRATION UNDER THE SECURITIES LAWS AND THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER OBLIGATIONS CONTAINED IN A STOCKHOLDERS AGREEMENT DATED AS OF MARCH 27, 1998 AMONG THE COMPANY AND CERTAIN OF ITS STOCKHOLDERS, A COPY OF WHICH IS ON FILE WITH THE COMPANY AND WILL BE FURNISHED WITHOUT COST TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE SECRETARY. No. C-2 Warrant to Purchase 34,257 Shares of Series C Common Stock FOUNTAIN VIEW, INC. Warrant ------- Void after April 16, 2008 Fountain View, Inc., a Delaware corporation (the "Company"), hereby ------- certifies that, for value received, Baylor Health Care System or its permitted assigns (the "Holder"), is entitled, subject to the terms set forth below, to ------ purchase from the Company at any time on or after April 16, 1998, but in any event not later than 5:00 p.m., Eastern time, on April 16, 2008 (the "Expiration ---------- Date"), up to 34,257 fully paid and nonassessable shares of the Company's Series - ---- C Common Stock at the purchase price (the "Warrant Price") of $.01 per share and ------------- otherwise in accordance with the terms hereof. Section 1. Certain Definitions. As used herein, the following terms have --------- ------------------- the meanings set forth below: "Stockholders Agreement" means the Stockholders Agreement dated as of March ---------------------- 27, 1998 among the Company, Heritage Fund II, L.P., Heritage Investors II, L.L.C., Heritage Fund II Investment Corporation, Robert Snukal, Sheila Snukal, William Scott and certain other parties, as amended from time to time. Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Stockholders Agreement. Section 2. Exercise. This Warrant shall be exercisable in full or in part --------- -------- at any time prior to the Expiration Date. Except as otherwise provided in Sections 7 and 8, this Warrant shall be exercisable by delivery by the Holder to the Company of notice of exercise setting forth the number of shares for which the Warrant is being exercised and payment in cash or by check of the Warrant Price for each share for which this Warrant is being exercised. Section 3. Delivery of Stock Certificates, etc. on Exercise. As soon as --------- ------------------------------------------------ practicable after the exercise of this Warrant, and in any event within three business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, (i) a certificate or certificates for the number of fully paid and nonassessable shares of Series C Common Stock to which the Holder shall be entitled on such exercise, and (ii) a new Warrant to purchase all of the shares, if any, to which the Holder shall be entitled to receive in connection with the portion of the Warrant not so exercised. Section 4. Adjustment for Stock Splits, Stock Dividends, --------- --------------------------------------------- Recapitalizations, etc. The Warrant Price and the number of shares of Series C - ---------------------- Common Stock issuable upon exercise of this Warrant shall be appropriately adjusted to reflect any stock dividend, stock split, combination of shares, reclassification, recapitalization or other similar event affecting the number of outstanding shares of Series C Common Stock. In case of any adjustment or readjustment in the Warrant Price or number of shares of Series C Common Stock issuable on the exercise of this Warrant, the Company will promptly give written notice thereof to the Holder in the form of a certificate, certified and confirmed by the president or treasurer of the Company, setting forth such adjustment and showing in reasonable detail the facts upon which such adjustment or readjustment is based. Section 5. Adjustment for Conversions, Reclassifications, Mergers, etc. --------- ----------------------------------------------------------- In case of any capital reorganization or any reclassification of the capital stock of the Company or in case of the consolidation or merger of the Company with or into another corporation or the conveyance of all or substantially all of the assets of the Company to another corporation, this Warrant shall thereafter be exercisable for the number of shares of stock or other securities or property to which a holder of the number of shares of Series C Common Stock of the Company deliverable upon exercise of the Warrant would have been entitled to upon such conversion, reorganization, reclassification, consolidation, merger or conveyance. Section 6. Reservation of Shares. The Company (a) will at all times --------- --------------------- reserve and keep available a number of its authorized shares of Series C Common Stock free from all preemptive or similar rights therein, which will be sufficient to permit the exercise of this Warrant, and (b) will take such action as may be necessary or appropriate so that all shares of Series C Common Stock issued pursuant to the exercise of this Warrant will, upon issuance, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, except for certain restrictions on transfer set forth in the Stockholders Agreement and under applicable securities laws. Section 7. Net Issue Exercise. In lieu of exercising this Warrant in --------- ------------------ accordance with Section 2, the Holder may elect to receive shares equal to the value of this Warrant (to the extent exercised) by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to the Holder a number of shares of the Company's Series C Common Stock equal to the quotient obtained by dividing (a) the value of the aggregate number of shares of Series C Common Stock for which this Warrant is then exercised (determined by subtracting the aggregate Warrant Price for such shares immediately prior to surrender from the aggregate Fair Market Value (as hereinafter defined) of such shares), by (b) the Fair Market Value of one share of Series C Common Stock immediately prior to surrender. For purposes of this Section, the "Fair Market Value" of the Company's Series C Common Stock shall mean (i) if the Company has consummated a registered public offering of its common stock, the average of the closing sale prices of each share of common stock into which the Company's Series C Common Stock was converted for the ten (10) business days preceding the date upon which Fair Market Value is to be determined, or (ii) if the Company has not consummated a registered public offering of its common stock, the fair market value of each share of Series C Common Stock, as determined in good faith by the Company's Board of Directors. In the event of the surrender of this Warrant, as described above, certificates for the shares of stock issuable thereon shall be delivered to the Holder as soon as possible and in any event within three days of receipt of notice of surrender. If the Warrant is not exercised in full pursuant to such surrender, a replacement warrant for the portion of the Warrant not so exercised shall be issued in accordance with Section 3. Section 8. Surrender of Preferred Stock. Upon the exercise of this --------- ---------------------------- Warrant by any holder of shares of the Company's Series A Preferred Stock (the "Preferred Stock"), such holder may, at its option, surrender a portion of such Preferred Stock to the Company, together with written instructions from such holder to apply all or a specified portion of the Liquidation Value (as defined in the Company's Certificate of Incorporation) of the Preferred Stock against the payment of some or all of the Warrant Price required upon such exercise, in which case the Company will accept such specified portion of the Preferred Stock in lieu of a like amount of cash payment. In the event of the surrender of Preferred Stock, as described above, certificates for the number of shares of Series C Common Stock issuable hereunder shall be delivered to the holder hereof as soon as possible and in any event within three days of notice of surrender of the Preferred Stock, together with a certificate therefor, duly endorsed for transfer and together with this Warrant, and a certificate for the balance of the Preferred Stock surrendered to the Company with such notice shall also be issued to the holder hereof as soon as possible and in any event within such two-day period. Section 9. Exchange of Warrants. On surrender for exchange of this --------- -------------------- Warrant, properly endorsed, to the Company, and subject to the restrictions on transfer set forth in the Stockholders Agreement, the Company at its expense will issue and deliver to or on the order of the holder thereof a new Warrant of like tenor, in the name of such holder or as such holder may direct, calling in the aggregate on the face thereof for the number of shares of Series C Common Stock called for on the face of the Warrant so surrendered. Section 10. Replacement of Warrants. On receipt of evidence reasonably ---------- ----------------------- satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. Section 11. Notices. Any notice or other communication given pursuant to ---------- ------- this Warrant shall be in writing and shall be personally delivered, sent by nationally recognized overnight courier or express mail, or mailed by first class certified or registered mail, postage prepaid, return receipt requested, to the Company, at its address as it appears in the Stockholders Agreement and (b) to the Holder, at such Holder's address as it appears in the Stockholders Agreement (or, if not specified therein, at such Holder's address as it appears in the records of the Company), unless otherwise indicated by the Company or such Holder, as the case may be, in each case with any copies required by the Stockholders Agreement. Section 12. Fractional Shares. The number of shares of Series C Common ---------- ----------------- Stock to be issued upon exercise of this Warrant shall be rounded to the nearest whole share, with any fractional shares disregarded. Section 13. Legend. A legend setting forth or referring to the ---------- ------ restrictions described on page 1 of this Warrant shall be placed on any replacement hereof and any certificate representing securities issued pursuant to the exercise of this Warrant. Section 14. No Rights as Shareholder. This Warrant shall not entitle the ---------- ------------------------ holder to any voting rights or any other rights as a shareholder of the Company, except the rights stated herein. Section 15. Investment Intent. By accepting this Warrant, the holder ---------- ----------------- represents that it is acquiring this Warrant for investment and not with a view to or for sale in connection with any distribution thereof. The Holder represents that it is an accredited investor as defined in Regulation D under the Securities Act. Section 16. Miscellaneous. This Warrant and any term hereof may be ---------- ------------- amended, modified or waived only by an instrument in writing signed by the Company and the Holder. This Warrant shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware and the internal laws of the Commonwealth of Massachusetts (without regard for its conflicts of laws principles). IN WITNESS WHEREOF, this Warrant has been executed and delivered as a sealed instrument as of the date first above written. FOUNTAIN VIEW, INC. /s/ Robert Snukal By:____________________________ Robert Snukal, President FORM OF EXERCISE NOTICE (To be signed only on exercise of Warrant) TO: FOUNTAIN VIEW, INC. The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, ___________* shares of Series C Common Stock of Fountain View, Inc., and herewith makes payment of $______ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to _______________, whose address is _________________________________. Dated: __________, ____ ______________________________ (Signature must conform in all respects to name of holder specified on the face of the Warrant) * Insert here the number of shares as to which the Warrant is being exercised. FORM OF ASSIGNMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto __________________ the right represented by the within Warrant to purchase ______ shares of Series C Common Stock of Fountain View, Inc. to which the within Warrant relates, and appoints _________________ its attorney to transfer such right on the books of Fountain View, Inc. with full power of substitution in the premises. The undersigned represents and warrants that this transfer is permitted by the restrictions contained in the Warrant, and acknowledges that Fountain View, Inc. is entitled to require compliance with those restrictions as a condition to recognition of this transfer. This Warrant is and remains subject to the restrictions set forth in the Stockholders Agreement referenced in the Warrant. Dated: __________, ____ ______________________________ (Signature must conform in all respects to name of holder specified on the face of the Warrant) THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE "SECURITIES LAWS"), AND MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS (1) REGISTERED UNDER THE SECURITIES LAWS OR (2) EXEMPT FROM REGISTRATION UNDER THE SECURITIES LAWS AND THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER OBLIGATIONS CONTAINED IN A STOCKHOLDERS AGREEMENT DATED AS OF MARCH 27, 1998 AMONG THE COMPANY AND CERTAIN OF ITS STOCKHOLDERS, A COPY OF WHICH IS ON FILE WITH THE COMPANY AND WILL BE FURNISHED WITHOUT COST TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE SECRETARY. No. C-3 Warrant to Purchase 10,371 Shares of Series C Common Stock FOUNTAIN VIEW, INC. Warrant ------- Void after April 16, 2008 Fountain View, Inc., a Delaware corporation (the "Company"), hereby ------- certifies that, for value received,Baylor Health Care System or its permitted assigns (the "Holder"), is entitled, subject to the terms set forth below, to ------ purchase from the Company at any time on or after April 16, 1998, but in any event not later than 5:00 p.m., Eastern time, on April 16, 2008 (the "Expiration ---------- Date"), up to 10,371 fully paid and nonassessable shares of the Company's Series - ---- C Common Stock at the purchase price (the "Warrant Price") of $.01 per share and ------------- otherwise in accordance with the terms hereof. Section 1. Certain Definitions. As used herein, the following terms have --------- ------------------- the meanings set forth below: "Stockholders Agreement" means the Stockholders Agreement dated as of March ---------------------- 27, 1998 among the Company, Heritage Fund II, L.P., Heritage Investors II, L.L.C., Heritage Fund II Investment Corporation, Robert Snukal, Sheila Snukal, William Scott and certain other parties, as amended from time to time. Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Stockholders Agreement. Section 2. Exercise. This Warrant shall be exercisable in full or in part --------- -------- at any time prior to the Expiration Date. Except as otherwise provided in Sections 7 and 8, this Warrant shall be exercisable by delivery by the Holder to the Company of notice of exercise setting forth the number of shares for which the Warrant is being exercised and payment in cash or by check of the Warrant Price for each share for which this Warrant is being exercised. Section 3. Delivery of Stock Certificates, etc. on Exercise. As soon as --------- ------------------------------------------------ practicable after the exercise of this Warrant, and in any event within three business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, (i) a certificate or certificates for the number of fully paid and nonassessable shares of Series C Common Stock to which the Holder shall be entitled on such exercise, and (ii) a new Warrant to purchase all of the shares, if any, to which the Holder shall be entitled to receive in connection with the portion of the Warrant not so exercised. Section 4. Adjustment for Stock Splits, Stock Dividends, --------- --------------------------------------------- Recapitalizations, etc. The Warrant Price and the number of shares of Series C - ---------------------- Common Stock issuable upon exercise of this Warrant shall be appropriately adjusted to reflect any stock dividend, stock split, combination of shares, reclassification, recapitalization or other similar event affecting the number of outstanding shares of Series C Common Stock. In case of any adjustment or readjustment in the Warrant Price or number of shares of Series C Common Stock issuable on the exercise of this Warrant, the Company will promptly give written notice thereof to the Holder in the form of a certificate, certified and confirmed by the president or treasurer of the Company, setting forth such adjustment and showing in reasonable detail the facts upon which such adjustment or readjustment is based. Section 5. Adjustment for Conversions, Reclassifications, Mergers, etc. --------- ----------------------------------------------------------- In case of any capital reorganization or any reclassification of the capital stock of the Company or in case of the consolidation or merger of the Company with or into another corporation or the conveyance of all or substantially all of the assets of the Company to another corporation, this Warrant shall thereafter be exercisable for the number of shares of stock or other securities or property to which a holder of the number of shares of Series C Common Stock of the Company deliverable upon exercise of the Warrant would have been entitled to upon such conversion, reorganization, reclassification, consolidation, merger or conveyance. Section 6. Reservation of Shares. The Company (a) will at all times --------- --------------------- reserve and keep available a number of its authorized shares of Series C Common Stock free from all preemptive or similar rights therein, which will be sufficient to permit the exercise of this Warrant, and (b) will take such action as may be necessary or appropriate so that all shares of Series C Common Stock issued pursuant to the exercise of this Warrant will, upon issuance, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, except for certain restrictions on transfer set forth in the Stockholders Agreement and under applicable securities laws. Section 7. Net Issue Exercise. In lieu of exercising this Warrant in --------- ------------------ accordance with Section 2, the Holder may elect to receive shares equal to the value of this Warrant (to the extent exercised) by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to the Holder a number of shares of the Company's Series C Common Stock equal to the quotient obtained by dividing (a) the value of the aggregate number of shares of Series C Common Stock for which this Warrant is then exercised (determined by subtracting the aggregate Warrant Price for such shares immediately prior to surrender from the aggregate Fair Market Value (as hereinafter defined) of such shares), by (b) the Fair Market Value of one share of Series C Common Stock immediately prior to surrender. For purposes of this Section, the "Fair Market Value" of the Company's Series C Common Stock shall mean (i) if the Company has consummated a registered public offering of its common stock, the average of the closing sale prices of each share of common stock into which the Company's Series C Common Stock was converted for the ten (10) business days preceding the date upon which Fair Market Value is to be determined, or (ii) if the Company has not consummated a registered public offering of its common stock, the fair market value of each share of Series C Common Stock, as determined in good faith by the Company's Board of Directors. In the event of the surrender of this Warrant, as described above, certificates for the shares of stock issuable thereon shall be delivered to the Holder as soon as possible and in any event within three days of receipt of notice of surrender. If the Warrant is not exercised in full pursuant to such surrender, a replacement warrant for the portion of the Warrant not so exercised shall be issued in accordance with Section 3. Section 8. Surrender of Preferred Stock. Upon the exercise of this --------- ---------------------------- Warrant by any holder of shares of the Company's Series A Preferred Stock (the "Preferred Stock"), such holder may, at its option, surrender a portion of such Preferred Stock to the Company, together with written instructions from such holder to apply all or a specified portion of the Liquidation Value (as defined in the Company's Certificate of Incorporation) of the Preferred Stock against the payment of some or all of the Warrant Price required upon such exercise, in which case the Company will accept such specified portion of the Preferred Stock in lieu of a like amount of cash payment. In the event of the surrender of Preferred Stock, as described above, certificates for the number of shares of Series C Common Stock issuable hereunder shall be delivered to the holder hereof as soon as possible and in any event within three days of notice of surrender of the Preferred Stock, together with a certificate therefor, duly endorsed for transfer and together with this Warrant, and a certificate for the balance of the Preferred Stock surrendered to the Company with such notice shall also be issued to the holder hereof as soon as possible and in any event within such two-day period. Section 9. Exchange of Warrants. On surrender for exchange of this --------- -------------------- Warrant, properly endorsed, to the Company, and subject to the restrictions on transfer set forth in the Stockholders Agreement, the Company at its expense will issue and deliver to or on the order of the holder thereof a new Warrant of like tenor, in the name of such holder or as such holder may direct, calling in the aggregate on the face thereof for the number of shares of Series C Common Stock called for on the face of the Warrant so surrendered. Section 10. Replacement of Warrants. On receipt of evidence reasonably ---------- ----------------------- satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. Section 11. Notices. Any notice or other communication given pursuant to ---------- ------- this Warrant shall be in writing and shall be personally delivered, sent by nationally recognized overnight courier or express mail, or mailed by first class certified or registered mail, postage prepaid, return receipt requested, to the Company, at its address as it appears in the Stockholders Agreement and (b) to the Holder, at such Holder's address as it appears in the Stockholders Agreement (or, if not specified therein, at such Holder's address as it appears in the records of the Company), unless otherwise indicated by the Company or such Holder, as the case may be, in each case with any copies required by the Stockholders Agreement. Section 12. Fractional Shares. The number of shares of Series C Common ---------- ----------------- Stock to be issued upon exercise of this Warrant shall be rounded to the nearest whole share, with any fractional shares disregarded. Section 13. Legend. A legend setting forth or referring to the ---------- ------ restrictions described on page 1 of this Warrant shall be placed on any replacement hereof and any certificate representing securities issued pursuant to the exercise of this Warrant. Section 14. No Rights as Shareholder. This Warrant shall not entitle the ---------- ------------------------ holder to any voting rights or any other rights as a shareholder of the Company, except the rights stated herein. Section 15. Investment Intent. By accepting this Warrant, the holder ---------- ----------------- represents that it is acquiring this Warrant for investment and not with a view to or for sale in connection with any distribution thereof. The Holder represents that it is an accredited investor as defined in Regulation D under the Securities Act. Section 16. Miscellaneous. This Warrant and any term hereof may be ---------- ------------- amended, modified or waived only by an instrument in writing signed by the Company and the Holder. This Warrant shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware and the internal laws of the Commonwealth of Massachusetts (without regard for its conflicts of laws principles). IN WITNESS WHEREOF, this Warrant has been executed and delivered as a sealed instrument as of the date first above written. FOUNTAIN VIEW, INC. By:/s/ Robert Snukal ----------------- Robert Snukal, President FORM OF EXERCISE NOTICE (To be signed only on exercise of Warrant) TO: FOUNTAIN VIEW, INC. The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, ___________* shares of Series C Common Stock of Fountain View, Inc., and herewith makes payment of $______ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to _______________, whose address is _________________________________. Dated: __________, ____ _____________________________ (Signature must conform in all respects to name of holder specified on the face of the Warrant) * Insert here the number of shares as to which the Warrant is being exercised. FORM OF ASSIGNMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto __________________ the right represented by the within Warrant to purchase ______ shares of Series C Common Stock of Fountain View, Inc. to which the within Warrant relates, and appoints _________________ its attorney to transfer such right on the books of Fountain View, Inc. with full power of substitution in the premises. The undersigned represents and warrants that this transfer is permitted by the restrictions contained in the Warrant, and acknowledges that Fountain View, Inc. is entitled to require compliance with those restrictions as a condition to recognition of this transfer. This Warrant is and remains subject to the restrictions set forth in the Stockholders Agreement referenced in the Warrant. Dated: __________, ____ _____________________________ (Signature must conform in all respects to name of holder specified on the face of the Warrant) THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE "SECURITIES LAWS"), AND MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS (1) REGISTERED UNDER THE SECURITIES LAWS OR (2) EXEMPT FROM REGISTRATION UNDER THE SECURITIES LAWS AND THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER OBLIGATIONS CONTAINED IN A STOCKHOLDERS AGREEMENT DATED AS OF MARCH 27, 1998 AMONG THE COMPANY AND CERTAIN OF ITS STOCKHOLDERS, A COPY OF WHICH IS ON FILE WITH THE COMPANY AND WILL BE FURNISHED WITHOUT COST TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE SECRETARY. No. C-4 Warrant to Purchase 10,371 Shares of Series C Common Stock FOUNTAIN VIEW, INC. Warrant ------- Void after April 16, 2008 Fountain View, Inc., a Delaware corporation (the "Company"), hereby ------- certifies that, for value received, Baylor Health Care System or its permitted assigns (the "Holder"), is entitled, subject to the terms set forth below, to ------ purchase from the Company at any time on or after April 16, 1998, but in any event not later than 5:00 p.m., Eastern time, on April 16, 2008 (the "Expiration ---------- Date"), up to 10,371 fully paid and nonassessable shares of the Company's Series - ---- C Common Stock at the purchase price (the "Warrant Price") of $.01 per share and ------------- otherwise in accordance with the terms hereof. Section 1. Certain Definitions. As used herein, the following terms have --------- ------------------- the meanings set forth below: "Stockholders Agreement" means the Stockholders Agreement dated as of March ---------------------- 27, 1998 among the Company, Heritage Fund II, L.P., Heritage Investors II, L.L.C., Heritage Fund II Investment Corporation, Robert Snukal, Sheila Snukal, William Scott and certain other parties, as amended from time to time. Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Stockholders Agreement. Section 2. Exercise. This Warrant shall be exercisable in full or in part --------- -------- at any time prior to the Expiration Date. Except as otherwise provided in Sections 7 and 8, this Warrant shall be exercisable by delivery by the Holder to the Company of notice of exercise setting forth the number of shares for which the Warrant is being exercised and payment in cash or by check of the Warrant Price for each share for which this Warrant is being exercised. Section 3. Delivery of Stock Certificates, etc. on Exercise. As soon as --------- ------------------------------------------------ practicable after the exercise of this Warrant, and in any event within three business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, (i) a certificate or certificates for the number of fully paid and nonassessable shares of Series C Common Stock to which the Holder shall be entitled on such exercise, and (ii) a new Warrant to purchase all of the shares, if any, to which the Holder shall be entitled to receive in connection with the portion of the Warrant not so exercised. Section 4. Adjustment for Stock Splits, Stock Dividends, --------- --------------------------------------------- Recapitalizations, etc. The Warrant Price and the number of shares of Series C - ---------------------- Common Stock issuable upon exercise of this Warrant shall be appropriately adjusted to reflect any stock dividend, stock split, combination of shares, reclassification, recapitalization or other similar event affecting the number of outstanding shares of Series C Common Stock. In case of any adjustment or readjustment in the Warrant Price or number of shares of Series C Common Stock issuable on the exercise of this Warrant, the Company will promptly give written notice thereof to the Holder in the form of a certificate, certified and confirmed by the president or treasurer of the Company, setting forth such adjustment and showing in reasonable detail the facts upon which such adjustment or readjustment is based. Section 5. Adjustment for Conversions, Reclassifications, Mergers, etc. --------- ----------------------------------------------------------- In case of any capital reorganization or any reclassification of the capital stock of the Company or in case of the consolidation or merger of the Company with or into another corporation or the conveyance of all or substantially all of the assets of the Company to another corporation, this Warrant shall thereafter be exercisable for the number of shares of stock or other securities or property to which a holder of the number of shares of Series C Common Stock of the Company deliverable upon exercise of the Warrant would have been entitled to upon such conversion, reorganization, reclassification, consolidation, merger or conveyance. Section 6. Reservation of Shares. The Company (a) will at all times --------- --------------------- reserve and keep available a number of its authorized shares of Series C Common Stock free from all preemptive or similar rights therein, which will be sufficient to permit the exercise of this Warrant, and (b) will take such action as may be necessary or appropriate so that all shares of Series C Common Stock issued pursuant to the exercise of this Warrant will, upon issuance, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, except for certain restrictions on transfer set forth in the Stockholders Agreement and under applicable securities laws. Section 7. Net Issue Exercise. In lieu of exercising this Warrant in --------- ------------------ accordance with Section 2, the Holder may elect to receive shares equal to the value of this Warrant (to the extent exercised) by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to the Holder a number of shares of the Company's Series C Common Stock equal to the quotient obtained by dividing (a) the value of the aggregate number of shares of Series C Common Stock for which this Warrant is then exercised (determined by subtracting the aggregate Warrant Price for such shares immediately prior to surrender from the aggregate Fair Market Value (as hereinafter defined) of such shares), by (b) the Fair Market Value of one share of Series C Common Stock immediately prior to surrender. For purposes of this Section, the "Fair Market Value" of the Company's Series C Common Stock shall mean (i) if the Company has consummated a registered public offering of its common stock, the average of the closing sale prices of each share of common stock into which the Company's Series C Common Stock was converted for the ten (10) business days preceding the date upon which Fair Market Value is to be determined, or (ii) if the Company has not consummated a registered public offering of its common stock, the fair market value of each share of Series C Common Stock, as determined in good faith by the Company's Board of Directors. In the event of the surrender of this Warrant, as described above, certificates for the shares of stock issuable thereon shall be delivered to the Holder as soon as possible and in any event within three days of receipt of notice of surrender. If the Warrant is not exercised in full pursuant to such surrender, a replacement warrant for the portion of the Warrant not so exercised shall be issued in accordance with Section 3. Section 8. Surrender of Preferred Stock. Upon the exercise of this --------- ---------------------------- Warrant by any holder of shares of the Company's Series A Preferred Stock (the "Preferred Stock"), such holder may, at its option, surrender a portion of such Preferred Stock to the Company, together with written instructions from such holder to apply all or a specified portion of the Liquidation Value (as defined in the Company's Certificate of Incorporation) of the Preferred Stock against the payment of some or all of the Warrant Price required upon such exercise, in which case the Company will accept such specified portion of the Preferred Stock in lieu of a like amount of cash payment. In the event of the surrender of Preferred Stock, as described above, certificates for the number of shares of Series C Common Stock issuable hereunder shall be delivered to the holder hereof as soon as possible and in any event within three days of notice of surrender of the Preferred Stock, together with a certificate therefor, duly endorsed for transfer and together with this Warrant, and a certificate for the balance of the Preferred Stock surrendered to the Company with such notice shall also be issued to the holder hereof as soon as possible and in any event within such two-day period. Section 9. Exchange of Warrants. On surrender for exchange of this --------- -------------------- Warrant, properly endorsed, to the Company, and subject to the restrictions on transfer set forth in the Stockholders Agreement, the Company at its expense will issue and deliver to or on the order of the holder thereof a new Warrant of like tenor, in the name of such holder or as such holder may direct, calling in the aggregate on the face thereof for the number of shares of Series C Common Stock called for on the face of the Warrant so surrendered. Section 10. Replacement of Warrants. On receipt of evidence reasonably ---------- ----------------------- satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. Section 11. Notices. Any notice or other communication given pursuant to ---------- ------- this Warrant shall be in writing and shall be personally delivered, sent by nationally recognized overnight courier or express mail, or mailed by first class certified or registered mail, postage prepaid, return receipt requested, to the Company, at its address as it appears in the Stockholders Agreement and (b) to the Holder, at such Holder's address as it appears in the Stockholders Agreement (or, if not specified therein, at such Holder's address as it appears in the records of the Company), unless otherwise indicated by the Company or such Holder, as the case may be, in each case with any copies required by the Stockholders Agreement. Section 12. Fractional Shares. The number of shares of Series C Common ---------- ----------------- Stock to be issued upon exercise of this Warrant shall be rounded to the nearest whole share, with any fractional shares disregarded. Section 13. Legend. A legend setting forth or referring to the ---------- ------ restrictions described on page 1 of this Warrant shall be placed on any replacement hereof and any certificate representing securities issued pursuant to the exercise of this Warrant. Section 14. No Rights as Shareholder. This Warrant shall not entitle the ---------- ------------------------ holder to any voting rights or any other rights as a shareholder of the Company, except the rights stated herein. Section 15. Investment Intent. By accepting this Warrant, the holder ---------- ----------------- represents that it is acquiring this Warrant for investment and not with a view to or for sale in connection with any distribution thereof. The Holder represents that it is an accredited investor as defined in Regulation D under the Securities Act. Section 16. Miscellaneous. This Warrant and any term hereof may be ---------- ------------- amended, modified or waived only by an instrument in writing signed by the Company and the Holder. This Warrant shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware and the internal laws of the Commonwealth of Massachusetts (without regard for its conflicts of laws principles). IN WITNESS WHEREOF, this Warrant has been executed and delivered as a sealed instrument as of the date first above written. FOUNTAIN VIEW, INC. By:/s/ Robert Snukal ----------------- Robert Snukal, President FORM OF EXERCISE NOTICE (To be signed only on exercise of Warrant) TO: FOUNTAIN VIEW, INC. The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, ___________* shares of Series C Common Stock of Fountain View, Inc., and herewith makes payment of $______ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to _______________, whose address is _________________________________. Dated: __________, ____ _____________________________ (Signature must conform in all respects to name of holder specified on the face of the Warrant) * Insert here the number of shares as to which the Warrant is being exercised. FORM OF ASSIGNMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto __________________ the right represented by the within Warrant to purchase ______ shares of Series C Common Stock of Fountain View, Inc. to which the within Warrant relates, and appoints _________________ its attorney to transfer such right on the books of Fountain View, Inc. with full power of substitution in the premises. The undersigned represents and warrants that this transfer is permitted by the restrictions contained in the Warrant, and acknowledges that Fountain View, Inc. is entitled to require compliance with those restrictions as a condition to recognition of this transfer. This Warrant is and remains subject to the restrictions set forth in the Stockholders Agreement referenced in the Warrant. Dated: __________, ____ _____________________________ (Signature must conform in all respects to name of holder specified on the face of the Warrant) THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE "SECURITIES LAWS"), AND MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS (1) REGISTERED UNDER THE SECURITIES LAWS OR (2) EXEMPT FROM REGISTRATION UNDER THE SECURITIES LAWS AND THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER OBLIGATIONS CONTAINED IN A STOCKHOLDERS AGREEMENT DATED AS OF MARCH 27, 1998 AMONG THE COMPANY AND CERTAIN OF ITS STOCKHOLDERS, A COPY OF WHICH IS ON FILE WITH THE COMPANY AND WILL BE FURNISHED WITHOUT COST TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE SECRETARY. No. C-5 Warrant to Purchase 4,267 Shares of Series C Common Stock FOUNTAIN VIEW, INC. Warrant ------- Void after April 16, 2008 Fountain View, Inc., a Delaware corporation (the "Company"), hereby ------- certifies that, for value received, Buckner Foundation or its permitted assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase ------ from the Company at any time on or after April 16, 1998, but in any event not later than 5:00 p.m., Eastern time, on April 16, 2008 (the "Expiration Date"), --------------- up to 4,267 fully paid and nonassessable shares of the Company's Series C Common Stock at the purchase price (the "Warrant Price") of $.01 per share and ------------- otherwise in accordance with the terms hereof. Section 1. Certain Definitions. As used herein, the following terms have --------- ------------------- the meanings set forth below: "Stockholders Agreement" means the Stockholders Agreement dated as of March ---------------------- 27, 1998 among the Company, Heritage Fund II, L.P., Heritage Investors II, L.L.C., Heritage Fund II Investment Corporation, Robert Snukal, Sheila Snukal, William Scott and certain other parties, as amended from time to time. Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Stockholders Agreement. Section 2. Exercise. This Warrant shall be exercisable in full or in part --------- -------- at any time prior to the Expiration Date. Except as otherwise provided in Sections 7 and 8, this Warrant shall be exercisable by delivery by the Holder to the Company of notice of exercise setting forth the number of shares for which the Warrant is being exercised and payment in cash or by check of the Warrant Price for each share for which this Warrant is being exercised. Section 3. Delivery of Stock Certificates, etc. on Exercise. As soon as --------- ------------------------------------------------ practicable after the exercise of this Warrant, and in any event within three business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, (i) a certificate or certificates for the number of fully paid and nonassessable shares of Series C Common Stock to which the Holder shall be entitled on such exercise, and (ii) a new Warrant to purchase all of the shares, if any, to which the Holder shall be entitled to receive in connection with the portion of the Warrant not so exercised. Section 4. Adjustment for Stock Splits, Stock Dividends, --------- --------------------------------------------- Recapitalizations, etc. The Warrant Price and the number of shares of Series C - ---------------------- Common Stock issuable upon exercise of this Warrant shall be appropriately adjusted to reflect any stock dividend, stock split, combination of shares, reclassification, recapitalization or other similar event affecting the number of outstanding shares of Series C Common Stock. In case of any adjustment or readjustment in the Warrant Price or number of shares of Series C Common Stock issuable on the exercise of this Warrant, the Company will promptly give written notice thereof to the Holder in the form of a certificate, certified and confirmed by the president or treasurer of the Company, setting forth such adjustment and showing in reasonable detail the facts upon which such adjustment or readjustment is based. Section 5. Adjustment for Conversions, Reclassifications, Mergers, etc. --------- ----------------------------------------------------------- In case of any capital reorganization or any reclassification of the capital stock of the Company or in case of the consolidation or merger of the Company with or into another corporation or the conveyance of all or substantially all of the assets of the Company to another corporation, this Warrant shall thereafter be exercisable for the number of shares of stock or other securities or property to which a holder of the number of shares of Series C Common Stock of the Company deliverable upon exercise of the Warrant would have been entitled to upon such conversion, reorganization, reclassification, consolidation, merger or conveyance. Section 6. Reservation of Shares. The Company (a) will at all times --------- --------------------- reserve and keep available a number of its authorized shares of Series C Common Stock free from all preemptive or similar rights therein, which will be sufficient to permit the exercise of this Warrant, and (b) will take such action as may be necessary or appropriate so that all shares of Series C Common Stock issued pursuant to the exercise of this Warrant will, upon issuance, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, except for certain restrictions on transfer set forth in the Stockholders Agreement and under applicable securities laws. Section 7. Net Issue Exercise. In lieu of exercising this Warrant in --------- ------------------ accordance with Section 2, the Holder may elect to receive shares equal to the value of this Warrant (to the extent exercised) by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to the Holder a number of shares of the Company's Series C Common Stock equal to the quotient obtained by dividing (a) the value of the aggregate number of shares of Series C Common Stock for which this Warrant is then exercised (determined by subtracting the aggregate Warrant Price for such shares immediately prior to surrender from the aggregate Fair Market Value (as hereinafter defined) of such shares), by (b) the Fair Market Value of one share of Series C Common Stock immediately prior to surrender. For purposes of this Section, the "Fair Market Value" of the Company's Series C Common Stock shall mean (i) if the Company has consummated a registered public offering of its common stock, the average of the closing sale prices of each share of common stock into which the Company's Series C Common Stock was converted for the ten (10) business days preceding the date upon which Fair Market Value is to be determined, or (ii) if the Company has not consummated a registered public offering of its common stock, the fair market value of each share of Series C Common Stock, as determined in good faith by the Company's Board of Directors. In the event of the surrender of this Warrant, as described above, certificates for the shares of stock issuable thereon shall be delivered to the Holder as soon as possible and in any event within three days of receipt of notice of surrender. If the Warrant is not exercised in full pursuant to such surrender, a replacement warrant for the portion of the Warrant not so exercised shall be issued in accordance with Section 3. Section 8. Surrender of Preferred Stock. Upon the exercise of this --------- ---------------------------- Warrant by any holder of shares of the Company's Series A Preferred Stock (the "Preferred Stock"), such holder may, at its option, surrender a portion of such Preferred Stock to the Company, together with written instructions from such holder to apply all or a specified portion of the Liquidation Value (as defined in the Company's Certificate of Incorporation) of the Preferred Stock against the payment of some or all of the Warrant Price required upon such exercise, in which case the Company will accept such specified portion of the Preferred Stock in lieu of a like amount of cash payment. In the event of the surrender of Preferred Stock, as described above, certificates for the number of shares of Series C Common Stock issuable hereunder shall be delivered to the holder hereof as soon as possible and in any event within three days of notice of surrender of the Preferred Stock, together with a certificate therefor, duly endorsed for transfer and together with this Warrant, and a certificate for the balance of the Preferred Stock surrendered to the Company with such notice shall also be issued to the holder hereof as soon as possible and in any event within such two-day period. Section 9. Exchange of Warrants. On surrender for exchange of this --------- -------------------- Warrant, properly endorsed, to the Company, and subject to the restrictions on transfer set forth in the Stockholders Agreement, the Company at its expense will issue and deliver to or on the order of the holder thereof a new Warrant of like tenor, in the name of such holder or as such holder may direct, calling in the aggregate on the face thereof for the number of shares of Series C Common Stock called for on the face of the Warrant so surrendered. Section 10. Replacement of Warrants. On receipt of evidence reasonably ---------- ----------------------- satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. Section 11. Notices. Any notice or other communication given pursuant to ---------- ------- this Warrant shall be in writing and shall be personally delivered, sent by nationally recognized overnight courier or express mail, or mailed by first class certified or registered mail, postage prepaid, return receipt requested, to the Company, at its address as it appears in the Stockholders Agreement and (b) to the Holder, at such Holder's address as it appears in the Stockholders Agreement (or, if not specified therein, at such Holder's address as it appears in the records of the Company), unless otherwise indicated by the Company or such Holder, as the case may be, in each case with any copies required by the Stockholders Agreement. Section 12. Fractional Shares. The number of shares of Series C Common ---------- ----------------- Stock to be issued upon exercise of this Warrant shall be rounded to the nearest whole share, with any fractional shares disregarded. Section 13. Legend. A legend setting forth or referring to the ---------- ------ restrictions described on page 1 of this Warrant shall be placed on any replacement hereof and any certificate representing securities issued pursuant to the exercise of this Warrant. Section 14. No Rights as Shareholder. This Warrant shall not entitle the ---------- ------------------------ holder to any voting rights or any other rights as a shareholder of the Company, except the rights stated herein. Section 15. Investment Intent. By accepting this Warrant, the holder ---------- ----------------- represents that it is acquiring this Warrant for investment and not with a view to or for sale in connection with any distribution thereof. The Holder represents that it is an accredited investor as defined in Regulation D under the Securities Act. Section 16. Miscellaneous. This Warrant and any term hereof may be ---------- ------------- amended, modified or waived only by an instrument in writing signed by the Company and the Holder. This Warrant shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware and the internal laws of the Commonwealth of Massachusetts (without regard for its conflicts of laws principles). IN WITNESS WHEREOF, this Warrant has been executed and delivered as a sealed instrument as of the date first above written. FOUNTAIN VIEW, INC. By:/s/ Robert Snukal ----------------- Robert Snukal, President FORM OF EXERCISE NOTICE (To be signed only on exercise of Warrant) TO: FOUNTAIN VIEW, INC. The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, ___________* shares of Series C Common Stock of Fountain View, Inc., and herewith makes payment of $______ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to _______________, whose address is _________________________________. Dated: __________, ____ _____________________________ (Signature must conform in all respects to name of holder specified on the face of the Warrant) * Insert here the number of shares as to which the Warrant is being exercised. FORM OF ASSIGNMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto __________________ the right represented by the within Warrant to purchase ______ shares of Series C Common Stock of Fountain View, Inc. to which the within Warrant relates, and appoints _________________ its attorney to transfer such right on the books of Fountain View, Inc. with full power of substitution in the premises. The undersigned represents and warrants that this transfer is permitted by the restrictions contained in the Warrant, and acknowledges that Fountain View, Inc. is entitled to require compliance with those restrictions as a condition to recognition of this transfer. This Warrant is and remains subject to the restrictions set forth in the Stockholders Agreement referenced in the Warrant. Dated: __________, ____ _____________________________ (Signature must conform in all respects to name of holder specified on the face of the Warrant) THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE "SECURITIES LAWS"), AND MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS (1) REGISTERED UNDER THE SECURITIES LAWS OR (2) EXEMPT FROM REGISTRATION UNDER THE SECURITIES LAWS AND THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER OBLIGATIONS CONTAINED IN A STOCKHOLDERS AGREEMENT DATED AS OF MARCH 27, 1998 AMONG THE COMPANY AND CERTAIN OF ITS STOCKHOLDERS, A COPY OF WHICH IS ON FILE WITH THE COMPANY AND WILL BE FURNISHED WITHOUT COST TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE SECRETARY. No. C-6 Warrant to Purchase 11,853 Shares of Series C Common Stock FOUNTAIN VIEW, INC. Warrant ------- Void after April 16, 2008 Fountain View, Inc., a Delaware corporation (the "Company"), hereby ------- certifies that, for value received, Heritage Fund II Investment Corporation or its permitted assigns (the "Holder"), is entitled, subject to the terms set ------ forth below, to purchase from the Company at any time on or after April 16, 1998, but in any event not later than 5:00 p.m., Eastern time, on April 16, 2008 (the "Expiration Date"), up to 11,853 fully paid and nonassessable shares of the --------------- Company's Series C Common Stock at the purchase price (the "Warrant Price") of ------------- $.01 per share and otherwise in accordance with the terms hereof. Section 1. Certain Definitions. As used herein, the following terms have --------- ------------------- the meanings set forth below: "Stockholders Agreement" means the Stockholders Agreement dated as of March ---------------------- 27, 1998 among the Company, Heritage Fund II, L.P., Heritage Investors II, L.L.C., Heritage Fund II Investment Corporation, Robert Snukal, Sheila Snukal, William Scott and certain other parties, as amended from time to time. Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Stockholders Agreement. Section 2. Exercise. This Warrant shall be exercisable in full or in part --------- -------- at any time prior to the Expiration Date. Except as otherwise provided in Sections 7 and 8, this Warrant shall be exercisable by delivery by the Holder to the Company of notice of exercise setting forth the number of shares for which the Warrant is being exercised and payment in cash or by check of the Warrant Price for each share for which this Warrant is being exercised. Section 3. Delivery of Stock Certificates, etc. on Exercise. As soon as --------- ------------------------------------------------ practicable after the exercise of this Warrant, and in any event within three business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, (i) a certificate or certificates for the number of fully paid and nonassessable shares of Series C Common Stock to which the Holder shall be entitled on such exercise, and (ii) a new Warrant to purchase all of the shares, if any, to which the Holder shall be entitled to receive in connection with the portion of the Warrant not so exercised. Section 4. Adjustment for Stock Splits, Stock Dividends, --------- --------------------------------------------- Recapitalizations, etc. The Warrant Price and the number of shares of Series C - ---------------------- Common Stock issuable upon exercise of this Warrant shall be appropriately adjusted to reflect any stock dividend, stock split, combination of shares, reclassification, recapitalization or other similar event affecting the number of outstanding shares of Series C Common Stock. In case of any adjustment or readjustment in the Warrant Price or number of shares of Series C Common Stock issuable on the exercise of this Warrant, the Company will promptly give written notice thereof to the Holder in the form of a certificate, certified and confirmed by the president or treasurer of the Company, setting forth such adjustment and showing in reasonable detail the facts upon which such adjustment or readjustment is based. Section 5. Adjustment for Conversions, Reclassifications, Mergers, etc. --------- ----------------------------------------------------------- In case of any capital reorganization or any reclassification of the capital stock of the Company or in case of the consolidation or merger of the Company with or into another corporation or the conveyance of all or substantially all of the assets of the Company to another corporation, this Warrant shall thereafter be exercisable for the number of shares of stock or other securities or property to which a holder of the number of shares of Series C Common Stock of the Company deliverable upon exercise of the Warrant would have been entitled to upon such conversion, reorganization, reclassification, consolidation, merger or conveyance. Section 6. Reservation of Shares. The Company (a) will at all times --------- --------------------- reserve and keep available a number of its authorized shares of Series C Common Stock free from all preemptive or similar rights therein, which will be sufficient to permit the exercise of this Warrant, and (b) will take such action as may be necessary or appropriate so that all shares of Series C Common Stock issued pursuant to the exercise of this Warrant will, upon issuance, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, except for certain restrictions on transfer set forth in the Stockholders Agreement and under applicable securities laws. Section 7. Net Issue Exercise. In lieu of exercising this Warrant in --------- ------------------ accordance with Section 2, the Holder may elect to receive shares equal to the value of this Warrant (to the extent exercised) by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to the Holder a number of shares of the Company's Series C Common Stock equal to the quotient obtained by dividing (a) the value of the aggregate number of shares of Series C Common Stock for which this Warrant is then exercised (determined by subtracting the aggregate Warrant Price for such shares immediately prior to surrender from the aggregate Fair Market Value (as hereinafter defined) of such shares), by (b) the Fair Market Value of one share of Series C Common Stock immediately prior to surrender. For purposes of this Section, the "Fair Market Value" of the Company's Series C Common Stock shall mean (i) if the Company has consummated a registered public offering of its common stock, the average of the closing sale prices of each share of common stock into which the Company's Series C Common Stock was converted for the ten (10) business days preceding the date upon which Fair Market Value is to be determined, or (ii) if the Company has not consummated a registered public offering of its common stock, the fair market value of each share of Series C Common Stock, as determined in good faith by the Company's Board of Directors. In the event of the surrender of this Warrant, as described above, certificates for the shares of stock issuable thereon shall be delivered to the Holder as soon as possible and in any event within three days of receipt of notice of surrender. If the Warrant is not exercised in full pursuant to such surrender, a replacement warrant for the portion of the Warrant not so exercised shall be issued in accordance with Section 3. Section 8. Surrender of Preferred Stock. Upon the exercise of this --------- ---------------------------- Warrant by any holder of shares of the Company's Series A Preferred Stock (the "Preferred Stock"), such holder may, at its option, surrender a portion of such Preferred Stock to the Company, together with written instructions from such holder to apply all or a specified portion of the Liquidation Value (as defined in the Company's Certificate of Incorporation) of the Preferred Stock against the payment of some or all of the Warrant Price required upon such exercise, in which case the Company will accept such specified portion of the Preferred Stock in lieu of a like amount of cash payment. In the event of the surrender of Preferred Stock, as described above, certificates for the number of shares of Series C Common Stock issuable hereunder shall be delivered to the holder hereof as soon as possible and in any event within three days of notice of surrender of the Preferred Stock, together with a certificate therefor, duly endorsed for transfer and together with this Warrant, and a certificate for the balance of the Preferred Stock surrendered to the Company with such notice shall also be issued to the holder hereof as soon as possible and in any event within such two-day period. Section 9. Exchange of Warrants. On surrender for exchange of this --------- -------------------- Warrant, properly endorsed, to the Company, and subject to the restrictions on transfer set forth in the Stockholders Agreement, the Company at its expense will issue and deliver to or on the order of the holder thereof a new Warrant of like tenor, in the name of such holder or as such holder may direct, calling in the aggregate on the face thereof for the number of shares of Series C Common Stock called for on the face of the Warrant so surrendered. Section 10. Replacement of Warrants. On receipt of evidence reasonably ---------- ----------------------- satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. Section 11. Notices. Any notice or other communication given pursuant to ---------- ------- this Warrant shall be in writing and shall be personally delivered, sent by nationally recognized overnight courier or express mail, or mailed by first class certified or registered mail, postage prepaid, return receipt requested, to the Company, at its address as it appears in the Stockholders Agreement and (b) to the Holder, at such Holder's address as it appears in the Stockholders Agreement (or, if not specified therein, at such Holder's address as it appears in the records of the Company), unless otherwise indicated by the Company or such Holder, as the case may be, in each case with any copies required by the Stockholders Agreement. Section 12. Fractional Shares. The number of shares of Series C Common ---------- ----------------- Stock to be issued upon exercise of this Warrant shall be rounded to the nearest whole share, with any fractional shares disregarded. Section 13. Legend. A legend setting forth or referring to the ---------- ------ restrictions described on page 1 of this Warrant shall be placed on any replacement hereof and any certificate representing securities issued pursuant to the exercise of this Warrant. Section 14. No Rights as Shareholder. This Warrant shall not entitle the ---------- ------------------------ holder to any voting rights or any other rights as a shareholder of the Company, except the rights stated herein. Section 15. Investment Intent. By accepting this Warrant, the holder ---------- ----------------- represents that it is acquiring this Warrant for investment and not with a view to or for sale in connection with any distribution thereof. The Holder represents that it is an accredited investor as defined in Regulation D under the Securities Act. Section 16. Miscellaneous. This Warrant and any term hereof may be ---------- ------------- amended, modified or waived only by an instrument in writing signed by the Company and the Holder. This Warrant shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware and the internal laws of the Commonwealth of Massachusetts (without regard for its conflicts of laws principles). IN WITNESS WHEREOF, this Warrant has been executed and delivered as a sealed instrument as of the date first above written. FOUNTAIN VIEW, INC. By:/s/ Robert Snukal ----------------- Robert Snukal, President FORM OF EXERCISE NOTICE (To be signed only on exercise of Warrant) TO: FOUNTAIN VIEW, INC. The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, ___________* shares of Series C Common Stock of Fountain View, Inc., and herewith makes payment of $______ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to _______________, whose address is _________________________________. Dated: __________, ____ _____________________________ (Signature must conform in all respects to name of holder specified on the face of the Warrant) * Insert here the number of shares as to which the Warrant is being exercised. FORM OF ASSIGNMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto __________________ the right represented by the within Warrant to purchase ______ shares of Series C Common Stock of Fountain View, Inc. to which the within Warrant relates, and appoints _________________ its attorney to transfer such right on the books of Fountain View, Inc. with full power of substitution in the premises. The undersigned represents and warrants that this transfer is permitted by the restrictions contained in the Warrant, and acknowledges that Fountain View, Inc. is entitled to require compliance with those restrictions as a condition to recognition of this transfer. This Warrant is and remains subject to the restrictions set forth in the Stockholders Agreement referenced in the Warrant. Dated: __________, ____ _____________________________ (Signature must conform in all respects to name of holder specified on the face of the Warrant) EX-10.47 63 CREDIT AGREEMENT DATED 4/16/98 EXHIBIT 10.47 ================================================================================ CREDIT AGREEMENT DATED AS OF APRIL 16, 1998, AMONG FOUNTAIN VIEW, INC. THE BANKS PARTY HERETO, AND BANK OF MONTREAL, as Agent ================================================================================ TABLE OF CONTENTS
SECTION DESCRIPTION PAGE SECTION 1. THE CREDIT FACILITIES............................................................. 1 Section 1.1. Revolving Credit Commitments................................................. 1 Section 1.2. Letters of Credit............................................................ 1 Section 1.3. Term Loan Commitments........................................................ 4 Section 1.4. Applicable Interest Rates.................................................... 4 Section 1.5. Minimum Borrowing Amounts.................................................... 6 Section 1.6. Manner of Borrowing Loans and Designating Applicable Interest Rates.......... 6 Section 1.7. Interest Periods............................................................. 8 Section 1.8. Maturity of Loans............................................................ 9 Section 1.9. Prepayments.................................................................. 9 Section 1.10. Default Rate................................................................. 12 Section 1.11. The Notes.................................................................... 12 Section 1.12. Funding Indemnity............................................................ 13 Section 1.13. Commitment Terminations...................................................... 14 SECTION 2. FEES AND SUBSTITUTION OF BANKS.................................................... 14 Section 2.1. Fees......................................................................... 14 Section 2.2. Substitution of Banks........................................................ 15 SECTION 3. PLACE AND APPLICATION OF PAYMENTS................................................. 16 SECTION 4. COLLATERAL AND GUARANTIES......................................................... 17 Section 4.1. Collateral................................................................... 17 Section 4.2. Guaranties................................................................... 18 Section 4.3. Further Assurances........................................................... 18 Section 4.4. Liens on Real Property....................................................... 18 SECTION 5. DEFINITIONS; INTERPRETATION....................................................... 19 Section 5.1. Definitions.................................................................. 19 Section 5.2. Interpretation............................................................... 32 Section 5.3. Change in Accounting Principles.............................................. 32 SECTION 6. REPRESENTATIONS AND WARRANTIES.................................................... 32 Section 6.1. Organization and Qualification............................................... 32 Section 6.2. Subsidiaries................................................................. 33 Section 6.3. Authority and Validity of Obligations........................................ 33 Section 6.4. Use of Proceeds; Margin Stock................................................ 34 Section 6.5. Financial Reports............................................................ 34
-i- Section 6.6. No Material Adverse Change................................................... 34 Section 6.7. Full Disclosure.............................................................. 35 Section 6.8. Trademarks, Franchises, and Licenses......................................... 35 Section 6.9. Governmental Authority and Licensing......................................... 35 Section 6.10. Good Title................................................................... 35 Section 6.11. Litigation and Other Controversies........................................... 35 Section 6.12. Taxes........................................................................ 35 Section 6.13. Approvals.................................................................... 36 Section 6.14. Affiliate Transactions....................................................... 36 Section 6.15. Investment Company; Public Utility Holding Company........................... 36 Section 6.16. ERISA........................................................................ 36 Section 6.17. Compliance with Laws......................................................... 36 Section 6.18. Other Agreements............................................................. 37 Section 6.19. Solvency..................................................................... 37 Section 6.20. Summit Acquisition........................................................... 37 Section 6.21. Year 2000 Compliance......................................................... 38 Section 6.22. No Default................................................................... 38 SECTION 7. CONDITIONS PRECEDENT.............................................................. 38 Section 7.1. Initial Credit Event......................................................... 38 Section 7.2. All Credit Events............................................................ 40 SECTION 8. COVENANTS......................................................................... 41 Section 8.1. Maintenance of Business...................................................... 41 Section 8.2. Maintenance of Properties.................................................... 41 Section 8.3. Taxes and Assessments........................................................ 41 Section 8.4. Insurance.................................................................... 41 Section 8.5. Financial Reports............................................................ 42 Section 8.6. Inspection................................................................... 43 Section 8.7 Indebtedness for Borrowed Money.............................................. 43 Section 8.8. Liens........................................................................ 44 Section 8.9. Investments, Acquisitions, Loans, Advances and Guaranties.................... 45 Section 8.10. Mergers, Consolidations and Sales............................................ 47 Section 8.11. Maintenance of Subsidiaries.................................................. 48 Section 8.12. Dividends and Certain Other Restricted Payments.............................. 48 Section 8.13. ERISA........................................................................ 48 Section 8.14. Compliance with Laws......................................................... 49 Section 8.15. Burdensome Contracts With Affiliates......................................... 49 Section 8.16. No Changes in Fiscal Year.................................................... 49 Section 8.17. Formation of Subsidiaries.................................................... 49 Section 8.18. Change in the Nature of Business............................................. 49 Section 8.19. Use of Loan Proceeds......................................................... 49 Section 8.20. No Restrictions on Subsidiary Distributions.................................. 49 Section 8.21. Alexandria................................................................... 49 Section 8.22. Subordinated Debt............................................................ 50
-ii- Section 8.23. Leverage Ratio............................................................... 50 Section 8.24. Senior Leverage Ratio........................................................ 50 Section 8.25. Net Worth.................................................................... 51 Section 8.26. Fixed Charge Coverage Ratio.................................................. 51 Section 8.27. Capital Expenditures......................................................... 51 SECTION 9. EVENTS OF DEFAULT AND REMEDIES.................................................... 51 Section 9.1. Events of Default............................................................ 51 Section 9.2. Non-Bankruptcy Defaults...................................................... 53 Section 9.3. Bankruptcy Defaults.......................................................... 54 Section 9.4. Collateral for Undrawn Letters of Credit..................................... 54 Section 9.5. Notice of Default............................................................ 55 Section 9.6. Expenses..................................................................... 55 SECTION 10. CHANGE IN CIRCUMSTANCES........................................................... 55 Section 10.1. Change of Law................................................................ 55 Section 10.2. Unavailability of Deposits or Inability to Ascertain, or Inadequacy of, LIBOR 55 Section 10.3. Increased Cost and Reduced Return............................................ 56 Section 10.4. Lending Offices.............................................................. 57 Section 10.5. Discretion of Bank as to Manner of Funding................................... 57 SECTION 11. THE AGENT AND ISSUING BANK........................................................ 57 Section 11.1. Appointment and Authorization of Agent....................................... 57 Section 11.2. Agent and its Affiliates..................................................... 57 Section 11.3. Action by Agent.............................................................. 58 Section 11.4. Consultation with Experts.................................................... 58 Section 11.5. Liability of Agent; Credit Decision.......................................... 58 Section 11.6. Indemnity.................................................................... 59 Section 11.7. Resignation of Agent and Successor Agent..................................... 59 Section 11.8. Interest Rate Hedging Arrangements........................................... 60 Section 11.9. Issuing Bank................................................................. 60 SECTION 12. MISCELLANEOUS..................................................................... 60 Section 12.1. Withholding Taxes............................................................ 60 Section 12.2. No Waiver, Cumulative Remedies............................................... 61 Section 12.3. Non-Business Days............................................................ 61 Section 12.4. Documentary Taxes............................................................ 61 Section 12.5. Survival of Representations.................................................. 61 Section 12.6. Survival of Indemnities...................................................... 62 Section 12.7. Sharing of Set-Off........................................................... 62 Section 12.8. Notices...................................................................... 62 Section 12.9. Counterparts................................................................. 63 Section 12.10. Successors and Assigns....................................................... 63
-iii- Section 12.11. Participants................................................................. 63 Section 12.12. Assignment of Commitments by Banks........................................... 64 Section 12.13. Amendments................................................................... 64 Section 12.14. Headings..................................................................... 65 Section 12.15. Costs and Expenses........................................................... 65 Section 12.16. Environmental Indemnification and Waiver..................................... 65 Section 12.17. Set-off...................................................................... 66 Section 12.18. Entire Agreement............................................................. 66 Section 12.19. Governing Law................................................................ 66 Section 12.20. Severability of Provisions................................................... 66 Section 12.21. Excess Interest.............................................................. 66 Section 12.22. Confidentiality.............................................................. 67 Section 12.23. Single Bank.................................................................. 67 Section 12.24. Submission to Jurisdiction; Waiver of Jury Trial............................. 67 Signature Page................................................................................... 68
Exhibit A - Notice of Payment Request Exhibit B - Notice of Borrowing Exhibit C - Notice of Continuation/Conversion Exhibit D - Revolving Note Exhibit E - Term Note Exhibit F - Compliance Certificate Exhibit G - Assignment and Acceptance Schedule 6.2 - Subsidiaries Schedule 6.9 - Governmental Authority and Licensing Schedule 6.13 - Approvals Schedule 8.4 - Insurance Matters Schedule 8.7 - Permitted Existing Indebtedness Schedule 8.8 - Existing Liens Schedule 8.9. - Existing Note Receivables -iv- CREDIT AGREEMENT To each of the Banks signatory hereto Ladies and Gentlemen: The undersigned, Fountain View, Inc., a Delaware corporation (the "Borrower"), applies to you for your several commitments, subject to the terms and conditions hereof and on the basis of the representations and warranties hereinafter set forth, to extend credit to the Borrower, all as more fully hereinafter set forth. Each of you is hereinafter referred to as a "Bank," all of you are hereinafter referred to collectively as the "Banks," and Bank of Montreal in its capacity as agent for the Banks hereunder is hereinafter referred to as the "Agent." Section 1. The Credit Facilities. Section 1.1. Revolving Credit Commitments;. Subject to the terms and conditions hereof, each Bank, by its acceptance hereof, severally agrees to make a loan or loans (individually a "Revolving Loan" and collectively the "Revolving Loans") to the Borrower from time to time on a revolving basis up to the amount of such Bank's revolving credit commitment set forth on the applicable signature page hereof or pursuant to Section 12.12 hereof (its "Revolving Credit Commitment" and, cumulatively for all the Banks, the "Revolving Credit Commitments"), subject to any reductions thereof pursuant to the terms hereof, before the Revolving Credit Termination Date. The sum of the aggregate principal amount of Revolving Loans and of L/C Obligations at any time outstanding shall not exceed the Revolving Credit Commitments in effect at such time. Each Borrowing of Revolving Loans shall be made ratably from the Banks in proportion to their respective Revolver Percentages. As provided in Section 1.6(a) hereof, the Borrower may elect that each Borrowing of Revolving Loans be either Base Rate Loans or Eurodollar Loans. Revolving Loans may be repaid and the principal amount thereof reborrowed before the Revolving Credit Termination Date, subject to the terms and conditions hereof. Section 1.2. Letters of Credit;. (a) General Terms. Subject to the terms and conditions hereof, as part of the Revolving Credit, the Issuing Bank shall issue standby and commercial letters of credit (each a "Letter of Credit") for the Borrower's account in an aggregate undrawn face amount up to the amount of the L/C Commitment, provided that the aggregate L/C Obligations at any time outstanding shall not exceed the difference between the Revolving Credit Commitments in effect at such time and the aggregate principal amount of Revolving Loans then outstanding. Each Letter of Credit shall be issued by the Issuing Bank, but each Bank shall be obligated to reimburse the Issuing Bank for such Bank's Revolver Percentage of the amount of each drawing thereunder and, accordingly, each Letter of Credit shall constitute usage of the Revolving Credit Commitment of each Bank pro rata in accordance with its Revolver Percentage. (b) Applications. At any time before the Revolving Credit Termination Date, the Issuing Bank shall, at the request of the Borrower, issue one or more Letters of Credit, in a form satisfactory to the Issuing Bank, with expiration dates no later than the earlier of 12 months from the date of issuance (or be cancelable not later than 12 months from the date of issuance and each renewal) or Revolving Credit Termination Date, in an aggregate face amount as set forth above, upon the receipt of an application duly executed by the Borrower for the relevant Letter of Credit in the form then customarily prescribed by the Issuing Bank for the Letter of Credit requested (each an "Application"). Notwithstanding anything contained in any Application to the contrary: (i) the Borrower shall pay fees in connection with each Letter of Credit as set forth in Section 2.1 hereof, (ii) except as otherwise provided in Section 1.9 hereof, before the occurrence of a Default or an Event of Default, the Issuing Bank will not call for the funding by the Borrower of any amount under a Letter of Credit before being presented with a drawing thereunder, and (iii) if the Issuing Bank is not timely reimbursed for the amount of any drawing under a Letter of Credit on the date such drawing is paid, the Borrower's obligation to reimburse the Issuing Bank for the amount of such drawing shall bear interest (which the Borrower hereby promises to pay) from and after the date such drawing is paid at a rate per annum equal to the sum of 2% plus the Applicable Margin for Base Rate Loans plus the Base Rate from time to time in effect. If the Issuing Bank issues any Letter of Credit with an expiration date that is automatically extended unless the Issuing Bank gives notice that the expiration date will not so extend beyond its then scheduled expiration date, the Issuing Bank will give such notice of non-renewal before the time necessary to prevent such automatic extension if before such required notice date: (i) the expiration date of such Letter of Credit if so extended would be after the Revolving Credit Termination Date, (ii) the Revolving Credit Commitments have been terminated, or (iii) a Default or an Event of Default exists and the Agent, at the direction of the Required Banks, has given the Issuing Bank instructions not to so permit the extension of the expiration date of such Letter of Credit. The Issuing Bank agrees to issue amendments to the Letter(s) of Credit increasing the amount, or extending the expiration date, thereof at the request of the Borrower subject to the conditions of Section 7.2 hereof and the other terms of this Section 1.2 . (c) The Reimbursement Obligations. Subject to Section 1.2(b) hereof, the obligation of the Borrower to reimburse the Issuing Bank for all drawings under a Letter of Credit (a "Reimbursement Obligation") shall be governed by the Application related to such Letter of Credit, except that reimbursement shall be made by no later than 12:00 Noon (Chicago time) on the date when each drawing is paid in immediately available funds at the Issuing Bank's principal office in Chicago, Illinois or such other office as the Issuing Bank may designate in writing to the Borrower. If the Borrower does not make any such reimbursement payment on the date due and the Participating Banks fund their participations therein in the manner set forth in Section 1.2(d) below, then all payments thereafter received by the Issuing Bank in discharge of any of the relevant Reimbursement Obligations shall be distributed in accordance with Section 1.2(d) below. (d) The Participating Interests. Each Bank, by its acceptance hereof, severally agrees to purchase from the Issuing Bank, and the Issuing Bank hereby agrees to sell to each such Bank (a "Participating Bank"), an undivided percentage participating interest (a "Participating Interest"), to the extent of its Revolver Percentage, in each Letter of Credit -2- issued by, and each Reimbursement Obligation owed to, the Issuing Bank. Upon any failure by the Borrower to pay any Reimbursement Obligation at the time required on the date the related drawing is paid, as set forth in Section 1.2(c) above, or if the Issuing Bank is required at any time to return to the Borrower or to a trustee, receiver, liquidator, custodian, or other Person any portion of any payment of any Reimbursement Obligation, each Participating Bank shall, not later than the Business Day it receives a certificate in the form of Exhibit A hereto from the Issuing Bank to such effect, if such certificate is received before 1:00 p.m. (Chicago time), or not later than 1:00 p.m. (Chicago time) the following Business Day, if such certificate is received after such time, pay to the Issuing Bank an amount equal to such Participating Bank's Revolver Percentage of such unpaid or recaptured Reimbursement Obligation together with interest on such amount accrued from the date the related payment was made by the Issuing Bank to the date of such payment by such Participating Bank at a rate per annum equal to: (i) from the date the related payment was made by the Issuing Bank to the date 2 Business Days after payment by such Participating Bank is due hereunder, the Federal Funds Rate for each such day and (ii) from the date 2 Business Days after the date such payment is due from such Participating Bank to the date such payment is made by such Participating Bank, the Base Rate in effect for each such day. Each such Participating Bank shall thereafter be entitled to receive its Revolver Percentage of each payment received in respect of the relevant Reimbursement Obligation and of interest paid thereon, with the Issuing Bank retaining its Revolver Percentage as a Bank hereunder. The several obligations of the Participating Banks to the Issuing Bank under this Section 1.2 shall be absolute, irrevocable, and unconditional under any and all circumstances whatsoever and shall not be subject to any set-off, counterclaim or defense to payment which any Participating Bank may have or have had against the Borrower, the Agent, the Issuing Bank, any other Bank, or any other Person whatsoever. Without limiting the generality of the foregoing, such obligations shall not be affected by any Default or Event of Default or by any reduction or termination of any Commitment of any Bank, and each payment by a Participating Bank under this Section 1.2 shall be made without any offset, abatement, withholding, or reduction whatsoever. The Issuing Bank shall be entitled to offset amounts received for the account of a Bank under this Agreement against unpaid amounts due from such Bank to the Issuing Bank hereunder (whether as fundings of participations, indemnities, or otherwise), but shall not be entitled to offset against amounts owed to the Issuing Bank by any Bank arising outside of this Agreement. (e) Indemnification. The Participating Banks shall, to the extent of their respective Revolver Percentages, indemnify the Issuing Bank (to the extent not reimbursed by the Borrower) against any cost, expense (including reasonable counsel fees and disbursements), claim, demand, action, loss, or liability (except such as result from the Issuing Bank's gross negligence or willful misconduct) that the Issuing Bank may suffer or incur in connection with any Letter of Credit. The obligations of the Participating Banks under this Section 1.2(e) and all other parts of this Section 1.2 shall survive termination of this Agreement and of all Applications, Letters of Credit, and all drafts and other documents presented in connection with drawings thereunder. -3- Section 1.3. Term Loan Commitments. Subject to the terms and conditions hereof, each Bank, by its acceptance hereof, severally agrees to make a loan (individually a "Term Loan" and collectively the "Term Loans") to the Borrower in the amount of such Bank's Term Loan Commitment as set forth on the applicable signature page hereof (its "Term Loan Commitment" and, cumulatively for all the Banks, the "Term Loan Commitments"). The Term Loans shall be made, if at all, on or before April 20, 1998, at which time the Term Loan Commitments shall expire. The Term Loans shall be advanced in a single Borrowing and shall be made ratably by the Banks in proportion to their respective Term Loan Percentages. As provided in Section 1.6(a) hereof, the Borrower may elect that the Term Loans be outstanding as Base Rate Loans or Eurodollar Loans. No amount repaid or prepaid on any Term Loan may be borrowed again. Section 1.4. Applicable Interest Rates. (a) Base Rate Loans. Each Base Rate Loan made or maintained by a Bank shall bear interest during each Interest Period it is outstanding (computed on the basis of a year of 365 or 366 days, as the case may be, and the actual days elapsed, except that determinations made under clause (ii) of the definition of Base Rate set forth below shall be computed on the basis of a year of 360 days and actual days elapsed) on the unpaid principal amount thereof from the date such Loan is advanced, continued or created by conversion from a Eurodollar Loan until maturity (whether by acceleration or otherwise) at a rate per annum equal to the sum of the Applicable Margin plus the Base Rate from time to time in effect, payable on the last day of its Interest Period and at maturity (whether by acceleration or otherwise). "Base Rate" means for any day the greater of: (i) the rate of interest announced by the Agent from time to time as its prime commercial rate, or equivalent, for U.S. Dollar loans to borrowers located in the United States with any change in the Base Rate resulting from a change in said prime commercial rate to be effective as of the date of the relevant change in said prime commercial rate (it being acknowledged and agreed that such rate may not be the Agent's best or lowest rate) and (ii) the sum of (x) the rate for that day set forth opposite the caption "Federal Fund (Effective)" in the daily statistical release designated as "Composite 3:30 P.M. Quotations for U.S. Government Securities," or any successor publication, published by the Federal Reserve Bank of New York or, if such publication shall be suspended or terminated, the rate determined by the Agent (based on quotations received from two or more Federal funds dealers of recognized standing) to be the prevailing rate per annum (rounded upward, if necessary, to the nearest 1/100 of 1%) at approximately 10:00 a.m. (Chicago time) (or as soon thereafter as is practicable) on such day for the purchase at face value of overnight Federal funds in an amount approximately equal to the principal amount owed to the Agent for which such rate is being determined, plus (y) 1/2 of 1%. (b) Eurodollar Loans. Each Eurodollar Loan made or maintained by a Bank shall bear interest during each Interest Period it is outstanding (computed on the basis of a year of 360 days and actual days elapsed) on the unpaid principal amount thereof from the date such Loan is advanced, continued, or created by conversion from a Base Rate Loan until maturity (whether by acceleration or otherwise) at a rate per annum equal to the sum of the Applicable Margin plus the Adjusted LIBOR applicable for such Interest Period, payable on the last day of the Interest Period and at maturity (whether by acceleration or otherwise), and, if the -4- applicable Interest Period is longer than three months, on each day occurring every three months after the commencement of such Interest Period. "Adjusted LIBOR" means, for any Borrowing of Eurodollar Loans, a rate per annum determined in accordance with the following formula: Adjusted LIBOR = LIBOR --------------------------------- 1 - Eurodollar Reserve Percentage "LIBOR" means, for an Interest Period for a Borrowing of Eurodollar Loans, (a) the LIBOR Index Rate for such Interest Period, if such rate is available, and (b) if the LIBOR Index Rate cannot be determined, the arithmetic average of the rates of interest per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) at which deposits in U.S. Dollars in immediately available funds are offered to the Agent at 11:00 a.m. (London, England time) 2 Business Days before the beginning of such Interest Period by 3 or more major banks in the interbank eurodollar market selected by the Agent for delivery on the first day of and for a period equal to such Interest Period and in an amount equal or comparable to the principal amount of the Eurodollar Loan scheduled to be made by the Agent as part of such Borrowing. "LIBOR Index Rate" means, for any Interest Period, the rate per annum (rounded upwards, if necessary, to the next higher one hundred-thousandth of a percentage point) for deposits in U.S. Dollars for a period equal to such Interest Period, which appears on the Telerate Page 3750 as of 11:00 a.m. (London, England time) on the day 2 Business Days before the commencement of such Interest Period. "Telerate Page 3750" means the display designated as "Page 3750" on the Dow Jones Telerate Service (or such other page as may replace Page 3750 on that service or such other service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association Interest Settlement Rates for U.S. Dollar deposits). "Eurodollar Reserve Percentage" means, for any Borrowing of Eurodollar Loans, the daily average for the applicable Interest Period of the maximum rate, expressed as a decimal, at which reserves (including, without limitation, any supplemental, marginal, and emergency reserves) are imposed during such Interest Period by the Board of Governors of the Federal Reserve System (or any successor) on "eurocurrency liabilities", as defined in such Board's Regulation D (or in respect of any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Loans is determined or any category of extensions of credit or other assets that include loans by non- United States offices of any Bank to United States residents), subject to any amendments of such reserve requirement by such Board or its successor, taking into account any transitional adjustments thereto. For purposes of this definition, the Eurodollar Loans shall be deemed to be "eurocurrency liabilities" as defined in Regulation D without benefit or credit for any prorations, exemptions or offsets under Regulation D. -5- (d) Rate Determinations. The Agent shall determine each interest rate applicable to the Loans and the Reimbursement Obligations hereunder, and its determination thereof shall be conclusive and binding except in the case of manifest error. Section 1.5. Minimum Borrowing Amounts. Each Borrowing of Base Rate Loans advanced under a Credit shall be in an amount not less than $500,000. Each Borrowing of Eurodollar Loans advanced, continued, or converted under a Credit shall be in an amount equal to $500,000 or such greater amount which is an integral multiple of $500,000. Section 1.6. Manner of Borrowing Loans and Designating Applicable Interest Rates. (a) Notice to the Agent. The Borrower shall give notice to the Agent by no later than 11:00 a.m. (Chicago time): (i) at least 3 Business Days before the date on which the Borrower requests the Banks to advance a Borrowing of Eurodollar Loans and (ii) on the date the Borrower requests the Banks to advance a Borrowing of Base Rate Loans. The Loans included in each Borrowing shall bear interest initially at the type of rate specified in such notice of a new Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Borrowing or, subject to Section 1.5's minimum amount requirement for each outstanding Borrowing, a portion thereof, as follows: (i) if such Borrowing is of Eurodollar Loans, on the last day of the Interest Period applicable thereto, the Borrower may continue part or all of such Borrowing as Eurodollar Loans or convert part or all of such Borrowing into Base Rate Loans or (ii) if such Borrowing is of Base Rate Loans, on any Business Day, the Borrower may convert all or part of such Borrowing into Eurodollar Loans for an Interest Period or Interest Periods specified by the Borrower. The Borrower shall give all such notices requesting the advance, continuation, or conversion of a Borrowing to the Agent by telephone or telecopy (which notice shall be irrevocable once given and, if by telephone, shall be promptly confirmed in writing) substantially in the form attached hereto as Exhibit B (Notice of Borrowing) or Exhibit C (Notice of Continuation/Conversion), as applicable, or in such other form acceptable to the Agent. Notices of the continuation of a Borrowing of Eurodollar Loans for an additional Interest Period or of the conversion of part or all of a Borrowing of Eurodollar Loans into Base Rate Loans or of Base Rate Loans into Eurodollar Loans must be given by no later than 11:00 a.m. (Chicago time) at least 3 Business Days before the date of the requested continuation or conversion. All such notices concerning the advance, continuation, or conversion of a Borrowing shall specify the date of the requested advance, continuation, or conversion of a Borrowing (which shall be a Business Day), the amount of the requested Borrowing to be advanced, continued, or converted, the type of Loans to comprise such new, continued, or converted Borrowing and, if such Borrowing is to be comprised of Eurodollar Loans, the Interest Period applicable thereto. The Borrower agrees that the Agent may rely on any such telephonic or telecopy notice given by any person the Agent in good faith believes is an Authorized Representative without the necessity of independent investigation, and in the event any such notice by telephone conflicts with any written confirmation, such telephonic notice shall govern if the Agent has acted in reliance thereon. (b) Notice to the Banks. The Agent shall give prompt telephonic or telecopy notice to each Bank of any notice from the Borrower received pursuant to Section 1.6(a) above and, if such notice requests the Banks to make Eurodollar Loans, the Agent shall give notice to the -6- Borrower and each Bank by like means of the interest rate applicable thereto promptly after the Agent has made such determination. (c) Borrower's Failure to Notify; Automatic Continuations and Conversions. Any outstanding Borrowing of Base Rate Loans shall automatically be continued for an additional Interest Period on the last day of its then current Interest Period unless the Borrower has notified the Agent within the period required by Section 1.6(a) that the Borrower intends to convert such Borrowing, subject to Section 7.2 hereof, into a Borrowing of Eurodollar Loans or such Borrowing is prepaid in accordance with Section 1.9(a). If the Borrower fails to give notice pursuant to Section 1.6(a) above of the continuation or conversion of any outstanding principal amount of a Borrowing of Eurodollar Loans before the last day of its then current Interest Period within the period required by Section 1.6(a) or, whether or not such notice has been given, one or more of the conditions set forth in Section 7.2 for the continuation or conversion of a Borrowing of Eurodollar Loans would not be satisfied and such Borrowing is not prepaid in accordance with Section 1.9(a), such Borrowing shall automatically be converted into a Borrowing of Base Rate Loans. (d) Disbursement of Loans. Not later than 1:00 p.m. (Chicago time) on the date of any requested advance of a new Borrowing, subject to Section 7 hereof, each Bank shall make available its Loan comprising part of such Borrowing in funds immediately available at the principal office of the Agent in Chicago, Illinois. The Agent shall make the proceeds of each new Borrowing available to the Borrower at the Agent's principal office in Chicago, Illinois (or by wire transfer of funds pursuant to the Borrower's written instructions to the Agent). (e) Agent Reliance on Bank Funding. Unless the Agent shall have been notified by a Bank prior to (or, in the case of a Borrowing of Base Rate Loans, by 1:00 p.m. (Chicago time) on) the date on which such Bank is scheduled to make payment to the Agent of the proceeds of a Loan (which notice shall be effective upon receipt) that such Bank does not intend to make such payment, the Agent may assume that such Bank has made such payment when due and the Agent may in reliance upon such assumption (but shall not be required to) make available to the Borrower the proceeds of the Loan to be made by such Bank and, if any Bank has not in fact made such payment to the Agent, such Bank shall, on demand, pay to the Agent the amount made available to the Borrower attributable to such Bank together with interest thereon in respect of each day during the period commencing on the date such amount was made available to the Borrower and ending on (but excluding) the date such Bank pays such amount to the Agent at a rate per annum equal to (i) from the date the related advance was made by the Agent to the date 2 Business Days after payment by such Bank is due hereunder, the Federal Funds Rate for each such day and (ii) from the date 2 Business Days after the date such payment is due from such Bank to the date such payment is made by such Bank, the Base Rate in effect for each such day. If such amount is not received from such Bank by the Agent immediately upon demand, the Borrower will, on demand, repay to the Agent the proceeds of the Loan attributable to such Bank with interest thereon at a rate per annum equal to the interest rate applicable to the relevant Loan, but without such payment being considered a payment or prepayment of a Loan under Section 1.12 hereof, so that the Borrower will have no liability under such Section with respect to such payment. -7- Section 1.7. Interest Periods. As provided in Section 1.6(a) hereof, at the time of each request to advance, continue, or create by conversion a Borrowing of Eurodollar Loans, the Borrower shall select an Interest Period applicable to such Loans from among the available options. The term "Interest Period" means the period commencing on the date a Borrowing of Loans is advanced, continued, or created by conversion and ending: (a) in the case of Base Rate Loans, on the last day of the calendar quarter in which such Borrowing is advanced, continued, or created by conversion (or on the last day of the following calendar quarter if such Loan is advanced, continued or created by conversion on the last day of a calendar quarter) and (b) in the case of a Eurodollar Loan, 1, 2, 3, 6, or 12 months thereafter; provided, however, that: (a) any Interest Period for a Borrowing of Revolving Loans consisting of Base Rate Loans that otherwise would end after the Revolving Credit Termination Date shall end on the Revolving Credit Termination Date, and any Interest Period for a Borrowing of Term Loans consisting of Base Rate Loans that otherwise would end after the final maturity date of the Term Loans shall end on the final maturity date of the Term Loans; (b) no Interest Period with respect to any portion of the Term Loans shall extend beyond the final maturity date of the Term Loans, and no Interest Period with respect to any portion of the Revolving Loans shall extend beyond the Revolving Credit Termination Date; (c) no Interest Period with respect to any portion of the Term Loans consisting of Eurodollar Loans shall extend beyond a date on which the Borrower is required to make a scheduled payment of principal on the Term Loans, unless the sum of (a) the aggregate principal amount of Term Loans that are Base Rate Loans plus (b) the aggregate principal amount of Term Loans that are Eurodollar Loans with Interest Periods expiring on or before such date equals or exceeds the principal amount to be paid on the Term Loans on such payment date; (d) whenever the last day of any Interest Period would otherwise be a day that is not a Business Day, the last day of such Interest Period shall be extended to the next succeeding Business Day, provided that, if such extension would cause the last day of an Interest Period for a Borrowing of Eurodollar Loans to occur in the following calendar month, the last day of such Interest Period shall be the immediately preceding Business Day; and (e) for purposes of determining an Interest Period for a Borrowing of Eurodollar Loans, a month means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month; provided, however, that if there is no numerically corresponding day in the month in which such an Interest Period is to end or if such an Interest Period begins on the last Business Day of a calendar month, then such Interest Period shall end on the last Business Day of the calendar month in which such Interest Period is to end. -8- Section 1.8. Maturity of Loans. (a) Revolving Loans. Each Revolving Loan shall mature and become due and payable by the Borrower on the Revolving Credit Termination Date. (b) Scheduled Payments of Term Loans. The Borrower shall make principal payments on the Term Loans in installments on the last day of each March, June, September and December in each year, commencing with the calendar quarter ending March 31, 1999, with the amount of each such installment to equal to the amount set forth in Column B below opposite the relevant due date as set forth in Column A below:
Column B Column A Scheduled Principal Payment on Payment Date Term Notes 06/30/99 $1,250,000.00 09/30/99 $1,250,000.00 12/31/99 $1,250,000.00 03/31/00 $1,250,000.00 06/30/00 $2,500,000.00 09/30/00 $2,500,000.00 12/31/00 $2,500,000.00 03/31/01 $2,500,000.00 06/30/01 $5,000,000.00 09/30/01 $5,000,000.00 12/31/01 $5,000,000.00 03/31/02 $5,000,000.00 06/30/02 $5,625,000.00 09/30/02 $5,625,000.00 12/31/02 $5,625,000.00 03/31/03 $5,625,000.00 06/30/03 $6,875,000.00 09/30/03 $6,875,000.00 12/31/03 $6,875,000.00
, with a final payment of both principal and interest not sooner paid on the Term Loans due and payable on March 31, 2004, the final maturity thereof. Each such principal payment shall be applied to the Banks holding the Term Notes pro rata based upon their Term Loan Percentages. Section 1.9. Prepayments. (a) Optional. The Borrower shall have the privilege of prepaying without premium or penalty (except as set forth below with respect to Section 1.12 -9- hereof) in whole or in part (but, if in part, then: (i) if such Borrowing is of Base Rate Loans, in an amount not less than $500,000, (ii) if such Borrowing is of Eurodollar Loans, in an amount not less than $500,000, and (iii) in each case, in an amount such that the minimum amount required for a Borrowing pursuant to Section 1.5 hereof remains outstanding) any Borrowing of Eurodollar Loans at any time upon 3 Business Days prior notice to the Agent or, in the case of a Borrowing of Base Rate Loans, notice delivered to the Agent by the Borrower no later than 11:00 a.m. (Chicago time) on the date of prepayment, such prepayment to be made by the payment of the principal amount to be prepaid and accrued interest thereon to the date fixed for prepayment plus any amounts due the Banks under Section 1.12 hereof. The Agent will promptly advise each Bank of any such prepayment notice it receives from the Borrower. Any amount of Revolving Loans paid or prepaid before the Revolving Credit Termination Date may, subject to the terms and conditions of this Agreement, be borrowed, repaid and borrowed again. No amount of the Term Loans paid or prepaid may be reborrowed. The amount of each prepayment of the Term Loans shall be applied on a ratable basis among all remaining payments on such Term Loans based on the principal amounts thereof. (b) Mandatory. (i) The Borrower shall, on each date the Revolving Credit Commitments are reduced pursuant to Section 1.13 hereof, prepay the Revolving Loans and, if necessary, prefund the L/C Obligations by the amount, if any, necessary to reduce the sum of the aggregate principal amount of Revolving Loans and of L/C Obligations then outstanding to the amount to which the Revolving Credit Commitments have been so reduced. (ii) If the Borrower or any Subsidiary shall at any time or from time to time make or agree to make a Disposition or shall suffer an Event of Loss resulting in Net Cash Proceeds in excess of $1,000,000 in any fiscal year of the Borrower, then (x) the Borrower shall promptly notify the Agent of such proposed Disposition or Event of Loss (including the amount of the estimated Net Cash Proceeds to be received by the Borrower or such Subsidiary in respect thereof) and (y) promptly upon, and in no event later than the Business Day after, receipt by the Borrower or the Subsidiary of the Net Cash Proceeds of such Disposition or Event of Loss, the Borrower shall prepay the Term Loans in an aggregate amount equal to 100% of the amount of such Net Cash Proceeds; provided that in the case of each Disposition and Event of Loss, if the Borrower states in its notice of such event that the Borrower or the applicable Subsidiary intends to reinvest, within 180 days of the applicable Disposition or receipt of Net Cash Proceeds from an Event of Loss (such period to be extended to 360 days in the aggregate if within 180 days of the applicable Disposition or receipt of Net Cash Proceeds from an Event of Loss the Borrower or the relevant Subsidiary has entered into a binding commitment letter with a non-Affiliated Person to reinvest such proceeds in accordance with the terms hereof), the Net Cash Proceeds thereof in assets similar to the assets which were subject to such Disposition or Event of Loss, then so long as no Default or Event of Default then exists, the Borrower shall not be required to make a mandatory prepayment under this Section 1.9(b)(ii) in respect of such Net Cash Proceeds to the extent such Net Cash Proceeds are actually reinvested in such similar assets within a 180 day period (or 360-day period, to the extent permitted above). Promptly after the end of such 180-day period (or 360-day period, to the extent permitted above), the Borrower shall notify the Agent whether the Borrower or such Subsidiary has reinvested such Net Cash Proceeds in assets in an Eligible Line of Business, -10- and to the extent such Net Cash Proceeds have not been so reinvested, the Borrower shall promptly prepay the Term Loans in the amount of such Net Cash Proceeds not so reinvested. The amount of each such prepayment shall be applied on a ratable basis among all remaining payments on such Term Loans based on the principal amounts thereof. The Borrower acknowledges that its performance hereunder shall not limit the rights and remedies of the Banks for any breach of Section 8.10 hereof. (iii) If after the date of this Agreement the Borrower or any Subsidiary shall issue new equity securities (whether common or preferred stock or otherwise), other than capital stock issued in connection with the exercise of employee stock options and capital stock issued in connection with an Acquisition permitted hereby to the extent the net proceeds thereof are paid to or for the account of the seller of such Acquired Business, the Borrower shall promptly notify the Agent of the estimated Net Cash Proceeds of such issuance to be received by or for the account of the Borrower or such Subsidiary in respect thereof. Promptly upon, and in no event later than the Business Day after, receipt by the Borrower or such Subsidiary of Net Cash Proceeds of such issuance, the Borrower shall prepay the Term Loans in an aggregate amount equal to 100% of the amount of such Net Cash Proceeds. The amount of each such prepayment shall be applied on a ratable basis among all remaining payments on such Term Loans based on the principal amounts thereof. (iv) If after the date of this Agreement the Borrower or any Subsidiary shall issue any Indebtedness for Borrowed Money, other than Indebtedness for Borrowed Money permitted by Section 8.7 hereof, the Borrower shall promptly notify the Agent of the estimated Net Cash Proceeds of such issuance to be received by or for the account of the Borrower or such Subsidiary in respect thereof. Promptly upon, and in no event later than the Business Day after, receipt by the Borrower or such Subsidiary of Net Cash Proceeds of such issuance, the Borrower shall prepay the Term Loans in an aggregate amount equal to 100% of the amount of such Net Cash Proceeds. The amount of each such prepayment shall be applied on a ratable basis among all remaining payments on such Term Loans based on the principal amounts thereof. The Borrower acknowledges that its performance hereunder shall not limit the rights and remedies of the Banks arising from any breach of Section 8.7 hereof. (v) If after the date of this Agreement the Borrower or any Subsidiary shall issue any Subordinated Debt, the Borrower shall promptly notify the Agent of the estimated Net Cash Proceeds of such issuance to be received by or for the account of the Borrower or such Subsidiary in respect thereof. Promptly upon, and in no event later than the Business Day after, receipt by the Borrower or such Subsidiary of Net Cash Proceeds of such issuance, the Borrower shall prepay the Term Loans in an aggregate amount equal to 100% of the amount of such Net Cash Proceeds. The amount of each such prepayment shall be applied on a ratable basis among all remaining payments on such Term Loans based on the principal amounts thereof. (vi) On April 15th of each year, beginning April 15, 1999, the Borrower shall prepay the Term Loans by an amount equal to 85% of Excess Cash Flow of Borrower and its Subsidiaries for the most recently completed fiscal year of the Borrower (herein, "Excess -11- Cash Flow Net Proceeds"); provided, however, that (x) in the event the outstanding principal balance of the Revolving Credit on the relevant April 15th payment date exceeds $7,500,000 (including outstanding Letters of Credit) in the aggregate, the Borrower may elect that all or any part of the Excess Cash Flow Net Proceeds be applied as a reduction to the Revolving Credit pursuant to Section 1.9(a) hereof, with the balance of Excess Cash Flow Net Proceeds not so applied to be applied to the Term Loans in accordance with the terms set forth above and (y) the Borrower shall not be required to make such prepayment with respect to any fiscal year in which the Leverage Ratio (determined as of the last day of such fiscal year) is less than or equal to 4.5 to 1.0. The amount of each such prepayment shall be applied on a ratable basis among all remaining payments on each such Term Loans based on the principal amounts thereof. (vii) Unless the Borrower otherwise directs, prepayments of Loans under this Section 1.9(b) shall be applied first to Borrowings of Base Rate Loans until payment in full thereof with any balance applied to Borrowings of Eurodollar Loans in the order in which their Interest Periods expire. Each prepayment of Loans under this Section 1.9(b) shall be made by the payment of the principal amount to be prepaid and accrued interest thereon to the date of prepayment together with any amounts due the Banks under Section 1.12 hereof. Each prefunding of L/C Obligations shall be made in accordance with Section 9.4 hereof. Section 1.10. Default Rate. Notwithstanding anything to the contrary contained in Section 1.4 hereof, while any Event of Default exists or after acceleration, the Borrower shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all Loans (computed on the basis of a year of 360 days and actual days elapsed) at a rate per annum equal t o: (a) for any Base Rate Loan, the sum of 2% plus the Applicable Margin plus the Base Rate from time to time in effect; and (b) for any Eurodollar Loan, the sum of 2% plus the rate of interest in effect thereon at the time of such default until the end of the Interest Period applicable thereto and, thereafter, at a rate per annum equal to the sum of 2% plus the Applicable Margin for Base Rate Loans plus the Base Rate from time to time in effect; provided, however, that in the absence of acceleration, any adjustments pursuant to this Section 1.10 shall be made at the election of the Required Banks with written notice to the Borrower. While any Event of Default exists or after acceleration, interest shall be paid on demand of the Agent at the request or with the consent of the Required Banks. Section 1.11. The Notes. (a) The Revolving Loans made to the Borrower by a Bank shall be evidenced by a single promissory note of the Borrower issued to such Bank in the form of Exhibit D hereto. Each such promissory note is hereinafter referred to as a "Revolving Note" and collectively such promissory notes are referred to as the "Revolving Notes." -12- (b) The Term Loans made to the Borrower by a Bank shall be evidenced by a single promissory note of the Borrower issued to such Bank in the form of Exhibit E hereto. Each such promissory note is hereinafter referred to as a "Term Note" and collectively such promissory notes are referred to as the "Term Notes." (c) Each Bank shall record on its books and records or on a schedule to its appropriate Note the amount of each Loan advanced, continued or converted by it, all payments of principal and interest and the principal balance from time to time outstanding thereon, the type of such Loan, and, for any Eurodollar Loan, the Interest Period and the interest rate applicable thereto. The record thereof, whether shown on such books and records of a Bank or on a schedule to the relevant Note, shall be prima facie evidence as to all such matters; provided, however, that the failure of any Bank to record any of the foregoing or any error in any such record shall not limit or otherwise affect the obligation of the Borrower to repay all Loans made to it hereunder together with accrued interest thereon. At the request of any Bank and upon such Bank tendering to the Borrower the appropriate Note to be replaced, the Borrower shall furnish a new Note to such Bank to replace any outstanding Note, and at such time the first notation appearing on a schedule on the reverse side of, or attached to, such Note shall set forth the aggregate unpaid principal amount of all Loans, if any, then outstanding thereon. Section 1.12. Funding Indemnity. If any Bank shall incur any loss, cost or expense (including, without limitation, any loss of profit, and any loss, cost or expense incurred by reason of the liquidation or re-employment of deposits or other funds acquired by such Bank to fund or maintain any Eurodollar Loan or the relending or reinvesting of such deposits or amounts paid or prepaid to such Bank) as a result of: (a) any payment, prepayment or conversion of a Eurodollar Loan on a date other than the last day of its Interest Period, (b) any failure (because of a failure to meet the conditions of Section 7 or otherwise) by the Borrower to borrow or continue a Eurodollar Loan, or to convert a Base Rate Loan into a Eurodollar Loan, on the date specified in a notice given pursuant to Section 1.6(a), (c) any failure by the Borrower to make any payment of principal on any Eurodollar Loan when due (whether by acceleration or otherwise), or (d) any acceleration of the maturity of a Eurodollar Loan as a result of the occurrence of any Event of Default hereunder, then, upon the demand of such Bank, the Borrower shall pay to such Bank such amount as will reimburse such Bank for such loss, cost or expense. If any Bank makes such a claim for compensation, it shall provide to the Borrower, with a copy to the Agent, a certificate setting forth the amount of such loss, cost or expense in reasonable detail (including an explanation of the basis for and the computation of such loss, cost or expense) and the amounts shown on such certificate shall be deemed prima facie correct. -13- Section 1.13. Commitment Terminations. (a) Optional Revolving Credit Terminations. The Borrower shall have the right at any time and from time to time, upon 3 Business Days prior written notice to the Agent, to terminate the Revolving Credit Commitments without premium or penalty and in whole or in part, any partial termination to be (i) in an amount not less than $1,000,000 and (ii) allocated ratably among the Banks in proportion to their respective Revolver Percentages, provided that the Revolving Credit Commitments may not be reduced to an amount less than the sum of the aggregate principal amount of Revolving Loans and of L/C Obligations then outstanding. Any termination of the Revolving Credit Commitments below $4,000,000 shall reduce the L/C Commitment by a like amount. The Agent shall give prompt notice to each Bank of any such termination of the Revolving Credit Commitments. (b) Mandatory Revolving Credit Terminations. If at any time Net Cash Proceeds or Excess Cash Flow Net Proceeds remain after the prepayment of the Term Loans in full pursuant to Section 1.9(b) hereof, the Revolving Credit Commitments shall ratably terminate by an amount equal to 100% of such excess proceeds. (c) Mandatory Termination Upon a Change of Control. After the occurrence of a Change of Control, the Required Banks may, by written notice to the Borrower at any time on or before the date occurring 90 days after the date the Borrower notifies the Banks of such Change of Control, terminate the remaining Commitments and all other obligations of the Banks hereunder on the date stated in such notice (which shall in no event be sooner than 30 days after the occurrence of such Change of Control). On the date the Commitments are so terminated, all outstanding Obligations (including, without limitation, all principal of and accrued interest on the Notes) shall forthwith be due and payable without further demand, presentment, protest, or notice of any kind and the Borrower shall immediately pay to the Banks the full amount then available for drawing under each Letter of Credit, such amount to be held in the Account referred to in Section 9.4 hereof (the Borrower agreeing to immediately make such payment on the date the Commitments are so terminated and acknowledging and agreeing that the Banks would not have an adequate remedy at law for the failure by the Borrower to honor any such demand and that the Banks, and the Agent on their behalf, shall have the right to require the Borrower to specifically perform such undertaking whether or not any drawings or other demands for payment have been made under any of the Letters of Credit). (d) Any termination of the Commitments pursuant to this Section 1.13 may not be reinstated. SECTION 2. FEES AND SUBSTITUTION OF BANKS. Section 2.1. Fees. (a) Revolving Credit Commitment Fee. The Borrower shall pay to the Agent for the ratable account of the Banks in accordance with their Revolver Percentages a commitment fee at the rate per annum equal to the Applicable Margin (computed on the basis of a year of 360 days and the actual number of days elapsed) on the average daily Unused Revolving Credit Commitments. Such commitment fee shall be payable quarter- annually in arrears on the last day of each March, June, September and December in each year -14- (commencing June 30, 1998) and on the Revolving Credit Termination Date, unless the Revolving Credit Commitments are terminated in whole on an earlier date, in which event the commitment fee for the period to the date of such termination in whole shall be paid on the date of such termination. (b) Letter of Credit Fees. Quarterly in arrears, on the last day of each calendar quarter, commencing June 30, 1998, the Borrower shall pay to the Issuing Bank for its own account a facing fee equal to .125% per annum (computed on the basis of a year of 360 days and the actual number of days elapsed) applied to the daily average face amount of standby Letters of Credit outstanding during such quarter. Quarterly in arrears, on the last day of each calendar quarter, commencing on June 30, 1998, the Borrower shall pay to the Agent, for the ratable benefit of the Banks in accordance with their Revolver Percentages, a letter of credit fee at a rate per annum equal to the Applicable Margin (computed on the basis of a year of 360 days and the actual number of days elapsed) in effect during each day of such quarter applied to the daily average face amount of Letters of Credit outstanding during such quarter. In addition, the Borrower shall pay to the Issuing Bank for its own account the Issuing Bank's standard drawing, negotiation, amendment, and other administrative fees for each Letter of Credit. Such standard fees referred to in the preceding sentence may be established by the Agent from time to time. (c) Agent Fees. The Borrower shall pay to the Agent, for its own use and benefit, the fees set forth in that certain commitment letter dated February 6, 1998, by and among Heritage Partners Management Company, Inc., the Borrower, and Bank of Montreal, or as otherwise agreed to by the Agent and the Borrower. (d) Audit Fees. The Borrower shall pay to the Agent for its own use and benefit charges for audits of the Collateral performed by the Agent or its agents or representatives in such amounts as the Agent may from time to time request (the Agent acknowledging and agreeing that such charges shall be computed in the same manner as it at the time customarily uses for the assessment of charges for similar collateral audits); provided, however, that in the absence of any Default and Event of Default, the Borrower shall not be required to pay the Agent for more than one such audit during any calendar year. Section 2.2. Substitution of Banks. Upon the receipt by the Borrower of (a) a claim from any Bank for compensation under Section 10.3 or 12.1 hereof or (b) notice by any Bank to the Borrower of any illegality pursuant to Section 10.1 hereof, or in the event any Bank is in default in any material respect with respect to its obligations under the Loan Documents (herein, a "Defaulting Bank") (any such Bank referred to in clause (a) or (b) above, or any such Defaulting Bank, being hereinafter referred to as an "Affected Bank"), the Borrower may, in addition to any other rights the Borrower may have hereunder or under applicable law, require, at its expense, any such Affected Bank to assign, at par plus accrued interest and fees, without recourse, all of its interest, rights and obligations hereunder (including all of its Commitments and the Loans and participation interests in Letters of Credit and other amounts at any time owing to it hereunder and the other Loan Documents) to a bank or other institutional lender specified by the Borrower, provided that (i) such assignment shall not conflict with or violate any law, rule, or regulation or order of any court or other governmental -15- authority, (ii) the Borrower shall have received the written consent of the Agent, which consent shall not be unreasonably withheld, to such assignment, (iii) the Borrower shall have paid to the Affected Bank all monies (together with amounts due such Affected Bank under Section 1.12 hereof as if the Loans owing to it were prepaid rather than assigned) other than such principal and accrued interest and fees, and (iv) the assignment is entered into in accordance with the other requirements of Section 12.12 hereof. SECTION 3. PLACE AND APPLICATION OF PAYMENTS. All payments of principal of and interest on the Loans and the Reimbursement Obligations, and of all other Obligations payable by the Borrower under this Agreement and the other Loan Documents, shall be made by the Borrower to the Agent by no later than 12:00 Noon (Chicago time) on the due date thereof at the office of the Agent in Chicago, Illinois (or such other location in the State of Illinois as the Agent may designate to the Borrower) for the benefit of the Bank or Banks entitled thereto. Any payments received after such time shall be deemed to have been received by the Agent on the next Business Day. All such payments shall be made in U.S. Dollars, in immediately available funds at the place of payment, in each case without set-off or counterclaim. The Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest on Loans and on Reimbursement Obligations in which the Banks have purchased Participating Interests ratably to the Banks and like funds relating to the payment of any other amount payable to any Bank to such Bank, in each case to be applied in accordance with the terms of this Agreement. Anything contained herein to the contrary notwithstanding, all payments and collections received in respect of the Obligations and all proceeds of the Collateral received, in each instance, by the Agent or any of the Banks after the occurrence and during the continuation of an Event of Default shall be remitted to the Agent and distributed as follows: (a) first, to the payment of any outstanding costs and expenses reasonably incurred by the Agent, and any security trustee therefor, in monitoring, verifying, protecting, preserving or enforcing the Liens on the Collateral or by the Agent, and any security trustee therefor, in protecting, preserving or enforcing rights under the Loan Documents, and in any event all costs and expenses of a character which the Borrower has agreed to pay the Agent under Section 12.15 hereof (such funds to be retained by the Agent for its own account unless it has previously been reimbursed for such costs and expenses by the Banks, in which event such amounts shall be remitted to the Banks to reimburse them for payments theretofore made to the Agent); (b) second, to the payment of any outstanding interest or other fees or amounts due under the Notes and the other Loan Documents, in each case other than for principal on the Loans or in reimbursement or collateralization of L/C Obligations, pro rata as among the Agent and the Banks in accord with the amount of such interest and other fees or amounts owing each; (c) third, to the payment of the principal of the Notes and any unpaid Reimbursement Obligations and to the Agent to be held as collateral security for any -16- other L/C Obligations (until the Agent is holding an amount of cash equal to the then outstanding amount of all such L/C Obligations), the aggregate amount paid to or held as collateral security for the Banks to be allocated pro rata as among the Banks in accord with the aggregate unpaid principal balances of their Loans and interests in the Letters of Credit; (d) fourth, to the Agent and the Banks ratably in accordance with the amounts of any other indebtedness, obligations or liabilities of the Borrower and its Subsidiaries owing to each of them and secured by the Collateral Documents (other than for Hedging Liability described in subsection (e) below), unless and until all such indebtedness, obligations and liabilities have been fully paid and satisfied; (e) fifth, to the payment of the Hedging Liability (if any) pro rata as among the Banks and their Affiliates to whom such Hedging Liability is owed in accordance with the then respective unpaid amounts of such liability; and (f) sixth, to the Borrower or whoever else may be lawfully entitled thereto. SECTION 4. COLLATERAL AND GUARANTIES. Section 4.1. Collateral. The Obligations shall be secured by valid, perfected, and enforceable Liens on all right, title, and interest of the Borrower and each Subsidiary in all capital stock or other equity interests held by such Person in each of its Subsidiaries, whether now owned or hereafter formed or acquired, and all proceeds thereof, and by valid, perfected (subject to the proviso appearing at the end of this sentence) and enforceable Liens on all right, title, and interest of the Borrower and each Subsidiary in all accounts and account receivables, notes and note receivables, contract rights, instruments, documents, chattel paper, general intangibles (including, without limitation, patents, trademarks, tradenames, copyrights, and other intellectual property rights), investment property, deposit accounts, inventory, machinery and equipment, and real estate, whether now owned or hereafter acquired or arising, and all proceeds thereof; provided, however, that: (a) Liens need be granted on leasehold interests in nursing home properties leased by the Borrower or any of its Subsidiaries on the date of this Agreement, other than the Snukal Properties, to the extent the owner of the relevant Property fails to consent to the leasehold mortgage requested by the Agent or refuses to consent thereto without payment of a fee (other than a de minimus fee in the nature of a processing fee and/or an agreement to pay all costs and expenses of the consenting party), but only so long as the Borrower and the relevant Subsidiaries have and continue at all times to use their commercially reasonable efforts to obtain such consents and such efforts fail (the Borrower hereby agreeing to provide the Agent on a monthly basis a status report as to outstanding consents and the efforts made to date to obtain the same), (b) the Lien of the Agent on Property subject to a Capital Lease or conditional sale agreement or subject to a purchase money lien in each instance permitted hereby shall be subject to the rights of the lessor or lender thereunder, (c) until an Event of Default has occurred and is continuing and thereafter until otherwise required by the Agent or the Required Banks, (i) Liens on deposit accounts maintained by the Borrower or any Subsidiary with financial institutions other than the Lenders need not be perfected provided the total value of such property at any one time not so perfected does not exceed $500,000 in the aggregate, (ii) a Lien on the note receivable owing to the Borrower by William Scott in the principal amount not exceeding $2,600,000 need not be perfected, (iii) Liens on note receivables need not be perfected provided the total value of such property at any one time not so perfected does not exceed $500,000 in the aggregate, (iv) Liens on vehicles which are subject to a certificate of title law need not be perfected provided that the total value of such property at any one time not so -17- perfected does not exceed $500,000 in the aggregate, and (v) no Lien need be granted upon the capital stock of Alexandria Convalescent Hospital, Inc., a California corporation (herein, "Alexandria") or upon its equipment, so long as the Borrower is in compliance with Section 8.21 hereof. The Borrower acknowledges and agrees that the Liens on the Collateral shall be granted to the Agent for the benefit of itself and the Banks and the Issuing Bank and shall be valid and perfected first priority Liens subject, however, to the proviso appearing at the end of the immediately preceding sentence, in each case pursuant to one or more Collateral Documents from such Persons, each in form and substance satisfactory to the Agent. Section 4.2. Guaranties. The payment and performance of the Obligations shall at all times be guaranteed by each direct and indirect Subsidiary of the Borrower pursuant to one or more guaranty agreements in form and substance acceptable to the Agent, as the same may be amended, modified or supplemented from time to time (individually a "Guaranty" and collectively the 'Guaranties"). Section 4.3. Further Assurances. The Borrower agrees that it shall, and shall cause each Subsidiary to, from time to time at the request of the Agent or the Required Banks, execute and deliver such documents and do such acts and things as the Agent or the Required Banks may reasonably request in order to provide for or perfect or protect such Liens on the Collateral. In the event the Borrower or any Subsidiary forms or acquires any other Subsidiary after the date hereof, the Borrower shall within 10 Business Days of such formation or acquisition cause such newly formed or acquired Subsidiary to execute a Guaranty and such Collateral Documents as the Agent may then require, and the Borrower shall also deliver to the Agent, or cause such Subsidiary to deliver to the Agent, at the Borrower's cost and expense, such other instruments, documents, certificates, and opinions reasonably required by the Agent in connection therewith. Section 4.4. Liens on Real Property. In the event that the Borrower or any Subsidiary owns or hereafter acquires any real property (including, without limitation, any leasehold interests), the Borrower shall, or shall cause such Subsidiary to, execute and deliver to the Agent (or a security trustee therefor) a mortgage or deed of trust acceptable in form and substance to the Agent for the purpose of granting to the Agent for the benefit of the Banks a Lien on such real property to secure the Obligations, shall pay all taxes, costs and expenses incurred by the Agent in recording such mortgage or deed of trust, and shall at its expense supply to the Agent a survey, environmental report, hazard insurance policy, and a mortgagee's policy of title insurance from a title insurer reasonably acceptable to the Agent insuring the validity of such mortgage or deed of trust and its status as a first Lien (subject to Liens permitted by this Agreement) on the real property encumbered thereby and such other instrument, documents, certificates, and opinions reasonably required by the Agent in connection therewith, provided that (i) Liens on leasehold interests in real property need not be -18- granted to the extent set forth in Section 4.1(a) above, and (ii) the Borrower shall have sixty (60) days after the date of this Agreement to provide to the Agent Liens on real property owned or leased by the Borrower and its Subsidiaries on the date of this Agreement and to deliver the title policies, surveys, environmental reports, hazard insurance policies and other items referred to above with respect thereto. SECTION 5. DEFINITIONS; INTERPRETATION. Section 5.1. Definitions. The following terms when used herein shall have the following meanings: "Account" is defined in Section 9.4 hereof. "Acquired Business" means the entity or assets acquired by the Borrower or a Subsidiary in an Acquisition, whether before or after the date hereof. "Acquisition EBITDA" means, with reference to any period and any Acquired Business of a Target, the total net income (as determined in accordance with GAAP) of such Target arising out of the Acquired Business plus the sum of all amounts deducted in arriving at such net income amount in respect of (x) interest expense for such period, (y) federal, state, and local income taxes for such period, and (z) depreciation of fixed assets and amortization of intangible assets for such period, and adjusted for non-recurring expenses and income reasonably determined by the Borrower in good faith and established to the reasonable satisfaction of the Agent. "Acquisition " means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of a Person, (b) the acquisition of in excess of 50% of the capital stock, partnership interests, membership interests or equity of any Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is a Subsidiary) provided that the Borrower or the Subsidiary is the surviving entity. "Acquisition Corp." means the Borrower's Wholly-owned Subsidiary, FV-SCC Acquisition Corp., a Delaware corporation. "Adjusted EBITDAR" means, with reference to any period, EBITDAR for such period calculated on a pro forma basis in good faith by the Borrower and established to the reasonable satisfaction of the Agent, in accordance with the balance sheets, income statements and other related financial statements furnished to the Agent and the Banks prior to the date hereof (including, without limitation, such financial statements reflecting the Briarcliff and Summit acquisitions and the cost savings relating thereto as reflected on the opening day covenant compliance certificate delivered by the Borrower on the date of this Agreement) or, with respect to future periods, pursuant to Section 8.9(j) hereof, as if each Acquisition which occurred prior to the date of this Agreement and each Acquisition occurring on or after the -19- date of this Agreement and permitted by Section 8.9(j) hereof occurring during such period had taken place on the first day of such period. "Adjusted LIBOR" is defined in Section 1.4(b) hereof. "Affiliate" means any Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, another Person. A Person shall be deemed to control another Person for the purposes of this definition if such Person possesses, directly or indirectly, the power to direct, or cause the direction of, the management and policies of the other Person, whether through the ownership of voting securities, common directors, trustees or officers, by contract or otherwise; provided that, in any event for purposes of this definition, any Person that owns, directly or indirectly, 5% or more of the securities having the ordinary voting power for the election of directors or governing body of a corporation or 5% or more of the partnership or other ownership interest of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person. "Agent" means Bank of Montreal, and any successor pursuant to Section 11.7 hereof. "Alexandria" is defined in Section 4.1 hereof. "Applicable Margin" means, with respect to Loans, Reimbursement Obligations, and the Revolving Credit Commitment fees and letter of credit fees payable under Section 2.1 hereof, from the date of this Agreement through the first Pricing Date the rate per annum specified below: Applicable Margin for Base Rate Loans and Reimbursement Obligations: 1.75% Applicable Margin for Eurodollar Loans: 2.75% Applicable Margin for Revolving Credit Commitment fee: .50% Applicable Margin for letter of credit fee: 2.75%
; provided that the Applicable Margin shall be subject to quarterly adjustments on the first Pricing Date, and thereafter from one Pricing Date to the next, so that the Applicable Margin means a rate per annum determined in accordance with the following schedule: -20-
Applicable Margin Applicable Margin Applicable Margin for Base Rate for Eurodollar for Revolving Leverage Ratio Loans and Loans and Letter Credit Commitment for Such Pricing Reimbursement of credit Fee Fee Shall Be: Date Obligations shall Shall Be: be: Greater than or 1.75% 2.75% .50% equal to 6.0 to 1.0 Less than 6.0 to 1.0, but greater than or equal to 1.5% 2.5% .50% 5.5 to 1.0 Less than 5.5 to 1.25% 2.25% .50% 1.0, but greater than or equal to 5.0 to 1.0 Less than 5.0 to 1.0% 2.00% .50% 1.0, but greater than or equal to 4.5 to 1.0 Less than 4.5 to .75% 1.75% .50% 1.0
For purposes hereof, the term "Pricing Date" means, for any fiscal quarter of the Borrower ending on or after March 31, 1998, the date on which the Agent is in receipt of the Borrower's most recent financial statements for the fiscal quarter then ended, pursuant to Section 8.5(a) or (b) hereof. The Applicable Margin shall be established based on the Leverage Ratio for the most recently completed fiscal quarter and the Applicable Margin established on a Pricing Date shall remain in effect until the next Pricing Date. If the Borrower has not delivered its financial statements by the date such financial statements (and, in the case of the year-end financial statements, audit report) are required to be delivered under Section 8.5(a) or (b) hereof, and such Default remains uncured for a period of 10 Business Days, until such financial statements and audit report are delivered, the Applicable Margin shall be the highest Applicable Margin (i.e., the Leverage Ratio shall be deemed to be greater than 6.0 to 1.0). If the Borrower subsequently delivers such financial statements before the next Pricing Date, the Applicable Margin established by such late delivered financial statements shall take effect from the date of delivery until the next Pricing Date. In all other circumstances, the Applicable Margin established by such financial statements shall be in effect from the Pricing Date that occurs immediately after the end of the Borrower's fiscal quarter covered by such financial statements until the next Pricing Date. Each determination of the Applicable Margin made by the Agent in accordance with the foregoing shall be conclusive and binding on the Borrower and the Banks if reasonably determined. "Application" is defined in Section 1.2(b) hereof. "Authorized Representative" means those persons shown on the list of officers provided by the Borrower pursuant to Section 7.1(h) hereof or on any update of any such list provided -21- by the Borrower to the Agent, or any further or different officer of the Borrower so named by any Authorized Representative of the Borrower in a written notice to the Agent. "Bank" is defined in the introductory paragraph of this Agreement and includes each assignee bank pursuant to Section 12.12 hereof. "Base Rate" is defined in Section 1.4(a) hereof. "Base Rate Loan" means a Loan bearing interest at a rate specified in Section 1.4(a) hereof. "Borrower" is defined in the introductory paragraph of this Agreement. "Borrowing" means the total of Loans of a single type advanced, continued for an additional Interest Period, or converted from a different type into such type by the Banks under a Credit on a single date and, in the case of Eurodollar Loans, for a single Interest Period. Borrowings of Loans are made and maintained ratably from each of the Banks under a Credit according to their Percentages of such Credit. A Borrowing is "advanced" on the day Banks advance funds comprising such Borrowing to the Borrower, is "continued" on the date a new Interest Period for the same type of Loans commences for such Borrowing, and is "converted" when such Borrowing is changed from one type of Loans to the other, all as requested by the Borrower pursuant to Section 1.6(a). "Business Day" means any day (other than a Saturday or Sunday) on which banks are not authorized or required to close in Chicago, Illinois and, if the applicable Business Day relates to the advance or continuation of, or conversion into, or payment of a Eurodollar Loan, on which banks are dealing in U.S. Dollar deposits in the interbank eurodollar market in London, England. "Capital Expenditures" means, with respect to any Person for any period, the aggregate amount of all expenditures (whether paid in cash or accrued as a liability) by such Person during that period which, in accordance with GAAP, are or should be included as "additions to property, plant or equipment" or similar items reflected in the statement of cash flows of such Person. "Capital Lease" means any lease of Property which in accordance with GAAP is required to be capitalized on the balance sheet of the lessee. "Capitalized Lease Obligation" means, for any Person, the amount of the liability shown on the balance sheet of such Person in respect of a Capital Lease determined in accordance with GAAP. "Change of Control" means the occurrence of any of the following: (a) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than one or more -22- Principals and their Related Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), directly or indirectly, of more than 45% of the Voting Stock of the Borrower (measured by voting power rather than number of shares), (b) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any person (as defined above), other than one or more Principals and their Related Parties, becomes the "beneficial owner" (as defined above), directly or indirectly, of more than 35% of the Voting Stock of the Borrower (measured by voting power rather than number of shares) and the Principals and their Related Parties in the aggregate "beneficially own" (as defined above) less than 35% of the Voting Stock of the Borrower (measured by voting power rather than number of shares) or, in the event the Borrower has consummated a public offering of its common stock, less than 25% of the Voting Stock of the Borrower (measured by voting power rather than number of shares), (c) the failure of individuals who are members of the board of directors of the Borrower on the date of this Agreement (together with any new or replacement directors whose initial nomination for election was approved by a majority of the directors who were either directors on the date of this Agreement or previously so approved) to constitute a majority of the board of directors of the Borrower, or (d) any "Change of Control" (or words of like import), as defined in any instrument, agreement or indenture relating to any issue of Subordinated Debt, shall occur, the effect of which is to cause the acceleration of any Subordinated Debt or to enable the holder of any Subordinated Debt to cause the Borrower or any Subsidiary to repurchase, redeem, repay, or otherwise retire any Subordinated Debt. "Code" means the Internal Revenue Code of 1986, as amended, and any successor statute thereto. "Collateral" means all properties, rights, interests and privileges from time to time subject to the Liens granted to the Agent, or any security trustee therefor, by the Collateral Documents. "Collateral Documents" means the Mortgages, the Security Agreement, the Pledge Agreement, and all other mortgages, deeds of trust, security agreements, pledge agreements, assignments, financing statements and other documents as shall from time to time secure or relate to the Obligations or any part thereof. "Commitments" means the Revolving Credit Commitments, the L/C Commitment, and the Term Loan Commitments. "Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any Subsidiary, are treated as a single employer under Section 414 of the Code. "Credit" means any of the Revolving Credit or the Term Credit. -23- "Credit Event" means the advancing of any Loan, the continuation of or conversion into a Eurodollar Loan, or the issuance of, or extension of the expiration date or increase in the amount of, any Letter of Credit. "Default" means any event or condition the occurrence of which would, with the passage of time or the giving of notice, or both, constitute an Event of Default. "Disposition" means the sale, lease, conveyance, or other disposition of Property, other than sales or other dispositions expressly permitted under Section 8.10(a) or 8.10(b) hereof. "EBITDAR" means, with reference to any period, Net Income for such period plus the sum (without duplication) of all amounts deducted in arriving at such Net Income amount in respect of (w) Interest Expense for such period, (x) federal, state and local income taxes for such period, (y) depreciation of fixed assets and amortization of intangible assets for such period, and (z) Rental Expense for such period (plus, to the extent deducted in arriving at EBITDAR for the relevant period, expenses incurred pursuant to the August 1997 Fountain View, Inc. recapitalization and expenses incurred pursuant to the Summit Merger and the financing associated with it). "Eligible Line of Business" means any business engaged in as of the date of this Agreement by the Borrower and its Subsidiaries relating to owning or operating a skilled nursing care facility or post-acute care facility or a line of business reasonably related thereto (including businesses related to therapy, medical equipment and supplies, and pharmacy) in the healthcare industry. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute thereto. "Eurodollar Loan" means a Loan bearing interest at the rate specified in Section 1.4(b) hereof. "Eurodollar Reserve Percentage" is defined in Section 1.4(b) hereof. "Event of Default" means any event or condition identified as such in Section 9.1 hereof. "Event of Loss" means, with respect to any Property, any of the follows: (a) any loss, destruction or damage of such Property or (b) any condemnation, seizure, or taking, by exercise of the power of eminent domain or otherwise, of such Property, or confiscation of such Property or the requisition of the use of such Property. "Excess Cash Flow" means, with respect to any period, the amount (if any) by which (A) the difference (if any) of (i) Net Income for such period plus the sum of all amounts deducted in arriving at such Net Income amount in respect of all charges for (x) depreciation of fixed assets and amortization of intangible assets for such period, (y) deferred taxes for such period, and (z) all other non-cash items to Net Income for such period, minus (plus) -24- (ii) additions (reductions) to non-cash working capital of the Borrower and its Subsidiaries for such period (i.e., the increase or decrease in consolidated non-cash current assets of the Borrower and Subsidiaries minus the consolidated current liabilities (excluding the current maturities of long-term debt) of the Borrower and its Subsidiaries from the beginning to the end of such period) exceeds (B) the sum of (i) the aggregate amount of payments required to be made by the Borrower and its Subsidiaries during such period in respect of all principal on all Indebtedness for Borrowed Money (whether at maturity, as a result of mandatory sinking fund redemption, mandatory prepayment, acceleration or otherwise), plus (ii) the aggregate amount of Capital Expenditures incurred by the Borrower and its Subsidiaries during such period, plus (iii) cash paid by the Borrower or any of its Subsidiaries as part of the Total Consideration for an Acquisition permitted by this Agreement. "Excess Cash Flow Net Proceeds" is defined in Section 1.9(b)(vi) hereof. "Existing Credit Agreements" means, collectively, (i) that certain Credit Agreement dated as of March 6, 1998 between the Borrower and Bank of Montreal, individually and as agent, and the other lenders party thereto, (ii) that certain Credit Agreement dated as of March 6, 1998, between FV-SCC Acquisition Corp. and Bank of Montreal, individually and as agent, and the other lenders party thereto, and (iii) that certain Third Amended and Restated Credit Agreement dated as of December 15, 1995, between, by and among Summit Care Corporation, Bank of Montreal, individually and as agent, and the other lenders party thereto. "Federal Funds Rate" means the fluctuating interest rate per annum described in part (x) of clause (ii) of the definition of Base Rate appearing in Section 1.4(a) hereof. "Fixed Asset Maintenance Expenditures" means, for any period, Capital Expenditures incurred during such period in order to repair, replace, or otherwise maintain the Borrower's and each of its Subsidiary's operating facilities, and all the equipment and real property relating thereto, in good working order and condition. "GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable statute and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination. "Hedging Liability" means the liability of the Borrower to any of the Banks in respect of any interest rate swaps, interest rate caps, interest rate collars, or other interest rate hedging arrangements as the Borrower may from time to time enter into with any one or more of the Banks party to this Agreement or their Affiliates. Unless and until the amount of the Hedging Liability is fixed and determined, the Hedging Liability shall be deemed to be 4% per annum of the notional amount of the hedge from the date of computation to the date the hedge expires. -25- "Hostile Acquisition" means the acquisition of the capital stock or other equity interests of a Person through a tender offer or similar solicitation of the owners of such capital stock or other equity interests which has not been approved (prior to such acquisition) by resolutions of the Board of Directors of such Person or by similar action if such Person is not a corporation, and as to which such approval has not been withdrawn. "Indebtedness for Borrowed Money" means for any Person (without duplication) (i) all indebtedness created, assumed or incurred in any manner by such Person representing money borrowed (including by the issuance of debt securities), (ii) all indebtedness for the deferred purchase price of property or services (other than trade accounts payable and wages arising in the ordinary course of business), (iii) all indebtedness secured by any Lien upon Property of such Person, whether or not such Person has assumed or become liable for the payment of such indebtedness, (iv) all Capitalized Lease Obligations of such Person and (v) all obligations of such Person on or with respect to letters of credit, bankers' acceptances and other extensions of credit whether or not representing obligations for borrowed money. "Interest Expense" means, with reference to any period, the sum of all interest charges (including imputed interest charges with respect to Capitalized Lease Obligations and all amortization of debt discount and expense) of the Borrower and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Interest Period" is defined in Section 1.7 hereof. "Issuing Bank" means Bank of Montreal. "L/C Commitment" means $4,000,000, as reduced pursuant to the terms hereof. "L/C Obligations" means the aggregate undrawn face amounts of all outstanding Letters of Credit and all unpaid Reimbursement Obligations. "Lending Office" is defined in Section 10.4 hereof. "Letter of Credit" is defined in Section 1.2(a) hereof. "Leverage Ratio" means, as of the last day of any fiscal quarter of the Borrower, the ratio of (a) the sum of Total Funded Debt of the Borrower and its Subsidiaries as of the last day of such fiscal quarter, plus the product of Rental Expense of the Borrower and its Subsidiaries for the four fiscal quarters then ended multiplied by 8, to (b) Adjusted EBITDAR of the Borrower and its Subsidiaries for the four fiscal quarters then ended. "LIBOR" is defined in Section 1.4(b) hereof. "Lien" means any mortgage, lien, security interest, pledge, charge or encumbrance of any kind in respect of any Property, including the interests of a vendor or lessor under any conditional sale, Capital Lease or other title retention arrangement. -26- "Loan" means a Base Rate Loan or Eurodollar Loan, each of which is a "type" of Loan hereunder, outstanding as a Revolving Loan or Term Loan, as applicable. "Loan Documents" means this Agreement, the Notes, the Applications, the Collateral Documents, the Guaranties, and each other instrument or document to be delivered hereunder or thereunder or otherwise in connection therewith. "Material Adverse Effect" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of the Borrower, or the Borrower and its Subsidiaries taken as a whole; (b) a material impairment of the ability of the Borrower or any Subsidiary to perform its obligations under any Loan Document; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Borrower or any Subsidiary of any Loan Document. "Moody's" means Moody's Investors Service, Inc. "Mortgages" means all mortgages and deeds of trust from time to time executed and delivered by the Borrower and its Subsidiaries pursuant to Section 4 of this Agreement granting the Agent, or any security trustee therefor, Liens on real property as security for the Obligations or any part thereof. "Net Cash Proceeds" means, as applicable, (a) with respect to any Disposition by a Person, cash and cash equivalent proceeds received by or for such Person's account, net of (i) reasonable direct costs relating to such Disposition, (ii) sale, use, or other transactional taxes paid or payable by such Person as a direct result of such Disposition, and (iii) amounts required to be applied to repay principal of, premium, if any, and interest on any Indebtedness for Borrowed Money secured by a Lien on the Property (or portion thereof) sold or otherwise disposed of (other than the Obligations hereunder) which is required to be and is repaid in connection with such Disposition; (b) with respect to any Event of Loss of a Person, cash and cash equivalent proceeds received by or for such Person's account (whether as a result of payments made under any applicable insurance policy therefor or in connection with condemnation proceedings or otherwise), net of reasonable direct costs incurred in connection with the collection of such proceeds, awards or other payments; and (c) with respect to any offering of equity securities of a Person or the issuance of any Indebtedness for Borrowed Money by a Person, cash and cash equivalent proceeds received by or for such Person's account, net of reasonable legal, underwriting, and other fees and expenses incurred as a direct result thereof. "Net Income" means, with reference to any period, the net income (or net loss) of the Borrower and its Subsidiaries for such period computed on a consolidated basis in accordance with GAAP. "Net Worth" means, at any time the same is to be determined, total shareholder's equity (including capital stock, additional paid-in capital and retained earnings after deducting treasury stock) which would appear on the balance sheet of the Borrower and its Subsidiaries prepared on a consolidated basis in accordance with GAAP. -27- "Notes" means and includes the Revolving Notes and Term Notes. "Obligations" means all fees payable hereunder, all obligations of the Borrower to pay principal and interest on Loans and Reimbursement Obligations, and all other payment obligations of the Borrower or any Subsidiary arising under or in relation to any Loan Document, in each case whether now existing or hereafter arising. "Participating Bank" is defined in Section 1.2(d) hereof. "Participating Interest" is defined in Section 1.2(d) hereof. "PBGC" means the Pension Benefit Guaranty Corporation or any Person succeeding to any or all of its functions under ERISA. "Percentage" means for any Bank its Revolver Percentage or Term Loan Percentage, as applicable. "Person" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization or any other entity or organization, including a government or agency or political subdivision thereof. "Plan" means any employee pension benefit plan covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code that either (i) is maintained by a member of the Controlled Group for employees of a member of the Controlled Group or (ii) is maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions. "Pledge Agreement" means that certain Pledge Agreement dated of even date herewith among the Borrower, certain of its Subsidiaries, and the Agent, as the same may be amended, modified or restated from time to time. "Principals" means Heritage Partners Management Company, Inc. and Heritage Fund II, L.P. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Reimbursement Obligation" is defined in Section 1.2(c) hereof. "Related Party" with respect to any Principal means (a) any controlling holder of equity interests, 80% (or more) owned subsidiary, or spouse or ex- spouse or immediate family member (in the case of an individual) of such Principal, or (b) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Principal -28- and/or such other Persons referred to in the immediately preceding clause (a), or (c) any investment fund, whether a limited partnership, limited liability company or corporation or other entity managed or controlled by Heritage Partners Management Company, Inc. "Rental Expense" means, for any period, all rental expense of the Borrower and its Subsidiaries with respect to any and all real and personal property leases for such period as determined on a consolidated basis in accordance with GAAP. "Required Banks" means, at any time, Banks whose outstanding Loans and interests in Letters of Credit and Unused Revolving Credit Commitments constitute more than 50% of the sum of the total outstanding Loans, interests in Letters of Credit and Unused Revolving Credit Commitments of the Banks. "Revolving Credit" means the credit facility for making Revolving Loans and issuing Letters of Credit described in Sections 1.1 and 1.2 hereof. "Revolver Percentage" means, for each Bank, the percentage of the Revolving Credit Commitments represented by such Bank's Revolving Credit Commitment or, if the Revolving Credit Commitments have been terminated, the percentage held by such Bank (including through participation interests in Reimbursement Obligations) of the aggregate principal amount of all Revolving Loans and L/C Obligations then outstanding. "Revolving Credit Commitment" is defined in Section 1.1 hereof. "Revolving Credit Termination Date" means April 16, 2004, or such earlier date on which the Revolving Credit Commitments are terminated in whole pursuant to Section 1.13, 9.2 or 9.3 hereof. "Revolving Loan" is defined in Section 1.1 hereof and, as so defined, includes a Base Rate Loan or a Eurodollar Loan, each of which is a "type" of Revolving Loan hereunder. "Revolving Note" is defined in Section 1.11(a) hereof. "S&P" means Standard & Poor's Ratings Services Group, a division of The McGraw-Hill Companies, Inc. "Security Agreement" means that certain Security Agreement dated of even date herewith among the Borrower, certain of its Subsidiaries, and the Agent, as the same may be amended, modified or restated from time to time. "Senior Leverage Ratio" means, as of the last day of any fiscal quarter of the Borrower, the ratio of (a) the sum of Total Senior Funded Debt of the Borrower and its Subsidiaries as of the last day of such fiscal quarter, plus the product of Rental Expense of the Borrower and its Subsidiaries for the four fiscal quarters then ended multiplied by 8, to (b) Adjusted EBITDAR of the Borrower and its Subsidiaries for the four fiscal quarters then ended. -29- "Snukal Properties" means the real property leased by the Borrower or any of its Subsidiaries which is owned or controlled by Robert M. Snukal and Sheila S. Snukal, or either of them (or any Person controlled by either of them). "Subordinated Debt" means Indebtedness for Borrowed Money of the Borrower or any Subsidiary owing to any Person on terms and conditions, and in such amounts, acceptable to the Agent and the Required Banks in their sole discretion and which is subordinated in right of payment to the prior payment in full of the Obligations pursuant to written subordination provisions approved in writing by the Agent and the Required Banks. "Subordinated Note Indenture" means that certain Indenture dated April 16, 1998, among the Borrower, the Subsidiaries party thereto as guarantors, and State Street Bank and Trust Company, relating to the Borrower's issuance of $120,000,000 of Senior Subordinated Notes due 2008 thereunder. "subsidiary" means, as to any particular parent corporation or organization, any other corporation or organization more than 50% of the outstanding Voting Stock of which is at the time directly or indirectly owned by such parent corporation or organization or by any one or more other entities which are themselves subsidiaries of such parent corporation or organization. The term "Subsidiary" means a subsidiary of the Borrower or of any of its direct or indirect Subsidiaries. "Summit" means Summit Care Corporation, a California corporation. "Summit Merger" means the merger of Acquisition Corp. with and into Summit pursuant to the terms of the Summit Merger Agreement, with Summit surviving the merger. "Summit Merger Agreement" means that certain Agreement and Plan of Merger dated as of February 6, 1998, by and among Summit, the Borrower, Acquisition Corp., and Heritage Fund I, L.P., all exhibits, schedules, and attachments thereto, and all instruments and documents to be executed and delivered in connection therewith. "Target" means the Persons whose assets or equity interests are the subject of an Acquisition. "Term Credit" means the credit facility for Term Loans described in Section 1.3 hereof. "Term Loan Commitment" is defined in Section 1.3 hereof. "Term Loan" is defined in Section 1.3 hereof and, as so defined, includes a Base Rate Loan or a Eurodollar Loan, each of which is a "type" of Term Loan hereunder. "Term Note" is defined in Section 1.11(b) hereof. "Term Loan Percentage" means, for each Bank, the percentage of the Term Loan Commitments represented by such Bank's Term Loan Commitment or, if the Term Loan -30- Commitments have been terminated or have expired, the percentage held by such Bank of the aggregate principal amount of all Term Loans then outstanding. "Total Consideration" means the total amount (but without duplication) of (a) cash paid in connection with any Acquisition, plus (b) indebtedness payable to the seller in connection with such Acquisition, plus (c) the fair market value of any equity securities, including any warrants or options therefor, delivered in connection with any Acquisition, plus (d) the present value of covenants not to compete entered into in connection with such Acquisition or other future payments which are required to be made over a period of time and are not contingent upon the Borrower or its Subsidiary meeting financial performance objectives (discounted at the Base Rate), but only to the extent not included in clause (a), (b), or (c) above, plus (e) the amount of indebtedness assumed in connection with such Acquisition. "Total Funded Debt" means, at any time the same is to be determined, the aggregate of all Indebtedness for Borrowed Money of the Borrower and its Subsidiaries at such time, including all Indebtedness for Borrowed Money of any other Person which is directly or indirectly guaranteed by the Borrower or any of its Subsidiaries or which the Borrower or any of its Subsidiaries has agreed to purchase or otherwise acquire or in respect of which the Borrower or any of its Subsidiaries has otherwise assured a creditor against loss. "Total Senior Funded Debt" means, at any time the same is to be determined, Total Funded Debt at such time minus the aggregate amount of Subordinated Debt then outstanding. "Unfunded Vested Liabilities" means, for any Plan at any time, the amount (if any) by which the present value of all vested nonforfeitable accrued benefits under such Plan exceeds the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the Controlled Group to the PBGC or the Plan under Title IV of ERISA. "U.S. Dollars" and "$" each means the lawful currency of the United States of America. "Unused Revolving Credit Commitments" means, at any time, the difference between the Revolving Credit Commitments then in effect and the aggregate outstanding principal amount of Revolving Loans and L/C Obligations. "Voting Stock" of any Person means capital stock or other equity interests of any class or classes (however designated) having ordinary power for the election of directors or other similar governing body of such Person, other than stock or other equity interests having such power only by reason of the happening of a contingency. "Welfare Plan" means a "welfare plan" as defined in Section 3(1) of ERISA. "Wholly-owned Subsidiary" means a Subsidiary of which all of the issued and outstanding shares of capital stock (other than directors' qualifying shares as required by law) -31- or other equity interests are owned by the Borrower and/or one or more Wholly- owned Subsidiaries within the meaning of this definition. Section 5.2. Interpretation. The foregoing definitions are equally applicable to both the singular and plural forms of the terms defined. The words "hereof", "herein", and "hereunder" and words of like import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All references to time of day herein are references to Chicago, Illinois time unless otherwise specifically provided. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, it shall be done in accordance with GAAP except where such principles are inconsistent with the specific provisions of this Agreement. Section 5.3. Change in Accounting Principles. If, after the date of this Agreement, there shall occur any change in GAAP from those used in the preparation of the financial statements referred to in Section 6.5 hereof and such change shall result in a change in the method of calculation of any financial covenant, standard or term found in this Agreement, either the Borrower or the Required Banks may by notice to the Banks and the Borrower, respectively, require that the Banks and the Borrower negotiate in good faith to amend such covenants, standards, and term so as equitably to reflect such change in accounting principles, with the desired result being that the criteria for evaluating the financial condition of the Borrower and its Subsidiaries shall be the same as if such change had not been made. No delay by the Borrower or the Required Banks in requiring such negotiation shall limit their right to so require such a negotiation at any time after such a change in accounting principles. Until any such covenant, standard, or term is amended in accordance with this Section 5.3, financial covenants shall be computed and determined in accordance with GAAP in effect prior to such change in accounting principles. Without limiting the generality of the foregoing, the Borrower shall neither be deemed to be in compliance with any financial covenant hereunder nor out of compliance with any financial covenant hereunder if such state of compliance or noncompliance, as the case may be, would not exist but for the occurrence of a change in accounting principles after the date hereof. Section 6. Representations and Warranties. The Borrower represents and warrants to the Agent and the Banks as follows: Section 6.1. Organization and Qualification. The Borrower is duly organized, validly existing and in good standing as a corporation under the laws of the state of its incorporation, has full and adequate corporate power to own its Property and conduct its business as now conducted, and is duly licensed or qualified and in good standing in each jurisdiction in which the nature of the business conducted by it or the nature of the Property owned or leased by it requires such licensing or qualifying, except where the failure to do so would not have a Material Adverse Effect. -32- Section 6.2. Subsidiaries. Each Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated or organized, as the case may be, has full and adequate power to own its Property and conduct its business as now conducted, and is duly licensed or qualified and in good standing in each jurisdiction in which the nature of the business conducted by it or the nature of the Property owned or leased by it requires such licensing or qualifying, except where the failure to do so would not have a Material Adverse Effect. Schedule 6.2 hereto (as the same may be deemed amended pursuant to Section 8.10(c) or 8.17 hereof) identifies each Subsidiary, the jurisdiction of its incorporation or organization, as the case may be, the percentage of issued and outstanding shares of each class of its capital stock or other equity interests owned by the Borrower and the other Subsidiaries and, if such percentage is not 100% (excluding directors' qualifying shares as required by law), a description of each class of its authorized capital stock and other equity interests and the number of shares of each class issued and outstanding. All of the outstanding shares of capital stock and other equity interests of each Subsidiary are validly issued and outstanding and fully paid and nonassessable and all such shares and other equity interests indicated on Schedule 6.2 (as the same may be deemed amended pursuant to Section 8.10(c) or 8.17 hereof) as owned by the Borrower or a Subsidiary are owned, beneficially and of record, by the Borrower or such Subsidiary free and clear of all Liens other than the Liens granted in favor of the Agent pursuant to the Collateral Documents. There are no outstanding commitments or other obligations of any Subsidiary to issue, and no options, warrants or other rights of any Person to acquire, any shares of any class of capital stock or other equity interests of any Subsidiary. Section 6.3. Authority and Validity of Obligations. The Borrower has full right and authority to enter into this Agreement and the other Loan Documents executed by it, to make the borrowings herein provided for, to issue its Notes in evidence thereof, to grant to the Agent the Liens described in the Collateral Documents executed by the Borrower, and to perform all of its obligations hereunder and under the other Loan Documents executed by it. Each Subsidiary has full right and authority to enter into the Loan Documents executed by it, to guarantee the Obligations, to grant to the Agent the Liens described in the Collateral Documents executed by such Person, and to perform all of its obligations under the Loan Documents executed by it. The Loan Documents delivered by the Borrower and by each Subsidiary have been duly authorized, executed and delivered by such Person and constitute valid and binding obligations of such Person enforceable in accordance with their terms except as enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance or similar laws affecting creditors' rights generally and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law); and this Agreement and the other Loan Documents do not, nor does the performance or observance by the Borrower or any Subsidiary of any of the matters and things herein or therein provided for, (a) contravene or constitute a default under any provision of law or any judgment, injunction, order or decree binding upon the Borrower or any Subsidiary or any provision of the charter, articles of incorporation, by-laws or comparable constituent documents of the Borrower or any Subsidiary, (b) contravene or constitute a default under any covenant, indenture or agreement of or affecting the Borrower or any Subsidiary or any of its Property, in each case where such contravention or default is reasonably likely to have a Material Adverse Effect, or (c) result in the creation or imposition of any Lien on any Property -33- of the Borrower or any Subsidiary other than the Liens granted in favor of the Agent pursuant to the Collateral Documents. Section 6.4. Use of Proceeds; Margin Stock. The Borrower shall use the proceeds of the Loans and other extensions of credit made available hereunder for the purpose of retiring the indebtedness outstanding under the Existing Credit Agreements and for its general working capital purposes and such other legal and proper purposes as are consistent with all applicable laws. Neither the Borrower nor any Subsidiary is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Loan or any other extension of credit made hereunder will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock. Margin stock (as hereinabove defined) constitutes less than 25% of those assets of the Borrower and its Subsidiaries which are subject to any limitation on sale, pledge, or other restriction hereunder. Section 6.5. Financial Reports. (a) The consolidated balance sheet of the Borrower and its Subsidiaries (other than Summit Care Corporation and its subsidiaries) as at December 31, 1997, and the related consolidated statements of income, retained earnings and cash flows of the Borrower and its Subsidiaries (other than Summit Care Corporation and its subsidiaries) for the fiscal year then ended, and accompanying notes thereto, which financial statements are accompanied by the audit report of its independent public accountants, heretofore furnished to the Banks, fairly present in all material respects the consolidated financial condition of the Borrower and its Subsidiaries (other than Summit Care Corporation and its subsidiaries) as at said dates and the consolidated results of their operations and cash flows for the periods then ended in conformity with GAAP applied on a consistent basis. (b) The consolidated balance sheet of Summit Care Corporation and its subsidiaries as at December 31, 1997, and the related consolidated statements of income, retained earnings and cash flows of Summit Care Corporation and its subsidiaries for the fiscal year then ended, and accompanying notes thereto, which financial statements are accompanied by the audit report of its independent public accountants, heretofore furnished to the Banks, fairly present in all material respects the consolidated financial condition of Summit Care Corporation and its subsidiaries as at said dates and the consolidated results of their operations and cash flows for the periods then ended in conformity with GAAP applied on a consistent basis. (c) Neither the Borrower nor any Subsidiary has contingent liabilities which are material to it other than as indicated on the financial statements referred to above or, with respect to future periods, on the financial statements furnished pursuant to Section 8.5 hereof. Section 6.6. No Material Adverse Change. Since December 31, 1997, there has been no change in the condition (financial or otherwise) or business prospects of the Borrower or any Subsidiary, except those occurring in the ordinary course of business and those contemplated by the Summit Merger Agreement, none of which individually or in the aggregate have been materially adverse. -34- Section 6.7. Full Disclosure. The statements and information furnished by or on behalf of the Borrower to the Banks in connection with the negotiation of this Agreement and the other Loan Documents and the commitments by the Banks to provide all or part of the financing contemplated hereby do not contain any untrue statements of a fact or omit a fact necessary to make the material statements contained herein or therein, in the light of the circumstances under which they were made, not misleading if the correct or complete facts would, if they constituted a change from the facts as originally disclosed or stated, have been reasonably likely to have a Material Adverse Effect; the Banks acknowledging that, as to any projections and other forward-looking statements regarding future expectations and the beliefs (the "Statements") furnished by the Borrower to the Banks, the Borrower only represents that, at the time the Statements were made by the Borrower to the Banks the Borrower did not know of any material facts that would cause the Statements to be untrue. Section 6.8. Trademarks, Franchises, and Licenses. The Borrower and each of the Subsidiaries own, possess, or have the right to use all necessary patents, licenses, franchises, trademarks, trade names, trade styles, copyrights, trade secrets, know how and confidential commercial and proprietary information to conduct their businesses as now conducted, without known conflict with any patent, license, franchise, trademark, trade name, trade style, copyright or other proprietary right of any other Person. Section 6.9. Governmental Authority and Licensing. The Borrower and each of the Subsidiaries have received all licenses, permits, and approvals of all Federal, state, local, and foreign governmental authorities, if any, necessary to conduct their business, in each case where the failure to obtain or maintain the same is reasonably likely to have a Material Adverse Effect. Except as disclosed in writing on Schedule 6.9 attached hereto, no investigation or proceeding which, if adversely determined, is reasonably likely to result in revocation or denial of any material license, permit, or approval, or of any right to receive reimbursement or payments under Medicare or other governmental third-party reimbursement or prospective payment program, is pending or, to the knowledge of the Borrower, threatened. Section 6.10. Good Title. The Borrower and each of the Subsidiaries have good and defensible title (or valid leasehold interests) to their assets as reflected on the most recent consolidated balance sheet of the Borrower and its Subsidiaries furnished to the Banks (except for sales of assets in the ordinary course of business), subject to no Liens other than such thereof as are permitted by Section 8.8 hereof. Section 6.11. Litigation and Other Controversies. There is no litigation or governmental proceeding or labor controversy pending, nor to the knowledge of the Borrower threatened, against the Borrower or any Subsidiary which if adversely determined is reasonably likely to have a Material Adverse Effect. Section 6.12. Taxes. All tax returns required to be filed by the Borrower or any Subsidiary in any jurisdiction have, in fact, been filed, and all taxes, assessments, fees and other governmental charges upon the Borrower or any Subsidiary or upon any of its respective Property, income or franchises, which are shown to be due and payable in such returns, have been paid, except such taxes, assessments, fees and governmental charges, if any, as are being -35- contested in good faith and by appropriate proceedings which prevent enforcement of the matter under contest and as to which adequate reserves established in accordance with GAAP have been provided. The Borrower does not know of any proposed additional tax assessment against the Borrower or any Subsidiary for which adequate provisions in accordance with GAAP have not been made on their accounts. Adequate provisions in accordance with GAAP for taxes on the books of the Borrower and each Subsidiary have been made for all open years, and for its current fiscal period. Section 6.13. Approvals. No authorization, consent, license, or exemption from, or filing or registration with, any court or governmental department, agency or instrumentality, nor any approval or consent of the stockholders of the Borrower or any Subsidiary, or of any other Person, is or will be necessary to the valid execution, delivery or performance by the Borrower or any Subsidiary of this Agreement or any other Loan Document, except as disclosed on Schedule 6.13 and for such approvals which have been obtained prior to the date of this Agreement and remain in full force and effect. Section 6.14. Affiliate Transactions. Neither the Borrower nor any Subsidiary is a party to any contracts or agreements with any of its Affiliates on terms and conditions which are less favorable to the Borrower or such Subsidiary than would be usual and customary in similar contracts or agreements between Persons not affiliated with each other. Section 6.15. Investment Company; Public Utility Holding Company. Neither the Borrower nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "public utility holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. Section 6.16. ERISA. The Borrower and each of its Subsidiaries, and each member of its Controlled Group, have fulfilled their obligations under the minimum funding standards of, and are in compliance in all material respects with, ERISA and the Code to the extent applicable to any Plan maintained by any one or more of them or for the benefit of their employees and have not incurred any liability to the PBGC or a Plan under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. Neither the Borrower nor any Subsidiary has any material contingent liabilities with respect to any post-retirement benefits under a Welfare Plan, other than liability for continuation coverage described in article 6 of Title I of ERISA. Section 6.17. Compliance with Laws. The Borrower and each of its Subsidiaries are in compliance with the requirements of all federal, state and local laws, rules and regulations applicable to or pertaining to their Properties or business operations (including, without limitation, the Occupational Safety and Health Act of 1970, the Americans with Disabilities Act of 1990, laws and regulations relating to the providing of health care services and products, and laws and regulations establishing quality criteria and standards for air, water, land and toxic or hazardous wastes and substances), where any such non-compliance, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect. Neither the Borrower nor any Subsidiary has received notice to the effect that its operations -36- are not in compliance with any of the requirements of applicable federal, state or local environmental, health and safety statutes and regulations or are the subject of any governmental investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, where any such non-compliance or remedial action, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect. Section 6.18. Other Agreements. Neither the Borrower nor any Subsidiary is in default under the terms of any covenant, indenture or agreement of or affecting such Persons or any of their Properties, which default if uncured is reasonably likely to have a Material Adverse Effect. Section 6.19. Solvency. The Borrower and its Subsidiaries are able to pay their debts as they become due and have sufficient capital to carry on their businesses and all businesses in which they are about to engage in; and the amount that will be required to pay the Borrower's and each Subsidiary's probable liabilities as they become absolute and mature is less than the sum of the present fair sale value of its assets as a going concern. Section 6.20. Summit Acquisition. The Borrower has heretofore delivered to the Banks a true and correct copy of the Summit Merger Agreement and, except to the extent consented to in writing by the Agent, the Summit Merger Agreement has not been amended or modified in any respect and no condition to the effectiveness thereof or the obligations of the Borrower or Acquisition Corp. thereunder has been waived. The Borrower and Acquisition Corp. and, to the best of the Borrower's knowledge, Summit have all necessary right, power, and authority to consummate the transactions contemplated by the Summit Merger Agreement and to perform all of their obligations thereunder. The Summit Merger Agreement has been duly authorized, executed, and delivered by the Borrower and Acquisition Corp. and, to the best of the Borrower's knowledge, Summit and the Summit Merger Agreement constitutes the valid and binding obligation of the Borrower and Acquisition Corp. and, to the best of the Borrower's knowledge, Summit, enforceable against each of them in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance or similar laws affecting creditors' rights generally and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law); and the Summit Merger Agreement does not, nor does the observance or performance by the Borrower or Acquisition Corp. or, to the best of the Borrower's knowledge, Summit of any of the matters and things therein provided for, contravene or constitute a default under any provision of law or any judgment, injunction, order, or decree binding upon such Person or any provision of the charter, articles of incorporation, or by-laws of such Person or any covenant, indenture, or agreement of or affecting such Person or any of its Property, or result in the creation or imposition of any Lien on any such Person's Property. No authorization, consent, license, or exemption from, or filing or registration with, any court or governmental department, agency, or instrumentality, nor any approval or consent of any other Person, is or will be necessary to the valid execution, delivery, or performance by the Borrower or Acquisition Corp. or, to the best of the Borrower's knowledge, Summit of the Summit Merger Agreement or of any other instrument or document executed and delivered in connection therewith, except for such thereof that have heretofore been obtained and remain in -37- full force and effect. Neither the Borrower nor Acquisition Corp. nor, to the best of the Borrower's knowledge, Summit are in default in any of their respective obligations under the Summit Merger Agreement. The fees and expenses incurred or to be paid in connection with the Acquisition of Summit, the Summit Merger, and the refinancing of the indebtedness of the Borrower and Summit pursuant to this Agreement and the Subordinated Note Indenture, and the other instruments and documents entered into in connection therewith, will not exceed $35,000,000 (including make-whole premiums). Section 6.21. Year 2000 Compliance. The Borrower and its Subsidiaries have conducted and are continuing to conduct a review and assessment of its computer applications, and have made and are continuing to make inquiry of their material suppliers, vendors and customers, with respect to any defect in computer software, data bases, hardware, controls and peripherals related to the occurrence of the year 2000 or the use of any date after December 31, 1999, in connection therewith. Based on the foregoing review, assessment and inquiry, except with respect to matters brought to the Borrower's attention after the date of this Agreement to the extent disclosed to the Agent and the Banks in writing, the Borrower believes that no such defect could reasonably be expected to have a Material Adverse Effect. Section 6.22. No Default. No Default or Event of Default has occurred and is continuing. Section 7. Conditions Precedent. The obligation of each Bank to advance, continue or convert any Loan (other than the continuation of, or conversion into, a Base Rate Loan) or of the Issuing Bank to issue, extend the expiration date (including by not giving notice of non-renewal) of or increase the amount of any Letter of Credit under this Agreement, shall be subject to the following conditions precedent: Section 7.1. Initial Credit Event. Before or concurrently with the initial Credit Event: (a) the Agent shall have received for each Bank this Agreement duly executed by the Borrower and the Banks; (b) the Agent shall have received for each Bank such Bank's duly executed Notes of the Borrower dated the date hereof and otherwise in compliance with the provisions of Section 1.11 hereof; (c) the Agent shall have received the Security Agreement and the Pledge Agreement duly executed by the Borrower and each Subsidiary, and the Guaranty duly executed by each Subsidiary, together with (i) original stock certificates or other similar instruments or securities representing all of the issued and outstanding shares of capital stock or other equity interest of each Subsidiary as of the date of this Agreement (other than Alexandria Convalescent Hospital, Inc.), (ii) stock powers for the Collateral consisting of the stock or other equity interest of each Subsidiary (other than Alexandria Convalescent Hospital, Inc.), each to be executed in blank and undated, and (iii) UCC -38- financing statements to be filed against the Borrower and each Subsidiary, as debtor, in favor of the Agent, as secured party; (d) the Agent shall have received evidence of insurance required to be maintained under the Loan Documents, naming the Agent as loss payee; (e) the Agent shall have received for each Bank copies of the Borrower's and each Subsidiary's articles of incorporation and bylaws (or comparable constituent documents) and any amendments thereto, certified in each instance by its Secretary or Assistant Secretary; (f) the Agent shall have received for each Bank copies of resolutions of the Borrower's and of each Subsidiary's Board of Directors authorizing the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby, together with specimen signatures of the persons authorized to execute such documents on the Borrower's and such Subsidiary's behalf, all certified in each instance by its Secretary or Assistant Secretary; (g) the Agent shall have received for each Bank copies of the certificates of good standing for the Borrower and for each Subsidiary (dated no earlier than 30 days prior to the date hereof) from the office of the secretary of the state of its incorporation and of each state in which it is qualified to do business as a foreign corporation; (h) the Agent shall have received for each Bank a list of the Borrower's Authorized Representatives; (i) the Agent shall have received for itself and for the Banks the initial fees called for by Section 2.1 hereof; (j) each Bank shall have received such evaluations and certifications as it may reasonably require (including an officer's certificate as to the solvency of the Borrower and its Subsidiaries after giving effect to the transactions contemplated hereby and a compliance certificate in the form attached hereto as Exhibit F containing compliance calculations of the financial covenants as of the date of this Agreement after giving effect to the Summit Merger) in order to satisfy itself as to the value of the Collateral, the financial condition of the Borrower and its Subsidiaries, and the lack of material contingent liabilities of the Borrower and its Subsidiaries; (k) the Agent shall have received pay-off and lien release letters from secured creditors of the Borrower and its Subsidiaries setting forth, among other things, the total amount of indebtedness outstanding and owing to them (or outstanding letters of credit issued for the account of the Borrower or any of its Subsidiaries) and containing an undertaking to cause to be delivered to the Agent UCC termination statements and any other lien release instrument necessary to release its Lien on all assets of the Borrower -39- and its Subsidiaries, which pay-off and lien release letters shall be in form and substance acceptable to the Agent; (l) the Agent shall have received evidence of the Summit Merger in accordance with the terms of the Summit Merger Agreement (without giving effect to any amendment, modification or waiver thereto not consented to in writing by the Agent) and its effectiveness; (m) the Borrower shall have issued Subordinated Debt in the principal amount of not less than $120,000,000, on terms and conditions acceptable to the Agent, and the Borrower shall have received the proceeds thereof; (n) the Borrower shall have issued pay-in-kind preferred stock in the amount of not less than $15,000,000, on terms and conditions acceptable to the Agent, and the Borrower shall have received the proceeds thereof; (o) the Agent shall have received for each Bank the favorable written opinions of counsel to the Borrower and its Subsidiaries, in form and substance reasonably satisfactory to the Agent. Section 7.2. All Credit Events. As of the time of each Credit Event hereunder: (a) in the case of a Borrowing the Agent shall have received the notice required by Section 1.6 hereof, in the case of the issuance of any Letter of Credit the Agent shall have received a duly completed Application for such Letter of Credit together with any fees called for by Section 2.1 hereof and, in the case of an extension or increase in the amount of a Letter of Credit, a written request therefor in a form acceptable to the Agent together with fees called for by Section 2.1 hereof; (b) each of the representations and warranties set forth in Section 6 hereof shall be and remain true and correct as of such time, except to the extent that any such representation or warranty relates solely to an earlier time or that any change therein is not reasonably likely to have a Material Adverse Effect; (c) the Borrower shall be in compliance with all of the terms and conditions hereof, and no Default or Event of Default shall have occurred and be continuing hereunder or would occur as a result of such Credit Event; and (d) such Credit Event shall not violate any order, judgment or decree of any court or other authority or any provision of law or regulation applicable to any Bank (including, without limitation, Regulation U of the Board of Governors of the Federal Reserve System). Each request for a Borrowing hereunder and each request for the issuance of, increase in the amount of, or extension of the expiration date of, a Letter of Credit shall be deemed to be a -40- representation and warranty by the Borrower on the date on such Credit Event as to the facts specified in subsections (a) through (c), both inclusive, this Section 7.2. SECTION 8. COVENANTS. The Borrower agrees that, so long as any Note or any L/C Obligation is outstanding or any Commitment is available to or in use by the Borrower hereunder, except to the extent compliance in any case or cases is waived in writing by the Required Banks: Section 8.1. Maintenance of Business. The Borrower shall, and shall cause each Subsidiary to, preserve and maintain its existence, except as otherwise provided in Section 8.10(c) hereof. The Borrower shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other proprietary rights necessary to the proper conduct of its business where the failure to do so is reasonably likely to have a Material Adverse Effect. Section 8.2. Maintenance of Properties. The Borrower shall, and shall cause each Subsidiary to, maintain, preserve and keep its property, plant and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall be fully preserved and maintained, except to the extent that, in the reasonable business judgment of such Person, any such Property is no longer necessary for the proper conduct of the business of such Person. Section 8.3. Taxes and Assessments. The Borrower shall duly pay and discharge, and shall cause each Subsidiary to duly pay and discharge, all taxes, rates, assessments, fees and governmental charges upon or against it or its Properties, in each case before the same become delinquent and before penalties accrue thereon, unless and to the extent that the same are being contested in good faith and by appropriate proceedings which prevent enforcement of the matter under contest and adequate reserves are provided therefor. Section 8.4. Insurance. The Borrower shall insure and keep insured, and shall cause each Subsidiary to insure and keep insured, with insurance companies with a general policyholder service rating of not less than A as rated in the most current available Best's Insurance Report (except to the extent disclosed on Schedule 8.4 hereof), all insurable Property owned by it which is of a character usually insured by Persons similarly situated and operating like Properties against loss or damage from such hazards and risks, and in such amounts, as are insured by Persons similarly situated and operating like Properties; and the Borrower shall insure, and shall cause each Subsidiary to insure, such other hazards and risks (including professional liability, employers' and public liability risks) with insurance companies with a general policyholder service rating of not less than A as rated in the most current available Best's Insurance Report as and to the extent usually insured by Persons similarly situated and conducting similar businesses. The Borrower shall in any event maintain, and cause each Subsidiary to maintain, insurance on the Collateral to the extent required by the Collateral Documents. The Borrower shall, upon the request of the Agent, -41- furnish to the Agent and each Bank a certificate setting forth in summary form the nature and extent of the insurance maintained pursuant to this Section. Section 8.5. Financial Reports. The Borrower shall, and shall cause each Subsidiary to, maintain a standard system of accounting in accordance with GAAP and shall furnish to the Agent, each Bank and each of their duly authorized representatives such information respecting the business and financial condition of the Borrower and each Subsidiary as the Agent or such Bank may reasonably request; and without any request, shall furnish to the Agent and the Banks: (a) as soon as available, and in any event within 45 days after the close of each fiscal quarter of each fiscal year of the Borrower, a copy of the consolidated and consolidating balance sheet of the Borrower and its Subsidiaries as of the last day of such period and the consolidated and consolidating statements of income, retained earnings and cash flows of the Borrower and its Subsidiaries for the fiscal quarter and for the fiscal year-to-date period then ended, each in reasonable detail showing in comparative form the figures for the corresponding date and period in the previous fiscal year, prepared by the Borrower in accordance with GAAP and certified to by the Borrower's chief financial officer, or another officer of the Borrower reasonably acceptable to the Agent; (b) as soon as available, and in any event within 90 days after the close of each fiscal year of the Borrower, a copy of the consolidated and consolidating balance sheet of the Borrower and its Subsidiaries as of the last day of the period then ended and the consolidated and consolidating statements of income, retained earnings and cash flows of the Borrower and its Subsidiaries for the period then ended, and accompanying notes thereto, each in reasonable detail showing in comparative form the figures for the previous fiscal year, accompanied in the case of the Borrower's consolidated financial statements by an unqualified opinion of a Big Six accounting firm or another firm of independent public accountants of recognized national standing, selected by the Borrower and reasonably satisfactory to the Required Banks, to the effect that the consolidated financial statements have been prepared in accordance with GAAP and present fairly, in all material respects, in accordance with GAAP the consolidated financial condition of the Borrower and its Subsidiaries as of the close of such fiscal year and the results of their operations and cash flows for the fiscal year then ended and that an examination of such accounts in connection with such financial statements has been made in accordance with generally accepted auditing standards and, accordingly, such examination included such tests of the accounting records and such other auditing procedures as were considered necessary in the circumstances; (c) promptly after the sending or filing thereof, copies of each financial statement, report, notice or proxy statement sent by the Borrower or any Subsidiary to its stockholders, and copies of each regular, periodic or special report, registration statement or prospectus (including all Form 10-K, Form 10-Q, and Form 8-K reports and proxy statements) filed by the Borrower or any Subsidiary with any securities exchange or the Securities and Exchange Commission or any successor agency; -42- (d) promptly after receipt thereof, a copy of each audit made by any regulatory agency of the books and records of the Borrower or any Subsidiary or of any notice of material noncompliance with any applicable law, regulation, or guideline relating to the Borrower or any Subsidiary or any of their respective businesses; (e) as soon as available, and in any event prior to the end of each fiscal year of the Borrower, a copy of the Borrower's consolidated and consolidating business plan for the following fiscal year, such business plan to show the Borrower's projected consolidated and consolidating revenues, expenses, and balance sheet on month-by-month basis, such business plan to be in reasonable detail prepared by the Borrower and in form reasonably satisfactory to the Agent which shall include a summary of all assumptions made in preparing such business plan; (g) notice of any Change of Control; and (h) promptly after knowledge thereof shall have come to the attention of any responsible officer of the Borrower, written notice of any threatened or pending litigation or governmental proceeding or labor controversy against the Borrower or any Subsidiary which, if adversely determined, is reasonably likely to have a Material Adverse Effect or of the occurrence of any Default or Event of Default hereunder. Each of the financial statements furnished to the Banks pursuant to subsections (a) and (b) of this Section 8.5 shall be accompanied by a written certificate in the form attached hereto as Exhibit F signed by the chief financial officer of the Borrower, or another officer of the Borrower reasonably acceptable to the Agent, to the effect that to the best of such officer's knowledge and belief no Default or Event of Default has occurred during the period covered by such statements or, if any such Default or Event of Default has occurred during such period, setting forth a description of such Default or Event of Default and specifying the action, if any, taken by the Borrower or any Subsidiary to remedy the same. Such certificate shall also set forth the calculations supporting such statements in respect of Sections 8.23, 8.24, 8.25, 8.26 and 8.27 of this Agreement. Section 8.6. Inspection. The Borrower shall, and shall cause each Subsidiary to, permit the Agent, each Bank and each of their duly authorized representatives and agents to visit and inspect any of its Properties, corporate books and financial records, to examine and make copies of its books of accounts and other financial records, and to discuss its affairs, finances and accounts with, and to be advised as to the same by, its officers, employees and independent public accountants (and by this provision the Borrower hereby authorizes such accountants to discuss with the Agent and such Banks the finances and affairs of the Borrower and each Subsidiary) at such reasonable times and intervals as the Agent or any such Bank may designate. Section 8.7 Indebtedness for Borrowed Money. The Borrower shall not, nor shall it permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness for Borrowed Money; provided, however, that the foregoing shall not restrict nor operate to prevent: -43- (a) the Obligations of the Borrower owing to the Agent and the Banks hereunder; (b) purchase money indebtedness and Capitalized Lease Obligations (including purchase money indebtedness and Capitalized Lease Obligations incurred in connection with the acquisition of real property) of the Borrower and of its Subsidiaries in an aggregate amount not to exceed $40,000,000 at any one time outstanding; (c) obligations of the Borrower arising out of interest rate hedging agreements entered into with financial institutions in the ordinary course of business; (d) guaranties expressly permitted by Section 8.9 hereof; (e) indebtedness from time to time owing by the Borrower to any Subsidiary or by any Subsidiary to the Borrower or any other Subsidiary; (f) unsecured Subordinated Debt of the Borrower; (g) indebtedness outstanding under the Existing Credit Agreements which is paid and satisfied in full out of proceeds of the initial Credit Event hereunder; (h) other indebtedness existing on the date of this Agreement and described on Schedule 8.7 attached hereto and made a part hereof, as reduced from time to time by repayments thereof; and (i) other indebtedness of the Borrower and its Subsidiaries not otherwise permitted by this Section in an aggregate amount not to exceed $1,000,000 at any one time outstanding. Section 8.8. Liens. The Borrower shall not, nor shall it permit any other Subsidiary to, create, incur or permit to exist any Lien of any kind on any Property owned by any such Person; provided, however, that the foregoing shall not apply to nor operate to prevent: (a) Liens arising by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, taxes, assessments, statutory obligations or other similar charges, good faith cash deposits in connection with tenders, contracts or leases to which the Borrower or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided in each case that the obligation is not for borrowed money and that the obligation secured is not overdue or, if overdue, is being contested in good faith by appropriate proceedings which prevent enforcement of the matter under contest and adequate reserves have been established therefor; (b) mechanics', workmen's, materialmen's, landlords', carriers', or other similar Liens arising in the ordinary course of business with respect to obligations which -44- are not due or which are being contested in good faith by appropriate proceedings which prevent enforcement of the matter under contest; (c) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Borrower and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $2,000,000 at any one time outstanding; (d) the Liens granted in favor of the Agent for the benefit of the Agent and the Banks pursuant to the Collateral Documents; (e) Liens on property of the Borrower or any Subsidiary created solely for the purpose of securing indebtedness permitted by Section 8.7(b) hereof, representing or incurred to finance, refinance or refund the purchase price of Property, provided that no such Lien shall extend to or cover other Property of the Borrower or such Subsidiary other than the respective Property so acquired, and the principal amount of indebtedness secured by any such Lien shall at no time exceed the original purchase price of such Property; (f) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not materially detract from the value of the Property subject thereto or materially interfere with the ordinary conduct of the business of the Borrower or any Subsidiary; (g) Liens described on Schedule 8.8 hereof securing the indebtedness described therein; (h) any interest or title of a lessor under any operating lease; and (i) Liens on equipment not otherwise permitted by this Section securing obligations in an aggregate amount not to exceed $500,000 at any one time outstanding. Section 8.9. Investments, Acquisitions, Loans, Advances and Guaranties. The Borrower shall not, nor shall it permit any Subsidiary to, directly or indirectly, make, retain or have outstanding any investments (whether through purchase of stock or obligations or otherwise) in, or loans or advances (other than for travel advances and other similar cash advances made to employees in the ordinary course of business) to, any other Person, or acquire all or any substantial part of the assets or business of any other Person or division thereof, or be or become liable as endorser, guarantor, surety or otherwise for any debt, obligation or undertaking of any other Person, or otherwise agree to provide funds for payment of the obligations of another, or supply funds thereto or invest therein or otherwise assure a creditor of another against loss, or apply for or become liable to the issuer of a letter of credit which supports an obligation of another, or subordinate any claim or demand it may have to -45- the claim or demand of any other Person; provided, however, that the foregoing shall not apply to nor operate to prevent: (a) investments in direct obligations of the United States of America or of any agency or instrumentality thereof whose obligations constitute full faith and credit obligations of the United States of America, provided that any such obligations shall mature within one year of the date of issuance thereof; (b) investments in commercial paper rated at least P-1 by Moody's and at least A-1 by S&P maturing within one year of the date of issuance thereof; (c) investments in certificates of deposit issued by any Bank or by any United States commercial bank having capital and surplus of not less than $100,000,000 which have a maturity of one year or less; (d) endorsement of items for deposit or collection of commercial paper received in the ordinary course of business; (e) the Borrower's investments from time to time in its Subsidiaries, and investments made from time to time by a Subsidiary in one or more of its Subsidiaries; (f) guaranties issued by the Borrower or any Subsidiary guaranteeing or otherwise supporting the repayment of indebtedness of the Borrower or another Subsidiary otherwise permitted by Section 8.7 hereof; (g) trade receivables from time to time owing to the Borrower or any Subsidiary created or acquired in the ordinary course of its business; (h) guaranties by the Borrower or any Subsidiary of the obligations of any other Subsidiary, as lessee, under any real estate leases entered into in the ordinary course of its business; (i) intercompany advances made from time to time between the Borrower and one or more Subsidiaries or between Subsidiaries; (j) the Acquisition of Summit pursuant to the terms of the Summit Merger Agreement, and other Acquisitions with respect to which all of the following conditions have been satisfied: (i) the Acquired Business is in an Eligible Line of Business, (ii) the Acquisition is not a Hostile Acquisition, (iii) if the Total Consideration paid for the Target is more than $5,000,000, the Acquisition EBITDA of the Target for the most recently completed 12 month period must be greater than $1, (iv) the Total Consideration for any single Acquisition does not exceed $25,000,000 and the Total Consideration for all Acquisitions during any single fiscal year of the Borrower does not exceed $25,000,000 in the aggregate, (v) prior to consummating an Acquisition, the Borrower shall have notified the Agent and the Banks in writing of the proposed Acquisition in reasonable detail (including sources and uses of funds therefor) and -46- furnished the Agent and the Banks historic and pro forma financial information and compliance calculations reasonably satisfactory to the Agent, and (vi) after giving effect to the Acquisition, no Default or Event of Default shall exist, including with respect to the covenants contained in Section 8 hereof on a pro forma basis; (k) existing note receivable owing by William Scott in the principal amount of not more than $2,600,000, and existing other note receivables described on Schedule 8.9 hereof, in each case as reduced from time to time by repayments of principal thereon; and (l) other investments, loans, and advances in addition to those otherwise permitted by this Section in an aggregate amount not to exceed $4,000,000 at any one time outstanding. In determining the amount of investments, acquisitions, loans, advances and guaranties permitted under this Section, investments and acquisitions shall always be taken at the original cost thereof (regardless of any subsequent appreciation or depreciation therein), loans and advances shall be taken at the principal amount thereof then remaining unpaid, and guaranties shall be taken at the amount of the obligations guaranteed thereby. Section 8.10. Mergers, Consolidations and Sales. The Borrower shall not, nor shall it permit any Subsidiary to, be a party to any merger or consolidation, or sell, transfer, lease or otherwise dispose of its Property, including any disposition of Property as part of a sale and leaseback transaction, or in any event sell or discount (with or without recourse) any of its notes or accounts receivable; provided, however, that this Section shall not apply to nor operate to prevent: (a) the sale or lease of inventory in the ordinary course of business; (b) the sale, transfer, lease, or other disposition of Property of the Borrower or any Subsidiary to one another in the ordinary course of its business; (c) a merger of any Subsidiary with and into the Borrower or any other Subsidiary or a merger of a Target with and into a Subsidiary or the Borrower pursuant to an Acquisition permitted by Section 8.9(j) hereof; provided that, in the case of any merger involving the Borrower, the Borrower is the corporation surviving the merger; (d) the sale of delinquent notes or accounts receivable in the ordinary course of business for purposes of collection only (and not for the purpose of any bulk sale or securitization transaction); (e) the sale, transfer, or other disposition of any tangible personal property that, in the reasonable business judgment of the Borrower or its Subsidiary, has become uneconomical, obsolete, or worn out, and which is disposed of in the ordinary course of business; and -47- (f) the sale, transfer, lease, or other disposition of Property of the Borrower or any Subsidiary aggregating for the Borrower and its Subsidiaries not more than $1,000,000 during any 12-month period; In the event of any merger permitted by Section 8.10(c) above, the Borrower shall give the Agent and the Banks prior written notice of any such event and, immediately after giving effect to any such merger, Schedule 6.2 of this Agreement shall be deemed amended excluding reference to any such Subsidiary merged out of existence. So long as no Default or Event of Default has occurred and is continuing or would arise as a result thereof, upon the written request of the Borrower, the Agent shall release its Lien on any Property sold pursuant to subsections (a), (d), (e), or (f) above. Section 8.11. Maintenance of Subsidiaries. The Borrower shall not assign, sell or transfer, nor shall it permit any Subsidiary to issue, assign, sell or transfer, any shares of capital stock of a Subsidiary; provided, however, that the foregoing shall not operate to prevent (i) the Lien on the capital stock of each Subsidiary granted to the Agent pursuant to the Collateral Documents, (ii) the issuance, sale and transfer to any person of any shares of capital stock of a Subsidiary solely for the purpose of qualifying, and to the extent legally necessary to qualify, such person as a director of such Subsidiary, and (iii) any transaction permitted by Section 8.10(c) above. Section 8.12. Dividends and Certain Other Restricted Payments. The Borrower shall not, nor shall it permit any Subsidiary to, (i) declare or pay any dividends on or make any other distributions in respect of any class or series of its capital stock (other than dividends payable solely in its capital stock) or (ii) directly or indirectly purchase, redeem or otherwise acquire or retire any of its capital stock; provided, however, that the foregoing shall not operate to prevent (a) the making of dividends or distributions by any Wholly- Owned Subsidiary to its parent corporation or (b) the purchase by the Borrower of its capital stock from former officers or employees, or their estates, who have been terminated or have died with an aggregate purchase price of not more than $200,000 during any calendar year so long as at the time of any such purchase, and after giving effect thereto, no Default or Event of Default exists. Section 8.13. ERISA. The Borrower shall, and shall cause each Subsidiary to, promptly pay and discharge all obligations and liabilities arising under ERISA pertaining to a Plan of a character which if unpaid or unperformed is reasonably likely to result in the imposition of a Lien against any of its Properties. The Borrower shall, and shall cause each Subsidiary to, promptly notify the Agent of (i) the occurrence of any reportable event (as defined in ERISA) with respect to a Plan, (ii) receipt of any notice from the PBGC of its intention to seek termination of any Plan or appointment of a trustee therefor, (iii) its intention to terminate or withdraw from any Plan, and (iv) the occurrence of any event with respect to any Plan which would result in the incurrence by the Borrower or any Subsidiary of any material liability, fine or penalty, or any material increase in the contingent liability of the Borrower or any Subsidiary with respect to any post-retirement Welfare Plan benefit. -48- Section 8.14. Compliance with Laws. The Borrower shall, and shall cause each Subsidiary to, comply in all respects with the requirements of all federal, state and local laws, rules, regulations, ordinances and orders applicable to or pertaining to its Properties or business operations, where any such non- compliance, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect or is reasonably likely to result in a Lien upon any of their Property. Section 8.15. Burdensome Contracts With Affiliates. The Borrower shall not, nor shall it permit any Subsidiary to, enter into any contract, agreement or business arrangement with any of its Affiliates on terms and conditions which are less favorable to the Borrower or such Subsidiary than would be usual and customary in similar contracts, agreements or business arrangements between Persons not affiliated with each other. Section 8.16. No Changes in Fiscal Year. The Borrower shall not change its fiscal year from its present basis without the prior written consent of the Required Banks. Section 8.17. Formation of Subsidiaries. Promptly upon the formation or Agent and the Banks written notice thereof and shall do such acquisition of any Subsidiary, the Borrower shall provide the acts and things as are required of it to comply with Section 4 hereof, and then and thereafter Schedule 6.2 of this Agreement shall be deemed amended from and after such date to include reference to any such Subsidiary. Section 8.18. Change in the Nature of Business. The Borrower shall not, nor shall it permit any Subsidiary to, engage in any business or activity if as a result the general nature of the business of the Borrower or any Subsidiary would be changed in any material respect from the general nature of the business engaged in by it as of the date of this Agreement or as of the date such Person becomes a Subsidiary hereunder. Section 8.19. Use of Loan Proceeds. The Borrower shall use the credit extended under this Agreement solely for the purposes set forth in, or otherwise permitted by, Section 6.4 hereof. Section 8.20. No Restrictions on Subsidiary Distributions. Except as provided herein, the Borrower shall not, nor shall it permit any Subsidiary to, directly or indirectly create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of the Borrower or any Subsidiary to: (a) guarantee the Obligations and grant Liens on its assets to the Agent for the benefit of the Banks as required by Section 4 hereof; (b) in the case of any Subsidiary, pay dividends or make any other distribution on any of such Subsidiary's capital stock or other equity interests owned by the Borrower or any Subsidiary; (c) pay any indebtedness owed to the Borrower or any Subsidiary; (d) make loans or advances to the Borrower or any Subsidiary; or (e) transfer any of its property or assets to the Borrower or any Subsidiary. Section 8.21. Alexandria. So long as Alexandria is a Subsidiary, directly or indirectly, of the Borrower and the capital stock of Alexandria is not subject to a first priority, perfected Lien in favor of the Agent pursuant to the Collateral Documents, the Borrower shall not permit -49- the total tangible assets of Alexandria to have a book value in excess of 2% of the Borrower's consolidated total tangible assets or the gross revenues of Alexandria to be in excess of 4% of the Borrowers consolidated total revenues. Section 8.22. Subordinated Debt. The Borrower shall at all times ensure that all Obligations now existing or hereafter arising constitute "Senior Debt", or words of like import, under each indenture, instrument, or agreement evidencing or otherwise setting forth the terms or conditions applicable to any outstanding Subordinated Debt. Without limiting the foregoing, the Borrower hereby irrevocably designates the Obligations, whether now existing or hereafter arising, as Senior Debt under the terms of the Subordinated Note Indenture. The Borrower shall not, nor shall it permit any Subsidiary to, amend or modify any of the terms and conditions relating to any Subordinated Debt or make any voluntary prepayment thereof or affect any voluntary redemption thereof or make any payment on account of Subordinated Debt which is prohibited under the terms of any instrument or agreement subordinating the same to the Obligations. Section 8.23. Leverage Ratio. As of the last day of each fiscal quarter of the Borrower ending on or about June 30th and December 31st of each year occurring during the periods specified below, the Borrower shall not permit the Leverage Ratio as of the last day of the relevant fiscal quarter to be greater than or equal to:
RATIO SHALL NOT BE GREATER FROM AND INCLUDING TO AND INCLUDING THAN OR EQUAL TO the date hereof 12/31/98 6.5 to 1.0 01/01/99 06/30/99 6.25 to 1.0 07/01/99 12/31/99 6.0 to 1.0 01/01/2000 06/30/2000 5.5 to 1.0 07/01/2000 12/31/2000 5.0 to 1.0 01/01/2001 06/30/2001 4.75 to 1.0 07/01/2001 12/31/2001 4.5 to 1.0 01/01/2002 at all times thereafter 4.25 to 1.0
Section 8.24. Senior Leverage Ratio. As of the last day of each fiscal quarter of the Borrower ending on or about June 30th and December 31st of each year occurring during the periods specified below, the Borrower shall not permit the Senior Leverage Ratio as of the last day of the relevant fiscal quarter to be greater than or equal to: -50- RATIO SHALL NOT BE GREATER FROM AND INCLUDING TO AND INCLUDING THAN OR EQUAL TO the date hereof 12/31/98 4.5 to 1.0 01/01/99 06/30/99 4.0 to 1.0 07/01/99 12/31/99 3.75 to 1.0 01/01/2000 at all times thereafter 3.5 to 1.0 Section 8.25. Net Worth. The Borrower shall, at all times, maintain Net Worth of not less than the sum of (a) 87% of the Borrower's Net Worth on the date of this Agreement (such amount to be reasonably determined by the Borrower and established to the reasonable satisfaction of the Agent based on the Borrower's closing date balance sheet to be furnished to the Agent within 30 days of the date hereof), plus (b) 75% of Net Income for each fiscal quarter of the Borrower ending after the date of this Agreement for which such Net Income is a positive amount (i.e., there shall be no reduction to the amount of Net Worth required to be maintained hereunder for any such period in which Net Income is less than zero), plus (c) 100% of the Net Cash Proceeds received by the Borrower from any offering of equity securities of the Borrower after the date of this Agreement, plus (d) 100% of the amount of any Indebtedness for Borrowed Money converted into equity securities of the Borrower after the date of this Agreement. Section 8.26. Fixed Charge Coverage Ratio. As of the last day of each fiscal quarter of the Borrower, the Borrower shall maintain a ratio of (a) EBITDAR for the four fiscal quarters of the Borrower then ended less the sum of (x) Fixed Asset Maintenance Expenditures incurred during such period and (y) cash payments made during such period with respect to federal, state, and local income taxes to (b) the aggregate amount of payments required to be made by the Borrower and its Subsidiaries during the four fiscal quarters of the Borrower then ended in respect of all principal on all Indebtedness for Borrowed Money (whether at maturity, as a result of mandatory sinking fund redemption, mandatory prepayment, acceleration or otherwise) plus Interest Expense and Rental Expense for the same four fiscal quarter period then ended, of not less than 1.15 to 1.0. Section 8.27. Capital Expenditures. The Borrower shall not, nor shall it permit any other Subsidiary to, incur Capital Expenditures (excluding from the determination of Capital Expenditures hereunder Acquisitions permitted by Section 8.9(j) of this Agreement) in an aggregate amount in excess of (a) $10,000,000 during the 12-month period ending on June 30, 1999, and (b) $15,000,000 during any 12-month period ending on June 30th of each year ending thereafter. Section 9. Events of Default and Remedies. Section 9.1. Events of Default. Any one or more of the following shall constitute an "Event of Default" hereunder: -51- (a) default in the payment when due of all or any part of the principal of or interest on any Note (whether at the stated maturity thereof or at any other time provided for in this Agreement), or default in the payment when due of any Reimbursement Obligation or of any fee or other Obligation payable hereunder or under any other Loan Document; (b) default in the observance or performance of any covenant set forth in Section 8 hereof or of any provision in any Loan Document dealing with the use, disposition or remittance of the proceeds of Collateral or requiring the maintenance of insurance thereon; (c) default in the observance or performance of any other provision hereof or of any other Loan Document which is not remedied within 30 days after the earlier of (i) the date on which such failure shall first become known to any responsible officer of the Borrower or (ii) written notice thereof is given to the Borrower by the Agent; (d) any representation or warranty made herein or in any other Loan Document or in any certificate furnished to the Agent or the Banks pursuant hereto or thereto or in connection with any transaction contemplated hereby or thereby proves untrue in any material respect as of the date of the issuance or making or deemed making thereof; (e) any event occurs or condition exists (other than those described in subsections (a) through (d) above) which is specified as an event of default under any of the other Loan Documents, or any of the Loan Documents shall for any reason not be or shall cease to be in full force and effect or is declared to be null and void, or any of the Collateral Documents shall for any reason fail to create a valid and perfected first priority Lien in favor of the Agent in any Collateral purported to be covered thereby except as expressly permitted by the terms thereof, or any Subsidiary takes any action for the purpose of terminating, repudiating or rescinding any Loan Document executed by it or any of its obligations thereunder; (f) default shall occur under any Indebtedness for Borrowed Money aggregating in excess of $2,000,000 issued, assumed or guaranteed by the Borrower or any Subsidiary, or under any indenture, agreement or other instrument under which the same may be issued, and such default shall continue for a period of time sufficient to permit the acceleration of the maturity of any such Indebtedness for Borrowed Money (whether or not such maturity is in fact accelerated), or any such Indebtedness for Borrowed Money shall not be paid when due (whether by demand, lapse of time, acceleration or otherwise); (g) any judgment or judgments, writ or writs or warrant or warrants of attachment, or any similar process or processes in an aggregate amount in excess of $2,000,000 in excess of any applicable insurance coverage shall be entered or filed against the Borrower or any Subsidiary, or against any of its Property, and which remains undischarged, unvacated, unbonded or unstayed for a period of 30 days; -52- (h) the Borrower or any Subsidiary, or any member of its Controlled Group, shall fail to pay when due an amount or amounts aggregating in excess of $2,000,000 which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans having aggregate Unfunded Vested Liabilities in excess of $2,000,000 (collectively, a "Material Plan") shall be filed under Title IV of ERISA by the Borrower or any Subsidiary, or any other member of its Controlled Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any Material Plan or a proceeding shall be instituted by a fiduciary of any Material Plan against the Borrower or any Subsidiary, or any member of its Controlled Group, to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed within 30 days thereafter; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; (i) the Borrower or any Subsidiary shall (i) have entered involuntarily against it an order for relief under the United States Bankruptcy Code, as amended, (ii) not pay, or admit in writing its inability to pay, its debts generally as they become due, (iii) make an assignment for the benefit of creditors, (iv) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any substantial part of its Property, (v) institute any proceeding seeking to have entered against it an order for relief under the United States Bankruptcy Code, as amended, to adjudicate it insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (vi) take any corporate action in furtherance of any matter described in parts (i) through (v) above, or (vii) fail to contest in good faith any appointment or proceeding described in Section 9.1(j) hereof; (j) a custodian, receiver, trustee, examiner, liquidator or similar official shall be appointed for the Borrower or any Subsidiary or any substantial part of any of its Property, or a proceeding described in Section 9.1(i)(v) shall be instituted against the Borrower or any Subsidiary, and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of 30 days. Section 9.2. Non-Bankruptcy Defaults. When any Event of Default other than those described in subsection (i) or (j) of Section 9.1 hereof has occurred and is continuing, the Agent shall, by written notice to the Borrower: (a) if so directed by the Required Banks, terminate the remaining Commitments and all other obligations of the Banks hereunder on the date stated in such notice (which may be the date thereof); (b) if so directed by the Required Banks, declare the principal of and the accrued interest on all outstanding Notes to be forthwith due and payable and thereupon all outstanding Notes, including both principal and interest thereon, shall be and become immediately due and payable together with all other amounts payable under the Loan Documents without further demand, presentment, protest or notice of any kind; and (c) if so directed by the Required Banks, demand that the Borrower -53- immediately pay to the Agent the full amount then available for drawing under each or any Letter of Credit, and the Borrower agrees to immediately make such payment and acknowledges and agrees that the Banks would not have an adequate remedy at law for failure by the Borrower to honor any such demand and that the Agent, for the benefit of the Banks, shall have the right to require the Borrower to specifically perform such undertaking whether or not any drawings or other demands for payment have been made under any Letter of Credit. The Agent, after giving notice to the Borrower pursuant to Section 9.1(c) or this Section 9.2, shall also promptly send a copy of such notice to the other Banks, but the failure to do so shall not impair or annul the effect of such notice. Section 9.3. Bankruptcy Defaults. When any Event of Default described in subsections (i) or (j) of Section 9.1 hereof has occurred and is continuing, then all outstanding Notes shall immediately become due and payable together with all other amounts payable under the Loan Documents without presentment, demand, protest or notice of any kind, the obligation of the Banks to extend further credit pursuant to any of the terms hereof shall immediately terminate and the Borrower shall immediately pay to the Agent the full amount then available for drawing under all outstanding Letters of Credit, the Borrower acknowledging and agreeing that the Banks would not have an adequate remedy at law for failure by the Borrower to honor any such demand and that the Banks, and the Agent on their behalf, shall have the right to require the Borrower to specifically perform such undertaking whether or not any draws or other demands for payment have been made under any of the Letters of Credit. Section 9.4. Collateral for Undrawn Letters of Credit. (a) If the prepayment of the amount available for drawing under any or all outstanding Letters of Credit is required under Section 1.9(b) or under Section 9.2 or 9.3 above, the Borrower shall forthwith pay the amount required to be so prepaid, to be held by the Agent as provided in subsection (b) below. (b) All amounts prepaid pursuant to subsection (a) above shall be held by the Agent in a separate collateral account (such account, and the credit balances, properties and any investments from time to time held therein, and any substitutions for such account, any certificate of deposit or other instrument evidencing any of the foregoing and all proceeds of and earnings on any of the foregoing being collectively called the "Account") as security for, and for application by the Agent (to the extent available) to, the reimbursement of any payment under any Letter of Credit then or thereafter made by the Agent, and to the payment of the unpaid balance of any Loans and all other Obligations. The Account shall be held in the name of and subject to the exclusive dominion and control of the Agent for the benefit of the Agent and the Banks. If and when requested by the Borrower, the Agent shall invest funds held in the Account from time to time in direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America with a remaining maturity of one year or less, provided that the Agent is irrevocably authorized to sell investments held in the Account when and as required to make payments out of the Account for application to amounts due and owing from the Borrower to the Agent or Banks; provided, however, that if (i) the Borrower shall have made payment of all such obligations referred to in subsection (a) above, (ii) all relevant preference or other disgorgement periods relating to the receipt of such payments have passed, and (iii) no Letters of Credit, -54- Commitments, Loans or other Obligations remain outstanding hereunder, then the Agent shall release to the Borrower any remaining amounts held in the Account. Section 9.5. Notice of Default. The Agent shall give notice to the Borrower under Section 9.1(c) hereof promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. Section 9.6. Expenses. The Borrower agrees to pay to the Agent and each Bank, and any other holder of any Note outstanding hereunder, all expenses reasonably incurred or paid by the Agent and such Bank or any such holder, including reasonable attorneys' fees and court costs, in connection with any Default or Event of Default by the Borrower hereunder or in connection with the enforcement of any of the Loan Documents. Section 10. Change in Circumstances. Section 10.1. Change of Law. Notwithstanding any other provisions of this Agreement or any Note, if at any time any change in applicable law or regulation or in the interpretation thereof makes it unlawful for any Bank to make or continue to maintain any Eurodollar Loans or to perform its obligations as contemplated hereby, such Bank shall promptly give notice thereof to the Borrower and such Bank's obligations to make or maintain Eurodollar Loans under this Agreement shall be suspended until it is no longer unlawful for such Bank to make or maintain Eurodollar Loans. The Borrower shall prepay on demand the outstanding principal amount of any such affected Eurodollar Loans, together with all interest accrued thereon and all other amounts then due and payable to such Bank under this Agreement; provided, however, subject to all of the terms and conditions of this Agreement, the Borrower may then elect to borrow the principal amount of the affected Eurodollar Loans from such Bank by means of Base Rate Loans from such Bank, which Base Rate Loans shall not be made ratably by the Banks but only from such affected Bank. Section 10.2. Unavailability of Deposits or Inability to Ascertain, or Inadequacy of, LIBOR. If on or prior to the first day of any Interest Period for any Borrowing of Eurodollar Loans: (a) the Agent determines that deposits in U.S. Dollars (in the applicable amounts) are not being offered to it in the interbank eurodollar market for such Interest Period, or that by reason of circumstances affecting the interbank eurodollar market adequate and reasonable means do not exist for ascertaining the applicable LIBOR, or (b) the Required Banks advise the Agent that (i) LIBOR as determined by the Agent will not adequately and fairly reflect the cost to such Banks of funding their Eurodollar Loans for such Interest Period or (ii) that the making or funding of Eurodollar Loans become impracticable, then the Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Banks to make Eurodollar Loans shall be suspended. -55- Section 10.3. Increased Cost and Reduced Return. (a) If, on or after the date hereof, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: (i) shall subject any Bank (or its Lending Office) to any tax, duty or other charge with respect to its Eurodollar Loans, its Notes, its Letter(s) of Credit, or its participation in any thereof, any Reimbursement Obligations owed to it or its obligation to make Eurodollar Loans, issue a Letter of Credit, or to participate therein, or shall change the basis of taxation of payments to any Bank (or its Lending Office) of the principal of or interest on its Eurodollar Loans, Letter(s) of Credit, or participations therein or any other amounts due under this Agreement or any other Loan Document in respect of its Eurodollar Loans, Letter(s) of Credit, any participation therein, any Reimbursement Obligations owed to it, or its obligation to make Eurodollar Loans, or issue a Letter of Credit, or acquire participations therein (except for changes in the rate of tax on the overall net income of such Bank or its Lending Office imposed by the jurisdiction in which such Bank's principal executive office or Lending Office is located); or (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Eurodollar Loans any such requirement included in an applicable Eurodollar Reserve Percentage) against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Lending Office) or shall impose on any Bank (or its Lending Office) or on the interbank market any other condition affecting its Eurodollar Loans, its Notes, its Letter(s) of Credit, or its participation in any thereof, any Reimbursement Obligation owed to it, or its obligation to make Eurodollar Loans, or to issue a Letter of Credit, or to participate therein; and the result of any of the foregoing is to increase the cost to such Bank (or its Lending Office) of making or maintaining any Eurodollar Loan, issuing or maintaining a Letter of Credit, or participating therein, or to reduce the amount of any sum received or receivable by such Bank (or its Lending Office) under this Agreement or under any other Loan Document with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Agent), the Borrower shall be obligated to pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If, after the date hereof, any Bank or the Agent shall have determined that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Lending Office) with any request or directive -56- regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has had the effect of reducing the rate of return on such Bank's capital as a consequence of its obligations hereunder to a level below that which such Bank could have achieved but for such adoption, change or compliance (taking into consideration such Bank's policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction. (c) A certificate of a Bank claiming compensation under this Section 9.3 and setting forth the additional amount or amounts to be paid to it hereunder shall be prima facie correct. In determining such amount, such Bank may use any reasonable averaging and attribution methods. Section 10.4. Lending Offices. Each Bank may, at its option, elect to make its Loans hereunder at the branch, office or affiliate specified on the appropriate signature page hereof (each a "Lending Office") for each type of Loan available hereunder or at such other of its branches, offices or affiliates as it may from time to time elect and designate in a written notice to the Borrower and the Agent. Section 10.5. Discretion of Bank as to Manner of Funding. Notwithstanding any other provision of this Agreement, each Bank shall be entitled to fund and maintain its funding of all or any part of its Loans in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder with respect to Eurodollar Loans shall be made as if each Bank had actually funded and maintained each Eurodollar Loan through the purchase of deposits in the interbank eurodollar market having a maturity corresponding to such Loan's Interest Period and bearing an interest rate equal to LIBOR for such Interest Period. Section 11. The Agent and Issuing Bank;. Section 11.1. Appointment and Authorization of Agent. Each Bank hereby appoints Bank of Montreal as the Agent under the Loan Documents and hereby authorizes the Agent to take such action as Agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto. The Banks expressly agree that the Agent is not acting as a fiduciary of the Banks in respect of the Loan Documents, the Borrower or otherwise, and nothing herein or in any of the other Loan Documents shall result in any duties or obligations on the Agent or any of the Banks except as expressly set forth herein. Section 11.2. Agent and its Affiliates. The Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any other Bank and may exercise or refrain from exercising such rights and power as though it were not the Agent, and the Agent and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Affiliate of the Borrower as if it were not the Agent under the Loan Documents. The term "Bank" as used herein and in all other Loan Documents, -57- unless the context otherwise clearly requires, includes the Agent in its individual capacity as a Bank. References in Section 1 hereof to the Agent's Loans, or to the amount owing to the Agent for which an interest rate is being determined, refer to the Agent in its individual capacity as a Bank. Section 11.3. Action by Agent. If the Agent receives from the Borrower a written notice of an Event of Default pursuant to Section 8.5 hereof, the Agent shall promptly give each of the Banks written notice thereof. The obligations of the Agent under the Loan Documents are only those expressly set forth therein. Without limiting the generality of the foregoing, the Agent shall not be required to take any action hereunder with respect to any Default or Event of Default, except as expressly provided in Sections 9.2 and 9.5. Upon the occurrence of an Event of Default, the Agent shall take such action to enforce its Lien on the Collateral and to preserve and protect the Collateral as may be directed by the Required Banks. Unless and until the Required Banks give such direction, the Agent may (but shall not be obligated to) take or refrain from taking such actions as it deems appropriate and in the best interest of all the Banks. In no event, however, shall the Agent be required to take any action in violation of applicable law or of any provision of any Loan Document, and the Agent shall in all cases be fully justified in failing or refusing to act hereunder or under any other Loan Document unless it first receives any further assurances of its indemnification from the Banks that it may require, including prepayment of any related expenses and any other protection it requires against any and all costs, expense, and liability which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall be entitled to assume that no Default or Event of Default exists unless notified in writing to the contrary by a Bank or the Borrower. In all cases in which the Loan Documents do not require the Agent to take specific action, the Agent shall be fully justified in using its discretion in failing to take or in taking any action thereunder. Any instructions of the Required Banks, or of any other group of Banks called for under the specific provisions of the Loan Documents, shall be binding upon all the Banks and the holders of the Obligations. Section 11.4. Consultation with Experts. The Agent may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. Section 11.5. Liability of Agent; Credit Decision. Neither the Agent nor any of its directors, officers, agents, or employees shall be liable for any action taken or not taken by it in connection with the Loan Documents: (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify: (i) any statement, warranty or representation made in connection with this Agreement, any other Loan Document or any Credit Event; (ii) the performance or observance of any of the covenants or agreements of the Borrower or any Subsidiary contained herein or in any other Loan Document; (iii) the satisfaction of any condition specified in Section 7 hereof, except receipt of items required to be delivered to the Agent; or (iv) the validity, effectiveness, genuineness, enforceability, perfection, value, worth or collectibility hereof or of any other Loan Document or of any other documents or writing -58- furnished in connection with any Loan Document or of any Collateral; and the Agent makes no representation of any kind or character with respect to any such matter mentioned in this sentence. The Agent may execute any of its duties under any of the Loan Documents by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Banks, the Borrower, or any other Person for the default or misconduct of any such agents or attorneys-in-fact selected with reasonable care. The Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, other document or statement (whether written or oral) believed by it to be genuine or to be sent by the proper party or parties. In particular and without limiting any of the foregoing, the Agent shall have no responsibility for confirming the accuracy of any compliance certificate or other document or instrument received by it under the Loan Documents. The Agent may treat the payee of any Note as the holder thereof until written notice of transfer shall have been filed with the Agent signed by such payee in form satisfactory to the Agent. Each Bank acknowledges that it has independently and without reliance on the Agent or any other Bank, and based upon such information, investigations and inquiries as it deems appropriate, made its own credit analysis and decision to extend credit to the Borrower in the manner set forth in the Loan Documents. It shall be the responsibility of each Bank to keep itself informed as to the creditworthiness of the Borrower and its Subsidiaries, and the Agent shall have no liability to any Bank with respect thereto. Section 11.6. Indemnity. The Banks shall ratably, in accordance with their respective Percentages, indemnify and hold the Agent, and its directors, officers, employees, agents and representatives harmless from and against any liabilities, losses, costs or expenses suffered or incurred by it under any Loan Document or in connection with the transactions contemplated thereby, regardless of when asserted or arising, except to the extent they are promptly reimbursed for the same by the Borrower and except to the extent that any event giving rise to a claim was caused by the gross negligence or willful misconduct of the party seeking to be indemnified. The obligations of the Banks under this Section shall survive termination of this Agreement. Section 11.7. Resignation of Agent and Successor Agent. The Agent may resign at any time by giving written notice thereof to the Banks and the Borrower. Upon any such resignation of the Agent, the Required Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be any Bank hereunder or any commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $200,000,000. Upon the acceptance of its appointment as the Agent hereunder, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent under the Loan Documents, and the retiring Agent shall be discharged from its duties and obligations thereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 11 and all protective provisions of the other Loan Documents shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent. -59- Section 11.8. Interest Rate Hedging Arrangements. By virtue of a Bank's execution of this Agreement or an Assignment Agreement, as the case may be, any Affiliate of such Bank with whom the Borrower has entered into an agreement creating Hedging Liability shall be deemed a Bank party hereto for purpose of any reference in a Loan Document to the parties for whom the Agent is acting, it being understood and agreed that the rights and benefits of such Affiliate under the Loan Documents consist exclusively of such Affiliate's right to share in payments and collections out of the Collateral and the guaranties as more fully set forth in other provisions hereof. Section 11.9. Issuing Bank. The Issuing Bank shall act on behalf of the Banks with respect to any Letters of Credit issued by it and the documents associated therewith. The Issuing Bank shall have all of the benefits and immunities (i) provided to the Agent in this Section 11 with respect to any acts taken or omissions suffered by the Issuing Bank in connection with Letters of Credit issued by it or proposed to be issued by it and the Applications pertaining to such Letters of Credit as fully as if the term "Agent", as used in this Section 11, included Issuing Bank with respect to such acts or omissions and (ii) as additionally provided in this Agreement with respect to such Issuing Bank. Section 12. Miscellaneous;. Section 12.1. Withholding Taxes. (a) Payments Free of Withholding. Except as otherwise required by law and subject to Section 12.1(b) hereof, each payment by the Borrower under this Agreement or the other Loan Documents shall be made without withholding for or on account of any present or future taxes (other than overall net income taxes on the recipient) imposed by or within the jurisdiction in which the Borrower is domiciled, any jurisdiction from which the Borrower makes any payment, or (in each case) any political subdivision or taxing authority thereof or therein. If any such withholding is so required, the Borrower shall make the withholding, pay the amount withheld to the appropriate governmental authority before penalties attach thereto or interest accrues thereon and forthwith pay such additional amount as may be necessary to ensure that the net amount actually received by each Bank and the Agent free and clear of such taxes (including such taxes on such additional amount) is equal to the amount which that Bank or the Agent (as the case may be) would have received had such withholding not been made. If the Agent or any Bank pays any amount in respect of any such taxes, penalties or interest, the Borrower shall reimburse the Agent or such Bank for that payment on demand in the currency in which such payment was made. If the Borrower pays any such taxes, penalties or interest, it shall deliver official tax receipts evidencing that payment or certified copies thereof to the Bank or Agent on whose account such withholding was made (with a copy to the Agent if not the recipient of the original) on or before the thirtieth day after payment. (b) U.S. Withholding Tax Exemptions. Each Bank that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) shall submit to the Borrower and the Agent on or before the earlier of the date the initial Credit Event is made hereunder and 30 days after the date hereof, two duly completed and signed copies of either Form 1001 (relating to such Bank and entitling it to a complete exemption from withholding under the Code on all amounts to be received by such Bank, including fees, pursuant to the Loan -60- Documents and the Loans) or Form 4224 (relating to all amounts to be received by such Bank, including fees, pursuant to the Loan Documents and the Loans) of the United States Internal Revenue Service. Thereafter and from time to time, each Bank shall submit to the Borrower and the Agent such additional duly completed and signed copies of one or the other of such Forms (or such successor forms as shall be adopted from time to time by the relevant United States taxing authorities) as may be (i) requested by the Borrower in a written notice, directly or through the Agent, to such Bank and (ii) required under then-current United States law or regulations to avoid or reduce United States withholding taxes on payments in respect of all amounts to be received by such Bank, including fees, pursuant to the Loan Documents or the Loans. (c) Inability of Bank to Submit Forms. If any Bank determines, as a result of any change in applicable law, regulation or treaty, or in any official application or interpretation thereof, that it is unable to submit to the Borrower or the Agent any form or certificate that such Bank is obligated to submit pursuant to subsection (b) of this Section 12.1 or that such Bank is required to withdraw or cancel any such form or certificate previously submitted or any such form or certificate otherwise becomes ineffective or inaccurate, such Bank shall promptly notify the Borrower and Agent of such fact and the Bank shall to that extent not be obligated to provide any such form or certificate and will be entitled to withdraw or cancel any affected form or certificate, as applicable. Section 12.2. No Waiver, Cumulative Remedies. No delay or failure on the part of the Agent or any Bank or on the part of the holder or holders of any of the Obligations in the exercise of any power or right under any Loan Document shall operate as a waiver thereof or as an acquiescence in any default, nor shall any single or partial exercise of any power or right preclude any other or further exercise thereof or the exercise of any other power or right. The rights and remedies hereunder of the Agent, the Banks and of the holder or holders of any of the Obligations are cumulative to, and not exclusive of, any rights or remedies which any of them would otherwise have. Section 12.3. Non-Business Days. If any payment hereunder becomes due and payable on a day which is not a Business Day, the due date of such payment shall be extended to the next succeeding Business Day on which date such payment shall be due and payable. In the case of any payment of principal falling due on a day which is not a Business Day, interest on such principal amount shall continue to accrue during such extension at the rate per annum then in effect, which accrued amount shall be due and payable on the next scheduled date for the payment of interest. Section 12.4. Documentary Taxes. The Borrower agrees to pay on demand any documentary, stamp or similar taxes payable in respect of this Agreement or any other Loan Document, including interest and penalties, in the event any such taxes are assessed, irrespective of when such assessment is made and whether or not any credit is then in use or available hereunder. Section 12.5. Survival of Representations. All representations and warranties made herein or in any other Loan Document or in certificates given pursuant hereto or thereto shall -61- survive the execution and delivery of this Agreement and the other Loan Documents, and shall continue in full force and effect with respect to the date as of which they were made as long as any credit is in use or available hereunder. Section 12.6. Survival of Indemnities. All indemnities and other provisions relative to reimbursement to the Banks of amounts sufficient to protect the yield of the Banks with respect to the Loans and Letters of Credit, including, but not limited to, Sections 1.12, 10.3 and 12.15 hereof, shall survive the termination of this Agreement and the other Loan Documents and the payment of the Obligations. Section 12.7. Sharing of Set-Off. Each Bank agrees with each other Bank a party hereto that if such Bank shall receive and retain any payment, whether by set-off or application of deposit balances or otherwise, on any of the Loans or Reimbursement Obligations in excess of its ratable share of payments on all such Obligations then outstanding to the Banks, then such Bank shall purchase for cash at face value, but without recourse, ratably from each of the other Banks such amount of the Loans or Reimbursement Obligations, or participations therein, held by each such other Banks (or interest therein) as shall be necessary to cause such Bank to share such excess payment ratably with all the other Banks; provided, however, that if any such purchase is made by any Bank, and if such excess payment or part thereof is thereafter recovered from such purchasing Bank, the related purchases from the other Banks shall be rescinded ratably and the purchase price restored as to the portion of such excess payment so recovered, but without interest. For purposes of this Section, amounts owed to or recovered by the Issuing Bank in connection with Reimbursement Obligations in which Banks have been required to fund their participation shall be treated as amounts owed to or recovered by the Issuing Bank as a Bank hereunder. Section 12.8. Notices. Except as otherwise specified herein, all notices hereunder and under the other Loan Documents shall be in writing (including, without limitation, notice by telecopy) and shall be given to the relevant party at its address or telecopier number set forth below, or such other address or telecopier number as such party may hereafter specify by notice to the Agent and the Borrower given by courier, by United States certified or registered mail, by telecopy or by other telecommunication device capable of creating a written record of such notice and its receipt. Notices under the Loan Documents to the Banks and the Agent shall be addressed to their respective addresses or telecopier numbers set forth on the signature pages hereof, and to the Borrower to: Fountain View, Inc. 11900 West Olympic Blvd., Suite 680 Los Angeles, California 90064 Attention: Robert M. Snukal Telephone: (310) 571-0351 Telecopy: (310) 571-0365 -62- with a copy to: Heritage Partners Management Company, Inc. 30 Rowes Whart, Suite 300 Boston, Massachusetts 02440 Attention: Mark Jrolf Telephone: (617) 428-0108 Telecopy: (617) 439-0689 Each such notice, request or other communication shall be effective (i) if given by telecopier, when such telecopy is transmitted to the telecopier number specified in this Section or on the signature pages hereof and a confirmation of such telecopy has been received by the sender, (ii) if given by mail, 5 days after such communication is deposited in the mail, certified or registered with return receipt requested, addressed as aforesaid or (iii) if given by any other means, when delivered at the addresses specified in this Section or on the signature pages hereof; provided that any notice given pursuant to Section 1 hereof shall be effective only upon receipt. Section 12.9. Counterparts. This Agreement may be executed in any number of counterparts, and by the different parties hereto on separate counterpart signature pages, and all such counterparts taken together shall be deemed to constitute one and the same instrument. Section 12.10. Successors and Assigns. This Agreement shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Agent and each of the Banks and the benefit of their respective successors and assigns, including any subsequent holder of any of the Obligations. The Borrower may not assign any of its rights or obligations under any Loan Document without the written consent of all of the Banks. Section 12.11. Participants. Each Bank shall have the right at its own cost to grant participations (to be evidenced by one or more agreements or certificates of participation) in the Loans made and Reimbursement Obligations and/or Commitments held by such Bank at any time and from time to time to one or more other Persons; provided that no such participation shall relieve any Bank of any of its obligations under this Agreement, and, provided, further that no such participant shall have any rights under this Agreement except as provided in this Section, and the Agent shall have no obligation or responsibility to such participant. Any agreement pursuant to which such participation is granted shall provide that the granting Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower under this Agreement and the other Loan Documents including, without limitation, the right to approve any amendment, modification or waiver of any provision of the Loan Documents, except that such agreement may provide that such Bank will not agree to any modification, amendment or waiver of the Loan Documents that would reduce the amount of or postpone any fixed date for payment of any Obligation in which such participant has an interest. Any party to which such a participation has been granted shall have the benefits of Section 1.12 and Section 10.3 hereof. The Borrower authorizes each Bank to disclose to any participant or prospective participant under this Section any financial or other information pertaining to the Borrower. -63- Section 12.12. Assignment of Commitments by Banks. Each Bank shall have the right at any time, with the prior consent of the Agent and, so long as no Event of Default then exists, the Borrower (which consent of the Borrower shall not be unreasonably withheld) to sell, assign, transfer or negotiate all or any part of its Commitments (including the same percentage of its Notes, outstanding Loans and Reimbursement Obligations owed to it) to one or more commercial banks or other financial institutions or investors, provided that such assignment shall be of a fixed percentage (and not by its terms of varying percentage) of the assigning Bank's Commitments; provided, however, that in order to make any such assignment (i) unless the assignee Bank is assigning all of its Commitments, the assigning Bank shall retain at least $5,000,000 in outstanding Loans, interests in Letters of Credit and unused Commitments, (ii) the assignee bank shall have outstanding Loans, interests in Letters of Credit and unused Commitments of at least $5,000,000, (iii) each such assignment shall be evidenced by a written agreement (substantially in the form attached hereto as Exhibit G or in such other form acceptable to the Agent) executed by such assigning Bank, such assignee bank or banks, the Agent and, if required as provided above, the Borrower, which agreement shall specify in each instance the portion of the Obligations which are to be assigned to the assignee bank and the portion of the Commitments of the assigning Bank to be assumed by the assignee bank or banks, and (iv) the assigning Bank shall pay to the Agent a processing fee of $3,500 and any out-of-pocket attorneys' fees and expenses incurred by the Agent in connection with any such assignment agreement. Any such assignee shall become a Bank for all purposes hereunder to the extent of the Commitments it assumes and the assigning Bank shall be released from its obligations, and will have released its rights, under the Loan Documents to the extent of such assignment. The Borrower authorizes each Bank to disclose to any purchaser or prospective purchaser of an interest in the Loans and Reimbursement Obligations owed to it or its Commitments under this Section any financial or other information pertaining to the Borrower. Section 12.13. Amendments. Any provision of this Agreement or the other Loan Documents may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by (a) the Borrower, (b) the Required Banks, and (c) if the rights or duties of the Agent are affected thereby, the Agent; provided that: (i) no amendment or waiver pursuant to this Section 12.13 shall (A) increase any Commitment of any Bank without the consent of such Bank or (B) reduce the amount of or postpone the scheduled due date for payment of any principal of or interest on any Loan or of any Reimbursement Obligation or of any fee payable hereunder without the consent of the Bank to which such payment is owing or which has committed to make such Loan or Letter of Credit (or participate therein) hereunder; and (ii) no amendment or waiver pursuant to this Section 12.13 shall, unless signed by each Bank, change the definitions of Revolving Credit Termination Date, or Required Banks, change the provisions of this Section 12.13, Section 7, Section 9, release any guarantor or all or any substantial part of the Collateral (except as otherwise provided for in the Loan Documents), or affect the number of Banks required to take any action hereunder or under any other Loan Document. -64- Section 12.14. Headings. Section headings used in this Agreement are for reference only and shall not affect the construction of this Agreement. Section 12.15. Costs and Expenses. The Borrower agrees to pay all costs and expenses of the Agent in connection with the preparation, negotiation, and administration of the Loan Documents, including, without limitation, the reasonable fees and disbursements of counsel to the Agent, in connection with the preparation and execution of the Loan Documents, and any amendment, waiver or consent related thereto, whether or not the transactions contemplated herein are consummated, together with any fees and charges suffered or incurred by the Agent in connection with periodic environmental audits, fixed asset appraisals, title insurance policies, collateral filing fees and lien searches. The Borrower further agrees to indemnify the Agent, each Bank, and their respective directors, officers and employees, against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all reasonable expenses of litigation or preparation therefor, whether or not the indemnified Person is a party thereto, or any settlement arrangement arising from or relating to any such litigation) which any of them may pay or incur arising out of or relating to any Loan Document or any of the transactions contemplated thereby or the direct or indirect application or proposed application of the proceeds of any Loan or Letter of Credit, other than those which arise from the gross negligence or willful misconduct of, or material breach of the Loan Documents by, the party claiming indemnification. The Borrower, upon demand by the Agent or a Bank at any time, shall reimburse the Agent or such Bank for any legal or other expenses incurred in connection with investigating or defending against any of the foregoing (including any settlement costs relating to the foregoing) except if the same is directly due to the gross negligence or willful misconduct of the party to be indemnified. The obligations of the Borrower under this Section shall survive the termination of this Agreement. Section 12.16. Environmental Indemnification and Waiver. The Borrower unconditionally agrees to forever indemnify, defend and hold harmless, and covenants not to sue for any claim for contribution against, the Agent, the Issuing Bank and the Banks for any damages, costs, loss or expense, including without limitation, response, remedial or removal costs, arising out of any of the following: (i) any presence, release, threatened release or disposal of any hazardous or toxic substance or petroleum by the Borrower or any Subsidiary or otherwise occurring on or with respect to its property, (ii) the operation or violation of any environmental law, whether federal, state, or local, and any regulations promulgated thereunder, by the Borrower or any Subsidiary or otherwise occurring on or with respect to its property, (iii) any claim for personal injury or property damage in connection with the Borrower or any Subsidiary or otherwise occurring on or with respect to its property, and (iv) the inaccuracy or breach of any environmental representation, warranty or covenant by the Borrower or any Subsidiary made herein or in any promissory note, mortgage, deed of trust, security agreement or any other instrument or document evidencing or securing any Obligations or setting forth terms and conditions applicable thereto or otherwise relating thereto, except for damages arising from the willful misconduct or gross negligence of, or material breach of the Loan Documents by, the party claiming indemnification. This indemnification shall survive the payment and satisfaction of all Obligations and the termination of this Agreement, and shall remain in force beyond the expiration of any applicable statute of limitations and payment or satisfaction in full of any single claim under -65- this indemnification. This indemnification shall be binding upon the successors and assigns of the Borrower and shall inure to the benefit of Agent, the Issuing Bank and the Banks and their directors, officers, employees, agents, and collateral trustees, and their successors and assigns. Section 12.17. Set-off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default, each Bank and each subsequent holder of any Obligation is hereby authorized by the Borrower at any time or from time to time, without notice to the Borrower or to any other Person, any such notice being hereby expressly waived, to set-off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts, and in whatever currency denominated) and any other indebtedness at any time held or owing by that Bank or that subsequent holder to or for the credit or the account of the Borrower, whether or not matured, against and on account of the Obligations of the Borrower to that Bank or that subsequent holder under the Loan Documents, including, but not limited to, all claims of any nature or description arising out of or connected with the Loan Documents, irrespective of whether or not (a) that Bank or that subsequent holder shall have made any demand hereunder or (b) the principal of or the interest on the Loans or Notes and other amounts due hereunder shall have become due and payable pursuant to Section 9 and although said obligations and liabilities, or any of them, may be contingent or unmatured. Section 12.18. Entire Agreement. The Loan Documents constitute the entire understanding of the parties thereto with respect to the subject matter thereof and any prior agreements, whether written or oral, with respect thereto are superseded hereby. Section 12.19. Governing Law. This Agreement and the other Loan Documents, and the rights and duties of the parties hereto, shall be construed and determined in accordance with the internal laws of the State of Illinois. Section 12.20. Severability of Provisions. Any provision of any Loan Document which is unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. Section 12.21. Excess Interest. Notwithstanding any provision to the contrary contained herein or in any other Loan Document, no such provision shall require the payment or permit the collection of any amount in excess of the maximum amount of interest permitted by applicable law to be charged for the use or detention, or the forbearance in the collection, of all or any portion of the Loans or other obligations outstanding under this Agreement or any other Loan Document ("Excess Interest"). If any Excess Interest is provided for, or is adjudicated to be provided for, herein or in any other Loan Document, then in such event (a) the provisions of this Section 12.21 shall govern and control; (b) neither the Borrower nor any guarantor or endorser shall be obligated to pay any Excess Interest; (c) any Excess Interest that the Agent or any Bank may have received hereunder shall, at the option of the Agent, be (i) applied as a credit against the then outstanding principal amount of Loans hereunder, accrued and unpaid interest thereon (not to exceed the maximum amount permitted by applicable law) and any -66- other obligations, or all of the foregoing; (ii) refunded to the Borrower, or (iii) any combination of the foregoing; (d) the interest rate payable hereunder or under any other Loan Document shall be automatically subject to reduction to the maximum lawful contract rate allowed under applicable usury laws, and this Agreement and the other Loan Documents shall be deemed to have been, and shall be, reformed and modified to reflect such reduction in the relevant interest rate; and (e) neither the Borrower nor any guarantor or endorser shall have any action against the Agent or any Bank for any damages whatsoever arising out of the payment or collection of any Excess Interest. Section 12.22. Confidentiality. Any information disclosed by the Borrower or any of its Subsidiaries to the Agent or any Bank which was designated proprietary or confidential at the time of its receipt by the Agent or such Bank, and which it is not otherwise in the public domain, shall not be disclosed by the Agent or such Bank to any other Person except (i) to its independent accountants and legal counsel (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such information and instructed to keep such information confidential), (ii) pursuant to statutory and regulatory requirements, (iii) pursuant to any mandatory court order, subpoena or other legal process, (iv) to the Agent or any other Bank, (v) pursuant to any agreement heretofore or hereafter made between such Bank and the Borrower which permits such disclosure, (vi) in connection with the exercise of any remedy under the Loan Documents, or (vii) subject to an agreement containing provisions substantially the same as those of this Section, to any participant in or assignee of, or prospective participant in or assignee of, any Obligation or Commitments. Section 12.23. Single Bank. If and so long as Bank of Montreal is the only Bank hereunder, Bank of Montreal shall have all rights, powers and privileges afforded to the Agent, the Banks, and the Required Banks hereunder and under the other Loan Documents. Section 12.24. Submission to Jurisdiction; Waiver of Jury Trial. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Northern District of Illinois and of any Illinois State court sitting in the Cook County, Illinois for purposes of all legal proceedings arising out of or relating to this Agreement, the other Loan Documents or the transactions contemplated hereby or thereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. THE BORROWER, THE AGENT AND EACH BANK HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY. [SIGNATURE PAGES TO FOLLOW] -67- Upon your acceptance hereof in the manner hereinafter set forth, this Agreement shall constitute a contract between us for the uses and purposes hereinabove set forth. Dated as of this 16th day of April, 1998. FOUNTAIN VIEW, INC. By _______________________________ Name __________________________ Title _________________________ Accepted and agreed to as of the day and year last above written. BANK OF MONTREAL, in its individual capacity as a Bank and as Agent Address and Amount of Commitments: By /s/ Mark F. Spencer -------------------------------- Name MARK F. SPENCER ------------------------- Address: Title MANAGING DIRECTOR ------------------------ 601 South Figueroa Street, Suite 4900 Los Angeles, California 90017 Attention: Ronald Launsbach Telecopy: (213) 239-0680 Telephone: (213) 239-0602 with notices of Borrowing requests to: Attention: Jean Pazan Telecopy: (312) 750-3456 Telephone: (312) 750-3450 Revolving Credit Commitment: $30,000,000 Term Loan Commitment: $85,000,000 Lending Offices: 115 South LaSalle Street Chicago, Illinois 60603 -68- EXHIBIT A NOTICE OF PAYMENT REQUEST [Date] [Name of Bank] [Address] Attention: Reference is made to the Credit Agreement, dated as of April 16, 1998, among Fountain View, Inc., the Banks party thereto, and Bank of Montreal, as Agent (the "Credit Agreement"). Capitalized terms used herein and not defined herein have the meanings assigned to them in the Credit Agreement. [The Borrower has failed to pay its Reimbursement Obligation in the amount of $_________. Your Bank's Percentage of the unpaid Reimbursement Obligation is $_________] or [The undersigned has been required to return a payment by the Borrower of a Reimbursement Obligation in the amount of $________. Your Bank's Percentage of the returned Reimbursement Obligation is $_________.] Very truly yours, BANK OF MONTREAL, as Issuing Bank By ________________________________ Its ____________________________ EXHIBIT B NOTICE OF BORROWING Date: ______________, ____ To: Bank of Montreal, as Agent for the Banks parties to the Credit Agreement dated as of April 16, 1998 (as extended, renewed, amended or restated from time to time, the "Credit Agreement") among Fountain View, Inc., certain Banks which are signatories thereto and Bank of Montreal, as Agent Ladies and Gentlemen: The undersigned, Fountain View, Inc. (the "Borrower"), refers to the Credit Agreement, the terms defined therein being used herein as therein defined, and hereby gives you notice irrevocably, pursuant to Section 1.6 of the Credit Agreement, of the Borrowing specified below: 1. The Business Day of the proposed Borrowing is ___________, ____. 2. The aggregate amount of the proposed Borrowing is $______________. 3. The Borrowing is being advanced under the [REVOLVING] [TERM] Credit. 4. The Borrowing is to be comprised of $___________ of [BASE RATE] [EURODOLLAR] Loans. [5. THE DURATION OF THE INTEREST PERIOD FOR THE EURODOLLAR LOANS INCLUDED IN THE BORROWING SHALL BE ____________ MONTHS.] The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the proposed Borrowing, before and after giving effect thereto and to the application of the proceeds therefrom: (a) the representations and warranties of the Borrower contained in Section 6 of the Credit Agreement are true and correct as though made on and as of such date (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date); and (b) no Default or Event of Default has occurred and is continuing or would result from such proposed Borrowing. FOUNTAIN VIEW, INC. By ________________________________ Name ___________________________ Title __________________________ EXHIBIT C NOTICE OF CONVERSION/CONTINUATION Date: ____________, ____ To: Bank of Montreal, as Agent for the Banks parties to the Credit Agreement dated as of April 16, 1998 (as extended, renewed, amended or restated from time to time, the "Credit Agreement") among Fountain View, Inc., certain Banks which are signatories thereto and Bank of Montreal, as Agent Ladies and Gentlemen: The undersigned, Fountain View, Inc. (the "Borrower"), refers to the Credit Agreement, the terms defined therein being used herein as therein defined, and hereby gives you notice irrevocably, pursuant to Section 16 of the Credit Agreement, of the [CONVERSION] [CONTINUATION] of the Loans specified herein, that: 1. The conversion/continuation Date is __________, ____. 2. The aggregate amount of the [REVOLVING] [TERM] Loans to be [CONVERTED] [CONTINUED] is $______________. 3. The Loans are to be [CONVERTED INTO] [CONTINUED AS] [EURODOLLAR] [BASE RATE] Loans. 4. [IF APPLICABLE:] The duration of the Interest Period for the [REVOLVING] [TERM] Loans included in the [CONVERSION] [CONTINUATION] shall be _________ months. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the proposed conversion/continuation date, before and after giving effect thereto and to the application of the proceeds therefrom: (a) the representations and warranties of the Borrower contained in Section 6 of the Credit Agreement are true and correct as though made on and as of such date (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date); provided, however, that this condition shall not apply to the conversion of an outstanding Eurodollar Loan to a Base Rate Loan; and (b) no Default or Event of Default has occurred and is continuing, or would result from such proposed [CONVERSION] [CONTINUATION]. Fountain View, Inc. By:________________________________ Name_____________________________ Title____________________________ EXHIBIT D REVOLVING NOTE U.S.$_______________ ________________, 19___ For Value Received, the undersigned, Fountain View, Inc., a Delaware corporation (the "Borrower"), hereby promises to pay to the order of ______________________ (the "Bank") on the Revolving Credit Termination Date of the hereinafter defined Credit Agreement, at the principal office of Bank of Montreal, as Agent, in Chicago, Illinois, in immediately available funds, the principal sum of ___________________ Dollars ($__________) or, if less, the aggregate unpaid principal amount of all Revolving Loans made by the Bank to the Borrower pursuant to the Credit Agreement, together with interest on the principal amount of each Revolving Loan from time to time outstanding hereunder at the rates, and payable in the manner and on the dates, specified in the Credit Agreement. The Bank shall record on its books or records or on a schedule attached to this Note, which is a part hereof, each Revolving Loan made by it pursuant to the Credit Agreement, together with all payments of principal and interest and the principal balances from time to time outstanding hereon, whether the Revolving Loan is a Base Rate Loan or a Eurodollar Loan, the interest rate and Interest Period applicable thereto, provided that prior to the transfer of this Note all such amounts shall be recorded on a schedule attached to this Note. The record thereof, whether shown on such books or records or on a schedule to this Note, shall be prima facie evidence of the same, provided, however, that the failure of the Bank to record any of the foregoing or any error in any such record shall not limit or otherwise affect the obligation of the Borrower to repay all Revolving Loans made to it pursuant to the Credit Agreement together with accrued interest thereon. This Note is one of the Revolving Notes referred to in the Credit Agreement dated as of April 16, 1998, among the Borrower, Bank of Montreal, as Agent, and the Banks party thereto (the "Credit Agreement"), and this Note and the holder hereof are entitled to all the benefits and security provided for thereby or referred to therein, to which Credit Agreement reference is hereby made for a statement thereof. All defined terms used in this Note, except terms otherwise defined herein, shall have the same meaning as in the Credit Agreement. This Note shall be governed by and construed in accordance with the internal laws of the State of Illinois. Voluntary prepayments may be made hereon, certain prepayments are required to be made hereon, and this Note may be declared due prior to the expressed maturity hereof (in each case without premium or penalty except as otherwise set forth in the Credit Agreement), all in the events, on the terms and in the manner as provided for in the Credit Agreement. The Borrower hereby waives demand, presentment, protest or notice of any kind hereunder. Fountain View, Inc. By______________________________ Name__________________________ Title_________________________ EXHIBIT E TERM NOTE U.S.$_______________ ________________, 19___ For Value Received, the undersigned, Fountain View, Inc., a Delaware corporation (the "Borrower"), hereby promises to pay to the order of ______________________ (the "Bank") at the principal office of Bank of Montreal, as Agent, in Chicago, Illinois, in immediately available funds, the principal sum of ___________________ Dollars ($__________) or, if less, the aggregate unpaid principal amount of the Term Loan made or maintained by the Bank to the Borrower pursuant to the Credit Agreement, in consecutive quarter-annual principal installments in the amounts called for by Section 1.8(b) of the Credit Agreement, commencing on March 31, 1999, and continuing on the last day of each June, September, December and March occurring thereafter, together with interest on the principal amount of such Term Loan from time to time outstanding hereunder at the rates, and payable in the manner and on the dates, specified in the Credit Agreement, except that all principal and interest not sooner paid on the Term Loan evidenced hereby shall be due and payable on December 31, 2003, the final maturity date hereof. The Bank shall record on its books or records or on a schedule attached to this Note, which is a part hereof, the Term Loan made or maintained by it pursuant to the Credit Agreement, together with all payments of principal and interest and the principal balances from time to time outstanding hereon, whether the Term Loan is a Base Rate Loan or a Eurodollar Loan, the interest rate and Interest Period applicable thereto, provided that prior to the transfer of this Note all such amounts shall be recorded on a schedule attached to this Note. The record thereof, whether shown on such books or records or on a schedule to this Note, shall be prima facie evidence of the same, provided, however, that the failure of the Bank to record any of the foregoing or any error in any such record shall not limit or otherwise affect the obligation of the Borrower to repay the Term Loan made to it pursuant to the Credit Agreement together with accrued interest thereon. This Note is one of the Term Notes referred to in the Credit Agreement dated as of April 16, 1998, among the Borrower, Bank of Montreal, as Agent, and the Banks party thereto (the "Credit Agreement"), and this Note and the holder hereof are entitled to all the benefits and security provided for thereby or referred to therein, to which Credit Agreement reference is hereby made for a statement thereof. All defined terms used in this Note, except terms otherwise defined herein, shall have the same meaning as in the Credit Agreement. This Note shall be governed by and construed in accordance with the internal laws of the State of Illinois. Voluntary prepayments may be made hereon, certain prepayments are required to be made hereon, and this Note may be declared due prior to the expressed maturity hereof (in each case without premium or penalty except as otherwise set forth in the Credit Agreement), all in the events, on the terms and in the manner as provided for in the Credit Agreement. The Borrower hereby waives demand, presentment, protest or notice of any kind hereunder. Fountain View, Inc. By___________________________ Name_______________________ Title______________________ EXHIBIT F COMPLIANCE CERTIFICATE FOR FOUNTAIN VIEW, INC. This Compliance Certificate is furnished to Bank of Montreal, as Agent (the "Agent") pursuant to that certain Credit Agreement dated as of April 16, 1998, among Fountain View, Inc. (the "Borrower"), Bank of Montreal, as Agent, and the Banks party thereto (the "Credit Agreement"). Unless otherwise defined herein, the terms used in this Compliance Certificate have the meanings ascribed thereto in the Credit Agreement. The Undersigned hereby certifies that: 1. I am the duly elected _____________________________________ of the Borrower; 2. I have reviewed the terms of the Credit Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Borrower and its Subsidiaries during the accounting period covered by the attached financial statements; 3. The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or the occurrence of any event which constitutes a Default or Event of Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate, except as set forth below; and 4. The Attachment hereto sets forth financial data and computations evidencing the Borrower's compliance with certain covenants of the Credit Agreement, all of which data and computations are, to the best of my knowledge, true, complete and correct and have been made in accordance with the relevant Sections of the Credit Agreement. Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Borrower has taken, is taking, or proposes to take with respect to each such condition or event: ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ The foregoing certifications, together with the computations set forth in the Attachment hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this _________ day of __________________ 19___. Fountain View, Inc. By_______________________________ _________________, ____________ (Name) (Title) ATTACHMENT TO COMPLIANCE CERTIFICATE FOR FOUNTAIN VIEW, INC. Compliance Calculations for Credit Agreement Dated as of April 16, 1998 Calculations as of _____________, 19___ ___________________________________________________________________________ A. Leverage Ratio (Section 8.23) ----------------------------- 1. Total Funded Debt $___________ 2. Rental Expense for past 4 quarters $______ x 8 ------- $___________ 3. Sum of Lines A1 and A2 $___________ 4. Net Income (adjusted, pro forma, for acquisition ___________ effect) for past 4 quarters 5. Interest Expense (adjusted, pro forma, for acquisition ___________ effect) for past 4 quarters 6. Taxes (adjusted, pro forma, for acquisition effect) ___________ for past 4 quarters 7. Depreciation, Amortization and Rental Expense (adjusted, pro forma, for acquisition effect) for past 4 ___________ quarters 8. Sum of Lines A4, A5, A6 and A7 ("Adjusted EBITDAR") ___________ 9. Ratio of Line A3 to A8 ____:1.0 10. Line A9 ratio must not be equal to or greater than ____:1.0 11. The Borrower is in compliance (circle yes or no) yes/no B. Senior Leverage Ratio (Section 8.24) ------------------------------------ 1. Total Senior Funded Debt $___________ 2. Rental Expense for past 4 quarters $______ x 8 ------- $___________ 3. Sum of Lines B1 and B2 $___________ 4. Adjusted EBITDAR (Line A8 above) $___________ 5. Ratio of Line B3 to B4 ____:1.0 6. Line B5 ratio must not be equal to or greater than ____:1.0 7. The Borrower is in compliance (circle yes or no) yes/no C. Net Worth (Section 8.25) ------------------------ 1. Net Worth $___________ 2. Line C1 shall not be less than $___________ 3. The Borrower is in compliance (circle yes or no) yes/no D. Fixed Charge Coverage Ratio (Section 8.26) ------------------------------------------ 1. Net Income for past 4 quarters $___________ 2. Interest Expense for past 4 quarters $___________ 3. Taxes for past 4 quarters $___________ 4. Depreciation, Amortization and Rental Expense for past $___________ 4 quarters 5. Sum of lines D1, D2, D3 and D4 ("EBITDAR") $___________ 6. Fixed asset maintenance expenditures for past 4 $___________ quarters 7. Cash payments for income taxes for past 4 quarters $___________ 8. Sum of Lines D6 and D7 $___________ 9. Line D5 minus Line D8 $___________ 10. Principal payments for past 4 quarters $___________ 11. Interest Expense for past 4 quarters $___________ 12. Rental Expense for past 4 quarters $___________ 13. Sum of Lines D10, D11 and D12 $___________ 14. Ratio of Line D9 to Line D13 ____: 1.0 15. Line D14 ratio must not be less than 1.15: 1.0 16. The Borrower is in compliance (circle yes or no) yes/no E. Capital Expenditures (Section 8.27) ----------------------------------- 1. Capital Expenditures (year-to-date) $___________ 2. Line E1 not to exceed $___________ 3. The Borrower is in compliance (circle yes or no) yes/no EXHIBIT G ASSIGNMENT AND ACCEPTANCE Dated _____________, 19_____ Reference is made to the Credit Agreement dated as of April 16, 1998 (the "CREDIT AGREEMENT") among Fountain View, Inc., a Delaware corporation, the Banks (as defined in the Credit Agreement) and Bank of Montreal, as Agent for the Banks (the "Agent"). Terms defined in the Credit Agreement are used herein with the same meaning. _____________________________________________________ (the "Assignor") and _________________________ (the "Assignee") agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, a _______% interest in and to all of the Assignor's rights and obligations under the Credit Agreement as of the Effective Date (as defined below), including, without limitation, such percentage interest in the Assignor's Commitments as in effect on the Effective Date and the Loans, if any, owing to the Assignor on the Effective Date and the Assignor's Percentage of any outstanding L/C Obligations. 2. The Assignor (i) represents and warrants that as of the date hereof (A) its Revolving Credit Commitment is $_____________ and its Term Loan Commitment is $______________, (B) the aggregate outstanding principal amount of Loans made by it under the Credit Agreement that have not been repaid is $____________ ($_____________ of Revolving Loans and $_____________ of Term Loans ) and a description of the interest rates and interest periods of such Loans is attached as Schedule 1 hereto, and (C) the aggregate principal amount of Assignor's Percentage of outstanding L/C Obligations is $____________; (ii) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim, lien, or encumbrance of any kind; (iii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto; and (iv) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any Subsidiary or performance or observance by the Borrower or any Subsidiary of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto. 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 6.5 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) appoints and authorizes the Agent to take such action as Agent on its behalf and to exercise such powers under the Credit Agreement and the other Loan Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (iv) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Bank; and (v) specifies as its lending office (and address for notices) the offices set forth beneath its name on the signature pages hereof. 4. As consideration for the assignment and sale contemplated in Section 1 hereof, the Assignee shall pay to the Assignor on the Effective Date in Federal funds an amount equal to $________________*. It is understood that commitment and/or facility fees accrued to the Effective Date with respect to the interest assigned hereby are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. 5. The effective date for this Assignment and Acceptance shall be _____________, 19___(the "Effective Date"). Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for acceptance and recording by the Agent and, if required, the Borrower. 6. Upon such acceptance and recording, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Bank thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. 7. Upon such acceptance and recording, from and after the Effective Date, the Agent shall make all payments under the Credit Agreement in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and commitment fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Effective Date directly between themselves. _________________ * Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee, net of any portion of any upfront fee to be paid by the Assignor to the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum. 8. In accordance with Section 12.12 of the Credit Agreement, the Assignor and the Assignee request and direct that the Agent prepare and cause the Borrower to execute and deliver to the Assignee the relevant Notes payable to the Assignee in the amount of its Commitments and new Notes to the Assignor in the amount of its Commitments after giving effect to this assignment. 9. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of Illinois. [Assignor Bank] By__________________________________ Name______________________________ Title_____________________________ [Assignee Bank] By__________________________________ Name______________________________ Title_____________________________ Lending office (and address for notices): Accepted and consented this ____ day of ___________, 19__ Fountain View, Inc. By________________________________ Name______________________________ Title_____________________________ Accepted and consented to by the Agent this _______ day of ___________, 19__ Bank of Montreal, as Agent By________________________________ Name______________________________ Title_____________________________ SCHEDULE I Principal Amount Type of Loan Interest Rate Maturity Date SCHEDULE 6.2
NAME JURISDICTION OF PERCENTAGE OWNERSHIP INCORPORATION Fountain View Holdings, Inc. Delaware 100% Locomotion Holdings, Inc. Delaware 100% Locomotion Therapy, Inc. Delaware 100% Fountain View Management, Inc. California 100% Sycamore Park Convalescent California 100% Hospital AIB Corp. California 100% Elmcrest Convalescent Hospital California 100% Brier Oak Convalescent, Inc. California 100% BIA Hotel Corp. California 100% Rio Hondo Nursing Center California 100% Fountainview Convalescent California 100% Hospital Alexandria Convalescent California 100% Hospital, Inc. I.'n O., Inc. California 100% On-Track Therapy Center, Inc. California 100% Summit Care Corporation California 100% Summit Care-California, Inc. California 100% Summit Care-Texas No. 2, Inc. Texas 100% Summit Care-Texas No. 3, Inc. Texas 100% Summit Care Pharmacy, Inc. California 100% Summit Care Texas, L.P. Texas 100% (Limited Partnership) Summit Care Texas Equity, Inc. California 100%
Summit Care Management Texas, Texas 100% Inc. SNF Pharmacy, Inc. California 100% Skilled Care Network California 100% FV-SCC Acquisition Corp. Delaware 100%
SCHEDULE 6.9 GOVERNMENTAL AUTHORITY AND LICENSING The Department of Health of California conducted a survey at the Alexandria facility and reported certain deficiencies in such facility's dietary plan and care planning. Fountain View, Inc. disagrees with such findings and has appealed them. SCHEDULE 6.13 APPROVALS The grant of a security interest in Summit Care Pharmacy, Inc.'s membership interest in APS-Summit Care Pharmacy, L.L.C., requires the consent of American Pharmaceutical Services, Inc. ("APS"). APS has indicated that it will give such consent; however, APS has not yet provided such written consent to Summit Care Pharmacy, Inc. SCHEDULE 8.4 INSURANCE MATTERS Insurance carriers with a less than A rating in the most current available Best's Insurance Report.
CARRIER RATING COVERAGE LIMITS Frontier Pacific A-V Excess Employer's $1,000,000 per Indemnity & occurrence (no Employer's aggregate) Occupational Disease subject to on Texas employees $150,000 SIR Meridian Non-rated Healthcare liability, Occurrence limit 1st excess layer is $400,000 in above retention. excess of Covers medical, $100,000 professional, general retention and liability, products aggregate limit liability and is $300,000 in employment practices excess of liability. $700,000 retention.
SCHEDULE 8.7 PERMITTED EXISTING INDEBTEDNESS Deferred Compensation for Certain Individuals
Lump Sum Value * Present Value Discount Rate N/A 9.0% Currently paying: L. Wertheim $ 985 $ 960 F. Hoogstad $ 15,527 $ 13,714 J. Salkind $ 52,021 $ 37,512 -------- -------- Subtotal $ 68,533 $ 52,186 Future payments: C. Fukushima $123,239 $ 9,961 P. Meza $ 43,062 $ 15,839 F. Meza $ 90,738 $ 38,807 L. Smith $ 63,631 $ 5,937 R. Gundling $112,496 $ 14,924 -------- -------- Subtotal $433,166 $ 85,468 Total present value of deferred $501,699 $137,654 compensation at 4/98
__________ * Undiscounted amount of payment stream. SCHEDULE 8.8 - PERMITTED EXISTING LIENS ---------------------------------------
REMAINING PRINCIPAL DEBTOR SECURED PARTY AMOUNT OUTSTANDING FILE NUMBER FILING DATE COLLATERAL ------ ------------- ------------------ ----------- ----------- ---------- 1. Summit Care Corporation Union Bank $1,039,999 94067151 04/04/94 Personal property located (Calif. S/S) on or otherwise relating to the use or operation of the Burbank, CA facility described therein, and rights to certain payments with respect to or on account of such property. 2. Summit Care-Texas No. Secretary of Housing and $3,727,750 94023767 02/09/94 Personal property located 3, Inc. Urban Development (Calif. S/S) on or otherwise relating to the use or operation of the Heritage Manor Nursing Center, Woodlands, Texas, described therein and rights to certain payments with respect to or on account of such property. 3. Summit Care-Texas No. Secretary of Housing and See no. 2 above 94-00014921 01/24/94 Personal property located 3, Inc. Urban Development (TX S/S) on or otherwise relating to the use or operation of the Heritage Manor Nursing Center, Woodlands, Texas, described therein and rights to certain payments with respect to or on account of such property. 4. Summit Care-Texas No. Woodlands Place Nursing $1,590,226 94-00014922 01/24/94 All of Debtor's right, 3, Inc. Center, Inc. (TX S/S) title and interest in inventory, equipment, consumer goods and fixtures located on Montgomery County, Texas real property described therin. 5. Summit Care-Texas No. Woodlands Place Nursing See no. 4 above 94-0021276 02/07/94 All of Debtor's right, 3, Inc. Center, Inc. (TX S/S) title and interest in inventory, equipment, consumer goods and fixtures located on Montgomery County, Texas real property described therein.
SCHEDULE 8.9 EXISTING NOTE RECEIVABLES
Maker Original Amount F&B Healthcare $ 300,000.00 Frank D. Johnson $ 400,000.00 DMN Enterprizes $ 500,000.00 Garden Park Care Center, Inc. $ 600,000.00 Courtyard Health Care Center, LLC $ 500,000.00 Anaheim Healthcare Center, LLC $ 1,746,574.00 Garden Park Care Center, LLC $ 350,000.00 Anaheim Healthcare Center, LLC $ 1,506,035.00 Villa Rancho Bernardo Health Care, LLC $ 300,000.00 Gardena Flores, Inc./Diana Fortune $ 821,126.00 D.K. Fortune & Assoc., Inc./Diana Fortune $ 1,003,717.00 Jurupa Hills Enterprises, Inc. $ 244,572.07 St. Erne Hospital, Inc./Charles Zilafro $ 193,208.55 Cal-Ohio Associates $ 2,117,000.00 -------------- $10,582,232.62
EX-10.48 64 GUARANTY AGREEMENT DATED 4/16/98 EXHIBIT 10.48 GUARANTY AGREEMENT This Guaranty Agreement (the "Guaranty") dated as of this 16th day of April, 1998, by the parties who have executed this Guaranty (such parties, along with any other parties who execute and deliver to the Agent hereinafter identified and defined an agreement in the form attached hereto as Exhibit A, being herein referred to collectively as the "Guarantors" and individually as a "Guarantor"). WITNESSETH: Whereas, each of the Guarantors is a direct or indirect subsidiary of Fountain View, Inc., a Delaware corporation (the "Borrower"); and Whereas, the Borrower and Bank of Montreal ("BOM"), individually and as agent (BOM acting as such agent and any successor or successors to BOM in such capacity being hereinafter referred to as the "Agent") have entered into a Credit Agreement dated as of April 16, 1998 (such Credit Agreement as the same may from time to time hereafter be amended, modified, or restated being hereinafter referred to as the "Credit Agreement") pursuant to which BOM and other banks, financial institutions and letter of credit issuer(s) from time to time parties thereto (BOM, in its individual capacity, and such other banks and financial institutions being hereinafter referred to collectively as the "Lenders" and individually as a "Lender" and such letter of credit issuer(s) being hereinafter referred to collectively as the "Letter of Credit Issuers" and individually as a "Letter of Credit Issuer") have extended various credit facilities to the Borrower (the Agent, the Lenders and the Letter of Credit Issuers being hereinafter referred to collectively as the "Guaranteed Creditors" and individually as a "Guaranteed Creditor"); and Whereas, the Borrower may from time to time enter into one or more interest rate exchange, cap, collar, floor or other agreements with one or more of the Lenders party to the Credit Agreement, or their affiliates, for the purpose of hedging or otherwise protecting the Borrower against changes in interest rates (the liability of the Borrower in respect of such agreements with such Lenders and their affiliates being hereinafter referred to as the "Hedging Liability"); and Whereas, the Borrower provides each of the Guarantors with substantial financial, management, administrative, and technical support; and Whereas, as a condition to extending the credit facilities to the Borrower under the Credit Agreement, the Guaranteed Creditors have required, among other things, that the Guarantors execute and deliver this Guaranty; and Whereas, each Guarantor will directly and substantially benefit from credit and other financial accommodations extended and to be extended by the Guaranteed Creditors to the Borrower; and Now, therefore, for value received, and in consideration of advances made or to be made, or credit accommodations given or to be given, to the Borrower by the Guaranteed Creditors from time to time, each Guarantor hereby makes the following representations and warranties to the Guaranteed Creditors and hereby covenants and agrees with the Guaranteed Creditors as follows: Section 1. All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement. Section 2. Each Guarantor hereby jointly and severally guarantees to the Guaranteed Creditors, the due and punctual payment when due of (i) any and all indebtedness, obligations and liabilities of the Borrower and the Guarantors, and of any of them individually, to the Guaranteed Creditors, and to any of them individually, under or in connection with or evidenced by the Credit Agreement, the Notes of the Borrower heretofore or hereafter issued under the Credit Agreement and the obligations of the Borrower to reimburse the Guaranteed Creditors, or any of them individually, for the amount of all drawings on all Letters of Credit issued pursuant to the Credit Agreement, and all other obligations of the Borrower under any and all applications for Letters of Credit, and any and all liability of the Borrower and the Guarantors, and of any of them individually, arising under or in connection with or otherwise evidenced by agreements with any one or more of the Guaranteed Creditors or their affiliates with respect to any Hedging Liability, in each case whether now existing or hereafter arising (and whether arising before or after the filing of a petition in bankruptcy and including all interest accrued after the petition date), due or to become due, direct or indirect, absolute or contingent, and howsoever evidenced, held or acquired and (ii) any and all expenses and charges, legal or otherwise (including, without limitation, court costs and reasonable attorneys' fees), suffered or incurred by the Guaranteed Creditors, and any of them individually, in collecting or enforcing any of such indebtedness, obligations and liabilities or in realizing on or protecting or preserving any security therefor. The indebtedness, obligations and liabilities described in the immediately preceding clauses (i) and (ii) are hereinafter referred to as the "indebtedness hereby guaranteed". In case of failure by the Borrower punctually to pay any indebtedness hereby guaranteed, each Guarantor hereby jointly and severally agrees to make such payment or to cause such payment to be made punctually as and when the same shall become due and payable, whether at stated maturity, by acceleration or otherwise, and as if such payment were made by the Borrower. All payments hereunder by any Guarantor shall be made in immediately available funds in Dollars without set-off, counterclaim or other defense or withholding or deduction of any nature. Notwithstanding anything in this Guaranty to the contrary, the right of recovery against a Guarantor under this Guaranty shall not exceed $1.00 less than the amount which would render such Guarantor's obligations under this Guaranty void or voidable under applicable law, including fraudulent conveyance law. Section 3. Each Guarantor further jointly and severally agrees to pay on demand all expenses, legal and/or otherwise (including court costs and reasonable attorneys' fees), paid or incurred by any Guaranteed Creditor in endeavoring to collect the indebtedness hereby guaranteed, or any part thereof, or in enforcing or endeavoring to enforce any -2- Guarantor's obligations hereunder, or any part thereof, or in protecting, defending or enforcing this Guaranty in any litigation, bankruptcy or insolvency proceedings or otherwise. Section 4. Each Guarantor agrees that, upon demand, such Guarantor shall pay to the Agent for the benefit of the Guaranteed Creditors the full amount of the indebtedness hereby guaranteed then due (subject to the right of recovery from such Guarantor pursuant to the last sentence of Section 2 above) whether or not any one or more of the other Guarantors shall then or thereafter pay any amount whatsoever in respect to their obligations hereunder. Section 5. Each Guarantor agrees that such Guarantor will not exercise or enforce any right of exoneration, contribution, reimbursement, recourse or subrogation available to such Guarantor against any person liable for payment of the indebtedness hereby guaranteed, or as to any security therefor, unless and until the full amount owing to the Guaranteed Creditors of the indebtedness hereby guaranteed has been fully paid and satisfied and each of the commitments by the Guaranteed Creditors to extend any indebtedness hereby guaranteed shall have expired or otherwise terminated. The payment by any Guarantor of any amount or amounts to the Guaranteed Creditors pursuant hereto shall not in any way entitle any such Guarantor, either at law, in equity or otherwise, to any right, title or interest (whether by way of subrogation or otherwise) in and to the indebtedness hereby guaranteed or any part thereof or any collateral security therefor or any other rights or remedies in any way relating thereto or in and to any amounts theretofor, then or thereafter paid or applicable to the payment thereof howsoever such payment may be made and from whatsoever source such payment may be derived unless and until all of the indebtedness hereby guaranteed and all costs and expenses suffered or incurred by the Guaranteed Creditors in enforcing this Guaranty have been paid and satisfied in full and each of the commitments by the Guaranteed Creditors to extend any indebtedness hereby guaranteed shall have expired or otherwise terminated and unless and until such payment in full and termination, any payments made by any Guarantor hereunder and any other payments from whatsoever source derived on account of or applicable to the indebtedness hereby guaranteed or any part thereof shall be held and taken to be merely payments in gross to the Guaranteed Creditors reducing pro tanto the indebtedness hereby guaranteed. Section 6. To the extent permitted by the Credit Agreement, each Guaranteed Creditor may, without any notice whatsoever to any of the Guarantors, sell, assign, or transfer all of the indebtedness hereby guaranteed, or any part thereof, or grant participations therein, and in that event each and every immediate and successive assignee, transferee, or holder of all or any part of the indebtedness hereby guaranteed, shall have the right through the Agent pursuant to Section 18 hereof to enforce this Guaranty, by suit or otherwise, for the benefit of such assignee, transferee, or holder as fully as if such assignee, transferee, or holder were herein by name specifically given such rights, powers and benefits; but each Guaranteed Creditor through the Agent pursuant to Section 18 hereof shall have an unimpaired right to enforce this Guaranty for its own benefit, as to so much of the indebtedness hereby guaranteed that it has not sold, assigned or transferred. -3- Section 7. This Guaranty is a continuing, absolute and unconditional Guaranty, and shall remain in full force and effect until all indebtedness hereby guaranteed shall be fully paid and satisfied and each of the commitments by the Guaranteed Creditors to extend any indebtedness hereby guaranteed shall have expired or otherwise terminated. The Guaranteed Creditors may at any time or from time to time release any Guarantor from its obligations hereunder or effect any compromise with any Guarantor and no such release or compromise shall in any manner impair or otherwise affect the obligations hereunder of the other Guarantors. No release, compromise, or discharge of any one or more of the Guarantors shall release, compromise or discharge the obligations of the other Guarantors hereunder. Section 8. In case of the dissolution, liquidation or insolvency (howsoever evidenced) of, or the institution of bankruptcy or receivership proceedings against the Borrower or any Guarantor, all of the indebtedness hereby guaranteed which is then existing shall in accordance with the terms of the Credit Agreement immediately become due or accrued and payable from the Guarantors. All payments received from the Borrower or on account of the indebtedness hereby guaranteed from whatsoever source, shall be taken and applied as payment in gross, and this Guaranty shall apply to and secure any ultimate balance that shall remain owing to the Guaranteed Creditors. Section 9. The liability hereunder shall in no way be affected or impaired by (and the Guaranteed Creditors are hereby expressly authorized to make from time to time, without notice to any of the Guarantors), any sale, pledge, surrender, compromise, settlement, release, renewal, extension, impairment, indulgence, alteration, substitution, exchange, change in, modification or other disposition of any of the indebtedness hereby guaranteed, either express or implied, or of any Loan Document or any other contract or contracts evidencing any thereof, or of any security or collateral therefor or any guaranty thereof. The liability hereunder shall in no way be affected or impaired by any acceptance by the Guaranteed Creditors of any security for or other guarantors upon any of the indebtedness hereby guaranteed, or by any failure, neglect or omission on the part of the Guaranteed Creditors to realize upon or protect any of the indebtedness hereby guaranteed, or any collateral or security therefor (including, without limitation, impairment of collateral and failure to perfect security interest in any collateral), or to exercise any lien upon or right of appropriation of any moneys, credits or property of the Borrower or any Guarantor, possessed by any of the Guaranteed Creditors, toward the liquidation of the indebtedness hereby guaranteed, or by any application of payments or credits thereon. The Guaranteed Creditors shall have the exclusive right to determine how, when and what application of payments and credits, if any, shall be made on said indebtedness hereby guaranteed, or any part of same. In order to hold any Guarantor liable hereunder, there shall be no obligation on the part of the Guaranteed Creditors, at any time, to resort for payment to the Borrower or to any other Guarantor, or to any other person, its property or estate, or resort to any collateral, security, property, liens or other rights or remedies whatsoever, and the Guaranteed Creditors shall have the right to enforce this Guaranty against any Guarantor irrespective of whether or not other proceedings or steps are pending seeking resort to or realization upon or from any of the foregoing are pending. -4- Section 10. In the event the Guaranteed Creditors shall at any time in their discretion permit a substitution of Guarantors hereunder or a party shall wish to become Guarantor hereunder, such substituted or additional Guarantor shall, upon executing an agreement in the form attached hereto as Exhibit A, become a party hereto and be bound by all the terms and conditions hereof to the same extent as though such Guarantor had originally executed this Guaranty and in the case of a substitution, in lieu of the Guarantor being replaced. No such substitution shall be effective absent the written consent of the Guaranteed Creditors delivered in accordance with the terms of the Credit Agreement, nor shall it in any manner affect the obligations of the other Guarantors hereunder. Section 11. All diligence in collection or protection, and all presentment, demand, protest and/or notice, as to any and everyone, whether or not the Borrower or the Guarantors or others, of dishonor and of default and of non-payment and of the creation and existence of any and all of said indebtedness hereby guaranteed, and of any security and collateral therefor, and of the acceptance of this Guaranty, and of any and all extensions of credit and indulgence hereunder, are expressly waived. Section 12. No act of commission or omission of any kind, or at any time, upon the part of the Guaranteed Creditors in respect to any matter whatsoever, shall in any way affect or impair this Guaranty. Section 13. The Guarantors waive any and all defenses, claims and discharges of the Borrower, or any other obligor or guarantor, pertaining to the indebtedness hereby guaranteed, except the defense of discharge by payment in full. Without limiting the generality of the foregoing, the Guarantors will not assert, plead or enforce against the Guaranteed Creditors any defense of waiver, release, discharge in bankruptcy, statute of limitations, res judicata, statue of frauds, anti-deficiency statute, fraud, incapacity, minority, usury, illegality or unenforceability which may be available to the Borrower or any other person liable in respect of any of the indebtedness hereby guaranteed, or any set-off available against the Guaranteed Creditors to the Borrower or any such other person, whether or not on account of a related transaction. The Guarantors agree that the Guarantors shall be and remain jointly and severally liable for any deficiency remaining after foreclosure or other realization on any lien or security interest securing the indebtedness hereby guaranteed, whether or not the liability of the Borrower or any other obligor for such deficiency is discharged pursuant to statute or judicial decision. Section 14. If any payment applied by the Guaranteed Creditors to the indebtedness hereby guaranteed is thereafter set aside, recovered, rescinded or required to be returned for any reason (including, without limitation, the bankruptcy, insolvency or reorganization of the Borrower or any other obligor), the indebtedness hereby guaranteed to which such payment was applied shall for the purposes of this Guaranty be deemed to have continued in existence, notwithstanding such application, and this Guaranty shall be enforceable as to such of the indebtedness hereby guaranteed as fully as if such application had never been made. Section 15. The liability of the Guarantors under this Guaranty is in addition to and shall be cumulative with all other liabilities of the Guarantors after the date hereof to the -5- Guaranteed Creditors as a guarantor of the indebtedness hereby guaranteed, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other liability specifically provides to the contrary. Section 16. Any invalidity or unenforceability of any provision or application of this Guaranty shall not affect other lawful provisions and applications hereof, and to this end the provisions of this Guaranty are declared to be severable. Without limiting the generality of the foregoing, any invalidity or unenforceability against any Guarantor of any provision or application of the Guaranty shall not affect the validity or enforceability of the provisions or application of this Guaranty as against the other Guarantors. Section 17. Any demand for payment on this Guaranty or any other notice required or desired to be given hereunder to any Guarantor shall be in writing (including, without limitation, notice by telecopy) and shall be given to the relevant party at its address or telecopier number set forth on the appropriate signature page hereof, or such other address or telecopier number as such party may hereafter specify by notice to the Agent given by United States certified or registered mail, by telecopy or by other telecommunication device capable of creating a written record of such notice and its receipt. Each such notice, request or other communication shall be effective (i) if given by telecopier, when such telecopy is transmitted to the telecopier number specified in this Section and a confirmation of such telecopy has been received by the sender, (ii) if given by mail, 5 days after such communication is deposited in the mail, certified or registered with return receipt requested, addressed as aforesaid or (iii) if given by any other means, when delivered at the addresses specified in this Section. Section 18. No Lender or Letter of Credit Issuer shall have the right to institute any suit, action or proceeding in equity or at law in connection with this Guaranty for the enforcement of any remedy under or upon this Guaranty; it being understood and intended that no one or more of the Lenders or Letter of Credit Issuers shall have any right in any manner whatsoever to enforce any right hereunder, and that all proceedings at law or in equity shall be instituted, had and maintained by the Agent in the manner herein provided for the benefit of the Guaranteed Creditors. Section 19. The Guarantors are concurrently herewith granting Liens on substantially all of their assets as security for the indebtedness hereby guaranteed, including certain real property. In consideration of advances made or to be made, or credit accommodations given or to be given, to the Borrower by the Guaranteed Creditors from time to time, the Guarantors hereby unconditionally agree to forever indemnify, defend and hold harmless, and covenant not to sue for any claim for contribution against, the Guaranteed Creditors for any damages, costs, loss or expense, including without limitation, response, remedial or removal costs, arising out of any of the following: (i) any presence, release, threatened release or disposal of any hazardous or toxic substance or petroleum by the Borrower or any Guarantor or otherwise occurring on or with respect to their property, (ii) the operation or violation of any environmental law, whether federal, state, or local, and any regulations promulgated thereunder, by the Borrower or any Guarantor or otherwise occurring on or with respect to their property, (iii) any claim for personal injury or -6- property damage in connection with the Borrower or any Guarantor or otherwise occurring on or with respect to their property, and (iv) the inaccuracy or breach of any environmental representation, warranty or covenant by the Borrower or any Guarantor made in any loan agreement, promissory note, mortgage, deed of trust, security agreement or any other instrument or document evidencing or securing any indebtedness, obligations or liabilities of the Borrower or any Guarantor owing to the Guaranteed Creditors or setting forth terms and conditions applicable thereto or otherwise relating thereto, except for damages arising from the Guaranteed Creditors' willful misconduct or gross negligence. This indemnification shall survive the payment and satisfaction of all indebtedness, obligations and liabilities of the Borrower and the Guarantors owing to the Guaranteed Creditors and the termination of this Guaranty, and shall remain in force beyond the expiration of any applicable statute of limitations and payment or satisfaction in full of any single claim under this indemnification. This indemnification shall be binding upon the successors and assigns of the Guarantors and shall inure to the benefit of Guaranteed Creditors and their directors, officers, employees, agents, and collateral trustees, and their successors and assigns. Section 20. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE OF ILLINOIS (without regard to principles of conflicts of laws) in which state it shall be performed by the Guarantors and may not be waived, amended, released or otherwise changed except by a writing signed by the Agent. This Guaranty and every part thereof shall be effective upon delivery to the Agent, without further act, condition or acceptance by the Guaranteed Creditors, shall be binding upon the Guarantors and upon the legal representatives, successors and assigns of the Guarantors, and shall inure to the benefit of the Guaranteed Creditors, their successors, legal representatives and assigns. The Guarantors waive notice of the Guaranteed Creditors' acceptance hereof. This Guaranty may be executed in counterparts and by different parties hereto on separate counterparts each of which shall be an original, but all together to be one and the same instrument. Section 21. Each Guarantor hereby submits to the nonexclusive jurisdiction of the United States District Court for the Northern District of Illinois and of any Illinois State court sitting in Cook County, Illinois, for purposes of all legal proceedings arising out of or relating to this Guaranty or the transactions contemplated hereby. Each Guarantor irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such court has been brought in an inconvenient forum. EACH GUARANTOR AND, BY ACCEPTING THE BENEFITS OF THIS AGREEMENT, EACH GUARANTEED CREDITOR HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY. [Signature Pages to follow] -7- In Witness Whereof, the Guarantors have caused this Guaranty to be executed and delivered as of the date first above written. "GUARANTORS" FOUNTAIN VIEW HOLDINGS, INC. LOCOMOTION HOLDINGS, INC. FOUNTAIN VIEW MANAGEMENT, INC. SYCAMORE PARK CONVALESCENT HOSPITAL AIB CORP. ELMCREST CONVALESCENT HOSPITAL BRIER OAK CONVALESCENT, INC. BIA HOTEL CORP. RIO HONDO NURSING CENTER FOUNTAINVIEW CONVALESCENT HOSPITAL ALEXANDRIA CONVALESCENT HOSPITAL, INC. I.'N O., INC. SUMMIT CARE CORPORATION SUMMIT CARE-CALIFORNIA, INC. SUMMIT CARE-TEXAS NO. 2, INC. SUMMIT CARE-TEXAS NO. 3, INC. SUMMIT CARE PHARMACY, INC. SKILLED CARE NETWORK SUMMIT CARE TEXAS EQUITY, INC. SUMMIT CARE MANAGEMENT TEXAS, INC. SNF PHARMACY, INC. FV-SCC ACQUISITION CORP. By /s/ Robert M. Snukal -------------------------------------- Name: Robert M. Snukal Title: President Address: 11900 West Olympic Blvd., Suite 680 Los Angeles, CA 90064 Attention: Robert M. Snukal Telephone: (310) 571-0351 Telecopy: (310) 571-0365 -8- Locomotion Therapy, Inc. On-Track Therapy Center, Inc. By /s/ Robert M. Snukal -------------------------------------- Name: Robert M. Snukal Title: Chief Executive Officer Address: 11900 West Olympic Blvd., Suite 680 Los Angeles, CA 90064 Attention: Robert M. Snukal Telephone: (310) 571-0351 Telecopy: (310) 571-0365 SUMMIT CARE TEXAS, L.P. By: Summit Care Management Texas, Inc., in its capacity as general partner By:/s/ Robert M. Snukal -------------------------------------- Robert M. Snukal, President By: Summit Care Texas Equity, Inc., in its capacity as limited partner By: /s/ Robert M. Snukal -------------------------------------- Robert M. Snukal, President Address: 11900 West Olympic Blvd., Suite 680 Los Angeles, CA 90064 Attention: Robert M. Snukal Telephone: (310) 571-0351 Telecopy: (310) 571-0365 -9- Accepted and agreed to in Chicago, Illinois as of the date first above written. BANK OF MONTREAL, AS AGENT By /s/ Mark F. Spencer -------------------------------------- Name Mark F. Spencer ----------------------------------- Title Managing Director ---------------------------------- Address: 601 South Figueroa Street, Suite 4900 Los Angeles, CA 90017 Attention: Ronald Launsbach Telephone: (213) 239-0602 Telecopy: (213) 239-0680 -10- EXHIBIT A TO GUARANTY AGREEMENT ASSUMPTION AND SUPPLEMENT TO GUARANTY AGREEMENT This Assumption and Supplement to Guaranty Agreement (the "Agreement") is dated as of this _____ day of ____________, _____, made by [NEW GUARANTOR], a ___________ corporation (the "New Guarantor"); WITNESSETH THAT: Whereas, certain parties have executed and delivered to the Guaranteed Creditors that certain Guaranty Agreement dated as of April 16, 1998 (such Guaranty Agreement, as the same may from time to time be amended, modified, or restated, including supplements thereto which add or substitute parties as Guarantors thereunder, being hereinafter referred to as the "Guaranty") pursuant to which such parties (the "Existing Guarantors") have guaranteed to the Guaranteed Creditors the full and prompt payment of, among other things, any and all indebtedness, obligations and liabilities of Fountain View, Inc. (the "Borrower") arising under or relating to the Credit Agreement and the Loan Documents as defined therein; and Whereas, the Borrower provides the New Guarantor with substantial financial, managerial, administrative and technical support and the New Guarantor will directly and substantially benefit from credit and other financial accommodations extended and to be extended by the Guaranteed Creditors to the Borrower; Now, therefore, for value received, and in consideration of advances made or to be made, or credit accommodations given or to be given, to the Borrower by the Guaranteed Creditors from time to time, the New Guarantor hereby agrees as follows: 1. The New Guarantor acknowledges and agrees that it shall become a "Guarantor" party to the Guaranty effective upon the date of the New Guarantor's execution of this Agreement and the delivery of this Agreement to the Agent on behalf of the Guaranteed Creditors, and that upon such execution and delivery, all references in the Guaranty to the terms "Guarantor" or "Guarantors" shall be deemed to include the New Guarantor. 2. The New Guarantor hereby assumes and becomes liable (jointly and severally with all the other Guarantors) for the indebtedness hereby guaranteed (as defined in the Guaranty) and agrees to pay and perform all of the obligations of a Guarantor under the Guaranty according to, and otherwise on and subject to, the terms and conditions of the Guaranty to the same extent and with the same force and effect as if the New Guarantor had originally been one of the Existing Guarantors under the Guaranty and had originally executed the same as such an Existing Guarantor. 3. All capitalized terms used in this Agreement without definition shall have the same meaning herein as such terms have in the Guaranty, except that any reference to the term "Guarantor" or "Guarantors" and any provision of the Guaranty providing meaning to such term shall be deemed a reference to the Existing Guarantors and the New Guarantor. Except as specifically modified hereby, all of the terms and conditions of the Guaranty shall stand and remain unchanged and in full force and effect. 4. The New Guarantor agrees to execute and deliver such further instruments and documents and do such further acts and things as the Agent or the Guaranteed Creditors may deem necessary or proper to carry out more effectively the purposes of this Agreement. 5. No reference to this Agreement need be made in the Guaranty or in any other document or instrument making reference to the Guaranty, any reference to the Guaranty in any of such to be deemed a reference to the Guaranty as modified hereby. 6. This Agreement shall be governed by and construed in accordance with the State of Illinois (without regard to principles of conflicts of law) in which state it shall be performed by the New Guarantor. [NEW GUARANTOR] By_______________________ Name___________________ Title__________________ Acknowledged and agreed to as of the date first above written. Bank of Montreal, as Agent By_______________________ Name___________________ Title__________________ -2- EX-10.49 65 PLEDGE AGREEMENT DATED 4/16/98 EXHIBIT 10.49 PLEDGE AGREEMENT This Pledge Agreement (the "Agreement") is dated as of April 16, 1998, by and among Fountain View, Inc., a Delaware corporation (the "Borrower"), and the other parties executing this Agreement under the heading "Pledgors" (the Borrower and such other parties, along with any parties who execute and deliver to the Agent an agreement in the form attached hereto as Schedule C being hereinafter referred to collectively as the "Pledgors" and individually as a "Pledgor"), each with its mailing address as set forth on its signature page hereto and Bank of Montreal, a chartered bank of Canada acting through its Chicago branch ("BOM"), with its mailing address at 115 South LaSalle Street, Chicago, Illinois 60603, acting as agent hereunder for the Lenders and Letter of Credit Issuers hereinafter identified and defined (BOM acting as such agent and any successor or successors to BOM acting in such capacity being hereinafter referred to as the "Agent"); PRELIMINARY STATEMENTS A. The Borrower and BOM, individually and as agent, have entered into a Credit Agreement dated as of April 16, 1998 (such Agreement as the same may be amended, modified or restated from time to time being hereinafter referred to as the "Credit Agreement"), pursuant to which BOM and other banks, financial institutions and letter of credit issuers from time to time party to the Credit Agreement (BOM, in its individual capacity, and such other banks and financial institutions being hereinafter referred to collectively as the "Lenders" and individually as a "Lender" and such letter of credit issuers being hereinafter referred to collectively as the "Letter of Credit Issuers" and individually as a "Letter of Credit Issuer") have agreed, subject to certain terms and conditions, to extend credit and make certain other financial accommodations available to the Borrower (the Agent, the Lenders and the Letter of Credit Issuers being hereinafter referred to collectively as the "Secured Creditors" and individually as a "Secured Creditor"). B. The Borrower may from time to time enter into one or more interest rate exchange, cap, collar, floor or other agreements with one or more of the Lenders party to the Credit Agreement, or their affiliates, for the purpose of hedging or otherwise protecting the Borrower against changes in interest rates (the liability of the Borrower in respect of such agreements with such Lenders and their affiliates being hereinafter referred to as the "Hedging Liability"). C. As a condition to extending credit to the Borrower under the Credit Agreement, the Secured Creditors have required, among other things, that each Pledgor grant to the Agent for the benefit of the Secured Creditors a lien on and security interest in certain personal property of such Pledgor described herein subject to the terms and conditions hereof. D. The Borrower owns, directly or indirectly, equity interests in each other Pledgor and the Borrower provides each other Pledgor with financial, management, administrative, and technical support which enables such Pledgor to conduct its business in an orderly and efficient manner in the ordinary course. E. Each Pledgor will benefit, directly or indirectly, from credit and other financial accommodations extended by the Secured Creditors to the Borrower. Now, Therefore, for and in consideration of the execution and delivery by the Secured Creditors of the Credit Agreement, and other good and valuable consideration, receipt whereof is hereby acknowledged, the parties hereto hereby agree as follows : Section 1. Terms Defined in Credit Agreement. All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement. The term "Pledgor" and "Pledgors" as used herein shall mean and include the Pledgors collectively and also each individually, with all grants, representations, warranties and covenants of and by the Pledgors, or any of them, herein contained to constitute joint and several grants, representations, warranties and covenants of and by the Pledgors; provided, however, that unless the context in which the same is used shall otherwise require, any grant, representation, warranty or covenant contained herein related to the Collateral shall be made by each Pledgor only with respect to the Collateral owned by it or represented by such Pledgor as owned by it. Section 2. Grant of Security Interest in the Collateral. Each Pledgor hereby grants to the Agent for the benefit of the Secured Creditors a lien on and security interest in, and acknowledges and agrees that the Agent has and shall continue to have for the benefit of the Secured Creditors a continuing lien on and security interest in, any and all right, title and interest of each Pledgor in all equity interests of each of its Subsidiaries, whether now owned or existing or hereafter created, acquired or arising, and in whatever form, including, without limitation, any and all right, title, and interest in and to the following: (a) Stock Collateral. (i) All shares of the capital stock of each Subsidiary which is a corporation owned or held by such Pledgor, whether now owned or hereafter formed or acquired (those shares delivered to and deposited with the Agent on or prior to the date hereof being listed and described on Schedule A attached hereto), and all substitutions and additions to such shares (herein, the "Pledged Securities"), (ii) all dividends, distributions and sums distributable or payable from, upon or in respect of the Pledged Securities and (iii) all other rights and privileges incident to the Pledged Securities (all of the foregoing being hereinafter referred to collectively as the "Stock Collateral"); (b) Partnership Interest Collateral. (i) All partnership or other equity interests in each Subsidiary which is a partnership (whether general or limited) owned or held by such Pledgor, whether now owned or hereafter formed or acquired (each of such equity interests existing on the date hereof being listed and identified on Schedule B attached hereto) (such partnerships being hereinafter referred to collectively as the "Partnerships" and individually as a "Partnership"), (ii) any and all payments and distributions of whatever kind or character, whether in cash or other -2- property, at any time made, owing or payable to such Pledgor in respect of or on account of its present or hereafter acquired interests in each Partnership, whether due or to become due and whether representing profits, distributions pursuant to complete or partial liquidation or dissolution of any such Partnership, distributions representing the complete or partial redemption of such Pledgor's interest in any such Partnership or the complete or partial withdrawal of such Pledgor from any such Partnership, repayment of capital contributions, payment of management fees or commissions, or otherwise, and the right to receive, receipt for, use and enjoy all such payments and distributions, and (iii) all other rights and privileges incident to such Pledgor's interest in each Partnership (all of the foregoing being hereinafter collectively called the "Partnership Interest Collateral"); (c) LLC Collateral. (i) All membership or other equity interests in each Subsidiary which is a limited liability company owned or held by such Pledgor, whether now owned or hereafter formed or acquired (each of such equity interests existing on the date hereof being listed and identified on Schedule C attached hereto (such limited liability companies being hereinafter referred to collectively as the "LLCs" and individually as a "LLC"), (ii) any and all payments and distributions of whatever kind or character, whether in cash or other property, at any time made, owing or payable to such Pledgor in respect of or on account of its present or hereafter acquired interests in each LLC, whether due or to become due and whether representing profits, distributions pursuant to complete or partial liquidation or dissolution of any such LLC, distributions representing the complete or partial redemption of such Pledgor's interest in such LLC or the complete or partial withdrawal of such Pledgor from any such LLC, repayment of capital contributions, payment of management fees or commissions, or otherwise, and the right to receive, receipt for, use and enjoy all such payments and distributions, and (iii) all other rights and privileges incident to such Pledgor's interest in each LLC (all of the foregoing being hereinafter referred to as the "LLC Collateral"); and (d) Proceeds. All proceeds of the foregoing; all of the foregoing being herein sometimes referred to as the "Collateral"; provided that, so long as the Borrower is in compliance with Section 4.1 of the Credit Agreement, the Collateral shall not include any capital stock issued by Alexandria Convalescent Hospital, Inc. All terms which are used in this Agreement which are defined in the Uniform Commercial Code of the State of Illinois ("UCC") shall have the same meanings herein as such terms are defined in the UCC, unless this Agreement shall otherwise specifically provide. Section 3. Obligations Hereby Secured. This Agreement is made and given to secure, and shall secure, the prompt payment and performance when due of (i) any and all indebtedness, obligations and liabilities of the Pledgors, and of any of them individually, to the Secured Creditors, and to any of them individually, under or in connection with or evidenced by the Credit Agreement, the Notes of the Borrower heretofore or hereafter issued under the Credit Agreement and the obligations of the Borrower to reimburse the Secured Creditors for the amount of all drawings on all Letters of Credit issued pursuant to -3- the Credit Agreement, and all other obligations of the Borrower under any and all applications for Letters of Credit, and any and all liability of the Pledgors, and of any of them individually, arising under or in connection with or otherwise evidenced by agreements with any one or more of the Secured Creditors or their affiliates with respect to any Hedging Liability, and any and all liability of the Pledgors, and of any of them individually, arising under any guaranty issued by it relating to the foregoing or any part thereof, in each case whether now existing or hereafter arising (and whether arising before or after the filing of a petition in bankruptcy and including all interest accrued after the petition date), due or to become due, direct or indirect, absolute or contingent, and howsoever evidenced, held or acquired and (ii) any and all expenses and charges, legal or otherwise, suffered or incurred by the Secured Creditors, and any of them individually, in collecting or enforcing any of such indebtedness, obligations and liabilities or in realizing on or protecting or preserving any security therefor, including, without limitation, the lien and security interest granted hereby (all of the indebtedness, obligations, liabilities, expenses and charges described above being hereinafter referred to as the "Obligations"). Notwithstanding anything in this Agreement to the contrary, the right of recovery against any Pledgor (other than the Borrower to which this limitation shall not apply) under this Agreement shall not exceed $1.00 less than the amount which would render such Pledgor's obligations under this Agreement void or voidable under applicable law, including fraudulent conveyance law. Section 4. Covenants, Agreements, Representations and Warranties. Each Pledgor hereby covenants and agrees with, and represents and warrants to, the Secured Creditors that: (a) Each Pledgor is and shall be the sole and lawful legal, record and beneficial owner of its Collateral. Each Pledgor's chief executive office is at the address listed under such Pledgor's name on Schedule A, Schedule B and Schedule C hereto, as applicable. Each Pledgor agrees that it will not change any location set forth on the applicable Schedule hereto without 30 days prior written notice to the Agent (provided in all cases such locations shall be within the United States of America). No Pledgor shall, without the Agent's prior written consent, sell, assign, or otherwise dispose of the Collateral or any interest therein, except to the extent permitted by Section 8.10 of the Credit Agreement. The Collateral, and every part thereof, is and shall be free and clear of all security interests, liens, rights, claims, attachments, levies and encumbrances of every kind, nature and description and whether voluntary or involuntary, except for the security interest of the Agent hereunder and for other Liens permitted by Section 8.8 of the Credit Agreement. Each Pledgor shall warrant and defend the Collateral against any claims and demands of all persons at any time claiming the same or any interest in the Collateral adverse to any Secured Creditor. (b) Each Pledgor agrees to execute and deliver to the Agent such further agreements, assignments, instruments and documents and to do all such other things as the Agent may deem necessary or appropriate to assure the Agent its lien and security interest hereunder, including such assignments, acknowledgments (including acknowledgments of collateral assignment in the form attached hereto as Schedule D), -4- stock powers, financing statements, instruments and documents as the Agent may from time to time require in order to comply with the UCC. Each Pledgor hereby agrees that a carbon, photographic or other reproduction of this Agreement or any such financing statement is sufficient for filing as a financing statement by the Agent without prior notice thereof to such Pledgor wherever the Agent in its discretion desires to file the same. In the event for any reason the law of any jurisdiction other than Illinois becomes or is applicable to the Collateral or any part thereof, or to any of the Obligations, each Pledgor agrees to execute and deliver all such agreements, assignments, instruments and documents and to do all such other things as the Agent in its discretion deems necessary or appropriate to preserve, protect and enforce the lien and security interest of the Agent under the law of such other jurisdiction. (c) If, as and when any Pledgor (x) delivers any securities for pledge hereunder in addition to those listed on Schedule A hereto or (y) pledges interests in any partnership in addition to those listed on Schedule B hereto or (z) pledges interests in any limited liability company in addition to those listed on Schedule C hereto, the Pledgors shall furnish to the Agent a duly completed and executed amendment to such Schedule in substantially the form (with appropriate insertions) of Schedule E hereto reflecting the additional securities, partnership interests or limited liability company interests pledged hereunder after giving effect to such addition. (d) None of the Collateral constitutes margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System). (e) On failure of any Pledgor to perform when due any of the agreements and covenants herein contained, the Agent may, at its option, perform the same and in so doing may expend such sums as the Agent reasonably deems advisable in the performance thereof, including, without limitation, the payment of any taxes, liens and encumbrances, expenditures made in defending against any adverse claim, and all other expenditures which the Agent may be compelled to make by operation of law or which Agent may make by agreement or otherwise for the protection of the security hereof. All such sums and amounts so expended shall be repayable by the Pledgors upon demand, shall constitute additional Obligations secured hereunder and shall bear interest from the date said amounts are expended at the rate per annum (computed on the basis of a year of 360 days, for the actual number of days elapsed) determined by adding 2% to the Base Rate from time to time in effect plus the Applicable Margin for Base Rate Loans (such rate per annum as so determined being hereinafter referred to as the "Default Rate"). No such performance of any covenant or agreement by the Agent on behalf of such Pledgor, and no such advancement or expenditure therefor, shall relieve such Pledgor of any default under the terms of this Agreement or in any way obligate any Secured Creditor to take any further or future action with respect thereto. The Agent, in making any payment hereby authorized, may do so according to any bill, statement or estimate procured from the appropriate public office or holder of the claim to be discharged without inquiry into the accuracy of such bill, statement or estimate, or into the validity of any tax assessment, sale, forfeiture, tax lien or title or claim. The Agent, in performing any act hereunder, shall be the sole -5- judge of whether the relevant Pledgor is required to perform the same under the terms of this Agreement. The Agent is hereby authorized to charge any depository or other account of any Pledgor maintained with any Secured Creditor for the amount of such sums and amounts so expended. Section 5. Special Provisions Re: Stock Collateral. (a) Each Pledgor has the right to vote the Pledged Securities and there are no restrictions upon the voting rights associated with, or the transfer of, any of the Pledged Securities, except as provided by federal and state laws applicable to the sale of securities generally and the terms of this Agreement. (b) The certificates for all shares of the Pledged Securities shall be delivered by the relevant Pledgor to the Agent duly endorsed in blank for transfer or accompanied by an appropriate assignment or assignments or an appropriate undated stock power or powers, in every case sufficient to transfer title thereto. The Agent may, at any time after the occurrence of an Event of Default at any time when the Obligations are, or have been declared to be, due and payable in full, cause to be transferred into its name or into the name of its nominee or nominees any and all of the Pledged Securities. The Agent shall at all times have the right to exchange the certificates representing the Pledged Securities for certificates of smaller or larger denominations. (c) The Pledged Securities have been validly issued and, except as described on Schedule A, are fully paid and non-assessable. Except as set forth on Schedule A, there are no outstanding commitments or other obligations of the issuers of any of the Pledged Securities to issue, and no options, warrants or other rights of any individual or entity to acquire, any share of any class or series of capital stock of such issuers. The Pledged Securities listed and described on Schedule A attached hereto constitute the percentage of the issued and outstanding capital stock of each series and class of the issuers thereof as set forth thereon owned by the relevant Pledgor. Each Pledgor further agrees that in the event any such issuer shall issue any additional capital stock of any series or class (whether or not entitled to vote) to such Pledgor or otherwise on account of its ownership interest therein, each Pledgor will forthwith pledge and deposit hereunder, or cause to be pledged and deposited hereunder, all such additional shares of such capital stock. Section 6. Special Provisions Re: Partnership Interest Collateral and LLC Collateral. (a) Each Pledgor further represents and warrants to, and agrees with, the Secured Creditors as follows: (i) each Partnership is a valid and existing entity of the type listed on Schedule B and is duly organized and existing under applicable law; and each LLC is duly organized and existing under applicable law; -6- (ii) the Partnership Interest Collateral listed and described on Schedule B attached hereto constitutes the percentage of the equity interest in each Partnership set forth thereon owned by the relevant Pledgor; and the LLC Collateral listed and described on Schedule C attached hereto constitutes the percentage of the equity interest in each LLC set forth thereon owned by the relevant Pledgor; and (iii) the copies of the partnership agreements of each Partnership and the articles of association and operating agreements of each LLC (each such agreement being hereinafter referred to as "Organizational Agreement") heretofore delivered to the Agent are true and correct copies thereof and have not been amended or modified in any respect. (b) Each Pledgor agrees that it shall not, without the prior written consent of the Agent, agree to any amendment or modification to any of the Organizational Agreements which would in any manner adversely affect or impair the Partnership Interest Collateral or LLC Collateral or reduce or dilute the rights of such Pledgor with respect to any Partnership or LLC, any of such done without such prior written consent to be null and void. The Pledgors shall promptly send to the Agent copies of all notices and communications with respect to each Partnership and each LLC alleging the existence of a default by any Pledgor in the performance of any of its obligations under any Organizational Agreement. Each Pledgor agrees that it will promptly notify the Agent of any litigation which is reasonably likely to have a Material Adverse Effect or is reasonably likely to materially and adversely affect a Partnership or a LLC or any of their respective properties and of any material adverse change in the operations, business properties, assets or conditions, financial or otherwise, of any Pledgor or any Partnership or any LLC. Each Pledgor shall perform when due all of its obligations under each Organizational Agreement. In the event any Pledgor fails to pay or perform any obligation arising under any Organizational Agreement or otherwise related to any Partnership or any LLC, the Agent may, but need not, pay or perform such obligation at the expense and for the account of the Pledgors and all funds expended for such purposes shall constitute Obligations secured hereby which the Pledgors promise to pay to the Agent together with interest thereon at the Default Rate. (c) The certificates, if any, at any time evidencing any Pledgor's interest in any Partnership or LLC shall be delivered to the Agent duly endorsed in blank for transfer or accompanied by an appropriate assignment or assignments or an appropriate undated stock power or powers, in every case sufficient to transfer title thereto. The Agent may, at any time after the occurrence of an Event of Default at any time when the Obligations are, or have been declared to be, due and payable in full, cause to be transferred into its name or the name of its nominee or nominees, any and all of such Collateral. The Agent shall at all times have the right to exchange the certificates representing such Collateral for certificates of smaller or larger denominations. -7- (d) Each Pledgor has the right to vote its interest in each Partnership and LLC (except as set forth herein) and there are no restrictions upon the voting rights associated with, or the transfer of, any of the Partnership Interest Collateral or LLC Collateral, except as provided by federal and state laws applicable to the sale of securities generally, the terms of any Organizational Agreement under which such person is organized and the terms of this Agreement. (e) Except as set forth on Schedule C, there are no outstanding commitments or other obligations of any LLC to issue, and no options, warrants or other rights of any individual or entity to acquire, any interest in such LLC. (f) Each Pledgor further agrees that in the event it shall acquire any additional interests in any Partnership or LLC, such Pledgor will forthwith pledge and deposit hereunder or cause to be pledged and deposited hereunder, all such additional interests. Section 7. Voting Rights and Dividends. Unless and until an Event of Default hereunder has occurred and is continuing and thereafter until notified by the Agent pursuant to Section 9(b) hereof: (a) Each Pledgor shall be entitled to exercise all voting and/or consensual powers pertaining to the Collateral of such Pledgor, or any part thereof, for all purposes not inconsistent with the terms of this Agreement or any other document evidencing or otherwise relating to any of the Obligations. (b) Each Pledgor shall be entitled to receive and retain all dividends and distributions in respect of the Collateral which are paid in cash of whatsoever nature; provided, however, that such dividends and distributions representing: (i) stock or liquidating dividends or a distribution or return of capital upon or in respect of the Pledged Securities or any part thereof or resulting from a split-up, revision or reclassification of the Pledged Securities or any part thereof or received in addition to, in substitution of or in exchange for the Pledged Securities or any part thereof as a result of a merger, consolidation or otherwise; or (ii) distributions in complete or partial liquidation of any Partnership or LLC or the interest of such Pledgor therein; in each case, shall be paid, delivered or transferred, as appropriate, directly to the Agent immediately upon the receipt thereof by such Pledgor and may, in the case of cash, be applied by the Agent to the Obligations in accordance with the terms of the Credit Agreement, whether or not the same may then be due or otherwise adequately secured and shall, in the case of all other property, together with any cash received by the Agent and not applied as aforesaid, be held by the Agent pursuant hereto as part of the Collateral pledged under and subject to the terms of this Agreement. -8- (c) In order to permit each Pledgor to exercise such voting and/or consensual powers which it is entitled to exercise under subsection (a) above and to receive such distributions which such Pledgor is entitled to receive and retain under subsection (b) above, the Agent will, if necessary, upon the written request of such Pledgor, from time to time execute and deliver to such Pledgor appropriate proxies and dividend orders. Section 8. Power of Attorney. Each Pledgor hereby appoints the Agent, its nominee, or any other person whom the Agent may designate as such Pledgor's attorney-in-fact, with full power and authority upon the occurrence and during the continuation of any Event of Default to ask, demand, collect, receive, receipt for, sue for, compound and give acquittance for any and all sums or properties which may be or become due, payable or distributable in respect of the Collateral or any part thereof, with full power to settle, adjust or compromise any claim thereunder or therefor as fully as such Pledgor could itself do, to endorse or sign the Pledgor's name on any assignments, stock powers, or other instruments of transfer and on any checks, notes, acceptances, money orders, drafts, and any other forms of payment or security that may come into the Agent's possession and on all documents of satisfaction, discharge or receipt required or requested in connection therewith, and, in its discretion, to file any claim or take any other action or proceeding, either in its own name or in the name of such Pledgor, or otherwise, which the Agent deems necessary or appropriate to collect or otherwise realize upon all or any part of the Collateral, or effect a transfer thereof, or which may be necessary or appropriate to protect and preserve the right, title and interest of the Agent in and to such Collateral and the security intended to be afforded hereby. Each Pledgor hereby ratifies and approves all acts of any such attorney and agrees that neither the Agent nor any such attorney will be liable for any such acts or omissions nor for any error of judgment or mistake of fact or law other than such person's gross negligence or willful misconduct. The Agent may file one or more financing statements disclosing its security interest in all or any part of the Collateral without any Pledgor's signature appearing thereon, and each Pledgor also hereby grants the Agent a power of attorney to execute any such financing statements, and any amendments or supplements thereto, on behalf of such Pledgor without notice thereof to such Pledgor. The foregoing powers of attorney, being coupled with an interest, are irrevocable until the Obligations have been fully satisfied and all commitments of the Lenders to extend credit to or for the account of the Borrower under the Credit Agreement have expired or otherwise terminated. Section 9. Defaults and Remedies. (a) The occurrence of any event or the existence of any condition which is specified as an "Event of Default" under the Credit Agreement shall constitute an "Event of Default" hereunder. (b) Upon the occurrence and during the continuation of any Event of Default at any time when the Obligations are, or have been declared to be, due and payable in full, all rights of the Pledgors to receive and retain the distributions which they are entitled to receive and retain pursuant to Section 7(b) hereof shall, at the option of the Agent cease and thereupon become vested in the Agent which, in addition to all other rights provided herein or by law, shall then be entitled solely and exclusively to receive and retain the distributions -9- which the Pledgors would otherwise have been authorized to retain pursuant to Section 7(b) hereof and all rights of the Pledgors to exercise the voting and/or consensual powers which they are entitled to exercise pursuant to Section 7(a) hereof shall, at the option of the Agent, cease and thereupon become vested in the Agent which, in addition to all other rights provided herein or by law, shall then be entitled solely and exclusively to exercise all voting and other consensual powers pertaining to the Collateral and to exercise any and all rights of conversion, exchange or subscription and any other rights, privileges or options pertaining thereto as if the Agent were the absolute owner thereof including, without limitation, the right to exchange, at its discretion, the Collateral or any part thereof upon the merger, consolidation, reorganization, recapitalization or other readjustment of the respective issuer thereof or upon the exercise by or on behalf of any such issuer or the Agent of any right, privilege or option pertaining to the Collateral or any part thereof and, in connection therewith, to deposit and deliver the Collateral or any part thereof with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Agent may determine. In the event the Agent in good faith believes any of the Collateral constitutes restricted securities within the meaning of any applicable securities law, any disposition thereof in compliance with such laws shall not render the disposition commercially unreasonable. (c) Upon the occurrence and during the continuation of any Event of Default, the Agent shall have, in addition to all other rights provided herein or by law, the rights and remedies of a secured party under the UCC (regardless of whether the UCC is the law of the jurisdiction where the rights or remedies are asserted and regardless of whether the UCC applies to the affected Collateral), and further the Agent may, without demand and without advertisement, notice, hearing or process of law to the extent permitted by applicable law, all of which each Pledgor hereby waives to the extent permitted by applicable law, at any time or times, sell and deliver any or all of the Collateral held by or for it at public or private sale, at any securities exchange or broker's board or at any of the Agent's offices or elsewhere, for cash, upon credit or otherwise, at such prices and upon such terms as the Agent deems advisable, in its sole discretion. In the exercise of any such remedies, the Agent may sell the Collateral as a unit even though the sales price thereof may be in excess of the amount remaining unpaid on the Obligations. Also, if less than all the Collateral is sold, the Agent shall have no duty to marshal or apportion the part of the Collateral so sold as between the Pledgors, or any of them, but may sell and deliver any or all of the Collateral without regard to which of the Pledgors are the owners thereof. In addition to all other sums due any Secured Creditor hereunder, each Pledgor shall pay the Secured Creditors all costs and expenses incurred by the Secured Creditors, including reasonable attorneys' fees and court costs, in obtaining, liquidating or enforcing payment of Collateral or the Obligations or in the prosecution or defense of any action or proceeding by or against any Secured Creditor or any Pledgor concerning any matter arising out of or connected with this Agreement or the Collateral or the Obligations including, without limitation, any of the foregoing arising in, arising under or related to a case under the United States Bankruptcy Code (or any successor statute). Any requirement of reasonable notice shall be met if such notice is personally served on or mailed, postage prepaid, to the Pledgors in accordance with Section 14(b) hereof at least 10 days before the time of sale or other event giving rise to the requirement of such notice; provided, however, no notification need be given to a Pledgor if -10- such Pledgor has signed, after an Event of Default has occurred, a statement renouncing any right to notification of sale or other intended disposition. The Agent shall not be obligated to make any sale or other disposition of the Collateral regardless of notice having been given. Any Secured Creditor may be the purchaser at any such sale. Each Pledgor hereby waives all of its rights of redemption from any such sale. The Agent may postpone or cause the postponement of the sale of all or any portion of the Collateral by announcement at the time and place of such sale, and such sale may, without further notice, be made at the time and place to which the sale was postponed or the Agent may further postpone such sale by announcement made at such time and place. EACH PLEDGOR AGREES THAT IF ANY PART OF THE COLLATERAL IS SOLD AT ANY PUBLIC OR PRIVATE SALE, THE AGENT MAY ELECT TO SELL ONLY TO A BUYER WHO WILL GIVE FURTHER ASSURANCES, SATISFACTORY IN FORM AND SUBSTANCE TO THE AGENT, RESPECTING COMPLIANCE WITH THE REQUIREMENTS OF THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS, AND A SALE SUBJECT TO SUCH CONDITION SHALL BE DEEMED COMMERCIALLY REASONABLE. EACH PLEDGOR FURTHER AGREES THAT IN ANY SALE OF ANY PART OF THE COLLATERAL, THE AGENT IS HEREBY AUTHORIZED TO COMPLY WITH ANY LIMITATION OR RESTRICTION IN CONNECTION WITH SUCH SALE AS IT MAY BE ADVISED BY COUNSEL IS NECESSARY IN ORDER TO AVOID ANY VIOLATION OF APPLICABLE LAW (INCLUDING, WITHOUT LIMITATION, COMPLIANCE WITH SUCH PROCEDURES AS MAY RESTRICT THE NUMBER OF PROSPECTIVE BIDDERS AND PURCHASERS AND/OR FURTHER RESTRICT SUCH PROSPECTIVE BIDDERS OR PURCHASERS TO PERSONS WHO WILL REPRESENT AND AGREE THAT THEY ARE PURCHASING FOR THEIR OWN ACCOUNT FOR INVESTMENT AND NOT WITH A VIEW TO THE DISTRIBUTION OR RESALE OF SUCH COLLATERAL ), OR IN ORDER TO OBTAIN ANY REQUIRED APPROVAL OF THE SALE OR OF THE PURCHASER BY ANY GOVERNMENTAL REGULATORY AUTHORITY OR OFFICIAL, AND EACH PLEDGOR FURTHER AGREES THAT SUCH COMPLIANCE SHALL NOT RESULT IN SUCH SALE BEING CONSIDERED OR DEEMED NOT TO HAVE BEEN MADE IN A COMMERCIALLY REASONABLE MANNER, NOR SHALL THE AGENT BE LIABLE OR ACCOUNTABLE TO ANY PLEDGOR FOR ANY DISCOUNT ALLOWED BY REASON OF THE FACT THAT SUCH COLLATERAL IS SOLD IN COMPLIANCE WITH ANY SUCH LIMITATION OR RESTRICTION. (d) In the event the Agent shall sell or otherwise dispose of all or any part of the Partnership Interest Collateral or LLC Collateral, each Pledgor hereby grants the purchaser of such portion of the Partnership Interest Collateral or LLC Collateral to the fullest extent of its capacity, the ability (but not the obligation) to become a partner or member in the relevant Partnership or LLC, as the case may be (subject to the approval of the relevant Partnership or LLC, as the case may be, in the exercise of its discretion in accordance with its Organizational Agreement and subject to any requirements of applicable law), in the place and stead of such Pledgor. To exercise such right, the purchaser shall give written notice to the relevant Partnership or LLC, as the case may be, of its election to become a partner or member in such Partnership or LLC. Following such election and giving of consent by all necessary partners or members of the relevant Partnership or LLC as to the purchaser becoming a partner or member, the purchaser shall have the right and powers and be subject -11- to the liabilities of a partner or member under the relevant Organizational Agreement and the partnership or limited liability company act governing the Partnership or LLC. (e) Upon the occurrence and during the continuation of any Event of Default, in addition to all other rights provided herein or by law, the Agent shall have the right to cause all or any part of the Partnership Interest Collateral or LLC Collateral of any of the Pledgors in any one or more of the Partnerships or LLCs to be redeemed and to cause a withdrawal, in whole or in part, of any Pledgor from any Partnership or LLC or any of its interest therein. (f) The powers conferred upon the Agent hereunder are solely to protect its interest in the Collateral and shall not impose on it any duties to exercise such powers. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equivalent to that which the Agent accords its own property, consisting of similar types securities, it being understood, however, that the Agent shall have no responsibility for (i) ascertaining or taking any action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Collateral, whether or not the Agent has or is deemed to have knowledge of such matters, (ii) taking any necessary steps to preserve rights against any parties with respect to any Collateral, or (iii) initiating any action to protect the Collateral or any part thereof against the possibility of a decline in market value. This Agreement constitutes an assignment of rights only and not an assignment of any duties or obligations of the Pledgors in any way related to the Collateral, and the Agent shall have no duty or obligation to discharge any such duty or obligation. By its acceptance hereof, the Agent does not undertake to perform or discharge and shall not be responsible or liable for the performance or discharge of any such duties or responsibilities and shall not in any event become a "Substituted Limited Partner" or words of like import (as defined in the relevant Organizational Agreement) in the relevant Partnership. Neither any Secured Creditor, nor any party acting as attorney for any Secured Creditor, shall be liable hereunder for any acts or omissions or for any error of judgment or mistake of fact or law other than such person's gross negligence or willful misconduct. (g) Failure by the Agent to exercise any right, remedy or option under this Agreement or any other agreement between any Pledgor and the Agent or provided by law, or delay by the Agent in exercising the same, shall not operate as a waiver; and no waiver shall be effective unless it is in writing, signed by the party against whom such waiver is sought to be enforced and then only to the extent specifically stated. The rights and remedies of the Secured Creditors under this Agreement shall be cumulative and not exclusive of any other right or remedy which the any Secured Creditor may have. Section 10. Application of Proceeds. The proceeds and avails of the Collateral at any time received by the Agent upon the occurrence and during the continuation of any Event of Default shall, when received by the Agent in cash or its equivalent, be applied by the Agent in reduction of, or held as collateral security for, the Obligations in accordance with the terms of the Credit Agreement. The Pledgors shall remain liable to the Secured Creditors for any deficiency. Any surplus remaining after the full payment and satisfaction -12- of the Obligations shall be returned to the Borrower, as agent for Pledgors, or to whomsoever the Agent reasonably determines is lawfully entitled thereto. Section 11. Continuing Agreement. This Agreement shall be a continuing agreement in every respect and shall remain in full force and effect until all of the Obligations, both for principal and interest, have been fully paid and satisfied and the commitments of the Secured Creditors to extend credit to or for the account of the Borrower under the Credit Agreement shall have expired or otherwise terminated. Upon such termination of this Agreement, the Agent shall, upon the request and at the expense of the Pledgors, forthwith release all its liens and security interests hereunder. Section 12. Primary Security; Obligations Absolute. The lien and security herein created and provided for stand as direct and primary security for the Obligations. No application of any sums received by the Agent in respect of the Collateral or any disposition thereof to the reduction of the Obligations or any portion thereof shall in any manner entitle any Pledgor to any right, title or interest in or to the Obligations or any collateral security therefor, whether by subrogation or otherwise, unless and until all Obligations have been fully paid and satisfied and all commitments to extend credit constituting Obligations to the Borrower shall have expired or otherwise terminated. Each Pledgor acknowledges and agrees that the lien and security hereby created and provided for are absolute and unconditional and shall not in any manner be affected or impaired by any acts or omissions whatsoever of any Secured Creditor or any other holder of any of the Obligations, and without limiting the generality of the foregoing, the lien and security hereof shall not be impaired by any acceptance by any Secured Creditor or any other holder of any of the Obligations of any other security for or guarantors upon any Obligations or by any failure, neglect or omission on the part of any Secured Creditor or any other holder of any of the Obligations to realize upon or protect any of the Obligations or any collateral security therefor. The lien and security hereof shall not in any manner be impaired or affected by (and the Secured Creditors, without notice to anyone, are hereby authorized to make from time to time) any sale, pledge, surrender, compromise, settlement, release, renewal, extension, indulgence, alteration, substitution, exchange, change in, modification or disposition of any of the Obligations, or of any collateral security therefor, or of any guaranty thereof, or of any instrument or agreement setting forth the terms and conditions pertaining to any of the foregoing. The Secured Creditors may at their discretion at any time grant credit to the Borrower without notice to the other Pledgors in such amounts and on such terms as the Secured Creditors may elect without in any manner impairing the lien and security hereby created and provided for. In order to realize hereon and to exercise the rights granted the Secured Creditors hereunder and under applicable law, there shall be no obligation on the part of any Secured Creditor or any other holder of any of the Obligations at any time to first resort for payment to the Borrower or any other Pledgor or to any guaranty of the Obligations or any portion thereof or to resort to any other collateral security, property, liens or any other rights or remedies whatsoever, and the Secured Creditors shall have the right to enforce this Agreement as against any Pledgor or any of its Collateral irrespective of whether or not other proceedings or steps seeking resort to or realization upon or from any of the foregoing are pending. -13- Section 13. The Agent. In acting under or by virtue of this Agreement, Agent shall be entitled to all the rights, authority, privileges and immunities provided in Section 11 of the Credit Agreement, all of which provisions of said Section 11 are incorporated by reference herein with the same force and effect as if set forth herein in their entirety. The Agent hereby disclaims any representation or warranty to the other Secured Creditors or any other holders of the Obligations concerning the perfection of the liens and security interests granted hereunder or in the value of the Collateral. Section 14. Miscellaneous. (a) This Agreement cannot be changed or terminated orally. This Agreement shall create a continuing lien on and security interest in the Collateral and shall be binding upon each Pledgor, its successors and permitted assigns, and shall inure, together with the rights and remedies of the Secured Creditors hereunder, to the benefit of the Secured Creditors, and their successors and assigns; provided, however, that no Pledgor may assign its rights or delegate its duties hereunder without the Agent's prior written consent. Without limiting the generality of the foregoing, and subject to the provisions of the Credit Agreement, any Lender may assign or otherwise transfer any indebtedness held by it secured by this Agreement to any other person, and such other person shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise. (b) All communications provided for herein shall be in writing, except as otherwise specifically provided for hereinabove, and shall be deemed to have been given or made, if to any Pledgor when given to the Borrower in accordance with Section 12.8 of the Credit Agreement, or if to any Secured Creditor, when given to such party in accordance with Section 12.8 of the Credit Agreement. (c) No Lender or Letter of Credit Issuer shall have the right to institute any suit, action or proceeding in equity or at law for the foreclosure or other realization upon any Collateral subject to this Agreement or for the execution of any trust or power hereof or for the appointment of a receiver, or for the enforcement of any other remedy under or upon this Agreement; it being understood and intended that no one or more of the Lenders or Letter of Credit Issuers shall have any right in any manner whatsoever to affect, disturb or prejudice the lien and security interest of this Agreement by its or their action or to enforce any right hereunder, and that all proceedings at law or in equity shall be instituted, had and maintained by the Agent in the manner herein provided for the benefit of the Secured Creditors. (d) In the event that any provision hereof shall be deemed to be invalid or unenforceable by reason of the operation of any law or by reason of the interpretation placed thereon by any court, this Agreement shall be construed as not containing such provision, but only as to such jurisdictions where such law or interpretation is operative, and the invalidity or unenforceability of such provision shall not affect the validity of any remaining provision hereof, and any and all other provisions hereof which are otherwise lawful and valid shall remain in full force and effect. Without limiting the generality of the foregoing, in the event that this Agreement shall be deemed to be invalid or otherwise -14- unenforceable with respect to any Pledgor, such invalidity or unenforceability shall not affect the validity of this Agreement with respect to the other Pledgors. (e) In the event the Secured Creditors shall at any time in their discretion permit a substitution of Pledgors hereunder or a party shall wish to become a Pledgor hereunder, such substituted or additional Pledgor shall, upon executing an agreement in the form attached hereto as Schedule F, become a party hereto and be bound by all the terms and conditions hereof to the same extent as though such Pledgor had originally executed this Agreement and, in the case of a substitution, in lieu of the Pledgor being replaced. Any such agreement shall contain information as to such Pledgor necessary to update Schedules A, B and C with respect to it. No such substitution shall be effective absent the written consent of Agent nor shall it in any manner affect the obligations of the other Pledgors hereunder. (f) Each Pledgor hereby submits to the non-exclusive jurisdiction of the United States District Court for the Northern District of Illinois and of any Illinois state court sitting in Cook County, Illinois for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. Each Pledgor irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient form. Each Pledgor and, by accepting the benefits of this Agreement, each Secured Creditor hereby irrevocably waives any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. (g) This Agreement shall be deemed to have been made in the State of Illinois and shall be governed by, and construed in accordance with, the laws of the State of Illinois. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning of any provision hereof. (h) This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterpart signature pages, each constituting an original, but all together one and the same instrument. [Signature Pages to Follow] -15- IN WITNESS WHEREOF, each Pledgor has caused this Agreement to be duly executed and delivered as of the date first above written. "PLEDGORS" FOUNTAIN VIEW, INC. FOUNTAIN VIEW HOLDINGS, INC. LOCOMOTION HOLDINGS, INC. FOUNTAIN VIEW MANAGEMENT, INC. SYCAMORE PARK CONVALESCENT HOSPITAL AIB CORP. ELMCREST CONVALESCENT HOSPITAL BRIER OAK CONVALESCENT, INC. BIA HOTEL CORP. RIO HONDO NURSING CENTER FOUNTAINVIEW CONVALESCENT HOSPITAL ALEXANDRIA CONVALESCENT HOSPITAL, INC. I.'N O., INC. SUMMIT CARE CORPORATION SUMMIT CARE-CALIFORNIA, INC. SUMMIT CARE-TEXAS NO. 2, INC. SUMMIT CARE-TEXAS NO. 3, INC. SUMMIT CARE PHARMACY, INC. SKILLED CARE NETWORK SUMMIT CARE TEXAS EQUITY, INC. SUMMIT CARE MANAGEMENT TEXAS, INC. SNF PHARMACY, INC. FV-SCC ACQUISITION CORP. By /s/ Robert M. Snukal ---------------------------- Name: Robert M. Snukal Title: President Address: 11900 West Olympic Blvd., Suite 680 Los Angeles, CA 90064 Attention: Robert M. Snukal Telephone: (310) 571-0351 Telecopy: (310) 571-0365 -16- LOCOMOTION THERAPY, INC. ON-TRACK THERAPY CENTER, INC. By /s/ Robert M. Snukal ------------------------------- Name: Robert M. Snukal Title: Chief Executive Officer Address: 11900 West Olympic Blvd., Suite 680 Los Angeles, CA 90064 Attention: Robert M. Snukal Telephone: (310) 571-0351 Telecopy: (310) 571-0365 SUMMIT CARE TEXAS, L.P. By: Summit Care Management Texas, Inc., in its capacity as general partner By /s/ Robert Snukal --------------------------- Robert Snukal, President By: Summit Care Texas Equity, Inc., in its capacity as limited partner By /s/ Robert Snukal --------------------------- Robert Snukal, President Address: 11900 West Olympic Blvd., Suite 680 Los Angeles, CA 90064 Attention: Robert M. Snukal Telephone: (310) 571-0351 Telecopy: (310) 571-0365 -17- Acknowledged and agreed to in Chicago, Illinois as of the date first above written. BANK OF MONTREAL, AS AGENT By /s/ Mark F. Spencer ----------------------------- Name MARK F. SPENCER ---------------------- Title MANAGING DIRECTOR ---------------------- Address: 601 South Figueroa Street, Suite 4900 Los Angeles, CA 90017 Attention: Ronald Launsbach Telephone: (213) 239-0602 Telecopy: (213) 239-0680 -18- SCHEDULE A TO PLEDGE AGREEMENT THE PLEDGED SECURITIES
Percentage Jurisdiction of No. of Certificate of Issuer's Name of Pledgor Name of Issuer Incorporation Shares No. Stock Fountain View, Inc. FV-SCC Acquisition Delaware 100 #1 100% Corp. (Pre-Merger) Fountain View, Inc. Summit Care California 100 ____ 100% Corporation (Post-Merger) Fountain View, Inc. Locomotion Delaware 1,000 #1 100% Holdings, Inc. Fountain View, Inc. Fountain View Delaware 1,000 #1 100% Holdings, Inc. Fountain View, Inc. I.'n O., Inc. California 5,000 #2 100% Fountain View, Inc. On-Track Therapy California 5,000 #2 100% Center, Inc. Fountain View, Inc. Sycamore Park California 625 #9 100% Convalescent Hospital Fountain View Rio Hondo California 10,000 #4 100% Holdings, Inc. Nursing Center Fountain View Fountainview California 30 #3 100% Holdings, Inc. Convalescent Hospital Fountain View Fountain View California 2,000 #4 100% Holdings, Inc. Management, Inc. Fountain View AIB Corp. California 1,000 #22 100% Holdings, Inc. Fountain View Brier Oak California 10,000 #4 100% Holdings, Inc. Convalescent, Inc. Fountain View Elmcrest Convalescent California 10,000 #4 100% Holdings, Inc. Hospital
Fountain View BIA Hotel Corp. California 1,000 #22 100% Holdings, Inc. Locomotion Locomotion Delaware 1,000 #1 100% Holdings, Inc. Therapy, Inc. FV-SCC Acquisition Summit Care California 6,751,038 #L 0288 99% Corp. Corporation (Pre-Merger) Summit Care Summit Care- California 2,011.53 #19 100% Corporation California, Inc. Summit Care Summit Care- Texas 1,000 #2 100% Corporation Texas No. 2, Inc. Summit Care Summit Care- Texas 1,000 #1 100% Corporation Texas No. 3, Inc. Summit Care Summit Care California 1,000 #3 100% Corporation Pharmacy, Inc. Summit Care Summit Care California 1,000 #1 100% Corporation Texas Equity, Inc. Summit Care Summit Care Texas 1,000 #1 100% Corporation Management Texas, Inc.
SCHEDULE B TO PLEDGE AGREEMENT PARTNERSHIP INTEREST COLLATERAL
Name of Type of Jurisdiction Percent of Name of Pledgor Partnership Organization of Organization Ownership Summit Care Summit Care Texas, L.P. Limited Partnership Texas 1% Management Texas, Inc. Summit Care Texas Summit Care Texas, L.P. Limited Partnership California 99% Equity, Inc.
SCHEDULE C TO PLEDGE AGREEMENT LLC COLLATERAL Percentage of Equity Jurisdiction of Interest Owned Name of Pledgor Name of LLC Organization by Pledgor SCHEDULE D TO PLEDGE AGREEMENT ACKNOWLEDGMENT TO COLLATERAL ASSIGNMENT ____________, 199__ _________________________________ _________________________________ _________________________________ _________________________________ Attention:_______________________ Ladies and Gentlemen: _________________________ ("Pledgor") is a party to that certain Pledge Agreement dated as of April 16, 1998 (the "Pledge Agreement") in favor of Bank of Montreal (the "Agent"), a copy of which you have received. Pursuant to the Pledge Agreement, Pledgor assigned its equity interests in ___________________ (the "Partnership/LLC") as collateral security for, among other things, indebtedness and obligations of Fountain View, Inc. (the "Borrower") now or from time to time owing pursuant to that certain Credit Agreement dated as of April 16, 1998 (such Credit Agreement as the same may be amended, modified or restated from time to time being hereinafter referred to as the "Credit Agreement") among the Borrower, the Agent, and various other lenders party thereto. We ask you, by accepting this letter below on behalf of the Partnership/LLC and as its general partner/manager, to confirm the following: 1. Pledgor is a partner/member in the Partnership/LLC. 2. You consent to the collateral assignment of Pledgor's interest in the Partnership/LLC to the Agent, notwithstanding anything to the contrary contained in the Partnership Agreement/Limited Liability Company Articles of Association and Operating Agreement. This letter will serve to evidence the consent to this collateral assignment from the Partnership/LLC and its general partner/manager. 3. All parties required by the terms of the Partnership Agreement/Limited Liability Company Articles of Association and Operating Agreement to approve the collateral assignment made by the Pledge Agreement have done so, and the interest of the Agent by virtue of that assignment has been reflected on the books and records of the Partnership/LLC. 4. The Partnership/LLC has been formed under the Partnership Agreement dated as of ______________, 19__/the Articles of Association dated ______________, 19__, and the Operating Agreement dated as of ________________, 19___ (the "Organizational Documents"), and the Organizational Documents have not subsequently been modified or amended and continue in full force and effect. The Organizational Documents shall not be amended without the consent of the Agent. The Agent agrees with the Partnership/LLC that the Agent will not unreasonably withhold its consent to modifications or amendments to the Organizational Documents which do not adversely affect the interests of the Secured Creditors identified and defined in the Pledge Agreement. 5. All payments and distributions due and to become due to Pledgor pursuant to the Organizational Documents shall continue to be paid directly to such Pledgor, unless and until the Agent notifies the Partnership/LLC in writing to do otherwise. If the Agent so notifies the Partnership/LLC, the Partnership/LLC will immediately cease making such payments and distributions to the Pledgor and will as soon as possible, but in any event within 5 days after receiving such notice, remit all such payments and distributions directly to the Agent at 115 South LaSalle Street, Chicago, Illinois 60603. 6. By virtue of the Pledge Agreement, the Agent has the right, upon the occurrence and during the continuation of any Event of Default under the Credit Agreement, at its option to exercise Pledgor's right (if any) to withdraw all or any part of such Pledgor's interest in the Partnership/LLC by so notifying the Partnership/LLC in writing no less than 10 days prior to the proposed withdrawal date. All payments and distributions due or to become due under the Organizational Documents to the Pledgor as a result of such withdrawal shall be remitted directly to the Agent as stated above. If given at all, the notice provided pursuant to this paragraph may (but need not) be given concurrently with any notice provided pursuant to the immediately preceding paragraph. 7. The Pledgor agrees that any such payment to the Agent shall be a good receipt and acquittance as against it -- that is to say, the Partnership/LLC should make the payment directly to the Agent and in so doing, the Partnership/LLC discharges any liability to such Pledgor for that payment. 8. The terms of the Pledge Agreement prohibit Pledgor from making any transfer of its interest in the Partnership/LLC without the Agent's prior written consent. You agree not to honor any such transfer of Pledgor's interest without the Agent's prior written consent. The agreements in this letter shall be modified only in a writing signed by the Agent, the Pledgor and the Partnership/LLC. We acknowledge that the Partnership/LLC shall be entitled to assume that the Pledge Agreement continues in full force and effect unless and until the Partnership/LLC receives actual written notice of a termination of same from the Agent. Very truly yours, [Pledgor] By_________________________________ Its______________________________ Bank of Montreal, as Agent By_________________________________ Its______________________________ The undersigned, both as the general partner/manager of the Partnership/LLC and on behalf of the Partnership/LLC, join in this letter to evidence their acknowledgment and agreement to the same. [Partnership/LLC] By_________________________________ Its______________________________ [General Partner/Manager of Partnership] By_________________________________ Its______________________________ SCHEDULE E TO PLEDGE AGREEMENT AMENDMENT TO PLEDGE AGREEMENT Reference is hereby made to that certain Pledge Agreement dated as of April 16, 1998 (as the same may be amended, the "Pledge Agreement"), from Fountain View, Inc. and the other Pledgors which are signatories thereto to and Bank of Montreal, as Agent. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Pledge Agreement. Subsequent to the Pledgors' delivery of the Pledge Agreement, certain shares of stock, partnership interests or limited liability company interests have been added as Collateral under the Pledge Agreement. As a result of such addition, Schedule A of the Pledge Agreement does not accurately describe the shares of capital stock and/or Schedule B does not accurately describe the partnership interests and/or Schedule C does not accurately describe the limited liability company interests, currently held by the Agent as collateral under the Pledge Agreement. The Pledgors now desire to amend Schedule A and/or Schedule B and/or Schedule C to the Pledge Agreement to reflect such addition, and this instrument shall constitute an agreement between the Pledgors and the Agent amending the Pledge Agreement in the respects, but only in the respects, hereinafter set forth: 1. If an Annex A is attached hereto, Schedule A of the Pledge Agreement shall be and hereby is amended and as so amended shall be restated in its entirety to read as Annex A attached hereto. 2. If an Annex B is attached hereto, Schedule B of the Pledge Agreement shall be and hereby is amended and as so amended shall be restated in its entirety to read as Annex B attached hereto. 3. If an Annex C is attached hereto, Schedule C of the Pledge Agreement shall be and hereby is amended and as so amended shall be restated in its entirety to read as Annex C attached hereto. 4. As collateral security for the Obligations, each Pledgor hereby grants to the Agent a continuing lien on and security interest in, and acknowledges and agrees that the Agent has and shall continue to have a continuing lien on and security interest in, all the shares of capital stock of each issuer listed and described on Annex A attached hereto (if attached), all of the partnership interests listed and described on Annex B attached hereto (if attached), all of the limited liability company interests listed and described on Annex C attached hereto (if attached) and all the other properties, rights, interests and privileges comprising the Collateral (as such term is defined in the Pledge Agreement after giving effect to this Amendment), to the same extent and with the same force and effect as if (i) the shares of stock described on Annex A had originally been included on Schedule A to the Pledge Agreement, (ii) the partnership interests described on Annex B had been originally included on Schedule B to the Pledge Agreement and (iii) the limited liability company interests described on Annex C had been originally included on Schedule C to the Pledge Agreement. The foregoing granting clause is in addition to and supplemental of and not in substitution for the granting clause contained in the Pledge Agreement. Neither the Pledgors nor the Agent intends by this Amendment to in any way impair or otherwise affect the lien of the Pledge Agreement on such of the Collateral which was subject to the Pledge Agreement prior to giving effect to this Amendment. 5. Each Pledgor hereby repeats and reaffirms all of its covenants, agreements, representations and warranties contained in the Pledge Agreement, each and all of which shall be applicable to all of the properties, rights, interests and privileges subject to the lien of the Pledge Agreement after giving effect to this Amendment. Each Pledgor hereby certifies that no Event of Default or event which, with notice or lapse of time or both, would constitute an Event of Default exists under the Pledge Agreement after giving effect to this Amendment. 6. No reference to this Amendment need be made in any note, instrument or other document at any time referring to the Pledge Agreement, any reference in any of such to the Pledge Agreement to be deemed to reference to the Pledge Agreement as modified hereby. 7. Except as specifically modified hereby, all the terms and conditions of the Pledge Agreement shall stand and remain unchanged and in full force and effect. Pledgor(s): [NAME OF PLEDGORS] By_________________________________ Its______________________________ Acknowledged and agreed to as of the date first above written. Bank of Montreal, as Agent By_________________________________ Its______________________________ ANNEX A TO AMENDMENT TO PLEDGE AGREEMENT THE PLEDGED SECURITIES
Percentage Jurisdiction of No. of Certificate of Issuer's Name of Pledgor Name of Issuer Incorporation Shares No. Stock Fountain View, Inc. FV-SCC Acquisition Delaware 100 #1 100% Corp. (Pre-Merger) Fountain View, Inc. Summit Care California 100 ____ 100% Corporation (Post- Merger) Fountain View, Inc. Locomotion Delaware 1,000 #1 100% Holdings, Inc. Fountain View, Inc. Fountain View Delaware 1,000 #1 100% Holdings, Inc. Fountain View, Inc. I.'n O., Inc. California 5,000 #2 100% Fountain View, Inc. On-Track Therapy California 5,000 #2 100% Center, Inc. Fountain View, Inc. Sycamore Park California 625 #9 100% Convalescent Hospital Fountain View Rio Hondo California 10,000 #4 100% Holdings, Inc. Nursing Center Fountain View Fountainview California 30 #3 100% Holdings, Inc. Convalescent Hospital Fountain View Fountain View California 2,000 #4 100% Holdings, Inc. Management, Inc. Fountain View AIB Corp. California 1,000 #22 100% Holdings, Inc. Fountain View Brier Oak California 10,000 #4 100% Holdings, Inc. Convalescent, Inc. Fountain View Elmcrest Convalescent California 10,000 #4 100% Holdings, Inc. Hospital
Fountain View BIA Hotel Corp. California 1,000 #22 100% Holdings, Inc. Locomotion Holdings, Locomotion Therapy, Delaware 1,000 #1 100% Inc. Inc. FV-SCC Acquisition Summit Care California 6,751,038 #L 0288 99% Corp. Corporation (Pre- Merger) Summit Care Summit Care- California 2,011.53 #19 100% Corporation California, Inc. Summit Care Summit Care-Texas Texas 1,000 #2 100% Corporation No. 2, Inc. Summit Care Summit Care-Texas Texas 1,000 #1 100% Corporation No. 3, Inc. Summit Care Summit Care California 1,000 #3 100% Corporation Pharmacy, Inc. Summit Care Summit Care Texas California 1,000 #1 100% Corporation Equity, Inc. Summit Care Summit Care Texas 1,000 #1 100% Corporation Management Texas, Inc. _______________ ________________ __________ ______ _______ ________ _______________ ________________ __________ ______ _______ ________
ANNEX B TO AMENDMENT TO PLEDGE AGREEMENT PARTNERSHIP INTERESTS
Jurisdiction Name of Type of of Percent of Name of Pledgor Partnership Organization Organization Ownership Summit Care Summit Care Texas, L.P. Limited Partnership Texas 1% Management Texas, Inc. Summit Care Texas Summit Care Texas, L.P. Limited Partnership California 99% Equity, Inc. _________________ ______________________ _________________ ___________ ________ _________________ ______________________ _________________ ___________ ________
ANNEX C TO AMENDMENT TO PLEDGE AGREEMENT
Jurisdiction of Percentage of Equity Name of Pledgor Name of LLC Organization Interest Owned by Pledgor
SCHEDULE F TO PLEDGE AGREEMENT ASSUMPTION AND SUPPLEMENTAL PLEDGE AGREEMENT This Agreement dated as of this _____ day of ______________, 199___ from [NEW PLEDGOR], a __________ corporation/partnership/limited liability company (the "New Pledgor"), to Bank of Montreal ("BOM") as agent for the Secured Creditors (defined in the Pledge Agreement hereinafter identified and defined) (BOM acting as such agent and any successor or successors to BOM in such capacity being hereinafter referred to as the "Agent"); PRELIMINARY STATEMENTS A. Fountain View, Inc. (the "Borrower") and certain other Pledgors have executed and delivered to the Agent that certain Pledge Agreement dated as of April 16, 1998 (such Pledge Agreement, as the same may from time to time be modified or amended, including supplements thereto which add additional parties as Pledgors thereunder, being hereinafter referred to as the "Pledge Agreement") pursuant to which such parties (the "Existing Pledgors") have granted to the Agent for the benefit of the Secured Creditors a lien on and security interest in such Existing Pledgors' Collateral (as such term is defined in the Pledge Agreement) to secure the Obligations (as such term is defined in the Pledge Agreement); B. Each Pledgor will benefit, directly and indirectly, from credit and other financial accommodations extended by the Secured Creditors to the Borrower. Now, therefore, for value received, and in consideration of advances made or to be made, or credit accommodations given or to be given, to the Borrower by the Secured Creditors from time to time, the New Pledgor hereby agrees as follows: 1. The New Pledgor acknowledges and agrees that it shall become a "Pledgor" party to the Pledge Agreement effective upon the date the New Pledgor's execution of this Agreement and the delivery of this Agreement to the Agent, and that upon such execution and delivery, all references in the Pledge Agreement to the terms "Pledgor" or "Pledgors" shall be deemed to include the New Pledgor. Without limiting the generality of the foregoing, the New Pledgor hereby repeats and reaffirms all grants (including the grant of a lien and security interest), covenants, agreements, representations and warranties contained in the Pledge Agreement as amended hereby, each and all of which are and shall remain applicable to the Collateral from time to time owned by the New Pledgor or in which the New Pledgor from time to time has any rights. Without limiting the foregoing, in order to secure payment of the Obligations, whether now existing or hereafter arising, the New Pledgor does hereby grant to the Agent for the benefit of the Secured Creditors, and hereby agrees that the Agent has and shall continue to have for the benefit of the Secured Creditors a continuing security interest in, among other things, all of the New Pledgor's Collateral (as such term is defined in the Pledge Agreement) described in Section 2 of the Pledge Agreement, each and all of such granting clauses being incorporated herein by reference with the same force and effect as if set forth in their entirety except that all references in such clauses to the Existing Pledgor or any of them shall be deemed to include references to the New Pledgor. Nothing contained herein shall in any manner impair the priority of the liens and security interests heretofore granted in favor of the Agent under the Pledge Agreement. 2. The following information shall be added to Schedules A, B and/or C to the Pledge Agreement, as applicable: SCHEDULE A THE PLEDGED SECURITIES
Percentage Name and Name of Jurisdiction of No. of Certificate of Issuer's Location of Issuer Incorporation Shares Class No. Stock Pledgor
OR SCHEDULE B PARTNERSHIP INTEREST COLLATERAL
Name and Location of Name of Type of Jurisdiction Percent of Pledgor Partnership Organization of Organization Ownership
OR SCHEDULE C LLC COLLATERAL
Percentage of Equity Name and Location of Jurisdiction of Interest Owned by Pledgor Name of LLC Organization Pledgor
3. The New Pledgor hereby acknowledges and agrees that the Obligations are secured by all of the Collateral according to, and otherwise on and subject to, the terms and conditions of the Pledge Agreement to the same extent and with the same force and effect as if the New Pledgor had originally been one of the Existing Pledgors under the Pledge Agreement and had originally executed the same as such an Existing Pledgor. 4. All capitalized terms used in this Agreement without definition shall have the same meaning herein as such terms have in the Pledge Agreement, except that any reference to the term "Pledgor" or "Pledgors" and any provision of the Pledge Agreement providing meaning to such term shall be deemed a reference to the Existing Pledgors and the New Pledgor. Except as specifically modified hereby, all of the terms and conditions of the Pledge Agreement shall stand and remain unchanged and in full force and effect. 5. The New Pledgor agrees to execute and deliver such further instruments and documents and do such further acts and things as the Agent may deem necessary or proper to carry out more effectively the purposes of this Agreement. 6. No reference to this Agreement need be made in the Pledge Agreement or in any other document or instrument making reference to the Pledge Agreement, any reference to the Pledge Agreement in any of such to be deemed a reference to the Pledge Agreement as modified hereby. 7. This Agreement shall be governed by and construed in accordance with the State of Illinois (without regard to principles of conflicts of law). [NEW PLEDGOR] By______________________________ Its___________________________ Acknowledged and agreed to as of the date first above written. Bank of Montreal, as Agent By______________________________ Its___________________________ EX-10.50 66 SECURITY AGREEMENT DATED 4/16/98 EXHIBIT 10.50 SECURITY AGREEMENT This Security Agreement (the "Agreement") is dated as of April 16, 1998, by and among Fountain View, Inc., a Delaware corporation (the "Borrower"), and the other parties executing this Agreement under the heading "Debtors" (the Borrower and such other parties, along with any parties who execute and deliver to the Agent an agreement attached hereto as Schedule D, being hereinafter referred to collectively as the "Debtors" and individually as a "Debtor"), each with its mailing address as set forth on its signature page hereto, and Bank of Montreal, a chartered bank of Canada acting through its Chicago branch ("BOM"), with its mailing address at 115 South LaSalle Street, Chicago, Illinois 60603, acting as agent hereunder for the Lenders and Letter of Credit Issuers hereinafter identified and defined (BOM acting as such agent and any successor or successors to BOM acting in such capacity being hereinafter referred to as the "Agent"); PRELIMINARY STATEMENTS A. The Borrower and BOM, individually and as agent, have entered into a Credit Agreement dated as of April 16, 1998 (such Credit Agreement as the same may be amended, modified or restated from time to time being hereinafter referred to as the "Credit Agreement"), pursuant to which BOM and such other banks, financial institutions and letter of credit issuers from time to time party to the Credit Agreement (BOM, in its individual capacity, and such other banks and financial institutions being hereinafter referred to collectively as the "Lenders" and individually as a "Lender" and such letter of credit issuers being hereinafter referred to collectively as the "Letter of Credit Issuers" and individually as a "Letter of Credit Issuer") have agreed, subject to certain terms and conditions, to extend credit and make certain other financial accommodations available to the Borrower (the Agent, the Lenders and the Letter of Credit Issuers being hereinafter referred to collectively as the "Secured Creditors" and individually as a "Secured Creditor"). B. The Borrower may from time to time enter into one or more interest rate exchange, cap, collar, floor or other agreements with one or more of the Lenders party to the Credit Agreement, or their affiliates, for the purpose of hedging or otherwise protecting the Borrower against changes in interest rates (the liability of the Borrower in respect of such agreements with such Lenders and their affiliates being hereinafter referred to as the "Hedging Liability"). C. As a condition to extending credit to the Borrower under the Credit Agreement, the Secured Creditors have required, among other things, that each Debtor grant to the Agent for the benefit of the Secured Creditors a lien on and security interest in the personal property of such Debtor described herein subject to the terms and conditions hereof. D. The Borrower owns, directly or indirectly, equity interests in each other Debtor and the Borrower provides each other Debtor with financial, management, administrative, and technical support which enables such Debtor to conduct its business in an orderly and efficient manner in the ordinary course. E. Each Debtor will benefit, directly or indirectly, from credit and other financial accommodations extended by the Secured Creditors to the Borrower. NOW, THEREFORE, for and in consideration of the execution and delivery by the Secured Creditors of the Credit Agreement, and other good and valuable consideration, receipt whereof is hereby acknowledged, the parties hereto hereby agree as follows: Section 1. Terms defined in Credit Agreement. All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement. The term "Debtor" and "Debtors" as used herein shall mean and include the Debtors collectively and also each individually, with all grants, representations, warranties and covenants of and by the Debtors, or any of them, herein contained to constitute joint and several grants, representations, warranties and covenants of and by the Debtors; provided, however, that unless the context in which the same is used shall otherwise require, any grant, representation, warranty or covenant contained herein related to the Collateral shall be made by each Debtor only with respect to the Collateral owned by it or represented by such Debtor as owned by it. Section 2. Grant of Security Interest in the Collateral; Obligations Secured. (a) Each Debtor hereby grants to the Agent for the benefit of the Secured Creditors a lien on and security interest in, and right of set-off against, and acknowledges and agrees that the Agent has and shall continue to have for the benefit of the Secured Creditors a continuing lien on and security interest in, and right of set-off against, any and all right, title and interest of each Debtor, whether now owned or existing or hereafter created, acquired or arising, in and to the following: (i) Receivables. All Receivables, whether now owned or existing or hereafter created, acquired or arising, and however evidenced or acquired, or in which such Debtor now has or hereafter acquires any rights (the term "Receivables" means and includes all accounts, accounts receivable, contract rights, instruments, notes, drafts, acceptances, documents, chattel paper, any right of such Debtor to payment for goods sold or leased or for services rendered, whether or not earned by performance, and all other forms of obligations owing to such Debtor, and all of such Debtor's rights to any merchandise or other goods (including without limitation any returned or repossessed goods and the right of stoppage in transit) which is represented by, arises from or is related to any of the foregoing); (ii) General Intangibles. All General Intangibles, whether now owned or existing or hereafter created, acquired or arising, or in which such Debtor now has or hereafter acquires any rights (the term "General Intangibles" means and includes all general intangibles, all patents, patent applications, patent licenses, trademarks, trademark registrations, trademark licenses, trade styles, trade names, copyrights, copyright registrations, copyright licenses and other licenses and similar intangibles, all customer, client and supplier lists (in whatever form maintained), all rights in leases and other agreements relating to real or personal property, all causes of action and tax refunds of every kind and nature, all privileges, franchises, immunities, -2- licenses, permits and similar intangibles, and all other personal property (including things in action) not otherwise covered by this Agreement); (iii) Inventory. All Inventory, whether now owned or existing or hereafter created, acquired or arising, or in which such Debtor now has or hereafter acquires any rights and all documents of title at any time evidencing or representing any part thereof (the term "Inventory" means and includes all inventory and other goods which are held for sale or lease or are to be furnished under contracts of service or consumed in such Debtor's business, all goods which are raw materials, work-in-process, finished goods, materials or supplies of every kind and nature, in each case used or usable in connection with the acquisition, manufacture, processing, supply, servicing, storing, packing, shipping, advertising, selling, leasing or furnishing of such goods, and any constituents or ingredients thereof, and all goods which are returned or repossessed goods); (iv) Equipment. All Equipment, whether now owned or existing or hereafter created, acquired or arising, or in which such Debtor now has or hereafter acquires any rights (the term "Equipment" means and includes all equipment and other machinery, tools, fixtures, trade fixtures, furniture, furnishings, office equipment, vehicles (including vehicles subject to a certificate of title law) and all other goods now or hereafter used or usable in connection with such Debtor's business, together with all parts, accessories and attachments relating to any of the foregoing); (v) Investment Property. All Investment Property, whether now owned or existing or hereafter created, acquired or arising, or in which such Debtor now has or hereafter acquires any rights (the term "Investment Property" means and includes all investment property and all other securities (whether certificated or uncertificated), security entitlements, securities accounts, commodity contracts, and commodity accounts, including all substitutions and additions thereto, all dividends, distributions and sums distributable or payable from, upon, or in respect of such property, and all rights and privileges incident to such property); (vi) Deposits and Property in Possession. All deposit accounts (whether general, specific, matured or unmatured and in whatever currency denominated) of such Debtor maintained with any of the Secured Creditors and all sums now or hereafter on deposit therein or payable thereon, and any and all other property and interests in property which now is or may from time to time hereafter come into the possession, custody or control of any of the Secured Creditors, or any agent of any of them, in any way and for any purpose (whether for safekeeping, custody, pledge, transmission, collection or otherwise); (vii) Records. All supporting evidence and documents relating to any of the above-described property, including, without limitation, computer programs, disks, tapes and related electronic data processing media, and all rights of such Debtor to retrieve the same from third parties, written applications, credit information, account cards, payment records, correspondence, delivery and installation certificates, invoice -3- copies, delivery receipts, notes and other evidences of indebtedness, insurance certificates and the like, together with all books of account, ledgers and cabinets in which the same are reflected or maintained, all whether now existing or hereafter arising; (viii) Accessions and Additions. All accessions and additions to and substitutions and replacements of any and all of the foregoing, whether now existing or hereafter arising; and (ix) Proceeds and Products. All proceeds and products of the foregoing and all insurance of the foregoing and proceeds thereof, whether now existing or hereafter arising; all of the foregoing being herein sometimes referred to as the "Collateral"; provided, however, that in no event will any of the Collateral described above be deemed to include any interests in any leases or licenses to use real or personal property under which a Debtor is lessee or licensee and a Person other than a Debtor or an Affiliate of a Debtor is lessor or licensor, to the extent the granting of a security interest or lien therein is prohibited by the agreement(s) pursuant to which such property is leased or licensed and such prohibition has not been or is not waived or the consent of the applicable party has not been or is not obtained; provided further, that if and when the prohibition which prevents the granting of a security interest in any such Property is removed, terminated or otherwise becomes unenforceable as a matter of law, the Agent will be deemed to have, and at all times to have had, a security interest in such Property, and the Collateral will be deemed to include, and at all times to have included, such Property. All terms which are used herein which are defined in the Uniform Commercial Code of the State of Illinois ("UCC") shall have the same meanings herein as such terms are defined in the UCC, unless this Agreement shall otherwise specifically provide. (b) This Agreement is made and given to secure, and shall secure, the prompt payment and performance when due of (i) any and all indebtedness, obligations and liabilities of the Debtors, and of any of them individually, to the Secured Creditors, and to any of them individually, under or in connection with or evidenced by the Credit Agreement, the Notes of the Borrower heretofore or hereafter issued under the Credit Agreement and the obligations of the Borrower to reimburse the Secured Creditors for the amount of all drawings on all Letters of Credit issued pursuant to the Credit Agreement, and all other obligations of the Borrower under any and all applications for Letters of Credit, and any and all liability of the Debtors, and of any of them individually, arising under or in connection with or otherwise evidenced by agreements with any one or more of the Secured Creditors or their affiliates with respect to any Hedging Liability, and any and all liability of the Debtors, and of any of them individually, arising under any guaranty issued by it relating to the foregoing or any part thereof, in each case whether now existing or hereafter arising (and whether arising before or after the filing of a petition in bankruptcy and including all interest accrued after the petition date), due or to become due, direct or indirect, absolute or contingent, and howsoever evidenced, held or acquired and (ii) any and all expenses and charges, legal or otherwise, suffered or incurred by the Secured Creditors, and any of them -4- individually, in collecting or enforcing any of such indebtedness, obligations and liabilities or in realizing on or protecting or preserving any security therefor, including, without limitation, the lien and security interest granted hereby (all of the indebtedness, obligations, liabilities, expenses and charges described above being hereinafter referred to as the "Obligations"). Notwithstanding anything in this Agreement to the contrary, the right of recovery against any Debtor (other than the Borrower to which this limitation shall not apply) under this Agreement shall not exceed $1.00 less than the amount which would render such Debtor's obligations under this Agreement void or voidable under applicable law, including fraudulent conveyance law. Section 3. Covenants, Agreements, Representations and Warranties. The Debtors hereby covenant and agree with, and represent and warrant to, the Secured Creditors that: (a) Each Debtor is duly organized, validly existing and in good standing under the laws of the state of its incorporation or organization, is the sole and lawful owner of the Collateral granted by it hereunder and has the power and authority to enter into this Agreement and to perform each and all of the matters and things herein provided for. Each Debtor's Federal tax identification number is set forth under its name under Column 1 on Schedule A. (b) Each Debtor's respective chief executive office is at the location listed under Column 2 on Schedule A attached hereto opposite such Debtor's name; and such Debtor has no other executive offices or places of business other than those listed under Column 3 on Schedule A attached hereto opposite such Debtor's name. The Collateral owned or leased by each Debtor is and shall remain in such Debtor's possession or control at the locations listed under Columns 2 and 3 on Schedule A attached hereto opposite such Debtor's name (collectively for each Debtor, the "Permitted Collateral Locations"), except as to any Collateral sold or otherwise disposed of in accordance with this Agreement and Section 8.10 of the Credit Agreement. If for any reason any Collateral is at any time kept or located at a location other than a Permitted Collateral Location, the Agent shall nevertheless have and retain a lien on and security interest therein. No Debtor shall move its chief executive office or maintain a place of business at a location other than those specified under Columns 2 or 3 on Schedule A or permit any Collateral to be located at a location other than a Permitted Collateral Location, in each case without first providing the Agent at least 30 days prior written notice of the Debtor's intent to do so; provided that each Debtor shall at all times maintain its chief executive office, places of business, and Permitted Collateral Locations in the United States of America and, with respect to any new chief executive office or place of business or location of Collateral, such Debtor shall have taken all action reasonably requested by the Agent to maintain the lien and security interest of the Agent in the Collateral at all times fully perfected and in full force and effect. (c) The Collateral and every part thereof is and shall be free and clear of all security interests, liens (including, without limitation, mechanics', laborers' and statutory liens), attachments, levies and encumbrances of every kind, nature and -5- description and whether voluntary or involuntary, except for the lien and security interest of the Agent therein and other Liens permitted by Section 8.8 of the Credit Agreement (herein, the "Permitted Liens"). Each Debtor shall warrant and defend the Collateral against any claims and demands of all persons at any time claiming the same or any interest in the Collateral adverse to any of the Secured Creditors. (d) Each Debtor will promptly pay when due all taxes, assessments and governmental charges and levies upon or against it or its Collateral, in each case before the same become delinquent and before penalties accrue thereon, unless and to the extent that the same are being contested in good faith by appropriate proceedings which prevent attachment of any Lien resulting therefrom to, foreclosure on or other realization upon any Collateral and preclude interference with the operation of its business in the ordinary course and such Debtor shall have established adequate reserves therefor. (e) Each Debtor agrees it will not waste or destroy the Collateral or any part thereof and will not be negligent in the care or use of any Collateral. Each Debtor agrees it will not use, manufacture, sell or distribute any Collateral in violation of any statute, ordinance or other governmental requirement. Each Debtor will perform in all material respects its obligations under any contract or other agreement constituting part of the Collateral, it being understood and agreed that the Secured Creditors have no responsibility to perform such obligations. (f) Subject to Sections 4(d), 5(a), 6(b), 6(c), and 7(c) hereof and the terms of the Credit Agreement (including, without limitation, Section 8.10 thereof), each Debtor agrees it will not, without the Agent's prior written consent, sell, assign, mortgage, lease or otherwise dispose of the Collateral or any interest therein. (g) Each Debtor will insure its Collateral which is insurable against such risks and hazards as other companies similarly situated insure against, and including in any event loss or damage by fire, theft, burglary, pilferage, and loss in transit, in amounts and under policies containing loss payable clauses to the Agent as its interest may appear (and, if the Agent requests, naming the Agent as additional insureds therein) by insurers reasonably acceptable to the Agent. All premiums on such insurance shall be paid by the Debtors and the policies of such insurance (or certificates therefor) delivered to the Agent. All insurance required hereby shall provide that any loss shall be payable notwithstanding any act or negligence of the relevant Debtor, shall provide that no cancellation thereof shall be effective until at least 30 days after receipt by the relevant Debtor and the Agent of written notice thereof, and shall be reasonably satisfactory to the Agent in all other respects. In case of any material loss, damage to or destruction of the Collateral or any part thereof, the relevant Debtor shall promptly give written notice thereof to the Secured Creditors generally describing the nature and extent of such damage or destruction. In case of any loss, damage to or destruction of the Collateral or any part thereof, the relevant Debtor, whether or not the insurance proceeds, if any, received on account of such damage or destruction shall be sufficient for that purpose, at such Debtor's cost and expense, will promptly -6- repair or replace the Collateral so lost, damaged or destroyed, except to the extent such Collateral is not necessary to the conduct of such Debtor's business in the ordinary course. In the event any Debtor shall receive any proceeds of such insurance, such Debtor will immediately pay over such proceeds to the Agent; provided that, in the absence of any Default or Event of Default such Debtors shall be entitled to retain such insurance proceeds to the extent such proceeds are used for such repair or replacement in accordance with Section 1.9(b) of the Credit Agreement. Each Debtor hereby authorizes the Agent, at the Agent's option, to adjust, compromise and settle any losses under any insurance afforded at any time after the occurrence and during the continuation of any Event of Default, and such Debtor does hereby irrevocably constitute the Agent, its officers, agents and attorneys, as such Debtor's attorneys-in-fact, with full power and authority after the occurrence and during the continuation of any Event of Default to effect such adjustment, compromise and/or settlement and to endorse any drafts drawn by an insurer of the Collateral or any part thereof and to do everything necessary to carry out such purposes and to receive and receipt for any unearned premiums due under policies of such insurance. Unless the Agent elects to adjust, compromise or settle losses as aforesaid, any adjustment, compromise and/or settlement of any losses under any insurance shall be made by the relevant Debtor subject to final approval of the Agent (regardless of whether or not an Event of Default shall have occurred) in the case of losses exceeding $500,000. Net insurance proceeds received by the Agent under the provisions hereof or under any policy or policies of insurance covering the Collateral or any part thereof pursuant to the terms hereof shall be applied to the reduction of, or otherwise held as security for, the Obligations (whether or not then due); provided, however, that the Agent agrees to release such insurance proceeds to the relevant Debtor for replacement or restoration of the portion of the Collateral lost, damaged or destroyed if, but only if, (i) at the time of release no Default or Event of Default exists hereunder, (ii) written application for such release is received from such Debtor within 30 days of receipt of, or in the event received by the Agent notice of Agent's receipt of, such proceeds and (iii) the Agent has received evidence reasonably satisfactory to it that the Collateral lost, damaged or destroyed has been or will be replaced or restored in accordance with Section 1.9(b) of the Credit Agreement. All insurance proceeds shall be subject to the lien and security interest of the Agent hereunder. (h) Each Debtor will at all times allow the Secured Creditors and their respective representatives free access to and right of inspection of the Collateral at such reasonable times and intervals as the Agent or any other Secured Creditor may designate. (i) If any Collateral is in the possession or control of any agents or processors of a Debtor and the Agent so requests, such Debtor agrees to notify such agents or processors in writing of the Agent's security interest therein and instruct them to hold all such Collateral for the Agent's account and subject to the Agent's instructions. Each Debtor will, upon the request of the Agent, authorize and instruct all bailees and any other parties, if any, at any time processing, labeling, packaging, holding, storing, shipping or transferring all or any part of the Collateral to permit -7- the Secured Creditors and their respective representatives to examine and inspect any of the Collateral then in such party's possession and to verify from such party's own books and records any information concerning the Collateral or any part thereof which the Secured Creditors or their respective representatives may seek to verify. As to any premises not owned by a Debtor wherein any of the Collateral is located, if any, such Debtor shall, upon the Agent's request, cause each party having any right, title or interest in, or lien on, any of such premises to enter into an agreement (any such agreement to contain a legal description of such premises) whereby such party disclaims any right, title and interest in, and lien on, the Collateral, allowing the removal of such Collateral by the Agent or its agents or representatives and otherwise in form and substance reasonably acceptable to the Agent. (j) Upon the Agent's request, each Debtor agrees from time to time to deliver to the any Secured Creditor such evidence of the existence, identity and location of its Collateral and of its availability as collateral security pursuant hereto (including, without limitation, schedules describing all Receivables created or acquired by such Debtor, copies of customer invoices or the equivalent and original shipping or delivery receipts for all merchandise and other goods sold or leased or services rendered by it, together with such Debtor's warranty of the genuineness thereof, and reports stating the book value of its Inventory and Equipment by major category and location), in each case as such Secured Creditor may reasonably request. The Agent shall have the right to verify all or any part of the Collateral in any manner, and through any medium, which the Agent considers appropriate and reasonable, and each Debtor agrees to furnish all assistance and information, and perform any acts, which the Agent may require in connection therewith. (k) Each Debtor will comply in all material respects with the terms and conditions of any and all leases, easements, right-of-way agreements and other agreements binding upon such Debtor or affecting the Collateral, in each case which cover the premises wherein the Collateral is located, and any orders, ordinances, laws or statutes of any city, state or other governmental entity, department or agency having jurisdiction with respect to such premises or the conduct of business thereon. (l) No Debtor has invoiced Receivables or otherwise transacted business, and does not invoice Receivables or otherwise transact business, under any trade names other than its name set forth on its signature page to this Agreement or as otherwise set forth on Schedule B hereto. Each Debtor agrees it will not change its name or transact business under any other trade name, in each case without first giving the Agent at least 30 days prior written notice of its intent to do so. (m) Each Debtor agrees to execute and deliver to the Agent such further agreements, assignments, instruments and documents, and to do all such other things, as the Agent may reasonably deem necessary or appropriate to assure the Agent its lien and security interest hereunder, including without limitation, (i) executing such financing statement or other instruments and documents as the Agent may from time to time reasonably require to comply with the UCC, and (ii) executing such patent, -8- trademark, and copyright agreements as the Agent may from time to time reasonably require to comply with the filing requirements of the United States Patent and Trademark Office and the United States Copyright Office. Each Debtor hereby agrees that a carbon, photographic or other reproduction of this Agreement or any such financing statement is sufficient for filing as a financing statement by the Agent without prior notice thereof to such Debtor wherever the Agent deems necessary or desirable to perfect or protect the security interest granted hereby. In the event for any reason the law of any jurisdiction other than Illinois becomes or is applicable to the Collateral or any part thereof, or to any of the Obligations, each Debtor agrees to execute and deliver all such instruments and documents and to do all such other things as the Agent deems necessary or appropriate to preserve, protect and enforce the security interest of the Agent under the law of such other jurisdiction. (n) On failure of a Debtor to perform any of the covenants and agreements herein contained, the Agent may, at its option, perform the same and in so doing may expend such sums as the Agent deems advisable in the performance thereof, including, without limitation, the payment of any insurance premiums, the payment of any taxes, liens and encumbrances, expenditures made in defending against any adverse claims, and all other expenditures which the Agent may be compelled to make by operation of law or which the Agent may make by agreement or otherwise for the protection of the security hereof. All such sums and amounts so expended shall be repayable by such Debtor immediately upon demand, shall constitute additional Obligations secured hereunder, and shall bear interest from the date said amounts are expended at the rate per annum (computed on the basis of a year of 360 days, for the actual number of days elapsed) determined by adding 2% to the Base Rate from time to time in effect plus the Applicable Margin for Revolving Loans, with any change in such rate per annum as so determined by reason of a change in such Base Rate to be effective on the date of such change in said Base Rate (such rate per annum as so determined being hereinafter referred to as the "Default Rate"). No such performance of any covenant or agreement by the Agent on behalf of a Debtor, and no such advancement or expenditure therefor, shall relieve any Debtor of any default under the terms of this Agreement or in any way obligate any Secured Creditor to take any further or future action with respect thereto. The Agent in making any payment hereby authorized may do so according to any bill, statement or estimate procured from the appropriate public office or holder of the claim to be discharged without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax assessment, sale, forfeiture, tax lien or title or claim. The Agent in performing any act hereunder shall be the sole judge of whether the relevant Debtor is required to perform the same under the terms of this Agreement. The Agent is hereby authorized to charge any depository or other account of any Debtor maintained with any Secured Creditor for the amount of such sums and amounts so expended. Section 4. Special Provisions Re: Receivables. (a) As of the time any Receivable becomes subject to the security interest provided for hereby and at all times thereafter, each Debtor shall be deemed to have warranted as to each and all of its Receivables that all warranties of such Debtor set forth in this Agreement are true and correct with respect to -9- each such Receivable; that each of its Receivable and all papers and documents relating thereto are genuine and in all respects what they purport to be; that each of its Receivable is valid and existing and, if such Receivable is an account, arises out of a bona fide sale of goods sold and delivered by such Debtor to, or in the process of being delivered to, or out of and for services theretofore actually rendered by such Debtor to, the account debtor named therein; and that no surety bond was required or given in connection with such Receivable or the contracts or purchase orders out of which the same arose. (b) To the extent any Receivables or other item of Collateral is evidenced by an instrument, each Debtor shall cause such instrument to be pledged and delivered to the Agent; provided, however, that, prior to the existence of a Default or Event of Default and thereafter until otherwise required by the Agent or the Secured Creditors, a Debtor shall not be required to deliver any such instrument if and only so long as the aggregate unpaid principal balance of all such instruments held by the Debtors and not delivered to the Agent under the Collateral Documents is less than $500,000 at any one time outstanding. (c) If any Receivable arises out of a contract with the United States of America or any of its departments, agencies or instrumentalities, the relevant Debtor agrees to, at the request of the Agent or the Secured Creditors, execute whatever instruments and documents are required by the Agent in order that such Receivable shall be assigned to the Agent and that proper notice of such assignment shall be given under the federal Assignment of Claims Act (or any successor statute) or any similar statute relating to the assignment of such Receivables. (d) Unless and until an Event of Default hereunder occurs and is continuing, any merchandise or other goods which are returned by a customer or account debtor or otherwise recovered may be resold by the relevant Debtor in the ordinary course of its business as presently conducted in accordance with Section 6(b) hereof; upon the occurrence and during the continuation of any Event of Default hereunder, such merchandise and other goods shall be set aside at the request of the Agent and held by such Debtor as trustee for the Secured Creditors and shall remain part of the Collateral. Unless and until an Event of Default hereunder occurs and is continuing, the relevant Debtor may settle and adjust disputes and claims with its customers and account debtors, handle returns and recoveries and grant discounts, credits and allowances in the ordinary course of its business as presently conducted for amounts and on terms which such Debtor in good faith considers advisable. Upon the occurrence and during the continuation of any Event of Default hereunder, unless the Agent requests otherwise, each Debtor shall notify the Agent promptly of all returns and recoveries and, on the Agent's request, deliver any such merchandise or other goods to the Agent. Upon the occurrence and during the continuation of any Event of Default hereunder, at the Agent's request, each Debtor shall also notify the Agent promptly of all disputes and claims and settle or adjust them at no expense to the Secured Creditors hereunder, but no discount, credit or allowance other than on normal trade terms in the ordinary course of business as presently conducted shall be granted to any customer or account debtor and no returns of merchandise or other goods shall be accepted by any Debtor without the Agent's consent. The Agent may, at all times upon the occurrence and during the continuation of -10- any Event of Default hereunder, settle or adjust disputes and claims directly with customers or account debtors for amounts and upon terms which the Agent considers advisable. Section 5. Collection of Receivables. (a) Except as otherwise provided in this Agreement, each Debtor shall make collection of all of its Receivables and may use the same to carry on its business in accordance with sound business practice and otherwise subject to the terms hereof. (b) Upon the occurrence and during the continuation of any Default or Event of Default hereunder, whether or not the Agent has exercised any or all of its rights under other provisions of this Section 5, in the event the Agent requests any Debtor to do so: (i) all instruments and chattel paper at any time constituting part of the Receivables (including any postdated checks) shall, upon receipt by such Debtor, be immediately endorsed to and deposited with Agent; and/or (ii) such Debtor shall instruct all of its customers and account debtors to remit all payments in respect of its Receivables to a lockbox or lockboxes under the sole custody and control of Agent and which are maintained at post offices selected by the Agent. (c) Upon the occurrence and during the continuation of any Default or Event of Default hereunder, whether or not the Agent has exercised any or all of its rights under other provisions of this Section 5, the Agent or its designee may notify the relevant Debtor's customers and account debtors at any time that Receivables have been assigned to the Agent or of the Agent's security interest therein, and either in its own name, or such Debtor's name, or both, demand, collect (including, without limitation, through a lockbox analogous to that described in Section 5(b)(ii) hereof), receive, receipt for, sue for, compound and give acquittance for any or all amounts due or to become due on Receivables, and in the Agent's discretion file any claim or take any other action or proceeding which the Agent may deem necessary or appropriate to protect and realize upon the security interest of the Agent in the Receivables. (d) Any proceeds of Receivables or other Collateral transmitted to or otherwise received by the Agent pursuant to any of the provisions of Sections 5(b) or 5(c) hereof during the existence of any Default or Event of Default may be handled and administered by the Agent in and through a remittance account or accounts maintained at the Agent or by the Agent at a commercial bank or banks selected by the Agent (collectively the "Depositary Banks" and individually a "Depositary Bank"), and each Debtor acknowledges that the maintenance of such remittance accounts by the Agent is solely for the Agent's convenience and that the Debtors do not have any right, title or interest in such remittance accounts or any amounts at any time standing to the credit thereof. The Agent may apply all or any part of any proceeds of Receivables or other Collateral received by it during the existence of any Default or Event of Default from any source to the payment of the Obligations (whether or not then due and payable), such applications to be made in such amounts, in such manner and order and at such intervals as the Agent may from time to time in its discretion determine. -11- The Agent need not apply or give credit for any item included in proceeds of Receivables or other Collateral until the Depositary Bank has received final payment therefor at its office in cash or final solvent credits current at the site of deposit acceptable to the Agent and the Depositary Bank as such. However, if the Agent does permit credit to be given for any item prior to a Depositary Bank receiving final payment therefor and such Depositary Bank fails to receive such final payment or an item is charged back to the Agent or any Depositary Bank for any reason, the Agent may at its election in either instance charge the amount of such item back against any such remittance accounts or any depository account of any Debtor maintained with any Secured Creditor, together with interest thereon at the Default Rate. Concurrently with each transmission of any proceeds of Receivables or other Collateral to any such remittance account, upon the Agent's request, the relevant Debtor shall furnish the Agent with a report in such form as Agent shall reasonably require identifying the particular Receivable or such other Collateral from which the same arises or relates. Each Debtor hereby indemnifies the Secured Creditors from and against all liabilities, damages, losses, actions, claims, judgments, and all reasonable costs, expenses, charges and attorneys' fees suffered or incurred by any Secured Creditor because of the maintenance of the foregoing arrangements; provided, however, that no Debtor shall be required to indemnify any Secured Creditor for any of the foregoing to the extent they arise solely from the gross negligence or willful misconduct of the person seeking to be indemnified. The Secured Creditors shall have no liability or responsibility to any Debtor for the Agent or any other Depositary Bank accepting any check, draft or other order for payment of money bearing the legend "payment in full" or words of similar import or any other restrictive legend or endorsement whatsoever or be responsible for determining the correctness of any remittance. Section 6. Special Provisions Re: Inventory and Equipment. (a) Each Debtor shall at its own cost and expense maintain, keep and preserve its Inventory in good and merchantable condition and keep and preserve its Equipment in good repair, working order and condition, ordinary wear and tear excepted, and, without limiting the foregoing, make all necessary and proper repairs, replacements and additions to its Equipment so that the efficiency thereof shall be fully preserved and maintained. (b) Each Debtor may, until an Event of Default has occurred and is continuing and thereafter until otherwise notified by the Agent, use, consume and sell the Inventory in the ordinary course of its business, but a sale in the ordinary course of business shall not under any circumstance include any transfer or sale in satisfaction, partial or complete, of a debt owing by such Debtor. (c) Each Debtor may, until an Event of Default has occurred and is continuing and thereafter until otherwise notified by the Agent, sell (x) obsolete, worn out or unusable Equipment which is concurrently replaced with similar Equipment at least equal in quality and condition to that sold and owned by such Debtor free of any lien, charge or encumbrance other than the security interest granted hereby and (y) Equipment to the extent permitted by Section 8.10 of the Credit Agreement. -12- (d) As of the time any Inventory or Equipment of a Debtor becomes subject to the security interest provided for hereby and at all times thereafter, such Debtor shall be deemed to have warranted as to any and all of such Inventory and Equipment that all warranties of such Debtor set forth in this Agreement are true and correct with respect to such Inventory and Equipment; that all of such Inventory and Equipment is located at a location set forth pursuant to Section 3(b) hereof. Each Debtor warrants and agrees that none of its Inventory is or will be consigned to any other person or entity without the Agent's prior written consent. (e) Upon the Agent's or the Secured Creditors' request, each Debtor shall at its own cost and expense cause the lien of the Agent in and to any portion of its Collateral subject to a certificate of title law to be duly noted on such certificate of title or to be otherwise filed in such manner as is prescribed by law in order to perfect such lien and will cause all such certificates of title and evidences of lien to be deposited with the Agent. (f) Except for Equipment from time to time located on the real estate described on Schedule C attached hereto or as otherwise hereafter disclosed to the Secured Creditors in writing, none of the Equipment is or will be attached to real estate in such a manner that the same may become a fixture. (g) If any of the Inventory is at any time evidenced by a document of title, such document shall be promptly delivered by the relevant Debtor to the Agent. Section 7. Special Provisions Re: Investment Property. (a) Unless and until an Event of Default has occurred and is continuing and thereafter until notified to the contrary by the Agent pursuant to Section 9(d) hereof: (i) Each Debtor shall be entitled to exercise all voting and/or consensual powers pertaining to its Investment Property or any part thereof, for all purposes not inconsistent with the terms of this Agreement, the Credit Agreement or any other document evidencing or otherwise relating to any Obligations; and (ii) Each Debtor shall be entitled to receive and retain all cash dividends paid upon or in respect of its Investment Property. (b) Certificates for all securities now or at any time constituting Investment Property and part of the Collateral hereunder shall be promptly delivered by the relevant Debtor to the Agent duly endorsed in blank for transfer or accompanied by an appropriate assignment or assignments or an appropriate undated stock power or powers, in every case sufficient to transfer title thereto, including, without limitation, all stock received in respect of a stock dividend or resulting from a split-up, revision or reclassification of the Investment Property or any part thereof or received in addition to, in substitution of or in exchange for the Investment Property or any part thereof as a result of a merger, consolidation or otherwise. With respect to any Investment Property held by a securities intermediary, commodity intermediary, or other financial intermediary of any kind, the relevant Debtor shall execute and deliver, and shall cause any such intermediary to execute and deliver, an -13- agreement among such Debtor, the Agent, and such intermediary in form and substance satisfactory to the Agent which provides, among other things, for the intermediary's agreement that it will comply with such entitlement orders, and apply any value distributed on account of any Investment Property maintained in an account with such intermediary, as directed by the Agent without further consent by such Debtor. The Agent may, at any time after the occurrence and during the continuation of an Event of Default at any time when the Obligations are, or have been declared to be, due and payable in full, cause to be transferred into its name or the name of its nominee or nominees any and all of the Investment Property hereunder. (c) Unless and until an Event of Default has occurred and is continuing, each Debtor may sell or otherwise dispose of any of its Investment Property to the extent permitted by the Credit Agreement, provided that except to the extent permitted by Section 8.11 of the Credit Agreement, no Debtor shall sell or otherwise dispose of any capital stock or other equity interest in any direct or indirect Subsidiary without the prior written consent of the Agent. During the existence of any Event of Default, no Debtor shall sell all or any part of the Investment Property without the prior written consent of the Agent. (d) Each Debtor represents that on the date of this Agreement, none of its Investment Property consists of margin stock (as such term is defined in Regulation U of the Board of Governors of the Federal Reserve System) except to the extent such Debtor has delivered to the Agent a duly executed and completed Form U-1 with respect to such stock. If at any time the Investment Property or any part thereof consists of margin stock, the relevant Debtor shall promptly so notify the Agent and deliver to the Agent a duly executed and completed Form U-1 and such other instruments and documents reasonably requested by the Agent in form and substance satisfactory to the Agent. Section 8. Power of Attorney. In addition to any other powers of attorney contained herein, each Debtor hereby appoints the Agent, its nominee, or any other person whom the Agent may designate as such Debtor's attorney-in- fact, with full power during the existence of any Default or Event of Default to sign such Debtor's name on verifications of accounts and other Collateral; to send requests for verification of Collateral to such Debtor's customers, account debtors and other obligors; to endorse such Debtor's name on any checks, notes, acceptances, money orders, drafts and any other forms of payment or security that may come into the Agent's possession; to endorse the Collateral in blank or to the order of the Agent or its nominee; to sign such Debtor's name on any invoice or bill of lading relating to any Collateral, on claims to enforce collection of any Collateral, on notices to and drafts against customers and account debtors and other obligors, on schedules and assignments of Collateral, on notices of assignment and on public records; to notify the post office authorities to change the address for delivery of such Debtor's mail to an address designated by the Agent; to receive, open and dispose of all mail addressed to such Debtor; and to do all things necessary to carry out this Agreement. Each Debtor hereby ratifies and approves all acts of any such attorney and agrees that neither the Agent nor any such attorney will be liable for any acts or omissions nor for any error of judgment or mistake of fact or law other than such person's gross negligence or willful misconduct. The Agent may -14- file one or more financing statements disclosing its security interest in any or all of the Collateral without any Debtor's signature appearing thereon, and each Debtor also hereby grants the Agent a power of attorney to execute any such financing statements, or amendments and supplements to financing statements, on behalf of such Debtor without notice thereof to any Debtor. The foregoing powers of attorney, being coupled with an interest, are irrevocable until the Obligations have been fully paid and satisfied and the commitments of the Lenders to extend credit to or for the account of the Borrower under the Credit Agreement have expired or otherwise terminated. Section 9. Defaults and Remedies. (a) The occurrence of any event or the existence of any condition which is specified as an "Event of Default" under the Credit Agreement shall constitute an "Event of Default" hereunder. (b) Upon the occurrence and during the continuation of any Event of Default, the Agent shall have, in addition to all other rights provided herein or by law, the rights and remedies of a secured party under the UCC (regardless of whether the UCC is the law of the jurisdiction where the rights or remedies are asserted and regardless of whether the UCC applies to the affected Collateral), and further the Agent may, without demand and without advertisement, notice, hearing or process of law, all of which each Debtor hereby waives to the extent permitted by applicable law, at any time or times, sell and deliver any or all Collateral held by or for it at public or private sale, at any securities exchange or broker's board or at any Secured Creditor's office or elsewhere, for cash, upon credit or otherwise, at such prices and upon such terms as the Agent deems advisable, in its sole discretion. Upon the occurrence and during the continuation of any Event of Default, in addition to any other right or remedies set forth herein or by applicable law, the Agent may by written demand direct any securities intermediary, commodities intermediary, or other financial intermediary at any time holding any Investment Property, or any issuer thereof, to deliver such Collateral, or any part thereof, to the Agent and/or liquidate such Collateral, or any part thereof, and deliver the proceeds thereof to the Agent. In the exercise of any such remedies, the Agent may sell the Collateral as a unit even though the sales price thereof may be in excess of the amount remaining unpaid on the Obligations. Also, if less than all the Collateral is sold, the Agent shall have no duty to marshal or apportion the part of the Collateral so sold as between the Debtors, or any of them, but may sell and deliver any or all of the Collateral without regard to which of the Debtors are the owners thereof. In addition to all other sums due any Secured Creditor hereunder, each Debtor shall pay the Secured Creditors all costs and expenses incurred by the Secured Creditors, including reasonable attorneys' fees and court costs, in obtaining, liquidating or enforcing payment of Collateral or the Obligations or in the prosecution or defense of any action or proceeding by or against any Secured Creditor or any Debtor concerning any matter arising out of or connected with this Agreement or the Collateral or the Obligations, including, without limitation, any of the foregoing arising in, arising under or related to a case under the United States Bankruptcy Code (or any successor statute). Any requirement of reasonable notice shall be met if such notice is personally served on or mailed, postage prepaid, to the Debtors in accordance with Section 13(b) hereof at least 10 days before the time of sale or other event giving rise to the requirement of such notice; provided, however, no notification need be given to a Debtor if such Debtor has signed, after an Event of Default hereunder has occurred, a statement -15- renouncing any right to notification of sale or other intended disposition. The Agent shall not be obligated to make any sale or other disposition of the Collateral regardless of notice having been given. Any Secured Creditor may be the purchaser at any such sale. Each Debtor hereby waives all of its rights of redemption from any such sale. The Agent may postpone or cause the postponement of the sale of all or any portion of the Collateral by announcement at the time and place of such sale, and such sale may, without further notice, be made at the time and place to which the sale was postponed or the Agent may further postpone such sale by announcement made at such time and place. In the event any of the Collateral shall constitute restricted securities within the meaning of any applicable securities laws, any disposition thereof in compliance with such laws shall not render the disposition commercially unreasonable. (c) Without in any way limiting the foregoing, upon the occurrence and during the continuation of any Event of Default hereunder, the Agent shall have the right, in addition to all other rights provided herein or by law, to take physical possession of any and all of the Collateral and anything found therein, the right for that purpose to enter without legal process any premises where the Collateral may be found (provided such entry be done lawfully), and the right to maintain such possession on the relevant Debtor's premises (each Debtor hereby agreeing, to the extent it may lawfully do so, to lease such premises without cost or expense to the Agent or its designee if the Agent so requests) or to remove the Collateral or any part thereof to such other places as the Agent may desire. Upon the occurrence and during the continuation of any Event of Default hereunder, the Agent shall have the right to exercise any and all rights with respect to deposit accounts of each Debtor maintained with any Secured Creditor, including, without limitation, the right to collect, withdraw and receive all amounts due or to become due or payable under each such deposit account. Upon the occurrence and during the continuation of any Event of Default hereunder, each Debtor shall, upon the Agent's demand, assemble the Collateral and make it available to the Agent at a place designated by the Agent. If the Agent exercises its right to take possession of the Collateral, each Debtor shall also at its expense perform any and all other steps requested by the Agent to preserve and protect the security interest hereby granted in the Collateral, such as placing and maintaining signs indicating the security interest of the Agent, appointing overseers for the Collateral and maintaining Collateral records. (d) Without in any way limiting the foregoing, upon the occurrence and during the continuation of any Event of Default at any time when the Obligations are, or have been declared to be, due and payable in full, all rights of a Debtor to exercise the voting and/or consensual powers which it is entitled to exercise pursuant to Section 7(a)(i) hereof and/or to receive and retain the distributions which it is entitled to receive and retain pursuant to Section 7(a)(ii) hereof, shall, at the option of the Agent, cease and thereupon become vested in the Agent, which, in addition to all other rights provided herein or by law, shall then be entitled solely and exclusively to exercise all voting and other consensual powers pertaining to the Investment Property and/or to receive and retain the distributions which such Debtor would otherwise have been authorized to retain pursuant to Section 7(a)(ii) hereof and shall then be entitled solely and exclusively to exercise any and all rights of conversion, exchange or subscription or any other rights, privileges or options pertaining to any Investment -16- Property as if the Agent were the absolute owner thereof including, without limitation, the rights to exchange, at its discretion, any and all of the Investment Property upon the merger, consolidation, reorganization, recapitalization or other readjustment of the respective issuer thereof or upon the exercise by or on behalf of any such issuer or the Agent of any right, privilege or option pertaining to any Investment Property and, in connection therewith, to deposit and deliver any and all of the Investment Property with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Agent may determine. (e) Without in any way limiting the foregoing, each Debtor hereby grants to the Secured Creditors a royalty-free irrevocable license and right to use all of such Debtor's patents, patent applications, patent licenses, trademarks, trademark registrations, trademark licenses, trade names, trade styles, and similar intangibles in connection with any foreclosure or other realization by the Agent or the Secured Creditors on all or any part of the Collateral to the extent permitted by law. The license and right granted the Secured Creditors hereby shall be without any royalty or fee or charge whatsoever. (f) Failure by the Agent to exercise any right, remedy or option under this Agreement or any other agreement between any Debtor and the Agent or provided by law, or delay by the Agent in exercising the same, shall not operate as a waiver; and no waiver shall be effective unless it is in writing, signed by the party against whom such waiver is sought to be enforced and then only to the extent specifically stated. Neither any Secured Creditor, nor any party acting as attorney for any Secured Creditor, shall be liable hereunder for any acts or omissions or for any error of judgment or mistake of fact or law other than their gross negligence or willful misconduct. The rights and remedies of the Secured Creditors under this Agreement shall be cumulative and not exclusive of any other right or remedy which any Secured Creditor may have. Section 10. Application of Proceeds. The proceeds and avails of the Collateral at any time received by the Agent upon the occurrence and during the continuation of any Event of Default shall, when received by the Agent in cash or its equivalent, be applied by the Agent in reduction of, or held as collateral security for, the Obligations in accordance with the terms of the Credit Agreement. The Debtors shall remain liable to the Secured Creditors for any deficiency. Any surplus remaining after the full payment and satisfaction of the Obligations shall be returned to the Borrower, as agent for the Debtors, or to whomsoever the Agent reasonably determines is lawfully entitled thereto. Section 11. Continuing Agreement. This Agreement shall be a continuing agreement in every respect and shall remain in full force and effect until all of the Obligations, both for principal and interest, have been fully paid and satisfied and the commitments of the Lenders to extend credit to or for the account of the Borrower under the Credit Agreement have expired or otherwise terminated. Upon such termination of this Agreement, the Agent shall, upon the request and at the expense of the Debtors, forthwith release its security interest hereunder. -17- Section 12. The Agent. In acting under or by virtue of this Agreement, the Agent shall be entitled to all the rights, authority, privileges and immunities provided in Section 11 of the Credit Agreement, all of which provisions of said Section 11 are incorporated by reference herein with the same force and effect as if set forth herein in their entirety. The Agent hereby disclaims any representation or warranty to the other Secured Creditors or any other holders of the Obligations concerning the perfection of the liens and security interests granted hereunder or in the value of any of the Collateral. Section 13. Miscellaneous. (a) This Agreement cannot be changed or terminated orally. This Agreement shall create a continuing lien on and security interest in the Collateral and shall be binding upon each Debtor, its successors and assigns and shall inure, together with the rights and remedies of the Secured Creditors hereunder, to the benefit of the Secured Creditors and their successors and permitted assigns; provided, however, that no Debtor may assign its rights or delegate its duties hereunder without the Agent's prior written consent. Without limiting the generality of the foregoing, and subject to the provisions of the Credit Agreement, any Lender may assign or otherwise transfer any indebtedness held by it secured by this Agreement to any other person, and such other person shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise. (b) All communications provided for herein shall be in writing, except as otherwise specifically provided for hereinabove, and shall be deemed to have been given or made, if to any Debtor when given to the Borrower in accordance with Section 12.8 of the Credit Agreement, or if to any Secured Creditor, when given to such party in accordance with Section 12.8 of the Credit Agreement. (c) No Lender or Letter of Credit Issuer shall have the right to institute any suit, action or proceeding in equity or at law for the foreclosure or other realization upon any Collateral subject to this Agreement or for the execution of any trust or power hereof or for the appointment of a receiver, or for the enforcement of any other remedy under or upon this Agreement; it being understood and intended that no one or more of the Lenders or Letter of Credit Issuers shall have any right in any manner whatsoever to affect, disturb or prejudice the lien and security interest of this Agreement by its or their action or to enforce any right hereunder, and that all proceedings at law or in equity shall be instituted, had and maintained by the Agent in the manner herein provided for the benefit of the Secured Creditors. (d) In the event that any provision hereof shall be deemed to be invalid or unenforceable by reason of the operation of any law or by reason of the interpretation placed thereon by any court, this Agreement shall be construed as not containing such provision, but only as to such jurisdictions where such law or interpretation is operative, and the invalidity or unenforceability of such provision shall not affect the validity of any remaining provisions hereof, and any and all other provisions hereof which are otherwise lawful and valid shall remain in full force and effect. Without limiting the generality of the foregoing, in the event that this Agreement shall be deemed to be invalid or otherwise -18- unenforceable with respect to any Debtor, such invalidity or unenforceability shall not affect the validity of this Agreement with respect to the other Debtors. (e) The lien and security interest herein created and provided for stand as direct and primary security for the Obligations of the Borrower arising under or otherwise relating to the Credit Agreement as well as for any of the other Obligations secured hereby. No application of any sums received by the Secured Creditors in respect of the Collateral or any disposition thereof to the reduction of the Obligations or any part thereof shall in any manner entitle any Debtor to any right, title or interest in or to the Obligations or any collateral or security therefor, whether by subrogation or otherwise, unless and until all Obligations have been fully paid and satisfied and all agreements of the Secured Creditors to extend credit to or for the account of the Borrower under the Credit Agreement have expired or otherwise terminated. Each Debtor acknowledges that the lien and security interest hereby created and provided are absolute and unconditional and shall not in any manner be affected or impaired by any acts of omissions whatsoever of any Secured Creditor or any other holder of any Obligations, and without limiting the generality of the foregoing, the lien and security interest hereof shall not be impaired by any acceptance by the Secured Creditors or any other holder of any Obligations of any other security for or guarantors upon any of the Obligations or by any failure, neglect or omission on the part of any Secured Creditor or any other holder of any Obligations to realize upon or protect any of the Obligations or any collateral or security therefor (including, without limitation, impairment of collateral or failure to perfect security interest in collateral). The lien and security interest hereof shall not in any manner be impaired or affected by (and the Secured Creditors, without notice to anyone, are hereby authorized to make from time to time) any sale, pledge, surrender, compromise, settlement, release, renewal, extension, indulgence, alteration, substitution, exchange, change in, modification or disposition of any of the Obligations or of any collateral or security therefor, or of any guaranty thereof, or of any instrument or agreement setting forth the terms and conditions pertaining to any of the foregoing. The Secured Creditors may at their discretion at any time grant credit to the Borrower without notice to the other Debtors in such amounts and on such terms as the Secured Creditors may elect (all of such to constitute additional Obligations hereby secured) without in any manner impairing the lien and security interest created and provided for herein. In order to realize hereon and to exercise the rights granted the Secured Creditors hereunder and under applicable law, there shall be no obligation on the part of any Secured Creditor or any other holder of any Obligations at any time to first resort for payment to the Borrower or to any other Debtor or to any guaranty of the Obligations or any portion thereof or to resort to any other collateral, security, property, liens or any other rights or remedies whatsoever, and the Secured Creditors shall have the right to enforce this Agreement against any Debtor or any of its Collateral irrespective of whether or not other proceedings or steps seeking resort to or realization upon or from any of the foregoing are pending. (f) In the event the Secured Creditors shall at any time in their discretion permit a substitution of Debtors hereunder or a party shall wish to become a Debtor hereunder, such substituted or additional Debtor shall, upon executing an agreement in the form attached hereto as Schedule D, become a party hereto and be bound by all the terms and conditions -19- hereof to the same extent as though such Debtor had originally executed this Agreement and, in the case of a substitution, in lieu of the Debtor being replaced. Any such agreement shall contain information as to such Debtor necessary to update Schedules A, B and C hereto with respect to it. No such substitution shall be effective absent the written consent of Agent nor shall it in any manner affect the obligations of the other Debtors hereunder. (g) This Agreement shall be deemed to have been made in the State of Illinois and shall be governed by, and construed in accordance with, the laws of the State of Illinois. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning of any provision hereof. (h) Each Debtor hereby submits to the non-exclusive jurisdiction of the United States District Court for the Northern District of Illinois and of any Illinois state court sitting in Cook County, Illinois for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. Each Debtor irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient form. Each Debtor and, by accepting the benefits of this Agreement, each Secured Creditor hereby irrevocably waives any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. (i) This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterpart signature pages, each constituting an original, but all together one and the same agreement. [Signature Pages to Follow] -20- In Witness Whereof, each Debtor has caused this Agreement to be duly executed and delivered as of the date first above written. "Debtors" Fountain View, Inc. Fountain View Holdings, Inc. Locomotion Holdings, Inc. Fountain View Management, Inc. Sycamore Park Convalescent Hospital AIB Corp. Elmcrest Convalescent Hospital Brier Oak Convalescent, Inc. BIA Hotel Corp. Rio Hondo Nursing Center Fountainview Convalescent Hospital Alexandria Convalescent Hospital, Inc. I.'N O., Inc. Summit Care Corporation Summit Care-California, Inc. Summit Care-Texas No. 2, Inc. Summit Care-Texas No. 3, Inc. Summit Care Pharmacy, Inc. Skilled Care Network Summit Care Texas Equity, Inc. Summit Care Management Texas, Inc. SNF Pharmacy, Inc. FV-SCC Acquisition4 Corp. By /s/ Robert M. Snukal -------------------------------- Name: Robert M. Snukal Title: President Address: 11900 West Olympic Blvd., Suite 680 Los Angeles, CA 90064 Attention: Robert M. Snukal Telephone: (310) 571-0351 Telecopy: (310) 571-0365 -21- Locomotion Therapy, Inc. On-Track Therapy Center, Inc. By /s/ Robert M. Snukal ------------------------------------- Name: Robert M. Snukal Title: Chief Executive Officer Address: 11900 West Olympic Blvd., Suite 680 Los Angeles, CA 90064 Attention: Robert M. Snukal Telephone: (310) 571-0351 Telecopy: (310) 571-0365 Summit Care Texas, L.P. By: Summit Care Management Texas, Inc., in its capacity as general partner By: /s/ Robert M. Snukal ------------------------------------ Robert M. Snukal, President By: Summit Care Texas Equity, Inc., in its capacity as limited partner By: /s/ Robert M. Snukal ------------------------------------ Robert M. Snukal, President -22- Accepted and agreed to in Chicago, Illinois as of the date first above written. Bank of Montreal, as Agent By /s/ Mark F. Spencer -------------------------------- Name Mark F. Spencer -------------------------- Title Managing Director -------------------------- Address: 601 South Figueroa Street, Suite 4900 Los Angeles, CA 90017 Attention: Ronald Launsbach Telephone: (213) 239-0602 Telecopy: (213) 239-0680 -23- SCHEDULE A LOCATIONS Column 1 Column 2 Column 3 Name of Debtor Chief (and Federal Tax Executive Additional Places I.D. Number) Office of Business Fountain View, Inc. 11900 W. Olympic Blvd., None Tax ID #95-4644784 #680 Los Angeles, California 90064 Fountain View Holdings, Inc. 11900 W. Olympic Blvd., None Tax ID #95-4644785 #680 Los Angeles, California 90064 Locomotion Holdings, Inc. 11900 W. Olympic Blvd., None Tax ID #95-4644786 #680 Los Angeles, California 90064 Locomotion Therapy, Inc. 861 Village Oaks Dr., #100 None Tax ID #95-4644790 Covina, California 91724 Fountain View Management, 11900 W. Olympic Blvd., None Inc. #680 Tax ID #95-4199013 Los Angeles, California 90064 Sycamore Park Convalescent 4585 N. Figueroa St. None Hospital Los Angeles, California Tax ID #95-2260970 90865 AIB Corp. 505 N. LaBrea None Tax ID #95-3918421 Los Angeles, California 90036 Elmcrest Convalescent 3111 Santa Anita 1035 W. Beverly Blvd. Hospital El Monte, California 91733 Montebello, California Tax ID #95-4274740 90640 Brier Oak Convalescent, Inc. 5154 Sunset Blvd. None Tax ID #95-4212165 Los Angeles, California 90027 BIA Hotel Corp. 515 N. LaBrea None Tax ID #95-3918420 Los Angeles, California 90036 Rio Hondo Nursing Center 273 E. Beverly Blvd. None Tax ID #95-4272737 Montebello, California 90640 Fountainview Convalescent 5310 Fountain Ave. None Hospital Los Angeles, California Tax ID #95-2506832 90029 Alexandria Convalescent 1515 N. Alexandria Ave. None Hospital, Inc. Los Angeles, California Tax ID #95-4395382 90027 I.'n O., Inc. 861 Village Oaks Dr., #200 None Tax ID #95-4560821 Covina, California 91724 On-Track Therapy Center, 5690 N. Fresno St., #110 None Inc. Fresno, California 93710 Tax ID #770447168 Summit Care Corporation 2600 W. Magnolia Blvd. 22613 Old Canal Rd. Tax ID #95-3656297 Burbank, California 91505 Yorba Linda, California 92887 13300 Old Blanco Rd., #150 San Antonio, Texas 78216 Column 1 Column 2 Column 3 Name of Debtor Chief (and Federal Tax Executive Additional Places I.D. Number) Office of Business Summit Care-California, Inc. 2600 W. Magnolia Blvd. None Tax ID #95-2269142 Burbank, California 91505 Summit Care-Texas No. 2, 2600 W. Magnolia Blvd. None Inc. Burbank, California 91505 Tax ID #95-4060847 Summit Care-Texas No. 3, 2600 W. Magnolia Blvd. None Inc. Burbank, California 91505 Tax ID #74-2582813 Summit Care Pharmacy, Inc. 22607 Old Canal Rd. 222 E. Huntington Tax ID #95-3747839 Yorba Linda, California Dr., #111 92887 Monrovia, California 91016 Summit Care Texas Equity, 2600 W. Magnolia Blvd. None Inc. Burbank, California 91505 Tax ID #95-4604050 Summit Care Management 13300 Old Blanco Rd., #150 None Texas, Inc. San Antonio, Texas 78216 Tax ID #74-2850517 Summit Care Texas, L.P. 13300 Old Blanco Rd., #150 None Tax ID #95-4642711 San Antonio, Texas 78216 FV-SCC Acquisition Corp. 11900 W. Olympic Blvd., None Tax ID #52-2088786 #680 Los Angeles, California 90064 Skilled Care Network 11900 W. Olympic Blvd., None (to be dissolved) #680 Los Angeles, California 90064 SNF Pharmacy, Inc. 11900 W. Olympic Blvd., None (to be dissolved) #680 Los Angeles, California 90064 -2- SCHEDULE B TRADE NAMES Trade Names of Name of Debtor Such Debtor Fountain View, Inc. None Fountain View Holdings, Inc. None Locomotion Holdings, Inc. None Locomotion Therapy, Inc. None Fountain View Management, Inc. None Sycamore Park Convalescent Hospital None AIB Corp. d/b/a Hancock Park Convalescent Hospital Elmcrest Convalescent Hospital d/b/a Montebello Convalescent Hospital Brier Oak Convalescent, Inc. d/b/a Brier Oak Terrace Care Center BIA Hotel Corp. d/b/a Hancock Park Retirement Hotel Rio Hondo Nursing Center d/b/a Rio Hondo Convalescent Hospital Fountainview Convalescent Hospital None Alexandria Convalescent Hospital, Inc. None I.'n O., Inc. None On-Track Therapy Center, Inc. None Summit Care Corporation Carson Retirement Center Earlwood Care Center Fountain Care Center Fountain Assisted Living /Retirement Center Trade Names of Name of Debtor Such Debtor Devonshire Care Center Spring Assisted Living/Retirement Center Valley Health Care Center Villa Maria Care Center Phoenix Living Center Summit Care-California, Inc. Anaheim Terrace Care Center Ashton Court Care Center Bay Crest Care Center Carehouse Convalescent Center Hemet Assisted Living/Retirement Center Palm Grove Care Center Royalwood Care Center Sharon Care Center Woodland Care Center Willow Creek Care Center Summit Care-Texas No. 2, Inc. None Summit Care-Texas No. 3, Inc. The Woodlands Health Care Center Summit Care Pharmacy, Inc. Skilled Care Pharmacy, Yorba Linda & Skilled Care Pharmacy, Monrovia, CA Skilled Care Network Skilled Care Network Summit Care Texas Equity, Inc. Summit Care Texas, L.P. (99% Partner) Summit Care Management Texas, Inc. Summit Care Texas, L.P. (1% Partner) Summit Care Texas, L.P. Briarcliff Nursing & Rehabilitation Center -2- Trade Names of Name of Debtor Such Debtor Cityview Care Center Colonial Manor Care Center Colonial Manor - Tyler Comanche Trail Nursing Center Coronado Care Center Guadalupe Valley Nursing Center Heritage Oaks Nursing & Rehabilitation Center Live Oak Nursing Center Lubbock Hospitality House Monument Hill Nursing Center Oak Crest Nursing Center Oak Manor Nursing Center Oakland Manor Nursing Center Southern Manor Nursing Center Southwood Care Center The Clairmont-Beaumont The Clairmont-Longview The Clairmont-Tyler Town & Country Manor West Side Care Center SNF Pharmacy, Inc. None FV-SCC Acquisition Corp. None -3- SCHEDULE C REAL ESTATE LEGAL DESCRIPTIONS The Debtors' only fixtures rest upon property subject to the Lien of the Mortgages granted, or to be granted, to the Agent pursuant to Section 4.4 of the Credit Agreement. SCHEDULE D ASSUMPTION AND SUPPLEMENTAL SECURITY AGREEMENT This Agreement dated as of this _____ day of ______________, ____ from [NEW DEBTOR], a __________ corporation (the "New Debtor"), to Bank of Montreal ("BOM"), as agent for the Secured Creditors (defined in the Security Agreement hereinafter identified and defined) (BOM acting as such agent and any successor or successors to BOM in such capacity being hereinafter referred to as the "Agent"); WITNESSETH THAT: Whereas, Fountain View, Inc. (the "Borrower") and certain other parties have executed and delivered to the Agent that certain Security Agreement dated as of April 16, 1998 (such Security Agreement, as the same may from time to time be amended, modified, or restated, including supplements thereto which add additional parties as Debtors thereunder, being hereinafter referred to as the "Security Agreement") pursuant to which such parties (the "Existing Debtors") have granted to the Agent for the benefit of the Secured Creditors a lien on and security interest in each such Existing Debtor's Collateral (as such term is defined in the Security Agreement) to secure the Obligations (as such term is defined in the Security Agreement); and Whereas, the Borrower provides the New Debtor with substantial financial, managerial, administrative, and technical support and the New Debtor will directly and substantially benefit from credit and other financial accommodations extended and to be extended by the Secured Creditors to the Borrower; Now, therefore, for value received, and in consideration of advances made or to be made, or credit accommodations given or to be given, to the Borrower by the Secured Creditors from time to time, the New Debtor hereby agrees as follows: 1. The New Debtor acknowledges and agrees that it shall become a "Debtor" party to the Security Agreement effective upon the date the New Debtor's execution of this Agreement and the delivery of this Agreement to the Agent, and that upon such execution and delivery, all references in the Security Agreement to the terms "Debtor" or "Debtors" shall be deemed to include the New Debtor. Without limiting the generality of the foregoing, the New Debtor hereby repeats and reaffirms all grants (including the grant of a lien and security interest), covenants, agreements, representations and contained in the Security Agreement as amended hereby, each and all of which are and shall remain applicable to the Collateral from time to time owned by the New Debtor or in which the New Debtor from time to time has any rights. Without limiting the foregoing, in order to secure payment of the Obligations, whether now existing or hereafter arising, the New Debtor does hereby grant to the Agent for the benefit of itself and the other Secured Creditors, and hereby agrees that the Agent has and shall continue to have for the benefit of itself and the other Secured Creditors a continuing lien on and security interest in, among other things, all of the New Debtor's Collateral (as such term is defined in the Security Agreement), including, without limitation, all of the New Debtor's Receivables, General Intangibles, Inventory, Equipment, Investment Property, and all of the other Collateral described in Section 2 of the Security Agreement, each and all of such granting clauses being incorporated herein by reference with the same force and effect as if set forth in their entirety except that all references in such clauses to the Existing Debtors or any of them shall be deemed to include references to the New Debtor. Nothing contained herein shall in any manner impair the priority of the liens and security interests heretofore granted in favor of the Agent under the Security Agreement. 2. Schedules A (Locations), B (Trade Names) and C (Real Estate) to the Security Agreement shall be supplemented by the information stated below with respect to the New Debtor: Supplement to Schedule A Name of Debtor Chief (and Federal Tax Executive Additional Places I.D. Number) Office of Business ___________________________ __________________________ _____________________ ___________________________ __________________________ _____________________ Supplement to Schedule B Trade Names of Name of Debtor Such Debtor ____________________________________ _________________________________ Supplement to Schedule C Real Estate Legal Descriptions __________________________________ __________________________________ 3. The New Debtor hereby acknowledges and agrees that the Obligations are secured by all of the Collateral according to, and otherwise on and subject to, the terms and conditions of the Security Agreement to the same extent and with the same force and effect -2- as if the New Debtor had originally been one of the Existing Debtors under the Security Agreement and had originally executed the same as such an Existing Debtor. 4. All capitalized terms used in this Agreement without definition shall have the same meaning herein as such terms have in the Security Agreement, except that any reference to the term "Debtor" or "Debtors" and any provision of the Security Agreement providing meaning to such term shall be deemed a reference to the Existing Debtors and the New Debtor. Except as specifically modified hereby, all of the terms and conditions of the Security Agreement shall stand and remain unchanged and in full force and effect. 5. The New Debtor agrees to execute and deliver such further instruments and documents and do such further acts and things as the Agent may deem necessary or proper to carry out more effectively the purposes of this Agreement. 6. No reference to this Agreement need be made in the Security Agreement or in any other document or instrument making reference to the Security Agreement, any reference to the Security Agreement in any of such to be deemed a reference to the Security Agreement as modified hereby. 7. This Agreement shall be governed by and construed in accordance with the State of Illinois (without regard to principles of conflicts of law). [NEW DEBTOR] By_____________________________ Name________________________ Title_______________________ Accepted and agreed to as of the date first above written. Bank of Montreal, as Agent By_____________________________ Name________________________ Title_______________________ -3- EX-10.51 67 FORM OF REVOLVING NOTE EXHIBIT 10.51 REVOLVING NOTE U.S. $30,000,000.00 April 16, 1998 For Value Received, the undersigned, Fountain View, Inc., a Delaware corporation (the "Borrower"), hereby promises to pay to the order of Bank of Montreal (the "Bank") on the Revolving Credit Termination Date of the hereinafter defined Credit Agreement, at the principal office of Bank of Montreal, as Agent, in Chicago, Illinois, in immediately available funds, the principal sum of Thirty Million and no/100 Dollars ($30,000,000.00) or, if less, the aggregate unpaid principal amount of all Revolving Loans made by the Bank to the Borrower pursuant to the Credit Agreement, together with interest on the principal amount of each Revolving Loan from time to time outstanding hereunder at the rates, and payable in the manner and on the dates, specified in the Credit Agreement. The Bank shall record on its books or records or on a schedule attached to this Note, which is a part hereof, each Revolving Loan made by it pursuant to the Credit Agreement, together with all payments of principal and interest and the principal balances from time to time outstanding hereon, whether the Revolving Loan is a Base Rate Loan or a Eurodollar Loan, the interest rate and Interest Period applicable thereto, provided that prior to the transfer of this Note all such amounts shall be recorded on a schedule attached to this Note. The record thereof, whether shown on such books or records or on a schedule to this Note, shall be prima facie evidence of the same, provided, however, that the failure of the Bank to record any of the foregoing or any error in any such record shall not limit or otherwise affect the obligation of the Borrower to repay all Revolving Loans made to it pursuant to the Credit Agreement together with accrued interest thereon. This Note is one of the Revolving Notes referred to in the Credit Agreement dated as of April 16, 1998, among the Borrower, Bank of Montreal, as Agent, and the Banks party thereto (the "Credit Agreement"), and this Note and the holder hereof are entitled to all the benefits and security provided for thereby or referred to therein, to which Credit Agreement reference is hereby made for a statement thereof. All defined terms used in this Note, except terms otherwise defined herein, shall have the same meaning as in the Credit Agreement. This Note shall be governed by and construed in accordance with the internal laws of the State of Illinois. Voluntary prepayments may be made hereon, certain prepayments are required to be made hereon, and this Note may be declared due prior to the expressed maturity hereof (in each case without premium or penalty except as otherwise set forth in the Credit Agreement), all in the events, on the terms and in the manner as provided for in the Credit Agreement. The Borrower hereby waives demand, presentment, protest or notice of any kind hereunder. Fountain View, Inc. By /s/ Robert M. Snukal -------------------------- Name Robert M. Snukal Title President EX-10.52 68 FORM OF TERM NOTE EXHIBIT 10.52 TERM NOTE U.S. $85,000,000.00 April 16, 1998 FOR VALUE RECEIVED, the undersigned, FOUNTAIN VIEW, Inc., a Delaware corporation (the "Borrower"), hereby promises to pay to the order of Bank of Montreal (the "Bank") at the principal office of Bank of Montreal, as Agent, in Chicago, Illinois, in immediately available funds, the principal sum of Eighty Five Million and no/100 Dollars ($85,000,000.00) or, if less, the aggregate unpaid principal amount of the Term Loan made or maintained by the Bank to the Borrower pursuant to the Credit Agreement, in consecutive quarter-annual principal installments in the amounts called for by Section 1.8(b) of the Credit Agreement, commencing on March 31, 1999, and continuing on the last day of each June, September, December and March occurring thereafter, together with interest on the principal amount of such Term Loan from time to time outstanding hereunder at the rates, and payable in the manner and on the dates, specified in the Credit Agreement, except that all principal and interest not sooner paid on the Term Loan evidenced hereby shall be due and payable on December 31, 2003, the final maturity date hereof. The Bank shall record on its books or records or on a schedule attached to this Note, which is a part hereof, the Term Loan made or maintained by it pursuant to the Credit Agreement, together with all payments of principal and interest and the principal balances from time to time outstanding hereon, whether the Term Loan is a Base Rate Loan or a Eurodollar Loan, the interest rate and Interest Period applicable thereto, provided that prior to the transfer of this Note all such amounts shall be recorded on a schedule attached to this Note. The record thereof, whether shown on such books or records or on a schedule to this Note, shall be prima facie evidence of the same, provided, however, that the failure of the Bank to record any of the foregoing or any error in any such record shall not limit or otherwise affect the obligation of the Borrower to repay the Term Loan made to it pursuant to the Credit Agreement together with accrued interest thereon. This Note is one of the Term Notes referred to in the Credit Agreement dated as of April 16, 1998, among the Borrower, Bank of Montreal, as Agent, and the Banks party thereto (the "Credit Agreement"), and this Note and the holder hereof are entitled to all the benefits and security provided for thereby or referred to therein, to which Credit Agreement reference is hereby made for a statement thereof. All defined terms used in this Note, except terms otherwise defined herein, shall have the same meaning as in the Credit Agreement. This Note shall be governed by and construed in accordance with the internal laws of the State of Illinois. Voluntary prepayments may be made hereon, certain prepayments are required to be made hereon, and this Note may be declared due prior to the expressed maturity hereof (in each case without premium or penalty except as otherwise set forth in the Credit Agreement), all in the events, on the terms and in the manner as provided for in the Credit Agreement. The Borrower hereby waives demand, presentment, protest or notice of any kind hereunder. Fountain View, Inc. By /s/ Robert M. Snukal ---------------------------- Name Robert M. Snukal Title President EX-12.1 69 STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12.1 FOUNTAIN VIEW, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS, EXCEPT RATIOS)
YEAR ENDED DECEMBER 31, ------------------------------------------ THREE MONTHS ENDED ACTUAL MARCH 31, ---------------------------------- -------------------- PRO PRO FORMA FORMA 1993 1994 1995 1996 1997 1997 1997 1998 1998 ------ ------ ------ ------ ------ ------- ------ ------ ------ Income (loss) before income taxes........... $2,510 $4,594 $2,640 $3,878 $5,563 $(7,296) $2,315 $1,450 $ (573) Fixed charges: Interest expense...... 307 355 332 278 1,164 23,324 20 851 5,831 Portion of rent repre- senting interest..... 1,334 1,339 1,315 1,299 1,258 2,251 314 328 569 ------ ------ ------ ------ ------ ------- ------ ------ ------ Total fixed charges..... 1,641 1,694 1,647 1,577 2,422 25,575 334 1,179 6,400 ------ ------ ------ ------ ------ ------- ------ ------ ------ Income (loss) before income taxes and fixed charges................ $4,151 $6,288 $4,287 $5,455 $7,985 $18,279 $2,649 $2,629 $5,827 ====== ====== ====== ====== ====== ======= ====== ====== ====== Ratio of earnings to fixed charges.......... 2.5 3.7 2.6 3.5 3.3 (1) 7.9 2.2 (1)
(1) Earnings were insufficient to cover proforma fixed charges by $7,296 and $573 for the year ended December 31, 1997, and the three months ended March 31, 1998, respectively. EX-21.1 70 LIST OF SUBSIDIARIES Exhibit 21.1
List of Subsidiaries Name Jurisdiction - ---- ------------ Summit Care Corporation California Summit Care-california, Inc. California Summit Care Pharmacy, Inc. California Summit Care Texas Equity, Inc. California Summit Care Texas, No. 2, Inc. Texas Summit Care Texas, No. 3, Inc. Texas Summit Care Management Texas, Inc. Texas Summit Care Texas, L.p. Texas Fountain View Holdings, Inc. Delaware AIB Corp. California Alexandria Convalescent Hospital, Inc. California BIA Hotel Corp. California Brier Oak Convalescent, Inc. California Elmcrest Convalescent Hospital California Fountainview Convalescent Hospital California Fountain View Management, Inc. California Rio Hondo Nursing Center California Locomotion Holdings, Inc. Delaware Locomotion Therapy, Inc. Delaware On-track Therapy, Inc. California I.'N O, Inc. California Sycamore Park Convalescent Hospital California
EX-23.1 71 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 11, 1998, with respect to the consolidated financial statements of Fountain View, Inc. for the three years ended December 31, 1997 and the related financial statement schedule, and our report dated August 22, 1997 with respect to the consolidated financial statements of Summit Care Corporation for the three years ended June 30, 1997 included in Amendment No. 1 to the Registration Statement (Form S-4 No. 333-57279) and related Prospectus of Fountain View, Inc. for the registration of $120,000,000 of 11 1/4% Senior Subordinated Notes. Ernst & Young LLP Los Angeles, California August 5, 1998 EX-99.1 72 LETTER OF TRANS. W/RESPECT TO THE EXCHANGE OFFER EXHIBIT 99.1 LETTER OF TRANSMITTAL TO TENDER FOR EXCHANGE 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008 OF FOUNTAIN VIEW, INC. PURSUANT TO PROSPECTUS DATED , 1998 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON , 1998, UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION. TENDERS OF 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008 MAY ONLY BE WITHDRAWN UNDER THE CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS AND HEREIN. The Exchange Agent for the Exchange Offer Is: STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A. By Registered or Certified Mail: By Overnight Courier: By Hand before 4:30 P.M.: State Street Bank and Trust State Street Bank and Trust State Street Bank and Trust Company of California, N.A. Company of California, N.A. Company of California, N.A. c/o State Street Bank and Trust c/o State Street Bank and Trust c/o State Street Bank and Trust Company Company Company Two International Place Two International Place Two International Place Boston, Massachusetts 02110 Boston, Massachusetts 02110 Boston, Massachusetts 02110 Attention: Kellie Mullen Attention: Kellie Mullen Attention: Kellie Mullen
By Facsimile: 617-664-5290 Confirm by Telephone to: Kellie Mullen 617-664-5587 PLEASE FOLLOW CAREFULLY THE INSTRUCTIONS HEREIN
DESCRIPTION OF OUTSTANDING NOTES TENDERED - ----------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF HOLDER(S) (IF THE NAME AND ADDRESS SHOWN ARE NOT CURRENT PLEASE OUTSTANDING NOTES TENDERED INDICATE ANY CHANGES NECESSARY)(1) (PLEASE FILL IN NUMBERS AND AMOUNTS AND ATTACH ADDITIONAL LIST IF NECESSARY) - ----------------------------------------------------------------------------------------------------- CERTIFICATE PRINCIPAL NUMBER(S) (IF AMOUNT(S) ENCLOSING OF OUTSTANDING CERTIFICATES)(2) NOTES TENDERED(3) - ----------------------------------------------------------------------------------------------------- ------------------------------------------ ------------------------------------------ ------------------------------------------ ------------------------------------------ TOTAL - -----------------------------------------------------------------------------------------------------
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE PROSPECTUS, DATED , 1998 (THE "PROSPECTUS"), OF FOUNTAIN VIEW, INC., A DELAWARE CORPORATION (THE "COMPANY"), AND THIS LETTER OF TRANSMITTAL RELATING TO THE OFFER (THE "EXCHANGE OFFER") OF THE COMPANY, UPON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THE PROSPECTUS AND HEREIN AND THE INSTRUCTIONS HERETO, TO EXCHANGE $1,000 PRINCIPAL AMOUNT OF ITS 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B (THE "EXCHANGE NOTES") FOR EACH $1,000 PRINCIPAL AMOUNT OF ITS OUTSTANDING 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008 (THE "OUTSTANDING NOTES"), OF WHICH $120 MILLION AGGREGATE PRINCIPAL AMOUNT IS OUTSTANDING. THE MINIMUM PERMITTED TENDER IS $1,000 PRINCIPAL AMOUNT OF OUTSTANDING NOTES, AND ALL OTHER TENDERS MUST BE IN INTEGRAL MULTIPLES OF $1,000. DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION BY FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1998 (the "Expiration Date"), unless extended by the Company in its sole discretion, in which case the term Expiration Date shall mean the latest date and time to which the Exchange Offer is extended. HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE EXCHANGE NOTES PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER THEIR OUTSTANDING NOTES TO THE EXCHANGE AGENT PRIOR TO 5:00 P.M. ON THE EXPIRATION DATE. This Letter of Transmittal should be used only to exchange the Outstanding Notes, pursuant to the Exchange Offer as set forth in the Prospectus. This Letter of Transmittal is to be used (a) if Outstanding Notes are to be physically delivered to the Exchange Agent or (b) if delivery of Outstanding Notes is to be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company ("DTC" or the "Book-Entry Transfer Facility") pursuant to the procedures set forth in the Prospectus under the caption "The Exchange Offer-- Procedures for Tendering." Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. Holders whose Outstanding Notes are not available or who cannot deliver their Outstanding Notes and all other documents required hereby to the Exchange Agent by 5:00 p.m. on the Expiration Date nevertheless may tender their Outstanding Notes in accordance with the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 1. THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR WILL THE SURRENDER OF OUTSTANDING NOTES FOR EXCHANGE BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF THE EXCHANGE OFFER WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. All capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Prospectus. HOLDERS WHO WISH TO EXCHANGE THEIR OUTSTANDING NOTES MUST COMPLETE COLUMNS (1) THROUGH (3) IN THE BOX ENTITLED "DESCRIPTION OF OUTSTANDING NOTES TENDERED" ON THE PRIOR PAGE, COMPLETE THE BOX BELOW ENTITLED "METHOD OF DELIVERY" AND SIGN WHERE INDICATED BELOW. THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OUTSTANDING NOTES TENDERED" AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO HAVE TENDERED THE OUTSTANDING NOTES AND MADE CERTAIN REPRESENTATIONS DESCRIBED IN THE PROSPECTUS AND HEREIN. 2 METHOD OF DELIVERY [_]CHECK HERE IF CERTIFICATE FOR TENDERED OUTSTANDING NOTES ARE ENCLOSED HEREWITH. [_]CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY BOOK- ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: ____________________________________________ Account Number: ___________________ Transaction Code Number: ____________ Principal Amount of Tendered Notes: _______________________________________ [_]CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING (SEE INSTRUCTIONS 1 AND 4): Name(s) of Registered Holder(s): ________________________________________ Window Ticket Number (if any): __________________________________________ Date of Execution of Notice of Guaranteed Delivery: _____________________ Name of Eligible Institution which Guaranteed Delivery: _________________ IF DELIVERED BY THE BOOK-ENTRY TRANSFER FACILITY, PROVIDE THE FOLLOWING INFORMATION: [_]The Depository Trust Company Account Number: _________________ Transaction Code Number: ____________ ------------------------------------------------------------------------ [_]CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE TEN ADDITIONAL COPIES OF THE PROSPECTUS AND COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. PLEASE NOTE: THE COMPANY HAS AGREED THAT, FOR A PERIOD OF DAYS AFTER THE EXPIRATION DATE, IT WILL MAKE COPIES OF THE PROSPECTUS AVAILABLE TO ANY PARTICIPATING BROKER-DEALER FOR USE IN CONNECTION WITH RESALES OF THE EXCHANGE NOTES. Name: ___________________________________________________________________ Address: ________________________________________________________________ NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY 3 Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the principal amount of Outstanding Notes indicated in the box entitled "Description of Outstanding Notes Tendered." Subject to, and effective upon, the acceptance for exchange of the Outstanding Notes tendered hereby, the undersigned hereby irrevocably sells, assigns and transfers to or upon the order of the Company all right, title and interest in and to such Outstanding Notes, and hereby irrevocably constitutes and appoints the Exchange Agent the true and lawful agent and attorney-in-fact of the undersigned (with full knowledge that said Exchange Agent also acts as the agent of the Company and as Trustee under the Indenture governing the Outstanding Notes and the Exchange Notes) with respect to such Outstanding Notes, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest) to (a) deliver certificates representing such Outstanding Notes, and to deliver all accompanying evidences of transfer and authenticity to or upon the order of the Company upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Notes to which the undersigned is entitled upon the acceptance by the Company of such Outstanding Notes for exchange pursuant to the Exchange Offer, (b) receive all benefits and otherwise to exercise all rights of beneficial ownership of such Outstanding Notes, all in accordance with the terms of the Exchange Offer, and (c) present such Outstanding Notes for transfer on the register for such Outstanding Notes, and receive all benefits and otherwise exercise all rights of beneficial ownership of such Notes, all in accordance with the terms of the Exchange Offer. The undersigned acknowledges that prior to this Exchange Offer, there has been no public market for the Outstanding Notes or the Exchange Notes. If a market for the Exchange Notes should develop, the Exchange Notes could trade at a discount from their principal amount. The undersigned is aware that the Company does not intend to list the Exchange Notes on a national securities exchange and that there can be no assurance that an active market for the Exchange Notes will develop. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes, it represents that the Outstanding Notes to be exchanged for Exchange Notes were acquired as a result of market-making activities or other trading activities and it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF OF, HOLDERS OF THE OUTSTANDING NOTES IN ANY JURISDICTION IN WHICH THE MAKING OF THE OFFER OR ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION OR WOULD OTHERWISE NOT BE IN COMPLIANCE WITH ANY PROVISION OF ANY APPLICABLE SECURITY LAW. The undersigned represents that (a) it is not an "affiliate," as defined under Rule 405 of the Securities Act, of the Company or any of the Subsidiary Guarantors (as defined in the Prospectus), (b) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the Exchange Notes, and (c) it is acquiring the Exchange Notes in the ordinary course of business. In addition, the undersigned acknowledges that an person participating in the Exchange Offer for the purpose of distributing the Exchange Notes must, in the absence of an exemption therefrom, comply with the registration and prospectus deliver requirements of the Securities Act in connection with a secondary resale of the Exchange Notes and cannot rely on the position of the staff of the Securities and Exchange Commission enunciated in no action letters and failure to comply with such requirements in such instance could result in the undersigned incurring liability under the Securities Act for which the undersigned is not indemnified by the Company. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the assignment, transfer and purchase of the Notes tendered hereby. The undersigned understands and acknowledges that the Company reserves the right, in its sole discretion, the purchase or make offers for any Outstanding Notes that remain outstanding subsequent to the Expiration Date or to terminate the Exchange Offer and, to the extent permitted by applicable law, purchase Outstanding Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers will differ from the terms of the Exchange Offer. 4 The undersigned hereby represents and warrants that (a) the undersigned accepts the terms and conditions of the Exchange Offer, (b) the undersigned has a net long position within the meaning of Rule 14e-4 under the Exchange Act ("Rule 14e-4") equal to or greater than the principal amount of Outstanding Notes tendered hereby, (c) the tender of such Outstanding Notes complies with Rule 14e-4 (to the extent that Rule 14e-4 is applicable to such exchange), (d) the undersigned has full power and authority to tender, exchange, assign and transfer the Outstanding Notes tendered hereby, and (e) when the same are accepted for exchange by the Company, the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim or right. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the sale, assignment and transfer of the Outstanding Notes tendered hereby. The undersigned agrees that all authority conferred or agreed to be conferred by this Letter of Transmittal and every obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. The undersigned also agrees that, except as stated in the Prospectus, the Outstanding Notes tendered hereby cannot be withdrawn. The undersigned understands that tenders of the Outstanding Notes pursuant to any one of the procedures described in the Prospectus under the caption "The Exchange Offer--Procedures for Tendering Outstanding Notes" and in the instructions hereto will constitute a binding agreement between the undersigned and the Company in accordance with the terms and subject to the conditions of the Exchange Offer. The undersigned understands that by tendering Outstanding Notes pursuant to one of the procedures described in the Prospectus and the instructions thereto, the tendering holder will be deemed to have waived the right to receive any payment in respect of interest on the Outstanding Notes accrued up to the date of issuance of the Exchange Notes. The undersigned recognizes that, under certain circumstances set forth in the Prospectus, the Company may not be required to accept for exchange any of the Outstanding Notes tendered. Outstanding Notes not accepted for exchange or withdrawn will be returned to the undersigned at the address set forth below unless otherwise indicated under "Special Delivery Instructions" below. Unless otherwise indicated herein under the box entitled "Special Issuance Instructions" below, Exchange Notes, and Outstanding Notes not validly tendered or accepted for exchange, will be issued in the name of the undersigned. Similarly, unless otherwise indicated under the box entitled "Special Delivery Instructions" below, Exchange Notes, and Outstanding Notes not validly tendered or accepted for exchange, will be delivered to the undersigned at the address shown below the signature of the undersigned. The undersigned recognizes that the Company has no obligation pursuant to the "Special Issuance Instructions" to transfer any Outstanding Notes from the name of the registered holder thereof if the Company does not accept for exchange any of the principal amount of such Outstanding Notes so tendered. All questions as to the validity, form, eligibility (including time of receipt), and withdrawal of the tendered Outstanding Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Outstanding Notes not properly tendered or any Outstanding Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company reserves the absolute right to reject any and all Outstanding Notes not properly tendered or any Outstanding Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any irregularities or conditions of tender as to particular Outstanding Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in this Letter of Transmittal) will be final and binding. Unless waived, any defects or irregularities in connection with tenders of Outstanding Notes must be cured within such time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Outstanding Notes, nor shall any of them incur any liability for failure to give such notification. Tenders of Outstanding Notes will not be deemed to have been made until such irregularities have been cured or waived. Any Outstanding Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned without cost to such holder by the Exchange Agent to the tendering holders of Outstanding Notes, unless otherwise provided in this Letter of Transmittal, as soon as practicable following the Expiration Date. 5 SIGN HERE (ALSO COMPLETE SUBSTITUTE FORM W-9 ON REVERSE) --------------------------------------------------------------------------- --------------------------------------------------------------------------- (SIGNATURE(S) OF TENDERING SHAREHOLDER(S)) Dated: , 1998 Must be signed by the registered holder(s) of the Outstanding Notes exactly as their name(s) appear(s) on certificate(s) for the Outstanding Notes or by person(s) with this Letter of Transmittal. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, agent or other person acting in a fiduciary or representative capacity, please provide the following information. See Instruction 3. Name(s): __________________________________________________________________ (PLEASE PRINT) Capacity (Full Title): ____________________________________________________ Address: __________________________________________________________________ --------------------------------------------------------------------------- (ZIP CODE) Daytime Area Code and Telephone Number: ( )_____________________________ Tax Identification or Social Security Number: _____________________________ (COMPLETE SUBSTITUTE FORM W-9 ON REVERSE) GUARANTEE OF SIGNATURE(S) (IF REQUIRED--SEE INSTRUCTIONS 1 AND 5 OF THIS LETTER OF TRANSMITTAL) Authorized Signature: _____________________________________________________ Name: _____________________________________________________________________ (PLEASE PRINT) Title: ____________________________________________________________________ Name of Firm: _____________________________________________________________ Address: __________________________________________________________________ --------------------------------------------------------------------------- (ZIP CODE) Area Code and Telephone Number: ___________________________________________ Dated: , 1998 6 SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 3, 4 AND 6) (SEE INSTRUCTIONS 3, 4, AND 6) To be completed ONLY if certifi- To be completed ONLY if certifi- cates for Outstanding Notes in a cates for Outstanding Notes in a principal amount not exchanged principal amount not exchange and/or certificates for Exchange and/or certificates for Exchange Notes are to be issued in the name Notes are to be sent to someone of someone other than the under- other than undersigned at an ad- signed, or if Outstanding Notes dress other than that shown above. are to be returned by credit to an account maintained by the Book-En- try Transfer Facility. Deliver (check appropriate box) [_]Exchange Notes to: [_]Outstanding Notes to: Issue (check appropriate box) Name: _____________________________ [_]Exchange Notes to: (PLEASE PRINT) [_]Outstanding Notes to: Address ___________________________ Name ______________________________ (ZIP CODE) (PLEASE PRINT) ----------------------------------- Address ___________________________ (TAXPAYER IDENTIFICATION OR (ZIP CODE) SOCIAL SECURITY NUMBER) ----------------------------------- (ALSO COMPLETE SUBSTITUTE FORM W-9 (TAXPAYER IDENTIFICATION OR BELOW) SOCIAL SECURITY NUMBER) (ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW) Credit unaccepted Outstanding Notes tendered by book-entry transfer to: [_The]Depository Trust Company ac- count set forth below: ___________________________________ (DTC Account Number) 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER AND THE SOLICITATION 1. Delivery of this Letter of Transmittal and Certificates; Guaranteed Delivery Procedures. To be effectively tendered pursuant to the Exchange Offer, the Outstanding Notes, together with a properly completed Letter of Transmittal (or facsimile thereof), duly executed by the registered holder thereof, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at one of its addresses set forth on the first page of this Letter of Transmittal. If the beneficial owner of any Outstanding Notes is not the registered holder, then such person may validly tender his or her Outstanding Notes only by obtaining and submitting to the Exchange Agent a properly completed Letter of Transmittal from the registered holder. OUTSTANDING NOTES SHOULD BE DELIVERED ONLY TO THE EXCHANGE AGENT AND NOT TO THE COMPANY OR TO ANY OTHER PERSON. THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY TO THE EXCHANGE AGENT BY 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. If a holder desires to tender Outstanding Notes and such holder's Outstanding Notes are not immediately available or time will not permit such holder's Letter of Transmittal, Outstanding Notes or other required documents to reach the Exchange Agent on or before the Expiration Date, such holder's tender may be effected if: (a) the tender is made through an Eligible Institution (as defined); (b) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the holder of the Outstanding Notes, the certificate number or numbers of such Outstanding Notes and the principal amount of Outstanding Notes tendered, stating that the tender is being made thereby, and guaranteeing that, within three business days after the Expiration Date, the Letter of Transmittal (or facsimile thereof) together with the certificate(s) representing the Outstanding Notes to be tendered in proper form for transfer or a Book-Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (c) such properly completed and executed Letter of Transmittal (or facsimile thereof) together with the certificate(s) representing all tendered Outstanding Notes in proper form for transfer and all other documents required by this Letter of Transmittal are received by the Exchange Agent within three business days after the Expiration Date. 2. Withdrawal of Tenders. Tendered Outstanding Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date, unless previously accepted for exchange. To be effective, a written or facsimile transmission notice of withdrawal must (a) be received by the Exchange Agent at one of its addresses set forth on the first page of this Letter of Transmittal prior to 5:00 p.m., New York City time, on the Expiration Date, unless previously accepted for exchange, (b) specify the name of the person who tendered the Outstanding Notes, (c) contain the description of the Outstanding Notes to be withdrawn, the certificate numbers shown on the particular certificate evidencing such Outstanding Notes and the aggregate principal amount represented by such Outstanding Notes and (d) be signed by the holder of such Outstanding Notes in the same manner as the original signature appears on this Letter of Transmittal (including any required signature guarantee) or be accompanied by evidence sufficient to have the Trustee with respect to the Outstanding Notes register the transfer of such Outstanding Notes into the name of the holder withdrawing the tender. The signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution unless such Outstanding Notes have been tendered (a) by a registered holder of Outstanding Notes who has not completed either the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery 8 Instructions" on this Letter of Transmittal or (b) for the account of an Eligible Institution. All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices shall be determined by the company, whose determination shall be final and binding on all parties. If the Outstanding Notes to be withdrawn have been delivered or otherwise identified to the Exchange Agent, a signed notice of withdrawal is effective immediately upon receipt by the Exchange Agent of a written or facsimile transmission notice of withdrawal even if physical release is not yet effected. In addition, such notice must specify, in the case of Outstanding Notes tendered by delivery of certificates for such outstanding Notes, the name of the registered holder (if different from that of the tendering holder) to be credited with the withdrawn Outstanding Notes. Withdrawals may not be rescinded, and any Outstanding Notes withdrawn will thereafter be deemed not validly tendered for purposes of the Exchange Offer. However, properly withdrawn Outstanding Notes may be retendered by following one of the procedures described under "The Exchange Offer--Procedures for Tendering" in the Prospectus at any time on or prior to the applicable Expiration Date. 3. Signatures on this Letter of Transmittal, Bond Powers and Endorsement; Guarantee of Signatures. If this Letter of Transmittal is signed by the registered holder(s) of the Outstanding Notes tendered hereby, the signature must correspond exactly with the name(s) as written on the face of the certificates without any change whatsoever. If any Outstanding Notes tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any Outstanding Notes tendered hereby are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal as there are different registrations of certificates. When this Letter of Transmittal is signed by the registered holder or holders specified herein and tendered hereby, no endorsements of certificates or separate bond powers are required unless Exchange Notes are to be issued, or certificates for any untendered principal amount of Outstanding Notes are to be reissued, to a person other than the registered holder. If this Letter of Transmittal is signed by a person other than the registered holder(s) of any certificate(s) specified herein, such certificate(s) must be endorsed or accompanied by appropriate bond powers, in either cased signed exactly as the name(s) of the registered holder(s) appear(s) on the certificate(s). If this Letter of Transmittal or a Notice of Guaranteed Delivery or any certificates or bond powers are signed by trustees, executors, administrators, guardians, attorney-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority so to act must be submitted with this Letter of Transmittal. Except as described below, signatures on this Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution, Signatures of this Letter of Transmittal or a notice of withdrawal, as the case may be, need not be guaranteed if the Outstanding Notes tendered pursuant hereto are tendered (a) by a registered holder of Outstanding Notes who has not completed either the box "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" on this Letter of Transmittal or (b) for the account of an Eligible Institution. In the event that signatures on this Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company having an office or correspondent in the United States (each as "Eligible Institutions"). Endorsements on certificates for Outstanding Notes or signatures on bond powers required by this Instruction 3 must be guaranteed by an Eligible Incitation. 9 4. Special Issuance and Delivery Instructions. Tendering holders should indicate in the applicable box the name and address to which certificates for Exchange notes and/or substitute certificates evidencing Outstanding Notes for the principal amounts not exchanged are to be issued or sent, if different from the name and address of the person signing this Letter of Transmittal. In the case of issuance in a different name, the employer identification or social security number of the person named must also be indicated. If not such instructions are given, any Outstanding Notes not exchanged will be returned to the name and address of the person signing this Letter of Transmittal. 5. Tax Identification Number Withholding. Federal income tax law of the United States requires that a holder of Outstanding Notes whose Outstanding Notes are accepted for exchange provide the Company with the holder's correct taxpayer identification number, which, in the case of a holder who is an individual, is his or her social security number, or otherwise establish an exemption from backup withholding. If the Company is not provided with the correct taxpayer identification number, the exchanging holder of Outstanding Notes may be subject to a $50 penalty imposed by the Internal Revenue Service (the "IRS"). In addition, interest on the Exchange Notes acquired pursuant to the Exchange Offer may be subject to backup withholding in an amount equal to 31% of any interest payment. If withholding occurs and results in an overpayment of taxes, a refund may be obtained. To prevent backup withholding, an exchanging holder of Outstanding Notes must provide his correct taxpayer identification number by completing the Substitute Form W-9 provided in this Letter of Transmittal, certifying that the taxpayer identification number provided is correct (or that the exchanging holder of Outstanding Notes is awaiting a taxpayer identification number) and that either (a) the exchanging holder has not yet been notified by the IRS that such holder is subject to backup withholding as a result of failure to report all interest or dividends or (b) the IRS has notified the exchanging holder that such holder is no longer subject to backup withholding. Certain exchanging holders of Outstanding Notes (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding requirements. A foreign individual and other exempt holders other than foreign individuals (e.g., corporations) should certify, in accordance with the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9," to such exempt status on the Substitute Form W-9 provided in this Letter of Transmittal. Foreign individuals should complete and provide Form W-8 to indicate their foreign status. 6. Transfer Taxes. Holders tendering pursuant to the Exchange Offer will not be obligated to pay brokerage commissions or fees or to pay transfer taxes with respect to their exchange under the Exchange Offer unless the box entitled "Special Issuance Instructions" in this Letter of Transmittal has been completed, or unless the Exchange Notes are to be issued to any person other than the holder of the Outstanding Notes tendered for exchange. The company will pay all other charges or expenses in connection with the Exchange Offer. If holders tender Outstanding Notes for exchange and the Exchange Offer is not consummated, certificates representing the Outstanding Notes will be returned to the holders at the Company's expense. Except as provided in this Instructions 6, it will not be necessary for transfer tax stamps to be affixed to the certificate(s) specified in this Letter of Transmittal. 7. Inadequate Space. If the space provided herein is inadequate, the aggregate principal amount of the Outstanding Notes being tendered and the certificate numbers (if available) should be listed on a separate schedule attached hereto and separately signed by all parties required to sign this Letter of Transmittal. 8. Partial Tenders. Tenders of Outstanding Notes will be accepted only in integral multiples of $1,000. If tenders are to be made with respect to less than the entire principal amount of any Outstanding Notes, fill in the principal amount of Outstanding Notes which are tendered in column (3) in the box on the cover entitled "Description of Outstanding Notes Tendered." In the case of partial tenders, new certificates representing the 10 Outstanding Notes in fully registered form for the remainder of the principal amount of the Outstanding Notes will be sent to the person(s) as promptly as practicable after the expiration or termination of the Exchange Offer. 9. Mutilated, Lost, Stolen or Destroyed Notes. Any holder whose Outstanding Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above for further instructions. 10. Request for Assistance or Additional Copies. Requests for assistance or additional copies of the Prospectus or this Letter of Transmittal may be obtained from the Exchange Agent at its telephone number set forth on the first page. 11. No Conditional Tender. No alternative, conditional, irregular or contingent tender of Notes on transmittal of this Letter of Transmittal will be accepted. 11 IMPORTANT TAX INFORMATION PAYER'S NAME: - -------------------------------------------------------------------------------- PART 1--PLEASE PROVIDE ----------------- YOUR TIN IN THE BOX AT Social Security RIGHT AND CERTIFY BY SIGN- Number ING AND DATING BELOW. SUBSTITUTE FORM W-9 or DEPARTMENT OF ----------------- THE TREASURY Employer INTERNAL Identification Number REVENUE SERVICE PART 2--Check the box if you are not subject to backup withholding under the provisions of section 3406(a)(1)(c) of the internal revenue code because (1) you are exempt from backup withholding, or (2) you have not been notified that you are subject to backup withholding as a result of failure to re- port all interest or dividends or (3) the internal revenue service has notified you that you are no longer subject to backup withholding. [_] ----------------------------------------------------- PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN) ----------------------------------------------------- CERTIFICATION--UNDER THE PENALTIES PART 3-- OF PERJURY, I CERTIFY THAT THE IN- Awaiting FORMATION PROVIDED ON THIS FORM IS TIN [_] TRUE, CORRECT, AND COMPLETE. SIGNATURE _______________ DATE ______ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number to the payer by the time of payment, 31% of all reportable payments made to me will be withheld until I provide a number and that, if I do not provide my taxpayer identification number within 60 days, such retained amounts shall be remitted to the IRS as backup withholding. ------------------------------- ------------------------------- Signature Date 12 EX-99.2 73 NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY TO TENDER FOR EXCHANGE 11 1/4% SENIOR SECURED NOTES DUE 2008, SERIES B OF FOUNTAIN VIEW, INC. PURSUANT TO PROSPECTUS DATED , 1998 This Notice of Guaranteed Delivery or a form substantially equivalent hereto must be used to accept the offer (the "Exchange Offer") of Fountain View, Inc., a Delaware corporation (the "Company"), to exchange $1,000 principal amount of its 11 1/4% Senior Subordinated Notes due 2008, Series B for each $1,000 principal amount of its outstanding 11 1/4% Senior Subordinated Notes due 2008 (the "Outstanding Notes") if (a) certificates representing the Outstanding Notes are not immediately available or (b) time will not permit the Outstanding Notes and all other required documents to reach the Exchange Agent on or prior to the Expiration Date. This form may be delivered by an Eligible Institution (as defined) by mail or hand delivery, or transmitted via facsimile, telegram or telex, to the Exchange Agent as set forth below. All capitalized terms used herein but not defined herein shall have the meanings ascribed to them in the Prospectus dated , 1998 (the "Prospectus"). THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR WILL THE SURRENDER OF OUTSTANDING NOTES BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS OF OUTSTANDING NOTES IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF THE EXCHANGE OFFER WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON , 1998, UNLESS EXTENDED. TENDERS OF 11 1/4% SENIOR SUBORDINATED NOTES DUE 2008 MAY ONLY BE WITHDRAWN UNDER THE CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS AND THE LETTER OF TRANSMITTAL. The Exchange Agent for the Exchange Offer Is: STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A. By Registered or Certified Mail: By Overnight Courier: By Hand before 4:30 P.M.: State Street Bank and Trust State Street Bank and Trust State Street Bank and Trust Company of California, N.A. Company of California, N.A. Company of California, N.A. c/o State Street Bank and Trust Company c/o State Street Bank and Trust Company c/o State Street Bank and Trust Company Two International Place Two International Place Two International Place Boston, Massachusetts 02110 Boston, Massachusetts 02110 Boston, Massachusetts 02110 Attention: Kellie Mullen Attention: Kellie Mullen Attention: Kellie Mullen
By Facsimile: 617-664-5290 Confirm by Telephone to: Kellie Mullen 617-664-5587 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR TRANSMISSION VIA FACSIMILE, TELEGRAM OR TELEX, OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. This form is not to be used to guarantee signatures. if a signature on the Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tender(s) to the Company, upon the terms and subject to the conditions set forth in the Prospectus, receipt of which is hereby acknowledged, the principal amount of Outstanding Notes set forth below, pursuant to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." Subject to and effective upon acceptance for exchange of the Outstanding Notes tendered herewith, the undersigned hereby sells, assigns and transfers to or upon the order of the Company all right, title and interest in and to, and any and all claims in respect of or arising or having arisen as a result of the undersigned's status as a holder of, all Outstanding Notes tendered hereby. In the event of a termination of the Exchange Offer, the Outstanding Notes tendered pursuant thereto will be returned promptly to the tendering Outstanding Note holder. The undersigned hereby represents and warrants that the undersigned accepts the terms and conditions of the Prospectus and the Letter of Transmittal, has full power and authority to tender, sell, assign and transfer the Outstanding Notes tendered hereby and that the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the sale, assignment and transfer of the Outstanding Notes tendered. All authority herein conferred or agreed to be conferred by this Notice of Guaranteed Delivery shall survive the death or incapacity of the undersigned and every obligation of the undersigned under this Notice of Guaranteed Delivery shall be binding upon the heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy and other legal representatives of the undersigned. PLEASE SIGN AND COMPLETE Signature(s) of Registered Holder(s) or Addresses: Authorized Signatory: --------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Area Code and Telephone Name(s) of Registered Holder(s) --------------------------------- No.: --------------------------------- --------------------------------- --------------------------------- IF OUTSTANDING NOTES WILL BE DELIVERED BY A BOOK-ENTRY TRANSFER, PROVIDE THE FOLLOWING INFORMATION: Principal Amount of Outstanding Notes Tendered: ___________________________ Transaction Code No.: _____________________________________________________ Certificate No(s). of Outstanding Notes (if available): ___________________ Depository Account No.: ___________________________________________________ This Notice of Guaranteed Delivery must be signed by the registered holder(s) of Outstanding Notes exactly as their name(s) appear(s) on the Outstanding Notes or by person(s) authorized to become registered holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, guardian, attorney-in- fact, officer of a corporation, executor, administrator, agent or other representative, such person must provide the following information: PLEASE PRINT NAME(S) AND ADDRESS(ES) Name(s): __________________________________________________________________ _____________________________________________________________________ Capacity: _________________________________________________________________ _____________________________________________________________________ Address(es): ______________________________________________________________ ___________________________________________________________________ GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States (each, an "Eligible Institution"), hereby guarantees that, within three business days from the date of this Notice of Guaranteed Delivery, a properly completed and validly executed Letter of Transmittal (or a facsimile thereof), together with Outstanding Notes tendered hereby in proper form for transfer (or confirmation of the book-entry transfer of such Outstanding Notes into the Exchange Agent's account at a Book-Entry Transfer Facility) and all other required documents will be deposited by the undersigned with the Exchange Agent at one of its addresses set forth above. Name of Firm: _____________________________________________________________ Authorized Signature: _____________________________________________________ Address: __________________________________________________________________ Name: _____________________________________________________________________ Title: ____________________________________________________________________ Area Code and Telephone No.: ______________________________________________ Date: _____________________________________________________________________ DO NOT SEND OUTSTANDING NOTES WITH THIS FORM. ACTUAL SURRENDER OF NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND VALIDLY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY 1. Delivery. A properly completed and duly executed copy of this Notice of Guaranteed Delivery and any other documents required by this Notice of Guaranteed Delivery must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. The method of delivery is at the election and sole risk of the holders and the delivery will be deemed made only when actually received by the Exchange Agent. In all cases, sufficient time should be allowed to assure timely delivery. 2. Requests for Assistance or Additional Copies. Questions and requests for assistance and requests for additional copies of this document and/or the Prospectus may be directed to the Exchange Agent at the address specified in the Prospectus. Holders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer. EX-99.3 74 GUIDELINES FOR CERTIFICATION OF TAXPAYER ID # Exhibit 99.3 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.-- Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer. - ----------------------------------- -----------------------------------
GIVE THE TAXPAYER IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - --------------------------------------------- 1. An individual's account The individual 2. Two or more individuals The actual owner (joint account) of the account or, if combined funds, the first individual on the account(1) 3. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 4.a. The usual revocable The grantor- savings trust account trustee(1) (grantor is also trustee) b. So-called trust account The actual that is not a legal or owner(1) valid trust under State law 5. Sole proprietorship The owner(3) 9. A valid trust, estate, The legal entity or pension trust (Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(4) - ---------------------------------------------
GIVE THE TAXPAYER IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF-- -- 7. Corporate account The corporation 8. Religious, charitable, The organization or educational organization account 9. Partnership account The partnership 10. Association, club, or The organization other tax-exempt organization 11. A broker or registered The broker or nominee nominee 12. Account with the The public Department of entity Agriculture in the name of a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments --
(1) List first and circle the name of the person whose number you furnish. If only one person on a joint account has an SSN, that person's number must be furnished. (2) Circle the minor's name and furnish the minor's social security number. (3) Show your individual name. You may also enter your business or "doing business as" name. You may use either your social security number or your employer identification number. (4) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name listed, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 Note: Section references are to the Internal Revenue Code unless otherwise noted. OBTAINING A NUMBER If you do not have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card (for individuals), or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), at the local office of the Social Security Administration or the Internal Revenue Service (the "IRS") and apply for a number. PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING The following is a list of payees exempt from backup withholding and for which no information reporting is required. For interest and dividends, all listed payees are exempt except item (9). For broker transactions, payees listed in items (1) through (13) and a person registered under the Investment Advisors Act of 1940 who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees described in items (1) through (7), except a corporation (other than certain hospitals described in Regulations section 1.6041-3(c)) that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding or information reporting. Only payees described in items (1) through (5) are exempt from backup withholding for barter exchange transactions and patronage dividends. (1) An organization exempt from tax under section 501(a), or an IRA, or a custodial account under section 403(b)(7), if the account satisfies the requirements of section 401(f)(2). (2) The United States or any of its agencies or instrumentalities. (3) A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. (4) A foreign government or any of its political subdivisions, agencies or instrumentalities. (5) An international organization or any of its agencies or instrumentalities. (6) A corporation. (7) A foreign central bank of issue. (8) A dealer in securities or commodities required to register in the United States, the District of Columbia or a possession of the United States. (9) A futures commission merchant registered with the Commodity Futures Trading Commission. (10) A real estate investment trust. (11) An entity registered at all times during the tax year under the Investment Company Act of 1940. (12) A common trust fund operated by a bank under section 584(a). (13) A financial institution. (14) A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominee List. (15) A trust exempt from tax under section 664 or described in section 4947. Payments of dividends and patronage dividends that generally are exempt from backup withholding include the following: . Payments to nonresident aliens subject to withholding under section 1441. . Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident alien partner. . Payments of patronage dividends not paid in money. . Payments made by certain foreign organizations. . Section 404(k) payments made by an ESOP. Payments of interest that generally are exempt from backup withholding include the following: . Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payor. . Payments of tax-exempt interest (including exempt-interest dividends under section 852). . Payments described in section 6049(b)(5) to non-resident aliens. . Payments on tax-free covenant bonds under section 1451. . Payments made by certain foreign organizations. . Payments of mortgage interest to you. Exempt payees described above should file substitute Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. IF YOU ARE A NON-RESIDENT ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS). Payments that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A and 6050N and the regulations promulgated thereunder. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payors who must report the payments to the IRS. The IRS uses the numbers for identification purposes. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your correct taxpayer identification number to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.4 75 FORM OF LETTER REGARDING ELIGIBILITY EXHIBIT 99.4 FOUNTAIN VIEW, INC. 11900 WEST OLYMPIC BOULEVARD, SUITE 680 LOS ANGELES, CA 90064 August 5, 1998 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Form S-4 Registration Statement relating to the offer to exchange up to $120,000,000 of 11 1/4% Senior Subordinated Notes (the "Exchange Notes") due 2008, Series B of Fountain View, Inc., which have been registered under the Securities Act of 1933, as amended, for any and all of its outstanding 11 1/4% Senior Subordinated Notes due 2008 Dear Sir or Madam: In connection with our above-captioned Registration Statement, Fountain View, Inc. hereby represents that: 1. It is registering the Exchange Notes exchange offer registered thereby in reliance on the Staff's position set forth in Exxon Capital Holdings Corp., SEC No-Action Letter (April 13, 1989), Morgan Stanley & Co., Inc., SEC No- Action Letter (June 2, 1993) and Shearman & Sterling, SEC No-Action Letter (July 2,1993). 2. It has not entered into any arrangement or understanding with any person to distribute the Exchange Notes to be received in the exchange offer and, to the best of its information and belief, each person participating in the exchange offer is acquiring the Exchange Notes in its ordinary course of business and has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes to be received in the exchange offer; 3. It will make each person participating in the exchange offer aware that is such person is participating in the exchange offer for the purpose of distributing the Exchange Notes to be acquired in the exchange offer, such person (i) cannot rely on the staff position enunciated in Exxon Capital or interpretive letters to similar effect and (ii) must comply with registration and prospectus delivery requirements of the Securities Act of 1933 in connection with a secondary resale transaction. 4. It acknowledges that such a secondary resale transaction by such person participating in the exchange offer for the purpose of distributing the Exchange Notes should be covered by an effective registration statement containing the selling security holder information required by Item 507 of Regulation S-K; and 5. The preliminary prospectus included in the above-referenced registration statement contains and the final prospectus included therein will contain disclosures making persons participating in the exchange offer aware of the limitations and obligations applicable to broker-dealers who participate in the exchange offer. Very truly yours, Fountain View, Inc. By: /s/ Robert M. Snukal -------------------------- Robert M. Snukal President and Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----