SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[x] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
[Fee Required]
For the fiscal year ended May 31, 1994
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
[No Fee Required]
For the transition period from ________ to ________
Commission file number 1-10426
THE HILLHAVEN CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 91-1459952
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1148 Broadway Plaza
Tacoma, WA 98402
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number,
including area code: (206) 572-4901
________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
Common Stock, Par Value $0.75
per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
7-3/4% Convertible Subordinated
Debentures New York Stock Exchange
________________
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ___
<PAGE>
<PAGE>
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
As of August 8, 1994, there were 27,174,778 shares of Common
Stock, par value $0.75 per share, outstanding. The aggregate
market value of the shares of Common Stock held by non-affiliates
of the registrant on August 8, 1994, was approximately
$339,401,272. For purposes of the foregoing calculation only,
National Medical Enterprises, Inc. and all directors and
executive officers of the registrant have been deemed affiliates.
Portions of the definitive Proxy Statement for the
registrant's Annual Meeting of Stockholders have been
incorporated by reference into Part III of this Report.
<PAGE>
<PAGE>
<TABLE>
TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-K 1994
THE HILLHAVEN CORPORATION AND SUBSIDIARIES
<CAPTION>
Page
Part I
<S> <C> <C>
Item 1. Business 1
Item 2. Properties 21
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of
Security Holders 21
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 21
Item 6. Selected Financial Data 22
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 25
Item 8. Financial Statements and Supplementary Data 33
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 33
Part III
Item 10. Directors and Executive Officers of the
Registrant 33
Item 11. Executive Compensation 33
Item 12. Security Ownership of Certain Beneficial
Owners and Management 33
Item 13. Certain Relationships and Related
Transactions 33
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 34
</TABLE>
<PAGE>
<PAGE>
PART I
Item 1. Business
General
The Hillhaven Corporation, a Nevada corporation
("Hillhaven", the "Registrant" or the "Company"), operates
nursing centers, pharmacies and retirement housing communities.
Hillhaven was incorporated in May 1989 by National Medical
Enterprises, Inc. (together with its subsidiaries, "NME") in
anticipation of a spin-off by NME of substantially all of its
domestic long term care operations in a dividend distribution of
Hillhaven common stock to NME shareholders that was effected in
January 1990 (the "Spin-off"). As part of the Spin-off,
Hillhaven and NME entered into certain agreements which included
the leasing of initially 115 nursing centers and four retirement
housing communities adjacent thereto, the borrowing of certain
sums of money and the managing of certain nursing centers located
on NME hospital campuses. These relationships are discussed in
more detail under "Certain Transactions" in the Proxy Statement
for the Company's 1994 Annual Meeting of Stockholders.
Based upon the number of beds in service and net operating
revenues, Hillhaven is the second largest long term care provider
in the United States and believes that it is one of the leading
providers of Alzheimer's care. At May 31, 1994, the Company
operated 288 nursing centers (of which 194 were owned, 78 were
leased and 16 were managed for others) with 36,249 licensed beds.
The nursing centers are located in 33 states and range in
capacity from 42 to 692 beds. For the year ended May 31, 1994,
average nursing center occupancy was 93.4%. Pharmacy operations
are conducted through the Company's subsidiary, Medisave
Pharmacies, Inc. ("Medisave"), which, as of May 31, 1994,
consisted of 40 institutional pharmacies and 32 retail pharmacies
located in 19 states. The Company also operates 19 retirement
housing communities containing an aggregate of 2,622 apartment
units located in 14 states.
The Company provides a wide range of diversified health care
services, including long term care and subacute medical and
rehabilitation services, such as wound care, oncology treatment,
brain injury care, stroke therapy and orthopedic therapy.
Subacute medical and rehabilitation services are offered at all
of the Company's nursing centers and are the fastest growing
component of the Company's nursing center operations,
constituting approximately 24.7% of nursing center net operating
revenues in fiscal 1994, 19.4% in fiscal 1993 and 13.6% in fiscal
1992. Hillhaven believes that it is also one of the largest
providers of physical, occupational and speech therapies in the
United States. In addition, the Company currently provides long
term care to residents of the Company's nursing centers with
Alzheimer's disease through 61 Alzheimer's care units with 1,870
beds. The Company does not presently maintain designated beds
for specialty care services, other than for Alzheimer's care,
where the patients benefit from segregated facilities. The
Company's experience has been that subacute medical and
rehabilitation services, particularly rehabilitation, can be
<PAGE>
<PAGE>
effectively and successfully integrated into its standard nursing
center operations at the majority of its centers, in most cases
with little physical reconfiguration of or modification to the
facilities.
Nursing center net operating revenues, comprised primarily
of net patient revenues, accounted for 85.5% and 84.9% of
Hillhaven's total net operating revenues for fiscal 1994 and
1993, respectively. In fiscal 1994, the Company derived 50.2% of
its net patient revenues from Medicaid, 26.8% from private pay
and other sources and 23.0% from Medicare. In fiscal 1993, the
comparable figures were 54.8%, 26.8% and 18.4%, respectively.
Pharmacy operations accounted for 12.2% and 13.1% of Hillhaven's
total net operating revenues for fiscal 1994 and 1993,
respectively. In fiscal 1994, institutional pharmacy operations
constituted approximately 76% of Medisave's total net operating
revenues, compared to 63% in fiscal 1993. Retirement housing
operations represented 2.3% and 2.0% of Hillhaven's total net
operating revenues for fiscal 1994 and 1993, respectively. Under
segment reporting criteria, Hillhaven believes its only material
business segment is "health care," which contributed
substantially all of the Company's net operating revenues and
substantially all of its operating profits for fiscal 1994.
The Recapitalization
Since the Spin-off, it has been management's intention to
improve Hillhaven's balance sheet (in particular, its debt-to-
equity ratio) and to gradually decrease the extent of the
relationship between Hillhaven and NME. To this end, prior to
September 1993, the Company had purchased all but 23 of the 115
nursing centers originally leased from NME, had restructured its
leases relating to the NME-owned nursing centers to eliminate
contingent rent provisions and to fix the purchase option prices,
had repaid $96.8 million of the $145.9 million principal amount
of notes issued by Hillhaven to NME at the time of the Spin-off,
had issued $35 million of its 8-1/4% cumulative nonvoting Series
C Preferred Stock (the "Series C Preferred Stock") to NME and
used the proceeds to repay higher cost debt and had reduced the
amount of obligations guaranteed by NME, for which the Company
pays a guarantee fee, to $699.0 million at May 31, 1993.
On September 2, 1993, Hillhaven substantially completed a
recapitalization plan (the "Recapitalization") which improved its
balance sheet, extended maturities of outstanding indebtedness,
increased operating flexibility through the acquisition of
previously leased facilities, fixed the interest rates on a
portion of its previously floating rate indebtedness and also
reduced the extent of the relationship between the Company and
NME.
Through the Recapitalization, the Company's relationship
with NME was modified by (i) the purchase of the remaining 23
facilities leased from NME (the "Leased Facilities") for $111.8
million, (ii) the repayment of all existing debt to NME in the
aggregate principal amount of $147.2 million, (iii) the release
<PAGE>
<PAGE>
of NME guarantees on approximately $400 million of debt, (iv) the
limitation of the annual fee payable to NME in connection with
the maintenance of the remaining guarantees to 2% of the
remaining amount guaranteed and (v) the amendment of existing
agreements to eliminate obligations of NME to provide additional
financing to the Company.
The Recapitalization was financed through (i) the issuance
to NME of $120 million of a newly created series of payable-in-
kind preferred stock (the "Series D Preferred Stock"), (ii) the
incurrence by First Healthcare Corporation, the Company's
principal operating subsidiary ("FHC"), of a $175 million five-
year term loan under a secured credit facility with a syndicate
of banks (the "Bank Term Loan"), (iii) the issuance of $175
million of 10-1/8% Senior Subordinated Notes due 2001 (the
"Offering"), (iv) the borrowing of $30 million under an accounts
receivable-backed credit facility (the "Accounts Receivable
Financing") and (v) the use of approximately $39 million of cash.
The Recapitalization included a $100 million letter of
credit facility to be used to provide credit enhancement for and
replace NME guarantees on the Company's industrial revenue bonds,
and an $85 million revolving bank line of credit. In February
1994, the letter of credit facility was reduced to $90 million.
The availability of the revolving line of credit allows the
Company to maintain lower cash balances and may facilitate
repayments of higher-rate debt or provide cash for investment or
other corporate purposes.
Following the Recapitalization, NME has continued to be a
substantial shareholder of the Company, but is no longer a lessor
to or creditor of the Company. NME has continued as a guarantor
of certain leases and a significantly reduced portion of the
Company's debt. In the short term, the removal of NME as a
guarantor of certain of the Company's indebtedness has caused the
Company to incur debt at higher interest rates than may have been
available previously. However, this cost has been balanced by
the reduction of guarantee fees paid to NME and the replacement
of $120 million of indebtedness with the Series D Preferred
Stock. In addition, the Company has benefited by capping at 2%
NME's guarantee fee, which otherwise would have escalated to 3%.
New funds are anticipated to be obtained at rates which the
Company believes will be lower than the rates which it would have
otherwise obtained on financing provided by NME.
The Recapitalization is discussed in more detail under
"Certain Transactions" in the Proxy Statement for the Company's
1994 Annual Meeting of Stockholders.
Industry Trends
The Company believes that several industry trends will
contribute to growth opportunities. These trends include an
aging population, the increasing shift of patients from acute
care and rehabilitation hospitals to nursing centers due to the
nationwide emphasis on health care cost containment, the health
care system reform proposals being considered by the federal and
<PAGE>
<PAGE>
state governments and others, the growth in demand for long term
care services and centers currently exceeding the growth in
supply and the increasing complexity of and more burdensome
operating standards for the delivery of pharmaceutical products
and services to nursing centers and other institutions.
Aging Population. People over the age of 65 are the primary
users of long term care. Based on U.S. Census Bureau data, this
segment of the population in the United States has grown from
approximately 25 million in 1980 to approximately 31 million in
1990. This age group is expected to increase to approximately 35
million by the year 2000. The fastest growing segment of the
United States population is the over-85 age group, which is
expected to increase from approximately 3.4 million in 1991 to
approximately 4.6 million in 2000. Advances in medical
technology have increased life expectancies; as a result, an
increasing number of elderly patients require a high level of
care not historically available outside an acute care hospital.
Earlier Hospital Discharge to Nursing Centers. Based on
reports in health care industry journals, in recent years,
average lengths of stay in hospitals have been decreasing, in
part as a result of governmental and private pay sources
attempting to control health care costs by adopting reimbursement
strategies that encourage earlier discharge from hospitals. Many
patients leaving hospitals require skilled nursing care and
rehabilitation services of the type that the Company provides.
Health Care System Reforms. In an effort to combat
increasing health care costs, governmental entities and insurance
companies are considering ways to contain costs, including
adjusting Medicaid eligibility requirements and encouraging
patients to obtain treatment from lower cost providers. The
Company believes that, as a low cost provider of subacute medical
and rehabilitation services, it is well-positioned to benefit
from these reforms.
Nursing Center Supply/Demand Imbalance. Based on reports in
long term care industry journals, while demand for nursing center
beds has increased in recent years, the supply has remained
relatively unchanged. Construction and expansion of nursing
centers is regulated in most states, and the ability to obtain
financing for these activities in the past was adversely affected
by lending limitations imposed by the financial institutions
industry.
Increasing Complexity of Institutional Pharmaceutical
Requirements. The Company believes that the implementation of
the Omnibus Budget Reconciliation Act of 1987 ("OBRA") in October
1990 has further increased the demand for the Company's
pharmaceutical services. Nursing centers are responsible for
complying with more stringent standards of care established by
OBRA, which include planning, monitoring and reporting the
progress of prescription drug therapy. Based on reports in long
term care industry journals, nursing center administrators and
directors of nursing now seek sophisticated and experienced
pharmacies with trained consultant pharmacists and computerized
<PAGE>
<PAGE>
documentation programs to help ensure regulatory compliance.
Retail pharmacies, which generally lack the breadth of service
and do not focus on the special requirements of nursing centers,
are being replaced with institutional pharmacies that can more
effectively serve this market.
Business Strategy
Operating Strategy
The Company's operating strategy is designed to take
advantage of several important industry trends, a number of which
are favorable, and includes expanding higher revenue specialty
care services, increasing private pay and Medicare census,
maintaining high occupancy levels and expanding Medisave's
institutional pharmacy operations.
Expansion of Specialty Care Services. Hillhaven intends to
continue to expand its specialty care programs and services.
These services generally produce higher revenues than do routine
nursing care services and serve to differentiate the Company's
facilities from others in a given market. The Company intends to
expand its subacute medical and rehabilitation services, which
include wound care, oncology treatment, brain injury care, stroke
therapy and orthopedic therapy. The expansion of these services
is designed to increase private pay and Medicare revenues which
are higher than reimbursement rates for traditional long term
care services.
Increasing Private Pay and Medicare Census. Hillhaven is
also working to increase private pay and Medicare census by
further developing and maintaining relationships with traditional
referral sources and by entering into contracts with private
insurance companies to provide subacute medical and
rehabilitation services to their insureds. Increasing the number
of managed care patients in the Company's nursing centers is an
increasingly important component of the Company's marketing
strategy. Hillhaven's subacute medical and rehabilitation
services offer a less expensive alternative to hospital care for
patients who need specialized nursing care but do not require
many of the other services provided in an acute care hospital.
As of May 31, 1994, the Company was operating under 139 such
managed health care contracts.
Maintaining High Occupancy Levels. The Company believes in
maintaining high occupancy levels in existing facilities through
(i) an enhanced emphasis on local marketing efforts in which
nursing center employees are charged with actively marketing
their services within the community, (ii) broadening the scope
and character of services provided in each nursing center and
(iii) favorable demographic trends. The Company believes that
maintaining high occupancy levels enables it to realize greater
economies of scale. In fiscal 1994, Hillhaven had an average
occupancy in its ongoing nursing centers of 93.4%. However,
certain facilities, particularly in the western states, have
lower occupancy rates, and management's strategy is to increase
occupancy levels in the nursing centers in these states.
<PAGE>
<PAGE>
Expansion of Institutional Pharmacy Business. The Company
is a leading provider of comprehensive pharmacy services to
nursing centers and their patients. Medisave has a growth
strategy which includes (i) continued penetration of existing
markets, (ii) expansion into selected new markets and
(iii) increasing infusion and enteral therapy revenues by
targeting specific health care providers.
Financial Strategy
The Company's financial strategy is designed to increase the
equity base of the Company over time and to provide flexibility
to capitalize on attractive business opportunities. The key
elements of this financial strategy include reducing or
refinancing indebtedness, purchasing leased nursing centers and
divesting nursing centers that do not perform satisfactorily.
Reducing or Refinancing Indebtedness. The Company's plan to
reduce or refinance indebtedness is designed to improve the
Company's debt-to-equity ratio, reduce the overall interest rates
on indebtedness (including guarantee fees) and extend the
maturities and amortization of the Company's indebtedness.
Purchasing Leased Nursing Centers. Since the Spin-off,
Hillhaven has purchased 136 of the 239 nursing centers that were
leased at that time. The acquisition of the Leased Facilities
completed the Company's purchase of all of the 115 facilities
previously leased from NME. The Company generally considers
ownership of nursing centers preferable to leasing, both in the
short term and in the long term, because it provides increased
operating flexibility and the opportunity to benefit from future
real estate appreciation.
Conclusion of the Disposition Program. On December 5, 1991,
Hillhaven announced a restructuring plan designed to improve its
long-term financial strength and operating performance by
disposing of underperforming nursing centers, restructuring
facility leases with NME and selling $35 million of Series C
Preferred Stock to NME in order to prepay indebtedness owed to
NME. The plan involved the sale or sublease of 82 nursing
centers, which disposition was intended to allow the Company to
concentrate on markets and services that offer higher profits, as
well as to realize reductions in overhead costs. As of
November 30, 1993, the Company had completed the disposition of
50 of these nursing centers, as well as three retirement housing
facilities which, prior to March 1, 1992, had been recorded as
discontinued operations. During the second quarter of fiscal
1994, the Company reviewed its asset disposition program and,
because of improvements in reimbursement rates and results of
operations, decided not to pursue the sale of the remaining
nursing homes and a retirement housing facility, but instead
reinstated these facilities as ongoing operations. On
December 31, 1993, the Company completed the sale of 13
additional nursing centers, nine of which had previously been
held for disposition.
<PAGE>
<PAGE>
Nursing Centers
Hillhaven's nursing center operations provide skilled
nursing, residential and rehabilitative care in 288 nursing
centers in 33 states. At May 31, 1994, Hillhaven owned 194 and
leased 78 nursing centers. These nursing centers had a total of
34,162 licensed beds, with individual nursing center capacities
ranging from 42 to 692 beds. In addition, seven nursing centers
are managed for partnerships or joint ventures in which Hillhaven
has an equity interest and nine nursing centers are managed for
NME and other third parties for management fees usually based
upon a percentage of nursing center revenues.
Hillhaven is a leading provider of rehabilitation services,
including physical, occupational and speech therapies.
Rehabilitation services are provided in all of the Company's
nursing centers. The majority of patients in rehabilitation
programs stay for eight weeks or less. Patients in
rehabilitation programs generally provide for higher revenues
than other nursing center patients because they use a higher
level of ancillary services. In addition, management believes
that Hillhaven is one of the leading providers of care for
patients with Alzheimer's disease. At May 31, 1994, the Company
offered treatment in approximately 1,870 beds in 61 nursing
centers for patients suffering from Alzheimer's disease. Many of
these patients reside in separate units within the nursing
centers and are cared for by teams of professionals specializing
in the unique problems experienced by Alzheimer's patients.
Marketing
The factors which affect consumers' selection of a nursing
center vary from community to community and include competition
and a provider's relationships with local referral sources.
Competition creates the standards against which nursing centers
in a given market are judged by various referral sources, which
include physicians, hospital discharge planners, community
organizations and families. Therefore, Hillhaven's marketing
efforts are conducted at the local market level by the nursing
center administrators, admissions coordinators and others.
Nursing center personnel are assisted in carrying out their
marketing strategies by regional marketing staffs. The Company's
marketing efforts are directed toward improving the payor mix at
the nursing centers by increasing the census of private pay
patients, patients covered by managed care contracts and Medicare
patients. To this end, the Company is working to educate the
various referral sources about the value of Hillhaven's nursing
centers as an attractive lower cost alternative to acute care and
rehabilitation hospitals for subacute medical care and specialty
services.
Operations
Each nursing center is managed by a state licensed
administrator who is supported by other professional personnel,
including a director of nursing, staff development professional
(responsible for employee training), activities director,
<PAGE>
<PAGE>
business office manager and, in general, physical, occupational
and speech therapists. The directors of nursing are state
licensed nurses who supervise nursing staffs which include
registered nurses, licensed practical nurses and nursing
assistants. Staff size and composition vary depending on the
size and occupancy of each nursing center and on the level of
care provided by the nursing center. The nursing centers
contract with physicians who serve as medical directors and serve
on quality assurance committees.
The nursing centers are supported by regional staff in the
areas of nursing, dietary and rehabilitation services,
maintenance, human resources, marketing and financial services.
In addition, corporate staff in Tacoma, Washington provide other
services in the areas of marketing assistance, human resource
management, state and federal reimbursement, state licensing and
certification, legal, finance and accounting support. Financial
control is maintained principally through fiscal and accounting
policies established at the corporate level for use at the
nursing centers.
Quality of care is monitored and enhanced by quality
assurance committees, regional quality assurance teams and family
satisfaction surveys. The quality assurance committees oversee
patient health care needs and resident and staff safety.
Additionally, physicians serve on the quality assurance
committees as medical directors and advise on health care
policies and practices. Regional consultants visit each nursing
center periodically to review practices and recommend
improvements where necessary in the level of care provided and to
assure compliance with requirements under applicable Medicare and
Medicaid regulations. Surveys of residents' families are
conducted from time to time in which the families are asked to
rate various aspects of service and the physical condition of the
nursing centers. These surveys are reviewed by nursing center
administrators to help ensure quality care.
Hillhaven provides training programs for nursing center
administrators, managers, nurses and nursing assistants. These
programs are designed to provide career opportunities for
employees and to maintain high levels of quality patient care.
Approximately 99% of the nursing centers are currently
certified to receive benefits provided under Medicare and
Medicaid programs. Medicare is a federal health insurance
program primarily for the elderly. Medicaid is a joint
federal/state program providing medical assistance to the
indigent. A nursing center's qualification to participate in
such programs depends upon many factors, including, among other
things, accommodations, equipment, services, safety, personnel,
physical environmental and adequate policies and procedures.
<PAGE>
<PAGE>
Occupancy Level
The following table sets forth for the periods indicated
data with respect to numbers of owned or leased nursing centers
operated by Hillhaven, numbers of beds and occupancy levels.
(Data with respect to facilities managed by the Company for
partnership and joint ventures in which the Company has an equity
interest and for third parties are not included. See
"Facilities.")
<TABLE>
<CAPTION>
No. of
Operating
Nursing No. of
Fiscal Year Centers Beds Average
Ended May 31, At Year End At Year End Occupancy
<C> <C> <C> <C>
1994 272 34,162 93.4%
1993 284 35,139 93.4
1992 334 41,089 91.6
</TABLE>
Sources of Revenues
Net patient care revenues are derived principally from
Medicare and Medicaid programs and from private pay patients.
Consistent with the nursing home industry generally, changes in
the mix of Hillhaven's patient population among these three
categories significantly affect the profitability of Hillhaven's
operations. Although the level of cost reimbursement for
Medicare patients generally produces the most revenue per patient
day, profitability is reduced by the costs associated with the
higher level of nursing care and other services required by such
patients. The Company believes that private pay patients
generally constitute the most profitable and Medicaid patients
generally constitute the least profitable category.
The table below sets forth certain data for the periods
shown with respect to the payor mix of owned or leased nursing
centers that were operated by Hillhaven. (Data with respect to
facilities managed by the Company for partnerships and joint
ventures in which the Company has an equity interest and for
third parties are not included. See "Facilities.")
<TABLE>
<CAPTION>
Fiscal
Year Medicaid Private and Other Medicare
Ended Patient Net Patient Net Patient Net
May 31, Days Revenues Days Revenues Days Revenues
<C> <C> <C> <C> <C> <C> <C>
1994 66.6% 50.2% 23.4% 26.8% 10.0% 23.0%
1993 68.4 54.8 23.3 26.8 8.3 18.4
1992 68.9 57.3 24.6 28.2 6.5 14.5
</TABLE>
Both governmental and private third-party payors have
employed cost containment measures designed to limit payments
<PAGE>
<PAGE>
made to health care providers such as the Company. Those
measures include the adoption of initial and continuing recipient
eligibility criteria which may limit payment for services, the
adoption of coverage criteria which limit the services that will
be reimbursed and the establishment of payment ceilings which set
the maximum reimbursement that a provider may receive for
services. Furthermore, government reimbursement programs are
subject to statutory and regulatory changes, retroactive rate
adjustments, administrative rulings and government funding
restrictions, all of which may materially increase or decrease
the rate of program payments to the Company for its services.
There can be no assurance that payments under governmental and
private third-party payor programs will remain at levels
comparable to present levels or will be sufficient to cover the
costs allocable to patients eligible for reimbursement pursuant
to such programs. In addition, there can be no assurance that
facilities owned, leased or managed by the Company, or the
provision of services and supplies by the Company, will meet the
requirements for participation in such programs. The Company
could be adversely affected by the continuing efforts of
governmental and private third-party payors to contain the amount
of reimbursement for health care services. In an attempt to
limit the federal budget deficit, there have been, and the
Company expects that there will continue to be, a number of
proposals to limit Medicare and Medicaid reimbursement for health
care services.
Medicare
The Medicare Part A program provides reimbursement for
extended care services furnished to Medicare beneficiaries who
are admitted to skilled nursing centers after at least a three-
day stay in an acute care hospital. Covered services include
supervised nursing care, room and board, social services,
physical and occupational therapies, pharmaceuticals, supplies
and other necessary services provided by skilled nursing centers.
Under the Medicare program, skilled nursing center
reimbursement is based upon actual costs incurred as reported by
each nursing center at the end of each annual reporting period.
Revenues under this program are subject to audit and retroactive
adjustment. Provisions for estimated third-party payor
settlements are provided for in the period the related services
are rendered and are adjusted as final settlements are
determined. To date, these settlements have not resulted in
material adjustments to earnings.
Medicaid
Medicaid is a state-administered program financed by state
funds and matching federal funds. The program provides for
medical assistance to the indigent and certain other eligible
persons. Although administered under broad federal regulations,
states are given flexibility to construct programs and payment
methods consistent with their individual goals. These programs,
therefore, differ from state to state in many respects.
Federal law requires Medicaid programs to pay rates that are
reasonable and adequate to meet the costs incurred by an
<PAGE>
<PAGE>
efficiently and economically operated nursing center providing
quality care and services in conformity with all applicable laws
and regulations. However, despite these federal requirements,
disagreements frequently arise between nursing centers and states
regarding the adequacy of Medicaid payments. In addition, the
Medicaid programs are subject to statutory and regulatory
changes, administrative rulings, interpretations of policy by the
state agencies and certain government funding limitations, all of
which may materially increase or decrease the level of program
payments to nursing centers operated by Hillhaven. Management
believes that, at present, the payments under these programs are
not sufficient on an overall basis to cover the costs of serving
residents participating in these programs. Furthermore, OBRA
mandates an increased emphasis on ensuring quality patient care,
which has resulted in additional expenditures by nursing centers.
There can be no assurance that the payments under these
state programs will remain at levels comparable to current levels
or, in the future, will be sufficient to cover the costs incurred
in serving residents participating in such programs. Hillhaven
provides to eligible individuals Medicaid-covered services
consisting of nursing care, room and board and social services.
In addition, states may at their option cover other services such
as physical, occupational and speech therapies and
pharmaceuticals.
Private Payment and Medicare Patients
Hillhaven seeks private payment and Medicare patients and
has specific marketing and referral programs aimed at enhancing
its private census. In particular, the Company has implemented a
strategy to increase the number of managed care patients.
Private payment patients typically have financial resources
(including insurance coverage) to pay for their monthly services
and therefore do not rely on Medicaid for support. Private
payment billings are sent monthly, with any collection efforts
handled primarily through the nursing centers. Patients either
pay directly or funds are received from family members, insurance
companies, health maintenance organizations or other private
third-party payors.
Competition
Hillhaven's nursing centers compete on a local and regional
basis with other long term care providers. Hillhaven's
competitive position varies from nursing center to nursing center
within the various communities served. Hillhaven believes that
the quality care provided, reputation, location and physical
appearance of its nursing centers and, in the case of private
patients, the rates or charges for services are significant
competitive factors. There is limited, if any, price competition
with respect to Medicare and Medicaid patients, since revenues
received for services provided to such patients are strictly
controlled and based on fixed rates or cost reimbursement
principles.
The long term care industry is divided into a variety of
competitive areas which market similar services. These
competitors include nursing centers, hospitals, extended care
<PAGE>
<PAGE>
centers, retirement housing facilities and communities, home
health agencies and similar institutions. The industry includes
government-owned, church-owned, secular not-for-profit and for-
profit institutions.
Facilities
The following table lists, by state, the number of nursing
centers operated by the Company for its own account as of May 31,
1994. Sixteen nursing centers, accounting for 2,087 beds,
managed at that date for partnerships and joint ventures in which
the Company has an equity interest and for others are not
included in the table.
<TABLE>
<CAPTION>
Leased
From
Licensed Third
Number Beds Owned Parties
<S> <C> <C> <C> <C>
Alabama (1)<F1> 3 447 3 --
Arizona 7 970 5 2
Arkansas 1 174 1 --
California 39 4,140 21 18
Colorado 7 935 2 5
Connecticut (1)<F1> 6 716 6 --
Florida (1)<F1> 10 1,291 8 2
Georgia (1)<F1> 3 370 3 --
Hawaii (1)<F1> 1 60 1 --
Idaho 9 903 7 2
Indiana (1)<F1> 9 1,323 3 6
Kentucky (1)<F1> 15 1,914 12 3
Maine (1)<F1> 11 880 11 --
Massachusetts (1)<F1> 36 4,055 33 3
Minnesota 1 159 1 --
Mississippi (1)<F1> 1 120 -- 1
Montana (1)<F1> 3 456 2 1
Nebraska (1)<F1> 1 157 -- 1
Nevada (1)<F1> 3 312 3 --
New Hampshire (1)<F1> 3 512 3 --
North Carolina (1)<F1> 29 3,241 20 9
Ohio (1)<F1> 11 1,546 7 4
Oklahoma (1)<F1> 1 126 1 --
Oregon (1)<F1> 4 468 2 2
Tennessee (1)<F1> 16 2,652 5 11
Utah 5 620 5 --
Vermont (1)<F1> 1 160 1 --
Virginia (1)<F1> 5 764 4 1
Washington (1)<F1> 13 1,530 10 3
Wisconsin (1)<F1> 14 2,710 10 4
Wyoming (1)<F1> 4 451 4 --
Number of nursing centers 272 194 78
Total number of licensed beds 34,162 24,242 9,920
<FN>
(1)<F1> These states have Certificate of Need regulations. See
"Business - Government Regulation."
</TABLE>
<PAGE>
<PAGE>
In addition to its interests in nursing centers, as
described above, as of May 31, 1994, Hillhaven had 50% interests
in seven partnerships and joint ventures that own nursing centers
managed by Hillhaven with an aggregate of 772 beds in five
states. Hillhaven also manages nine nursing centers owned by NME
and other third parties. These nursing centers are managed by
Hillhaven for varying management fees. The aggregate net
operating revenues received in connection with the management of
these facilities was $5.7 million in fiscal 1994 and $5.5 million
in fiscal 1993.
Pharmacies
Through Medisave, the Company provides institutional and
retail pharmacy services. As of May 31, 1994, Medisave operated
40 institutional pharmacies and 32 retail pharmacies in 19
states. In fiscal 1994, Medisave's net operating revenues were
$176.2 million, representing 12.2% of the Company's net operating
revenues. Medisave's net operating revenues of $179.3 million
accounted for 13.1% of Hillhaven's net operating revenues in
fiscal 1993, compared to 12.0% in fiscal 1992.
The institutional pharmacy division focuses on providing a
full array of pharmacy services to approximately 400 nursing
centers and specialized care centers. Institutional pharmacy
sales encompass a wide variety of products including prescription
medication, prosthetics, respiratory and infusion services and
enteral therapies. In addition, Medisave provides a variety of
pharmaceutical consulting services designed to assist nursing
centers in program administration. The disposition of 50 nursing
centers as part of the restructuring announced in December 1991
has not had a material adverse effect on the results of
operations of the institutional pharmacy division. Institutional
pharmacy operations accounted for approximately 76% of total
pharmacy revenues and approximately 90% of Medisave's operating
profits in fiscal 1994. In fiscal 1993, the comparable figures
were 63% and 80%, respectively.
Medisave's retail pharmacy operations consist of discount
retail pharmacy and optical stores in leased facilities. In 1993
and 1994, the Company terminated leases of 36 retail outlets in
Wal-Mart stores. The leases of the remaining 14 Wal-Mart outlets
were terminated in the 1995 first quarter. The termination of
these leases is not expected to have a material effect on
pharmacy operating income. Retail operations accounted for
approximately 24% of Medisave's total pharmacy revenues and
approximately 10% of its operating profits in fiscal 1994. In
fiscal 1993, the comparable figures were 37% and 20%,
respectively.
<PAGE>
<PAGE>
The following table lists by state the number of pharmacies
operated by Medisave as of May 31, 1994.
<TABLE>
<CAPTION>
State Number
<S> <C>
Arizona 1
California 12
Colorado 1
Florida 3
Idaho 1
Illinois 3
Kansas 6
Louisiana 4
Massachusetts 2
Mississippi 5
Missouri 1
Nevada 2
North Carolina 4
Ohio 2
Tennessee 3
Texas 15
Utah 1
Virginia 3
Wisconsin 3
Total 72
</TABLE>
Retirement Housing Communities
Hillhaven's retirement housing operations consist of 19
retirement housing communities. These centers include 2,622
apartment units and are located in 14 states. Of the total
number of retirement housing centers, 14 are owned by Hillhaven,
one is leased by Hillhaven and four are owned by partnerships in
which Hillhaven has an equity interest. Retirement housing
operations represented approximately 2.3%, 2.0% and 1.7% of
Hillhaven's total net operating revenues for fiscal 1994, 1993
and 1992, respectively.
Retirement housing communities serve more independent and
self-sufficient residents than do the nursing centers. A
retirement housing community consists of studio, one-bedroom and
two-bedroom apartment units. Residents typically receive weekly
housekeeping and linen service, local transportation, 24-hour
emergency call system and daily food service.
Residents are responsible for monthly fees which typically
are paid by the resident or the resident's family members.
Retirement housing operations do not presently qualify for
reimbursement under Medicare, Medicaid or Veterans Administration
health care programs because they do not offer the levels of care
required under such programs. Monthly fees paid by residents are
based upon the resident's apartment size, the number of meals the
resident elects to purchase and the level of personal care
required by the resident.
<PAGE>
<PAGE>
The following table lists, by state, the number of
retirement housing communities operated by the Company as of
May 31, 1994.
<TABLE>
<CAPTION>
Leased
From
Third
State Number Owned(1)<F1> Parties
<S> <C> <C> <C>
Arizona 4 4 -
California 1 1 -
Colorado 1 1 -
Florida 2 2 -
Idaho 1 1 -
Kansas 1 1 -
Massachusetts 2 2 -
Missouri 1 1 -
New Hampshire 1 1 -
Ohio 1 - 1
Oklahoma 1 1 -
Oregon 1 1 -
Utah 1 1 -
Washington 1 1 -
Totals 19 18 1
<FN>
(1)<F1> Includes retirement housing communities owned by
partnerships in which Hillhaven has a limited and/or general
partnership interest that are managed by Hillhaven for such
partnerships.
</TABLE>
Government Regulation
The federal government and all states in which the Company
operates regulate various aspects of the Company's business. In
particular, the development and operation of long term care
facilities and retirement communities and the provision of health
care services are subject to federal, state and local laws
relating to the adequacy of medical care, distribution of
pharmaceuticals, equipment, personnel, operating policies, fire
prevention, rate-setting and compliance with building codes and
environmental laws. Long term care facilities are subject to
periodic inspection by governmental and other authorities to
assure continued compliance with various standards, their
continued licensing under state law, certification under the
Medicare and Medicaid programs and continued participation in the
Veterans Administration program. Retirement communities and
their owners are subject to periodic inspection by governmental
authorities to assure compliance with various standards including
standards relating to the financial condition of the owners of
such communities. The failure to obtain or renew any required
regulatory approvals or licenses could adversely affect the
Company's operations.
<PAGE>
<PAGE>
Effective October 1, 1990, OBRA increased the enforcement
powers of state and federal certification agencies. Additional
sanctions were authorized to correct noncompliance with
regulatory requirements, including fines, temporary suspension of
admission of new patients to nursing centers and, in extreme
circumstances, decertification from participation in the Medicare
or Medicaid programs.
Nursing centers managed and operated by Hillhaven are
licensed either on an annual or bi-annual basis and certified
annually for participation in Medicare and/or Medicaid by the
respective states through various regulatory agencies which
determine compliance with federal, state and local laws. These
legal requirements relate to the quality of the nursing care
provided, the qualifications of the administrative personnel and
nursing staff, the adequacy of the physical plant and equipment
and continuing compliance with the laws and regulations governing
the operation of nursing centers. Hillhaven endeavors to comply
with federal, state and local regulatory requirements for the
maintenance and operation of its nursing centers. From time to
time Hillhaven's nursing centers receive statements of
deficiencies from regulatory agencies. In response, Hillhaven
implements plans of correction with respect to these nursing
centers to address the alleged deficiencies. Hillhaven believes
that its nursing centers are in material compliance with all
applicable regulations or laws.
In certain circumstances, federal law mandates that
conviction of certain abusive or fraudulent behavior with respect
to one health care facility may subject other facilities under
common control or ownership to disqualification for participation
in Medicare and Medicaid programs. In addition, some state
regulations provide that all facilities under common control or
ownership within a state are subject to delicensure if any one or
more of such facilities is delicensed.
In addition to license requirements, many states in which
Hillhaven operates have statutes that require a Certificate of
Need to be obtained prior to the construction of a new nursing
center, the addition of new beds or services or the incurring of
certain capital expenditures. Certain states also require
regulatory approval prior to certain changes in ownership of a
nursing center. A total of eight states in which Hillhaven
operates have eliminated their Certificate of Need programs and a
number of other states are considering alternatives to their
Certificate of Need programs. To the extent that Certificates of
Need or other similar approvals are required for expansion of
Company operations, either through facility acquisitions or
expansion or provision of new services or other changes, such
expansion could be adversely affected by the failure or inability
to obtain the necessary approvals, changes in the standards
applicable to such approvals or possible delays and expenses
associated with obtaining such approvals.
<PAGE>
<PAGE>
Pharmaceutical operations are subject to regulation by the
various states in which the Company conducts its business as well
as by the federal government. The Company's pharmacies are
regulated under the Food, Drug and Cosmetic Act and the
Prescription Drug Marketing Act, which are administered by the
United States Food and Drug Administration. Under the
Comprehensive Drug Abuse Prevention and Control Act of 1970,
which is administered by the United States Drug Enforcement
Administration ("DEA"), dispensers of controlled substances must
register with the DEA, file reports of inventories and
transactions and provide adequate security measures. Failure to
comply with such requirements could result in civil or criminal
penalties.
The Company is also subject to federal and state laws which
govern financial and other arrangements between health care
providers. These laws often prohibit certain direct and indirect
payments or fee-splitting arrangements between health care
providers that are designed to induce or encourage the referral
of patients to, or the recommendation of, a particular provider
for medical products and services. Such laws include the anti-
kickback provisions of the federal Medicare and Medicaid Patients
and Program Protection Act of 1987. These provisions prohibit,
among other things, the offer, payment, solicitation or receipt
of any form of remuneration in return for the referral of
Medicare and Medicaid patients. In addition, some states
restrict certain business relationships between physicians and
pharmacies, and many states prohibit business corporations from
providing, or holding themselves out as a provider of, medical
care. Possible sanctions for violation of any of these
restrictions or prohibitions include loss of licensure or
eligibility to participate in reimbursement programs as well as
civil and criminal penalties. These laws vary from state to
state and have seldom been interpreted by the courts or
regulatory agencies.
Insurance Coverage and Availability
The Company has liability insurance policies providing
insurance coverage which it believes to be adequate. There can
be no assurance, however, that claims in excess of the Company's
insurance coverage or claims not covered by the Company's
coverage will not be asserted against the Company. In addition,
the Company's insurance policies must be renewed annually.
Although the Company has obtained various insurance coverages at
a reasonable cost in the past, there can be no assurance that it
will be able to do so in the future. Although the Company has
had access to other insurance options, through May 31, 1994,
substantially all of the professional and general liability risks
of Hillhaven were insured by a company that is wholly-owned by
NME because it offered more competitive rates. All matters
arising after May 31, 1994 will be insured through the Company's
newly formed captive insurance company, Cornerstone Insurance
Company.
<PAGE>
<PAGE>
Other Real Property
The Company owns unimproved real property with a book value
of approximately $11.4 million at May 31, 1994.
Employees
As of May 31, 1994, Hillhaven employed approximately 38,100
individuals, of whom approximately 25,600 full-time and 9,800
part-time employees work at Hillhaven's nursing centers,
approximately 850 employees work at the corporate and regional
offices, approximately 1,350 employees work in Hillhaven's
pharmacy operations and approximately 500 employees work in the
retirement housing communities. Among its professional staff,
Hillhaven employs approximately 2,900 registered nurses, 4,800
licensed practical nurses and 2,600 licensed therapists.
Hillhaven has 22 collective bargaining agreements covering
approximately 4,500 employees. The Company believes that its
relations with its employees are good.
Executive Officers of the Registrant
Set forth below are the names, ages, titles and present and
past positions of the persons who are executive officers of
Hillhaven.
Name and Age Position and Experience
Bruce L. Busby (50) Chief Executive Officer and
Chairman of the Board. Mr. Busby
has been a director and the Chief
Executive Officer of the Company
since April 1991 and Chairman of
the Company since September 1993.
Before joining the Company,
Mr. Busby served NME as Chief
Executive Officer and President of
the Venture Development Group from
April 1988 to March 1991, Chairman
and Chief Executive Officer of the
Long Term Care Group from August
1986 to March 1988 and President
of the Retail Services Group from
June 1986 to November 1987.
Christopher J. Marker (51) President. Mr. Marker has been a
director and the President of the
Company since December 1989. He
served as President of the
Company's predecessor, an NME
subsidiary, from April 1988 to
January 1990. Prior to that,
Mr. Marker was Executive Vice
President of Westin Hotels and
Resorts from January 1984 to March
1988.
<PAGE>
<PAGE>
Name and Age Position and Experience
Jeffrey M. McKain (43) Executive Vice President.
Mr. McKain has served Hillhaven as
Executive Vice President since
January 1992 and as Senior Vice
President from April 1991 to
January 1992. He served as Senior
Vice President, Operations of
First Healthcare Corporation, a
wholly-owned subsidiary of the
Company, from April 1990 to April
1991 and as Vice President of
Operations of FHC from January
1986 to March 1990.
Robert F. Pacquer (49) Senior Vice President and Chief
Financial Officer. Mr. Pacquer
has served the Company as Senior
Vice President and Chief Financial
Officer since December 1989 and as
Treasurer from that date to March
1992. He served as Senior Vice
President and Chief Financial
Officer of the Company's
predecessor from October 1986 to
January 1990.
Richard P. Adcock (39) Senior Vice President, Secretary
and General Counsel. Mr. Adcock
has served the Company as Senior
Vice President since December 1989
and as Vice President, Secretary
and General Counsel since May
1989. He served as Vice
President, Secretary and General
Counsel of the Company's
predecessor from May 1987 to
January 1990.
Kris Scoumperdis (50) Senior Vice President. Mr.
Scoumperdis has served the Company
as Senior Vice President since
February 1991 and as Vice
President from March 1990 to
January 1991. Before joining the
Company he served as Vice
President, Human Resources of the
Frank Russell Company, a pension
asset consulting firm, from
November 1988 to March 1990, and
as Vice President, Human Resources
and Support Services of Good
Samaritan, Inc., a health care
company, from November 1984 to
October 1988.
<PAGE>
<PAGE>
Name and Age Position and Experience
Carl Napoli (56) Chief Executive Officer, President
and Chief Operating Officer of
Medisave. Mr. Napoli has served
as Chief Executive Officer of
Medisave Pharmacies, Inc. since
July 19, 1994, as President and
Chief Operating Officer since May
1992, and he previously served as
Executive Vice President of
Operations from September 1984 to
May 1992.
Edward L. Hiller (63) Vice President/Acquisitions of
Medisave. Mr. Hiller has served
as Vice President/Acquisitions of
Medisave since July 19, 1994.
Mr. Hiller served as Chief
Executive Officer of Medisave
Pharmacies, Inc. from April 1992
to July 19, 1994 and as President
from July 1975 to March 1992.
Robert K. Schneider (46) Vice President and Treasurer.
Mr. Schneider has served as Vice
President and Treasurer since
April 1992 and as Vice President,
Treasury from August 1990 to April
1992. Before joining Hillhaven,
he served as a Vice President and
Manager of Seafirst Bank from
September 1985 to August 1990.
Michael B. Weitz (44) Vice President of Finance.
Mr. Weitz has served as Vice
President of Finance and principal
accounting officer since April
1992 and as Vice President,
Finance from June 1991 to April
1992. From November 1990 to May
1991, he was a self-employed
independent certified public
accountant. From June 1989 to
October 1990, he served as Vice
President of Finance and Treasurer
of Chemical Processors, Inc., an
environmental company.
<PAGE>
<PAGE>
Item 2. Properties
The response to this item is included in Item 1.
Item 3. Legal Proceedings
There are no material legal proceedings pending to which the
Registrant is a party, or to which any of its property is
subject, nor is such litigation threatened, other than ordinary
routine litigation which is incidental to its business.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year ended May 31, 1994.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
At May 31, 1994, there were approximately 8,700 holders of record
of the Company's common stock. Approximately 33,300 additional
stockholders held shares under beneficial ownership in nominee
name or within clearing house positions of brokerage firms and
banks. The Company's common stock has been listed and traded on
the New York Stock Exchange since November 2, 1993 and was
previously listed and traded on the American Stock Exchange under
the symbol "HIL." The stock prices below are the high and low
sales prices as reported on the composite tape as adjusted to
reflect a one-for-five reverse stock split.
<TABLE>
<CAPTION>
Fiscal 1994 Fiscal 1993
High Low High Low
<S> <C> <C> <C> <C>
First quarter 18-3/4 14-3/8 13-3/4 10-5/8
Second quarter 20-5/16 14-11/16 16-7/8 10
Third quarter 21-3/8 17-7/8 21-7/8 12-13/16
Fourth quarter 22-7/8 18-1/2 17-1/2 13-1/8
</TABLE>
The Company has not paid a common dividend and does not
anticipate declaring a common dividend in the near future.
<PAGE>
<PAGE>
Item 6. Selected Financial Data<TABLE>
The following selected financial data have been derived from the Consolidated Financial Statements
of The Hillhaven Corporation and its subsidiaries ("Hillhaven" or the "Company"). The data set
forth below should be read in conjunction with the Consolidated Financial Statements and related
notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" which follow.
(Dollars in thousands, except share information)
<CAPTION>
4 Months 8 Months
ended ended
Years ended May 31, May 31, Jan. 31,
1994 1993 1992 1991 1990 1990
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net operating revenues $1,448,734 $1,362,830 $1,304,126 $1,241,973 $ 382,755 $ 734,542
Expenses:
Operating and
administrative 1,235,652 1,166,607 1,132,285 1,083,260 331,833 639,762
Interest 52,531 57,451 52,450 40,254 12,630 43,016
Depreciation and
amortization 54,109 53,448 46,594 33,551 10,063 28,400
Rent 52,440 52,537 67,144 97,526 34,543 39,361
Guarantee fees 6,684 9,644 8,336 7,016 2,000 ---
Restructuring (20,225) 5,769 92,529 --- --- ---
Adjustment to carrying
value of properties
previously reported
as discontinued
operations --- --- 20,736 --- --- ---
Net expenses 1,381,191 1,345,456 1,420,074 1,261,607 391,069 750,539
Interest income 13,635 16,006 12,820 17,013 6,309 8,704
Income (loss) from
operations 81,178 33,380 (103,128) (2,621) (2,005) (7,293)
</TABLE>
<PAGE>
<PAGE>
<TABLE><CAPTION> 4 Months 8 Months
ended ended
Years ended May 31, May 31, Jan. 31,
1994 1993 1992 1991 1990 1990
<S> <C> <C> <C> <C> <C> <C>
Income tax (expense)
benefit on income
(loss) from operations (22,653) 7,367 (407) --- (225) 3,132
Reinstatement of
discontinued
operations --- --- 24,743 4,379 2,647 5,785
Extraordinary
charge - early
extinguishment
of debt, net of
income taxes (1,062) (565) --- --- --- ---
Cumulative effect of
change in accounting
for income taxes --- (1,103) --- --- --- ---
Net income (loss) $ 57,463 $ 39,079 $ (78,792) $ 1,758 $ 417 $ 1,624
Net income (loss)
per common share
- primary $2.02 $1.59 $(3.86) $.09 $.02 ---
- fully diluted $1.71 --- --- --- --- ---
Balance Sheet Data:
Working capital $ 36,147 $ 77,870 $ 58,951 $ 77,867 $ 89,956 $ 44,382
Total assets 1,184,000 1,218,237 1,174,595 813,488 679,896 557,482
Long-term debt 577,951 818,248 833,779 442,233 336,836 250,184
Stockholders' equity 361,369 180,226 140,057 181,106 171,464 446,131
</TABLE>
<PAGE>
<PAGE>
<TABLE><CAPTION> 4 Months 8 Months
ended ended
Years ended May 31, May 31, Jan. 31,
1994 1993 1992 1991 1990 1990
<S> <C> <C> <C> <C> <C> <C>
Other Information
(unaudited):
Nursing Centers
(at end of period)
Number of nursing centers 272 284 334 342 343 343
Number of licensed beds 34,162 35,139 41,089 42,239 42,409 42,367
Average occupancy rate
for the year 93.4% 93.4% 91.6% 90.6% 90.4% 90.8%
Nursing centers managed
for others 16 17 17 19 19 18
Pharmacy Outlets 72 83 126 113 116 122
Retirement Housing
Communities 19 21 27 27 24 24
</TABLE>
<PAGE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in thousands)
The following material should be read in conjunction with the
Selected Financial Data and the Consolidated Financial Statements
of the Company and the related notes thereto. All references in
this section to years are to fiscal years of the Company ended
May 31 of such year.
Significant Events
In the 1994 second quarter, Hillhaven completed a
recapitalization plan which improved its balance sheet and
modified its relationship with National Medical Enterprises,
Inc. (NME).
A one-for-five reverse split of the Company's common stock was
effected in the 1994 second quarter.
Also in the second quarter, the Company completed its facility
disposition program and recorded a $21,904 pretax
restructuring credit.
In 1994, Hillhaven realized earnings of $57,463, compared to
$39,079 in 1993 and a net loss of $78,792 in 1992. The 1992
loss included a $90,000 pretax restructuring charge, as
described below.
The Recapitalization
On September 2, 1993, Hillhaven substantially completed a
recapitalization plan (the "Recapitalization") which improved the
Company's balance sheet, extended the maturities of outstanding
indebtedness, increased operating flexibility through the
acquisition of leased facilities, fixed the interest rate on a
portion of its previously floating rate indebtedness and also
modified the relationship between Hillhaven and NME.
The Company's relationship with NME was modified by (i) the
purchase of the remaining 23 nursing centers leased from NME for
$111,800, (ii) the repayment of all existing debt to NME in the
aggregate principal amount of $147,202, (iii) the release of NME
guarantees on approximately $400,000 of debt, (iv) the limitation
of the annual fee payable to NME to 2% of the remaining amount
guaranteed and (v) the amendment of existing agreements to
eliminate obligations of NME to provide additional financing to
the Company. The Recapitalization was financed through (i) the
issuance to NME of $120,000 of payable-in-kind Series D Preferred
Stock, (ii) the incurrence of a $175,000 five-year term loan
under a secured credit facility with a syndicate of banks (the
"Bank Term Loan"), (iii) the issuance of $175,000 of 10-1/8%
Senior Subordinated Notes due 2001, (iv) borrowings of $30,000
<PAGE>
<PAGE>
under an accounts receivable-backed credit facility and (v) the
use of approximately $39,000 of cash. Hillhaven refinanced
third-party debt in the aggregate amount of $266,737 with
proceeds from the Recapitalization. At May 31, 1994, the Bank
Term Loan had a balance of $165,000 bearing interest at 6.1%.
The Recapitalization included a $100,000 letter of credit
facility to be used to provide credit enhancement for and replace
NME guarantees on the Company's industrial revenue bonds, and an
$85,000 revolving bank line of credit. In February 1994, the
letter of credit facility was reduced to $90,000. The
availability of the revolving line of credit allows the Company
to maintain lower cash balances and may facilitate repayments of
higher-rate debt or provide cash for investment or other
corporate purposes. At May 31, 1994, letters of credit
outstanding under the letter of credit facility totalled $69,418
and the revolving bank line of credit had an outstanding balance
of $8,000.
Conclusion of the Disposition Program
On December 5, 1991, Hillhaven announced a restructuring plan
designed to improve its long-term financial strength and
operating performance by disposing of underperforming nursing
centers, restructuring facility leases with NME and selling
$35,000 of Series C Preferred Stock to NME in order to prepay
indebtedness owed to NME. The plan involved the sale or sublease
of 82 nursing centers, which disposition was intended to allow
the Company to concentrate on markets and services that offer
higher profits, as well as to realize reductions in overhead
costs. A pretax restructuring charge of $90,000 was recorded in
the 1992 second quarter ended November 30, 1991, which included
provisions for estimated losses on the disposition of the 82
nursing centers, operating losses of these centers during an
estimated two-year disposition period and other related costs.
As of November 30, 1993, the Company had completed the
disposition of 50 of these nursing centers, as well as three
retirement housing facilities which, prior to March 1, 1992, had
been recorded as discontinued operations. During the 1994 second
quarter, the Company reviewed its asset disposition program.
Because of improvements in reimbursement rates and results of
operations, the Company decided not to pursue the sale of the
remaining nursing centers and a retirement housing facility. In
addition, several parcels of land which had been held for
development have been reclassified to other noncurrent assets.
Accrued loss reserves remaining at September 1, 1993 amounted to
$54,550. Revenues and expenses related to the 32 nursing centers
and other properties previously held for disposition have been
reclassified to ongoing operations in the consolidated statements
of operations for all periods presented. See Note 2 of Notes to
Consolidated Financial Statements. Net assets of these
facilities, less adjustments to asset carrying values and
remaining accrued restructuring costs aggregating $32,646, have
been reclassified from net assets held for disposition to
appropriate balance sheet accounts.
<PAGE>
<PAGE>
On December 31, 1993, the Company sold 13 nursing centers, nine
of which had previously been held for disposition. The sale
resulted in a gain of $5,102, which is included in net operating
revenues.
Results of Operations
Net operating revenues were $1,448,734 in 1994, $1,362,830 in
1993 and $1,304,126 in 1992. Net operating revenues for 1993 and
1992 are not directly comparable because revenues and expenses of
the 50 nursing centers disposed of in connection with the
December 1991 restructuring have been excluded from results of
operations for periods after November 1991. Operating income
before property-related expenses (which are comprised of rent,
depreciation and amortization, interest and guarantee fees) and
restructuring items was $213,082 in 1994 (14.7% of net operating
revenues), an increase of approximately 8.6% from $196,223 in
1993 (14.4% of net operating revenues), which in turn represented
an increase of 14.2% from $171,841 in 1992 (13.2% of net
operating revenues). Net income (loss) was $57,463, $39,079 and
$(78,792) in 1994, 1993 and 1992, respectively. Net income for
1994 includes the $21,904 pretax restructuring credit. The net
loss in 1992 was due largely to the $90,000 pretax restructuring
charge.
The following table identifies the Company's sources of net
operating revenues.
<TABLE>
<CAPTION>
Year ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Percentage of net
operating revenues:
Nursing Centers:
Long term care 61.7% 66.3% 71.7%
Subacute medical and
rehabilitation 21.2 16.5 12.4
Other operating revenues 2.6 2.1 2.2
Total nursing centers 85.5 84.9 86.3
Pharmacies 12.2 13.1 12.0
Retirement Housing 2.3 2.0 1.7
Total 100.0% 100.0% 100.0%
Net patient revenues
per patient day:
Long term care $84.59 $82.05 $76.13
Subacute medical and
rehabilitation $240.87 $215.77 $189.50
Combined $101.38 $93.59 $83.51
Average number of
beds available 34,760 35,356 35,865
Average occupancy 93.4% 93.4% 91.6%
</TABLE>
<PAGE>
<PAGE>
Nursing center net operating revenues, comprised primarily of
patient revenues, increased 7.1% in 1994 to $1,239,317 and 2.7%
in 1993 to $1,156,766 from $1,126,094 in 1992. These increases
were due to the increases in revenues per patient day, offset in
part by the disposition of nursing centers.
Patient revenues are affected by changes in Medicare and
Medicaid reimbursement rates, private pay and other rates
charged by Hillhaven, occupancy levels, the nature of services
provided and the payor mix. Data for nursing center operations
with respect to sources of net patient revenues and patient mix
by payor type are set forth below. Included in private and
other revenues are per diem amounts received from managed care
contracts.
<TABLE>
<CAPTION>
Net Patient Revenues Patient Census
1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Medicaid 50.2% 54.8% 57.3% 66.6% 68.4% 68.9%
Private and other 26.8 26.8 28.2 23.4 23.3 24.6
Medicare 23.0 18.4 14.5 10.0 8.3 6.5
</TABLE>
In 1994 and 1993, Hillhaven received rate increases from
Medicare and Medicaid and increased its private pay rates.
The Company is continuing its strategy of improving its quality
mix of private pay and Medicare patients by expanding its
subacute medical and rehabilitation programs and services.
These higher revenue services include physical, occupational,
speech and respiratory therapy and subacute care services, such
as stroke therapy and wound care. The Company has increased the
number of managed care contracts it maintains with insurance
companies and other payors to provide subacute medical and
rehabilitation care to their insureds, offering a less expensive
alternative to acute care hospitals. The average daily number
of managed care patients in Hillhaven's nursing centers,
including long term care patients, was approximately 435 in 1994
compared to 211 in 1993 and 29 in 1992.
Net operating revenues from pharmacy operations decreased to
$176,178 in 1994 from $179,299 in 1993 and increased from
$156,107 in 1992. Pharmacy operations produced operating income
before property-related expenses of $25,366 in 1994
(14.4% of net operating revenues), an increase of approximately
8.3% from $23,419 (13.1% of net operating revenues) in 1993,
which in turn represented an increase of approximately 5.0% from
$22,307 (14.3% of net operating revenues) in 1992. The decrease
in revenues in 1994 is the result of the disposition of 61
marginally performing retail outlets in 1994 and late 1993.
Institutional revenues, accounting for approximately 76% of
pharmacy net operating revenues in 1994, versus 63% in 1993 and
55% in 1992, increased by 17.9% and 31.9% to $133,988 and
$113,676 in 1994 and 1993, respectively, from $86,189 in 1992.
The growing contribution from institutional operations reflects
the Company's increasing focus on the nursing center market, the
disposition of retail outlets and continuing pricing pressure in
the retail operations. The increase in institutional revenues
<PAGE>
<PAGE>
is due to an increase in the number of nursing center beds
serviced and higher sales volumes per bed. The increase in per
bed sales reflects the Company's strategy of aggressively
marketing higher margin ancillary products and services, such as
respiratory and intravenous therapies and enteral and urological
supplies.
In 1993 and 1994, the Company terminated leases of 36 retail
outlets in Wal-Mart stores. The leases of the remaining 14 Wal-
Mart outlets were terminated in the 1995 first quarter. The
termination of these leases is not expected to have a material
effect on pharmacy operating income.
Net operating revenues from retirement housing operations
increased to $33,239 in 1994 from $26,765 in 1993 and $21,926 in
1992. These increases were primarily due to improvements in
occupancy, which averaged 96.1% in 1994 compared to 92.0% in
1993 and 85.5% in 1992.
Operating and administrative expenses of the Company's nursing
centers increased by 7.1% in 1994 to $1,062,442 and by 1.3% in
1993 to $992,149 from $979,633 in 1992. These increases were
attributable primarily to the expansion of subacute and medical
rehabilitation services, offset in part by the disposition of
nursing centers. Labor and related benefits, which represented
approximately 77% of nursing center operating and administrative
expenses in 1994, increased by 7.2% in 1994 to $820,065 and by
1.8% in 1993 to $765,276. These increases were the result of
general wage rate increases, as well as an increase in the
number of therapists and nurses in the Company's nursing centers
to accommodate the increase in the number of medically complex
patients. Increases in labor and benefit costs in 1994 and 1993
were mitigated by the reduced use of higher-cost contract nurses
and favorable results of workers' compensation loss experience
as actuarially computed.
The increases in the non-labor components of operating and
administrative expenses, including ancillary supplies, reflect
the higher costs associated with caring for higher acuity
patients.
Combined interest and guarantee fee expense decreased by 11.7%
to $59,215 in 1994 due to the refinancing of certain of the
Company's indebtedness. See "The Recapitalization." Property-
related costs in 1993 were impacted by the purchase of
previously leased nursing centers, related increases in debt
(discussed below) and the restructuring of the NME leases. As a
result of the restructuring of the terms of the NME leases,
these leases were recorded as capital leases beginning in
December 1991. This increased both property and long-term debt
by the aggregate fixed option price of $299,500. Primarily as a
result of these transactions, total interest, depreciation and
amortization and guarantee fees increased in 1993 by $13,163 and
rent expense decreased in 1993 by $14,607.
Interest income is earned from notes receivable and invested
cash. Interest income decreased by 14.8% in 1994 to $13,635 due
to lower balances of invested cash and notes receivable.
<PAGE>
<PAGE>
Interest income increased by 24.9% to $16,006 in 1993 as a
result of an increase of $36,338 in notes receivable arising
from the sale of nursing centers.
As a result of the refinancing of certain of the Company's
industrial revenue bond issues, extraordinary charges of $1,062
and $565 (net of income taxes) were reported in 1994 and 1993,
respectively, due to the write-off of previously capitalized
financing costs.
Effective June 1, 1992, Hillhaven adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS 109). Adoption of SFAS 109 resulted in a charge of $1,103
to the 1993 statement of operations. Including the impact of
this charge, the effect of the adoption of SFAS 109 in 1993 was
a reduction of net income tax expense and an increase in net
income of $7,710 as compared to amounts that would have been
reported under APB Opinion No. 11. See Note 7 of Notes to
Consolidated Financial Statements. The Company has recorded net
deferred tax assets of $18,023 at May 31, 1994, the realization
of which is dependent upon future pretax earnings.
Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan" (SFAS 114), establishes
standards to determine in what circumstances a creditor should
measure impairment based on either the present value of expected
future cash flows related to the loan, the market price of the
loan or the fair value of the underlying collateral. SFAS 114
relates to the Company's portfolio of notes receivable. The
Company anticipates that the adoption of SFAS 114 on the
required application date of June 1, 1995 will not have a
material adverse impact on Hillhaven's financial position or
results of operations.
Cash Flows and Financial Condition
Hillhaven believes that it will generate sufficient cash to fund
operations and meet its debt and lease obligations for the
current fiscal year. Cash provided by operations in 1994
totalled $73,526 compared to $65,459 in 1993 and $54,545 in
1992. These increases are due primarily to higher pretax
earnings. Working capital at May 31, 1994 amounted to $36,147
compared to $77,870 and $58,951 at May 31, 1993 and 1992,
respectively. The decrease in working capital in 1994 is due
primarily to a decrease in cash and an increase in the current
portion of long-term debt resulting from the Recapitalization.
At May 31, 1994, Hillhaven had available $117,000 under short-
and long-term revolving lines of credit which allows the Company
to maintain lower levels of cash.
Net cash used in investing activities amounted to $7,777 in 1994
compared to $901 in 1993 and $54,660 in 1992. In connection
with the Recapitalization, the Company expended $14,816 for
financing costs. On December 31, 1993, Hillhaven completed the
sale of 13 nursing centers and received cash for the $15,594
aggregate sales price.
<PAGE>
<PAGE>
In 1993, Hillhaven purchased 62 nursing centers previously
leased from NME for an aggregate purchase price of $179,890.
The purchase was financed with the proceeds from the sale of
$74,750 of 7-3/4% Convertible Subordinated Debentures due 2002
(the "Debentures"), the assumption of underlying debt amounting
to $4,825 and NME financing in the amount of $92,256, with the
balance settled in cash. The Company also acquired seven
previously leased nursing centers from third parties in 1993 for
an aggregate purchase price of $26,791. These transactions were
partially financed by the assumption of underlying debt and
borrowings aggregating $15,095, with the balance settled in
cash. During this same period, the Company disposed of 47
nursing centers and a retirement housing facility for an
aggregate sales price of $59,355. Hillhaven provided financing
for $36,338 of the total sales price and received cash for the
balance. In 1992, the Company acquired 24 previously leased
nursing centers, of which 20 were purchased from NME, for an
aggregate purchase price of $108,951. These transactions were
partially financed by the assumption of underlying debt and
additional borrowings aggregating $76,212.
In 1994, capital expenditures for routine replacements and
refurbishment of facilities and capital additions amounted to
$43,568 compared to $30,526 in 1993 and $30,597 in 1992. The
increase in 1994 is due primarily to the expansion of certain
nursing centers to accommodate the growth in subacute and
medical rehabilitation programs. Capital expenditures of
approximately $50,000 are budgeted for 1995, the majority of
which are anticipated to be funded from cash flow from
operations.
Net cash used in financing activities totalled $89,364 in 1994,
$37,331 in 1993 and $16,310 in 1992. See "The
Recapitalization." In 1993, the Company sold the Debentures,
the proceeds of which were used to purchase certain facilities
leased from NME which had escalating rent provisions. In 1992,
Hillhaven sold its 8-1/4% Series C Preferred Stock in the amount
of $35,000 to NME to repay debt to NME bearing interest at 10%.
The Company repaid an additional $61,800 owed to NME with the
proceeds from its 1991 Performance Investment Plan.
In April 1994, the Company replaced the financing for its
accounts receivable-backed liquidity facility with a revolving
bank line of credit and increased the facility from $30,000 to
$40,000. At May 31, 1994, there were no borrowings outstanding
under this credit facility.
On February 28, 1994, NME exercised its warrants to purchase
6,000,000 shares of Hillhaven common stock. NME tendered shares
of the Company's payable-in-kind Series D Preferred Stock in
payment of the $63,300 purchase price. At May 31, 1994, NME
owned approximately 32.7% of the Company's outstanding common
stock.
<PAGE>
<PAGE>
Legislative Action
On August 10, 1993, the Omnibus Budget Reconciliation Act of
1993 ("OBRA-93") was enacted. OBRA-93 contains certain
provisions which impact Hillhaven's Medicare reimbursement. For
cost report periods beginning after October 1, 1993, a return on
equity has been eliminated as a reimbursable item. For federal
fiscal years 1994 and 1995, there will be no increases in the
limits on reimbursable costs. The Company has and will continue
to file for exceptions based on its costs to care for higher
acuity patients. Hillhaven expects to offset much of these
revenue reductions by containing operating cost increases and
increasing the number of patients under managed care contracts.
In addition, other provisions in OBRA-93 will benefit Hillhaven,
such as the extension of the targeted jobs tax credit.
Management believes that the provisions of OBRA-93, in the
aggregate, will not have a material adverse impact on the future
operations of the Company.
On October 27, 1993, President Clinton submitted the American
Health Security Act of 1993 (the "Health Security Act") to
Congress for consideration. The Health Security Act, which is
designed to guarantee health coverage to all United States
citizens and legal residents and to create regional alliances to
negotiate contracts with qualified health plans, is currently
being studied by the relevant Congressional committees. At the
same time, numerous other health care reform proposals have been
introduced by members of the House of Representatives and the
Senate. These proposals range from the formation of a single
payor system to the creation of health plan purchasing
cooperatives to pool the purchasing power of individuals and
employees of small businesses, or the formation of purchasing
groups to negotiate contracts with health plans and offer them
to individuals. These proposals also differ on the treatment of
long term care services. Health care reform legislation may or
may not be enacted; whether or not any such effect will be
beneficial or adverse to the Company cannot be determined at
this time.
<PAGE>
<PAGE>
Item 8. Financial Statements and Supplementary Data
Financial Statements are contained on pages F-1 through
F-29 of this report and are incorporated hereby by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning the directors of the Registrant is
included on pages 2, 3 and 19 of the definitive Proxy Statement
for the Registrant's 1994 Annual Meeting of Stockholders. The
required information is hereby incorporated by reference.
Similar information regarding executive officers of the
Registrant is set forth in Item 1.
Item 11. Executive Compensation
The response to this item is included on pages 8 through 15
and 19 through 23 of the definitive Proxy Statement for the
Registrant's 1994 Annual Meeting of Stockholders. The required
information is hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The response to this item is included on pages 4, 5 and 25
of the definitive Proxy Statement for the Registrant's 1994
Annual Meeting of Stockholders. The required information is
hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions
The response to this item is included on pages 15 through
19 of the definitive Proxy Statement for the Registrant's 1993
Annual Meeting of Stockholders. The required information is
hereby incorporated by reference.
<PAGE>
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) Documents filed as part of this report:
1. Financial Statements. Page
Independent Auditors' Report F-1
Consolidated Balance Sheets -- F-2
As of May 31, 1994 and 1993
Consolidated Statements of Operations -- F-4
Years Ended May 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows -- F-6
Years Ended May 31, 1994, 1993 and 1992
Consolidated Statements of Changes in
Stockholders' Equity --
Years Ended May 31, 1994, 1993 and 1992 F-8
Notes to Consolidated Financial Statements F-10
Quarterly Financial Summary F-28
2. Financial Statement Schedules.
Schedule V Property and Equipment S-1
Schedule VI Accumulated Depreciation and S-5
Amortization of Property
and Equipment
Schedule VIII Valuation and Qualifying S-6
Accounts
Schedule X Supplementary Income S-8
Statement Information
All other schedules are omitted because they are not
applicable or not required or because the required information
is included in the consolidated financial statements or notes
thereto.
<PAGE>
<PAGE>
3. Exhibits
Exhibit
No. Item/Document
(3) Articles of Incorporation and By-Laws
3.01 Amended and Restated Articles of Incorporation
of Hillhaven (Incorporated by reference to
Exhibit J to Exhibit 2 to the document referred
to in Note 1 below)
3.02 Amended and Restated By-Laws of Hillhaven
(4) Instruments Defining the Rights of Security Holders
4.01 Amended and Restated Articles of Incorporation
of Hillhaven (See Exhibit 3.01)
4.02 Amended and Restated By-Laws of Hillhaven (See
Exhibit 3.02)
4.03 Form of Common Stock Certificate of Hillhaven
(Incorporated by reference to Exhibit 4.3 to
the document referred to in Note 1 below)
4.04 Warrant and Registration Rights Agreement among
Hillhaven, NME and Manufacturers Hanover Trust
Company of California, dated as of January 31,
1990 (Incorporated by reference to Exhibit 4.4
to the document referred to in Note 1 below)
4.05 Rights Agreement between Hillhaven and
Manufacturers Hanover Trust Company of
California, dated as of January 31, 1990
(Incorporated by reference to Exhibit 4.6 to
the document referred to Note 1 below)
4.06 Form of Rights Certificate (Incorporated by
reference to Exhibit A to Exhibit 4.6 to the
document referred to in Note 1 below)
4.07 Agreement concerning purchase by NME Properties
Corp., of Series C Preferred Stock of Hillhaven
and prepayment by First Healthcare Corporation
of indebtedness to NME Properties Corp. dated
at or prior to 11:59 p.m. on November 30, 1991
between NME, NME Properties Corp., Hillhaven
and First Healthcare Corporation (Incorporated
by reference to Exhibit 4(a) to the document
referred to in Note 2 below)
4.08 Certificate of Designation, Preferences and
Rights of Series C Preferred Stock of Hillhaven
(Incorporated by reference to Exhibit 4(b) to
the document referred to in Note 2 below)
<PAGE>
<PAGE>
Exhibit
No. Item/Document
4.09 Certificate of First Amendment to Certificate
of Designation, Preferences and Rights of
Series C Preferred Stock of The Hillhaven
Corporation (Incorporated by reference to
Exhibit 4(b) to the document referred to in
Note 9 below)
4.10 Form of Indenture between Hillhaven and Bankers
Trust Company, as Trustee with respect to the
7-3/4% Convertible Subordinated Debentures Due
2002 (Incorporated by reference to Exhibit 4.14
to the document referred to in Note 4 below)
4.11 Form of 7-3/4% Convertible Subordinated
Debenture Due 2002 (Incorporated by reference
to Exhibit 4.15 to the document referred to in
Note 4 below)
4.12 Form of Indenture between Hillhaven and State
Street Bank and Trust Company, as Trustee with
respect to the 10-1/8% Senior Subordinated
Notes due 2001 (Incorporated by reference to
Exhibit 4.01 to the document referred to in
Note 5 below)
4.13 Form of 10-1/8% Senior Subordinated Note due
2001 (Incorporated by reference to Exhibit 4.02
to the document referred to in Note 5 below)
4.14 Agreement Concerning Purchase by NME Properties
Corp. and Certain Subsidiaries of Series D
Preferred Stock of The Hillhaven Corporation,
dated as of September 1, 1993 among Hillhaven,
First Healthcare Corporation, NME, NME
Properties Corp. and certain subsidiaries of
NME Properties Corp.
4.15 Certificate of Designation, Preferences and
Rights of Series D Preferred Stock of The
Hillhaven Corporation (Incorporated by
reference to Exhibit 4(a) to the document
referred to in Note 9 below)
4.16 Certificate Concerning Reverse Stock Split of
The Hillhaven Corporation (Incorporated by
reference to Exhibit 4(c) to the document
referred to in Note 9 below)
4.17 Credit Agreement dated as of September 2, 1993,
between First Healthcare Corporation, as
lender, and Hillhaven PIP Funding I, Inc., as
borrower (Incorporated by reference to Exhibit
4.07 to the document referred to in Note 8
below)
<PAGE>
<PAGE>
Exhibit
No. Item/Document
4.18 The Hillhaven Corporation 1991 Performance
Investment Plan (Incorporated by reference to
Exhibit 10.24 to the document referred to in
Note 1 below)
4.19 Certificate of Designation, Preferences and
Rights of Series B Convertible Preferred Stock
(Incorporated by reference to Exhibit 4.03 to
the document referred to in Note 8 below)
4.20 Form of Indenture between Hillhaven and
Chemical Bank, as Trustee with respect to the
Convertible Debentures due May 29, 1999
(Incorporated by reference to Exhibit 4.01 to
the document referred to in Note 8 below)
4.21 Form of Convertible Debenture due May 29, 1999
(Incorporated by reference to Exhibit 4.02 to
the document referred to in Note 8 below)
(10) Material Contracts
10.01 Services Agreement between Hillhaven and NME,
dated as of January 31, 1990 (Incorporated by
reference to Exhibit 10.2 to the document
referred to in Note 1 below)
10.02 Tax Sharing Agreement between Hillhaven and
NME, dated as of January 31, 1990 (Incorporated
by reference to Exhibit 10.3 to the document
referred to in Note 1 below)
10.03 Government Programs Agreement between Hillhaven
and NME, dated January 31, 1990 (Incorporated
by reference to Exhibit 10.4 to the document
referred to in Note 1 below)
10.04 Insurance Agreement between Hillhaven and NME,
dated as of January 31, 1990 (Incorporated by
reference to Exhibit 10.5 to the document
referred to in Note 1 below)
*10.05 Employee and Employee Benefits Agreement
between Hillhaven and NME, dated as of
January 31, 1990 (Incorporated by reference to
Exhibit 10.6 to the document referred to in
Note 1 below)
*10.06 Resignation Agreement and General Release
between Hillhaven and Richard K. Eamer, dated
as of September 15, 1993
*10.07 Employment Agreement between Hillhaven and
Leonard Cohen, dated as of January 31, 1990
(Incorporated by reference to Exhibit 10.21 to
the document referred to in Note 1 below)
<PAGE>
<PAGE>
Exhibit
No. Item/Document
*10.08 Amendment No. One to Employment Agreement
between Hillhaven and Leonard Cohen, dated as
of May 31, 1994
*10.09 Severance Agreement among Hillhaven, NME and
Christopher J. Marker, dated as of January 31,
1990 (Incorporated by reference to Exhibit
10.23 to the document referred to in Note 1
below)
*10.10 Severance Agreement between Hillhaven and
Christopher J. Marker, dated as of May 24, 1994
*10.11 Form of Severance Agreement between Hillhaven
and certain of its officers
10.12 Form of Indemnification Agreement between
Hillhaven and certain of its executive officers
(Incorporated by reference to Exhibit 4.8 to
the document referred to in Note 1 below)
*10.13 Hillhaven Directors' Stock Option Plan
(Incorporated by reference to Exhibit 10.18 to
the document referred to in Note 1 below)
*10.14 The Hillhaven Corporation Board of Directors
Retirement Plan
*10.15 Hillhaven Deferred Savings Plan (Incorporated
by reference to Exhibit 10.11 to the document
referred to in Note 1 below)
*10.16 Hillhaven 1990 Stock Incentive Plan
(Incorporated by reference to Exhibit 10.12 to
the document referred to in Note 1 below)
*10.17 Hillhaven Annual Incentive Plan (Incorporated
by reference to Exhibit 10.13 to the document
referred to in Note 1 below)
*10.18 Hillhaven Long Term Incentive Plan
(Incorporated by reference to Exhibit 10.14 to
the document referred to in Note 1 below)
*10.19 Hillhaven Deferred Compensation Master Plan
(Incorporated by reference to Exhibit 10.15 to
the document referred to in Note 1 below)
*10.20 Hillhaven Senior Management Deferred
Compensation Plan (Incorporated by reference to
Exhibit 10.16 to the document referred to in
Note 1 below)
<PAGE>
<PAGE>
Exhibit
No. Item/Document
*10.21 First Restatement of the Hillhaven Supplemental
Executive Retirement Plan
*10.22 Hillhaven Individual Retirement Annuity Plan
(Incorporated by reference to Exhibit 10.19 to
the document referred to in Note 1 below)
10.23 Form of Assignment and Assumption of Lease
Agreement between Hillhaven and certain
subsidiaries, on the one hand, and NME and
certain subsidiaries on the other hand,
together with the related Guaranty by
Hillhaven, dated on or prior to January 31,
1990 (Incorporated by reference to Exhibit 10.7
to the document referred to in Note 1 below)
10.24 Form of Management Agreement between First
Healthcare Corporation and certain NME
subsidiaries, dated on or prior to January 31,
1990 (Incorporated by reference to Exhibit
10.10 to the document referred to in Note 1
below)
10.25 Reorganization and Distribution Agreement
between Hillhaven and NME, dated as of
January 8, 1990, as amended on January 30, 1990
(Incorporated by reference to Exhibit 2.01 to
the document referred to in Note 1 below)
10.26 Guarantee Reimbursement Agreement between
Hillhaven and NME, dated as of January 31, 1990
(Incorporated by reference to Exhibit 10.8 to
the document referred to in Note 1 below)
10.27 First Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of October 30, 1990
10.28 First Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of May 30, 1991 (Incorporated by reference to
Exhibit 10.45 to the document referred to in
Note 3 below)
10.29 Second Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of October 2, 1991 (Incorporated by reference
to Exhibit 10.46 to the document referred to in
Note 3 below)
<PAGE>
<PAGE>
Exhibit
No. Item/Document
10.30 Third Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of April 1, 1992 (Incorporated by reference to
Exhibit 10.47 to the document referred to in
Note 3 below)
10.31 Fourth Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of November 12, 1992 (Incorporated by reference
to Exhibit 10.13 to the document referred to in
Note 6 below)
10.32 Fifth Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of February 19, 1993 (Incorporated by
reference to Exhibit 10.14 to the document
referred to in Note 6 below)
10.33 Sixth Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of May 28, 1993 (Incorporated by reference to
Exhibit 10.15 to the document referred to in
Note 6 below)
10.34 Seventh Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of May 28, 1993
10.35 Eighth Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of September 2, 1993
10.36 Amended and Restated Loan Agreement among
Hillhaven, New Pond Village Associates and
BayBank of Boston, N.A., dated as of August 25,
1989 and effective November 1, 1991
(Incorporated by reference to Exhibit 10.52 to
the document referred to in Note 3 below)
10.37 Facility Purchase and Sale Agreements, each
dated as of February 12, 1992, between First
Healthcare Corporation and Zevco Enterprises,
Inc. for the four nursing centers in Houston,
Texas (Incorporated by reference to Exhibit
10.41 to the document referred to in Note 3
below)
10.38 Facility Agreement among First Healthcare
Corporation and Certain Limited Partnerships,
dated as of April 23, 1992 relating to the sale
of 32 nursing centers (Incorporated by
reference to Exhibit 10.42 to the document
referred to in Note 3 below)
<PAGE>
<PAGE>
Exhibit
No. Item/Document
10.39 First Amendment to Facility Agreement among
First Healthcare Corporation and Certain
Limited Partnerships, dated as of July 31, 1992
relating to the sale of 32 nursing centers
(Incorporated by reference to Exhibit 10.43 to
the document referred to in Note 3 below)
10.40 Letter Agreement dated July 14, 1992,
concerning acquisition by Hillhaven from NME of
26 nursing centers and two adjacent retirement
housing communities (Incorporated by reference
to Exhibit 10.49 to the document referred to in
Note 3 below)
10.41 Letter Agreement dated August 4, 1992, between
Hillhaven and NME, amending the July 14, 1992
letter agreement concerning acquisition by
Hillhaven from NME of 26 nursing centers and
two adjacent retirement communities
(Incorporated by reference to Exhibit 10.50 to
the document referred to in Note 3 below)
10.42 Letter Agreement dated October 14, 1992,
between Hillhaven and NME, amending the
July 14, 1992 letter concerning acquisition by
Hillhaven from NME of 34 nursing centers and
two adjacent retirement housing communities
(Incorporated by reference to Exhibit 10.58 to
the document referred to in Note 6 below)
10.43 Purchase and Sale Agreement and Escrow
Instructions between First Healthcare
Corporation and certain NME subsidiaries, dated
as of November 4, 1992 relating to the
acquisition of 24 nursing centers (Incorporated
by reference to Exhibit 10.59 to the document
referred to in Note 6 below)
10.44 Purchase and Sale Agreement and Escrow
Instructions between First Healthcare
Corporation and certain NME subsidiaries, dated
as of February 1, 1993, relating to the
acquisition of 17 nursing centers (Incorporated
by reference to Exhibit 10.60 to the document
referred to in Note 6 below)
10.45 Facility Purchase and Sale Agreement, each
dated April 1, 1993, between First Healthcare
Corporation and Zevco Enterprises, Inc., an
Illinois corporation, relating to the sale of
13 nursing centers (Incorporated by reference
to Exhibit 10.61 to the document referred to in
Note 6 below)
<PAGE>
<PAGE>
Exhibit
No. Item/Document
10.46 Purchase and Sale Agreement and Escrow
Instructions between First Healthcare
Corporation and certain NME subsidiaries, dated
as of May 20, 1993 relating to the acquisition
of 11 nursing centers (Incorporated by
reference to Exhibit 10.62 to the document
referred to in Note 6 below)
10.47 Letter of Intent dated June 22, 1993 between
Hillhaven and NME (Incorporated by reference to
Exhibit 10.63 to the document referred to in
Note 6 below)
10.48 Credit Agreement dated as of September 1, 1993
among First Healthcare Corporation, The
Hillhaven Corporation, the Banks referred to
therein, the LC Issuing Banks referred to
therein, Morgan Guaranty Trust Company of New
York, Chemical Bank and J. P. Morgan Delaware
(Incorporated by reference to Exhibit B to the
document referred to in Note 7 below)
10.49 Amendment No. 1 to Credit Agreement, dated as
of October 12, 1993, among First Healthcare
Corporation, The Hillhaven Corporation, the
Banks referred to therein, the LC Issuing Banks
referred to therein, Morgan Guaranty Trust
Company of New York, Chemical Bank and J. P.
Morgan Delaware
10.50 Amendment No. 2 to Credit Agreement, dated as
of December 30, 1993, among First Healthcare
Corporation, The Hillhaven Corporation, the
Banks referred to therein, the LC Issuing Banks
referred to therein, Morgan Guaranty Trust
Company of New York, Chemical Bank and J. P.
Morgan Delaware
10.51 Amendment No. 3 to Credit Agreement, dated as
of May 27, 1994, among First Healthcare
Corporation, The Hillhaven Corporation, the
Banks referred to therein, the LC Issuing Banks
referred to therein, Morgan Guaranty Trust
Company of New York, Chemical Bank and J. P.
Morgan Delaware
10.52 Agreement and Waiver, dated as of September 2,
1993, by and among Hillhaven, First Healthcare
Corporation, NME and certain NME subsidiaries
<PAGE>
<PAGE>
Exhibit
No. Item/Document
10.53 Novation Agreement among Hillhaven Funding
Corporation, Banque Indosuez, New York Branch,
Banque Nationale de Paris, San Francisco
Agency, Bank of America National Trust and
Savings Association and Seattle-First National
Bank, dated as of April 29, 1994
10.54 Amended and Restated Master Sale and Servicing
Agreement among Hillhaven Funding Corporation,
Hillhaven and certain Hillhaven subsidiaries,
dated as of April 29, 1994
10.55 Amended and Restated Liquidity Agreement
between Hillhaven Funding Corporation, Bank of
America National Trust and Savings Association
and Seattle-First National Bank dated as of
April 29, 1994
(11) Computation of Per Share Earnings
11.01 Statement re: Computation of Per Share Earnings
(21) Subsidiaries
21.01 Subsidiaries of the Registrant
(23) Consent of Experts and Counsel
23.01 Consent of Independent Accountants, KPMG Peat
Marwick LLP
<PAGE>
<PAGE>
Note
Reference Document
1. Quarterly Report on Form 10-Q for the quarter ended
November 30, 1989, as amended.
2. Quarterly Report on Form 10-Q for the quarter ended
November 30, 1991, as amended.
3. Annual Report on Form 10-K for the year ended May 31,
1992, as amended.
4. Registration Statement on Form S-1 (File No. 33-48755).
5. Registration Statement on Form S-3 (File No. 33-65718).
6. Annual Report on Form 10-K for the year ended May 31,
1993.
7. Current Report on Form 8-K dated September 2, 1993.
8. Registration Statement on Form S-3 (File No. 33-50833).
9. Quarterly Report on Form 10-Q for the quarter ended
November 30, 1993.
___________________
* Management contracts and compensatory plans or
arrangements required to be filed as an Exhibit to comply
with Item 14(a)(3).
(b) Reports filed on Form 8-K:
None
<PAGE>
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
THE HILLHAVEN CORPORATION
By: /s/ Bruce L. Busby
Bruce L. Busby
Chief Executive Officer
Date: August 17, 1994
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature Title Date
/s/ Bruce L. Busby Chief Executive August 17, 1994
Bruce L. Busby Officer, Chairman
of the Board and
Director
/s/ Robert F. Pacquer Senior Vice President August 17, 1994
Robert F. Pacquer and Chief Financial
Officer (principal
financial officer)
/s/ Michael B. Weitz
Michael B. Weitz Vice President and August 17, 1994
Principal Accounting
Officer
/s/ Christopher J. Marker President and August 17, 1994
Christopher J. Marker Director
/s/ Maris Andersons Director August 17, 1994
Maris Andersons
/s/ Walter F. Beran Director August 17, 1994
Walter F. Beran
/s/ Leonard Cohen Director August 17, 1994
Leonard Cohen
/s/ Peter de Wetter Director August 17, 1994
Peter de Wetter
/s/ Dinah Nemeroff Director August 17, 1994
Dinah Nemeroff
/s/ Jack O. Vance Director August 17, 1994
Jack O. Vance
<PAGE>
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
The Hillhaven Corporation:
We have audited the accompanying consolidated balance sheets of
The Hillhaven Corporation and subsidiaries (Hillhaven) as of May
31, 1994 and 1993, and the related consolidated statements of
operations, cash flows and changes in stockholders' equity for
each of the years in the three-year period ended May 31, 1994.
In connection with our audits of the consolidated financial
statements, we also have audited the financial statement
schedules as listed in the index on page 34 of this annual
report. These consolidated financial statements and financial
statement schedules are the responsibility of the management of
Hillhaven. Our responsibility is to express an opinion on these
consolidated 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 aforementioned consolidated financial
statements present fairly, in all material respects, the
financial position of The Hillhaven Corporation and subsidiaries
as of May 31, 1994 and 1993 and the results of their operations
and their cash flows for each of the years in the three-year
period ended May 31, 1994 in conformity with generally accepted
accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth
therein.
As discussed in Note 7 to the consolidated financial statements,
effective June 1, 1992 the Company changed its method of
providing for income taxes by adopting Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
KPMG PEAT MARWICK LLP
Seattle, Washington
July 8, 1994
<PAGE>
<PAGE>
<TABLE>
Consolidated Balance Sheets
(In thousands)
<CAPTION>
May 31,
1994 1993
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 49,544 $ 73,159
Accounts and notes receivable, less
allowance for doubtful accounts
of $10,005 and $8,700 in 1994
and 1993 147,956 131,383
Inventories 20,202 21,527
Prepaid expenses and other current
assets 34,527 29,078
Total current assets 252,229 255,147
Long-term notes receivable, less
allowance for doubtful accounts
of $14,608 and $11,386 in
1994 and 1993 84,944 112,506
Property and equipment, net 783,259 766,998
Net assets held for disposition --- 29,122
Intangible assets, net of accumulated
amortization of $19,336 and
$16,128 in 1994 and 1993 31,331 20,305
Other noncurrent assets, net 32,237 34,159
$1,184,000 $ 1,218,237
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Consolidated Balance Sheets
(In thousands, except share information)
<CAPTION>
May 31,
1994 1993
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 43,427 $ 18,835
Accounts payable 63,929 61,423
Employee compensation and benefits 52,444 54,370
Other accrued liabilities 56,282 42,649
Total current liabilities 216,082 177,277
Debt payable to NME, a related company --- 147,160
Other long-term debt 577,951 671,088
Other long-term liabilities 28,598 42,486
Commitments and contingencies
Stockholders' equity:
Series C Preferred Stock, $0.15 par
value; 35,000 shares authorized,
issued and outstanding in 1994
and 1993(liquidation preference
of $35,000) 5 5
Series D Preferred Stock, $0.15 par
value; 300,000 shares authorized;
60,546 issued and outstanding
(liquidation preference
of $60,546) 9 ---
Common stock, $0.75 par value;
authorized 60,000,000 shares;
27,172,694 and 20,978,862
issued and outstanding in
1994 and 1993 20,380 15,734
Additional paid-in capital 330,472 208,157
Retained earnings (accumulated
deficit) 13,714 (37,538)
Unearned compensation (3,211) (6,132)
Total stockholders' equity 361,369 180,226
$1,184,000 $ 1,218,237
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements Of Operations
(In thousands)
<CAPTION>
Years ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Net operating revenues $1,448,734 $ 1,362,830 $1,304,126
Expenses:
Operating and administrative 1,235,652 1,166,607 1,132,285
Interest 52,531 57,451 52,450
Depreciation and amortization 54,109 53,448 46,594
Rent 52,440 52,537 67,144
Guarantee fees 6,684 9,644 8,336
Restructuring (20,225) 5,769 92,529
Adjustment to carrying value
of properties previously
reported as discontinued
operations --- --- 20,736
Net expenses 1,381,191 1,345,456 1,420,074
Income (loss) from operations 67,543 17,374 (115,948)
Interest income 13,635 16,006 12,820
Income (loss) before income taxes,
reinstatement of discontinued
operations, extraordinary
charge and cumulative effect
of accounting change 81,178 33,380 (103,128)
Income tax (expense) benefit (22,653) 7,367 (407)
Income (loss) before reinstatement
of discontinued operations,
extraordinary charge and
cumulative effect of
accounting change 58,525 40,747 (103,535)
Reinstatement of discontinued
operations --- --- 24,743
Income (loss) before extraordinary
charge and cumulative effect of
accounting change 58,525 40,747 (78,792)
Extraordinary charge - early
extinguishment of debt, net
of income taxes (1,062) (565) ---
Cumulative effect of change in
accounting for income taxes --- (1,103) ---
Net income (loss) $ 57,463 $ 39,079 $ (78,792)
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements Of Operations
<CAPTION>
Years ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Primary income (loss) per
common share:
Income (loss) from operations $2.06 $1.66 $(3.86)
Extraordinary charge (.04) (.02) ---
Cumulative effect of change
in accounting for income
taxes --- (.05) ---
Net income (loss) per share $2.02 $1.59 $(3.86)
Fully diluted income per
common share:
Income (loss) from operations $1.74 --- ---
Extraordinary charge (.03) --- ---
Net income per share $1.71 N/A N/A
Weighted average common shares and
equivalents outstanding:
Primary 24,689,959 23,132,103 20,811,243
Fully diluted 33,064,288 N/A N/A
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements Of Cash Flows
(In thousands)
<CAPTION>
Years ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) $ 57,463 $ 39,079 $ (78,792)
Adjustments to reconcile net
income (loss) to net cash
provided by operations:
Restructuring charges (credits) (21,904) --- 90,000
Adjustment to carrying value
of properties previously
reported as discontinued
operations --- --- 20,736
Reinstatement of discontinued
operations --- --- (21,127)
Cumulative effect of change in
accounting for income taxes --- 1,103 ---
Depreciation and amortization 54,109 53,448 46,594
Provision for losses on
accounts and notes
receivable 8,094 4,029 5,962
Gain on sales of property
and equipment (9,224) (841) (1,762)
Deferred income taxes 7,967 (13,734) (5,792)
Amortization of unearned stock
compensation 3,627 3,442 3,928
Changes in net assets of
discontinued operations --- --- (2,544)
Other charges and credits, net (9,584) (10,632) (749)
Changes in operating
assets and liabilities, net
of acquisitions and
dispositions:
Accounts and notes
receivable (21,440) (6,659) (7,642)
Inventories 174 (628) (1,271)
Prepaid expenses and
other current assets (824) (2,984) 701
Accounts payable 2,494 (3,410) 914
Other accrued liabilities 2,574 3,246 5,389
Net cash provided by operating
activities 73,526 65,459 54,545
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements Of Cash Flows
(In thousands)
<CAPTION>
Years ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from investing
activities:
Purchases of property and
equipment (43,568) (30,526) (30,597)
Purchase of previously leased
nursing centers (1,667) (14,444) (30,596)
Proceeds from sales of property
and equipment 15,877 22,330 7,686
Proceeds from collection of
notes receivable 21,983 22,480 5,725
(Investments in) distributions
from joint ventures and
partnerships 2,048 4,092 (1,661)
Increase in other assets (2,450) (4,833) (5,217)
Net cash used in investing
activities (7,777) (901) (54,660)
Cash flows from financing
activities:
Net increase (decrease) in
borrowings under
revolving lines of
credit 8,000 (13,000) (21,952)
Proceeds from sale of
preferred stock 63,399 --- 35,000
Preferred stock dividends (2,888) (2,888) (722)
Proceeds from long-term
debt 363,525 95,140 158,000
Payments of principal on
long-term debt (506,590) (114,266) (183,572)
Proceeds from exercise of
stock options 587 246 301
Increase in intangible assets (15,127) (4,084) (1,884)
Other, net (270) 1,521 (1,481)
Net cash used in financing
activities (89,364) (37,331) (16,310)
Increase (decrease) in cash (23,615) 27,227 (16,425)
Cash and cash equivalents at
beginning of period 73,159 45,932 62,357
Cash and cash equivalents
at end of period $ 49,544 $ 73,159 $ 45,932
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements Of Changes In Stockholders' Equity
(In thousands, except share information)
<CAPTION>
Years Ended May 31, 1994, 1993 and 1992
Retained
Additional Earnings Unearned
Preferred Common Paid-In (Accumulated Stock
Stock Stock Capital Deficit) Compensation
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1991 --- $ 15,590 $ 174,056 $ 2,175 $(10,715)
Net loss --- --- --- (78,792) ---
Issuance of
preferred stock $ 5 --- 34,995 --- ---
Restricted share
awards, net
of forfeitures --- 32 710 --- (742)
Stock options
exercised --- 41 218 --- ---
Preferred stock
dividends
($41.25 per share) --- --- (1,444) --- ---
Amortization of
unearned stock
compensation --- --- --- --- 3,928
Balance, May 31, 1992 5 15,663 208,535 (76,617) (7,529)
Net income --- --- --- 39,079 ---
Restricted share
awards, net of
forfeitures --- 34 1,104 --- (1,138)
Performance shares --- --- 907 --- (907)
Stock options
exercised --- 37 209 --- ---
Preferred stock
dividends
($82.50 per share) --- --- (2,888) --- ---
Amortization of
unearned stock
compensation --- --- --- --- 3,442
Tax benefit
associated
with exercise
of stock options --- --- 290 --- ---
Balance, May 31, 1993 5 15,734 208,157 (37,538) (6,132)
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements Of Changes In Stockholders' Equity
(In thousands, except share information)
<CAPTION>
Years Ended May 31, 1994, 1993 and 1992
Retained
Additional Earnings Unearned
Preferred Common Paid-In (Accumulated Stock
Stock Stock Capital Deficit) Compensation
<S> <C> <C> <C> <C> <C>
Net income --- --- --- 57,463 ---
Issuance of
preferred stock 18 --- 119,982 --- ---
Preferred stock
tendered to
exercise stock
purchase warrants,
net (10) 4,500 (4,490) --- ---
Conversion of
debentures --- 86 1,809 --- ---
Restricted share
awards, net of
forfeitures --- (12) (188) --- 200
Performance shares --- --- 906 --- (906)
Stock options
exercised --- 73 514 --- ---
Preferred stock
dividends ($82.50
per share) --- --- (1,444) (1,444) ---
Fractional shares
repurchased --- (1) (17) --- ---
Amortization of
unearned stock
compensation --- --- --- --- 3,627
Tax benefit
associated with
exercise of
stock options --- --- 477 --- ---
Preferred
stock dividends-
in-kind 1 --- 4,766 (4,767) ---
Balance,
May 31, 1994 $14 $ 20,380 $ 330,472 $ 13,714 $ (3,211)
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
The Hillhaven Corporation And Subsidiaries
Notes To Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
1. Significant Accounting Policies
Basis of Presentation. The consolidated financial statements
include the accounts of The Hillhaven Corporation and its wholly-
owned subsidiaries ("Hillhaven" or the "Company"). Significant
intercompany transactions and balances have been eliminated.
The Company completed its facility disposition program in the
quarter ended November 30, 1993 (Note 2). Revenues and expenses
related to facilities remaining at the end of the disposition
period have been reclassified to ongoing operations in the
consolidated statements of operations for periods after December
1, 1991. In addition, certain other reclassifications of prior
years' amounts have been made to conform to 1994 classifications.
Net Operating Revenues. Revenues are recognized when services
are provided and products are delivered.
Net operating revenues consist primarily of patient care revenues
which are reported at the net amounts realizable from residents,
third-party payors and others for services provided. A provision
for estimated uncollectible patient accounts and notes receivable
is included in operating and administrative expenses and was
$8,094, $4,029 and $5,962 for the years ended May 31, 1994, 1993
and 1992, respectively.
Approximately 73%, 73% and 72% of net patient care revenues for
the years ended May 31, 1994, 1993 and 1992, respectively, are
from participation of the nursing centers in Medicare and
Medicaid programs. Revenues under these programs are subject to
audit and retroactive adjustment. Provisions for estimated
third-party payor settlements are provided in the period the
related services are rendered and are adjusted as final
settlements are determined. Accounts receivable from Medicare
and Medicaid amounted to $16,189 and $64,022, respectively, at
May 31, 1994, and $15,520 and $63,006, respectively, at May 31,
1993.
Net operating revenues also include revenues from pharmacy
operations of $176,178, $179,299 and $156,107 for the years ended
May 31, 1994, 1993 and 1992, respectively.
<PAGE>
<PAGE>
Inventories. Inventories, which are stated at the lower of cost
(first-in, first-out) or market, are comprised of the following:
<TABLE>
<CAPTION>
May 31,
1994 1993
<S> <C> <C>
Pharmaceutical products $12,371 $13,023
Nursing center supplies 7,831 8,504
$20,202 $21,527
</TABLE>
Property and Equipment. Owned land, buildings, leasehold
improvements and equipment are stated at cost. Capitalized
leases are stated at the lower of the present value of minimum
lease payments or fair value at the inception of the lease.
Depreciation and amortization are computed using the straight-
line method over the useful lives of the assets, estimated as
follows: buildings, 20-45 years; leasehold improvements and
certain capitalized leases, over the lesser of the estimated
useful life or the lease term; and equipment, 5-10 years.
Fair Value of Financial Instruments. Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments", requires that Hillhaven disclose
estimated fair values for its financial instruments. The
estimated fair values have been determined by the Company using
available market information and appropriate valuation
methodologies. Because no market exists for a significant
portion of Hillhaven's financial instruments, considerable
judgment is necessarily required in interpreting the data to
develop the estimates of fair value. The use of different market
assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
The carrying amounts of cash equivalents, accounts receivable and
accounts payable approximate fair value because of the short
maturity of these instruments. The fair value estimates for
notes receivable (Note 3) and long-term debt (Note 6) are based
on information available to the Company as of May 31, 1994.
Intangible Assets. Costs incurred in obtaining long-term
financing are amortized over the terms of the related
indebtedness, primarily using the straight-line method. Costs
related to the acquisition of leases are amortized using the
straight-line method over the lease term.
Hillhaven recorded extraordinary charges of $1,543 ($1,062 net of
tax) and $743 ($565 net of tax) for the years ended May 31, 1994
and 1993, respectively, primarily in connection with the early
retirement of industrial revenue bonds which were refinanced.
Income (Loss) Per Share. Primary income (loss) per share is
calculated by dividing net income (loss), after deducting
dividends on preferred stock, by the weighted average number of
common shares and equivalents outstanding for the period. Common
stock equivalents are stock purchase warrants and employee stock
<PAGE>
<PAGE>
options. Fully diluted income per share further assumes
conversion of the Company's convertible debentures. Conversion
of the debentures was not assumed for the 1993 calculation
because the exercise prices of the debentures exceeded the market
price at May 31, 1993. Common stock equivalents were not
included in the 1992 calculation of loss per share as their
effect was anti-dilutive. All share and per share data have been
restated for a one-for-five reverse stock split effective
November 1, 1993.
Cash Equivalents. Highly liquid investments with maturities of
three months or less at the date of acquisition are considered
cash equivalents. Interest earned on these investments amounted
to $1,027, $911 and $1,024 for the years ended May 31, 1994, 1993
and 1992, respectively.
2. Restructuring Plan
On December 5, 1991, Hillhaven announced a restructuring plan
designed to improve its long-term financial strength and
operating performance. The plan included the disposition of 82
nursing centers over an estimated 24-month period. In the second
quarter of fiscal 1992, the Company recorded a $90,000 pretax
charge, comprised of $25,700 for the projected losses from
operations of the 82 nursing centers during the disposition
period and $64,300 for estimated losses from the dispositions.
Also as part of the restructuring, Hillhaven exercised options to
purchase nine nursing centers leased from National Medical
Enterprises, Inc. (NME), modified terms of the remaining leases
with NME and sold preferred stock to NME in the amount of
$35,000, the proceeds of which were used to prepay debt owed to
NME (Note 8).
As of November 30, 1993, the Company had completed the
disposition of 50 of these nursing centers, as well as three
retirement housing facilities which, prior to March 1, 1992, had
been recorded as discontinued operations. During the three
months ended November 30, 1993, the Company reviewed its asset
disposition program. Because of improvements in reimbursement
rates and results of operations, the Company decided not to
pursue the sales of the remaining nursing centers and a
retirement housing facility. In addition, several parcels of
land which had been held for development have been reclassified
to other noncurrent assets. Assets related to the Company's
restructuring program were as follows:
<TABLE>
<CAPTION>
September 1,
1993 May 31,
(Unaudited) 1993
<S> <C> <C>
Assets $ 85,183 $ 85,768
Restructuring reserve (54,550) (56,646)
Net assets $ 30,633 $ 29,122
</TABLE>
<PAGE>
<PAGE>
Accrued loss reserves remaining at the date of reinstatement were
comprised of $17,668 for losses from operations and $36,882 for
estimated future losses on sale. Pretax losses charged to the
reserve were as follows:
<TABLE>
<CAPTION>
Three months
ended Year Six months ended
August 31, ended May 31,
1993 May 31, 1992
(Unaudited) 1993 (Unaudited)
<S> <C> <C> <C>
Loss from operations $ 235 $ 5,418 $4,263
Loss on
dispositions 1,861 41,010 3,790
$2,096 $46,428 $8,053
</TABLE>
Revenues and expenses related to the 32 nursing centers and other
properties previously held for disposition have been reclassified
to ongoing operations in the consolidated statements of
operations for all periods presented. Total revenues and
expenses of these facilities were as follows:
<TABLE>
<CAPTION>
Three months
ended Year Six months ended
August 31, ended May 31,
1993 May 31, 1992
(Unaudited) 1993 (Unaudited)
<S> <C> <C> <C>
Revenues $30,326 $114,758 $53,760
Expenses 28,647 108,989 51,231
Income from
operations before
income taxes $ 1,679 $ 5,769 $ 2,529
</TABLE>
Net assets of these facilities as of September 1, 1993, less
adjustments to asset carrying values and remaining accrued
restructuring costs aggregating $32,646, have been reclassified
from net assets held for disposition to appropriate balance sheet
accounts.
On December 31, 1993, Hillhaven completed the sale of 13 nursing
centers for an aggregate sales price of $15,594. Nine of these
nursing centers had previously been held for disposition. The
sale resulted in a gain of $5,102, which is included in net
operating revenues.
<PAGE>
<PAGE>
3. Notes Receivable
Notes receivable consist primarily of notes originated upon the
sale of nursing centers to third parties. Generally the notes
receivable are secured by mortgages and deeds of trust on the
properties sold. Notes receivable, net of the allowance for
doubtful accounts, totalled $87,921 and $115,978 as of May 31,
1994 and 1993, respectively.
The aggregate estimated fair value of notes receivable was
$91,084 and $114,855 at May 31, 1994 and 1993, respectively. The
fair value of performing notes is calculated by discounting the
projected cash flows using estimated market discount rates that
reflect the credit and interest rate risk inherent in the notes
and using specific borrower information. Fair values for
nonperforming notes (notes delinquent more than 90 days) and
notes with no set maturity are determined based on individual
circumstances and are valued net of specific reserves.
4. Investments In Unconsolidated Partnerships
Hillhaven has ownership interests ranging from 35% to 50% in a
number of unconsolidated general and limited partnerships. These
investments are accounted for by the equity method and are
included in other noncurrent assets. All of these partnerships
own or lease real and personal property and operate nursing
centers or retirement housing communities. Combined summarized
unaudited financial information for these partnerships is as
follows:
<TABLE>
<CAPTION>
May 31,
1994 1993
<S> <C> <C>
Current assets $ 8,902 $ 7,935
Property and equipment 46,696 60,528
Total assets $55,598 $68,463
Current liabilities $ 6,999 $ 5,452
Long-term debt to unrelated parties 37,400 45,196
Long-term debt to Hillhaven 4,377 7,749
Partners' equity 6,822 10,066
Total liabilities and equity $55,598 $68,463
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Years ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Net operating revenues $47,857 $54,314 $58,004
Net income 2,747 4,204 2,303
Recognized by Hillhaven:
Equity in income 1,554 2,081 724
Interest income 367 697 952
Management fees 2,412 2,710 2,485
</TABLE>
Hillhaven manages seven nursing centers and one retirement
housing community for partnerships in which the Company has an
equity interest. Management fees earned are usually based upon a
percentage of revenues, ranging from 5% to 9%.
5. Property And Equipment
Property and equipment at May 31 is comprised of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Land $ 77,043 $ 71,297
Buildings 718,983 690,868
Leasehold improvements 17,208 18,433
Equipment 172,992 152,692
Construction in progress 14,376 6,919
1,000,602 940,209
Less accumulated depreciation
and amortization (217,343) (173,211)
Net property and equipment $ 783,259 $ 766,998
</TABLE>
Property and equipment includes buildings acquired under capital
leases of $1,997 at May 31, 1994. At May 31, 1993, capitalized
lease assets were comprised of: land, $11,105; buildings,
$119,056; and equipment, $7,236. Related accumulated
depreciation and amortization amounted to $1,776 and $9,401 at
May 31, 1994 and 1993, respectively.
6. Long-Term Debt
The Recapitalization. In September 1993, Hillhaven completed a
recapitalization plan (the "Recapitalization") which included the
modification of the Company's relationship with NME (Note 8) to
(i) purchase 23 nursing centers leased from NME for a purchase
price of $111,800, (ii) repay all existing debt to NME in the
aggregate principal amount of $147,202, (iii) release NME
guarantees on approximately $400,000 of debt, (iv) limit the
annual fee payable to NME to 2% of the remaining amount
guaranteed and (v) amend existing agreements to eliminate
obligations of NME to provide additional financing to the
<PAGE>
<PAGE>
Company. The Recapitalization was financed through (i) the
issuance to NME of $120,000 of payable-in-kind Series D Preferred
Stock, (ii) the incurrence of a $175,000 term loan under a
secured credit facility with a syndicate of banks, (iii) the
issuance of $175,000 of 10-1/8% Senior Subordinated Notes due
2001, (iv) borrowings of $30,000 under an accounts receivable-
backed credit facility and (v) the use of approximately $39,000
of cash.
Long-term debt at May 31 is comprised of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Debt under bank credit agreement (1) <F1> $ 113,527 $ ---
Floating rate convertible
debentures (2) <F2> 59,473 65,053
Industrial revenue bonds, payable
in installments to 2016 (3) <F3> 124,895 140,794
Mortgage notes, payable monthly
to 2027 (3) <F3> 50,369 47,016
Other notes, payable in installments
to 2002 (3) <F3> 21,994 19,801
Capitalized lease obligations
(Notes 8 and 9) 1,965 137,517
10-1/8% unsecured notes due 2001 174,405 ---
7-3/4% convertible debentures (4) <F4> 74,750 74,750
Secured term loans under mortgage
pool financing facilities
(Note 8) (5) <F5> --- 204,937
Debt payable to NME (Note 8) --- 147,215
621,378 837,083
Less current portion (43,427) (18,835)
$ 577,951 $ 818,248
<FN>
(1)<F1> In connection with the Recapitalization, Hillhaven
entered into a credit agreement with a syndicate of banks. The
credit agreement includes a $175,000 term loan facility, an
$85,000 revolving credit facility and a $90,000 letter of credit
facility (collectively, the "Facilities"). The letter of credit
facility was obtained to provide credit enhancement for the
Company's industrial revenue bonds. Borrowings under the credit
agreement are secured by 85 nursing centers, certain accounts
receivable and the stock of certain subsidiaries of the Company.
The Facilities bear interest at either a base rate plus 3/4% to
1-5/8% or the London Interbank Offered Rate ("LIBOR") plus 1-3/4%
to 2-5/8%, the spreads being dependent on the type of facility
and leverage ratios. The Facilities will mature on September 1,
1998. Commitment fees are required on the unused portions of the
revolving credit facility and letter of credit facility and are
paid at a rate of 3/8% to 1/2% depending on leverage ratios. At
May 31, 1994, $165,000 was outstanding under the term loan
facility, including $59,473 as substituted debt for the PIP
Debentures (discussed below), with interest payable at 6.1%. The
term loan is subject to scheduled principal repayments.
<PAGE>
<PAGE>
Borrowings under the revolving credit facility amounted to $8,000
at May 31, 1994, with interest payable at 6.6%. Letters of
credit outstanding at May 31, 1994 under the letter of credit
facility totalled $69,418.
(2)<F2> Under Hillhaven's 1991 Performance Investment Plan, on
May 29, 1992, the Company privately placed $65,053 of convertible
debentures (the "PIP Debentures") to a wholly-owned, special
purpose subsidiary. The subsidiary financed 95% of the purchase
with three-year term loans from a syndicate of commercial banks
and 5% from the sale to key employees of options to acquire the
PIP Debentures. The bank loans were guaranteed by NME. In
September 1993, Hillhaven refinanced the term loans using its
term loan facility. Because the proceeds from the exercise of
the options must be used by the Company to retire the debt
underlying the PIP Debentures, these borrowings, together with
the outstanding balance of the options, are classified as
floating rate convertible debentures in the above table. The
interest rate was 6.1% at May 31, 1994. Interest is not payable
on the options. The PIP Debentures mature and the options
terminate on May 29, 1999, and both the PIP Debentures and
options are subject to mandatory redemption on that date or
upon the occurrence of certain events. The options permit the
holder to purchase PIP Debentures at 95% of their face value and
to ultimately convert them into shares of common stock at an
effective conversion price of $16.5375 per share. The options
vest 25% per year beginning in December 1993, with accelerated
vesting in certain events. The Company may repurchase the
options at any time after May 29, 1997 by paying a redemption
premium. As options are exercised, the Company's taxable income
will be reduced by any excess of the fair market value of the
common stock at the date of conversion over the principal amount
of the PIP Debentures redeemed.
(3)<F3> Mortgage notes, industrial revenue bonds and the
majority of other notes are principally secured by Hillhaven's
property and equipment. The industrial revenue bonds were issued
by various governmental authorities to finance the construction
or acquisition of nursing centers and retirement housing
facilities. The use of escrowed funds of $6,156 and $8,990 at
May 31, 1994 and 1993, respectively, is limited to specific
facility capital improvements or payment of principal and
interest on the bonds. These amounts are included in other
noncurrent assets. Average interest rates for the mortgage
notes, industrial revenue bonds and other notes at May 31, 1994
were 5.6%, 5.4% and 8.9%, respectively.
(4)<F4> On November 4, 1992, the Company sold $74,750 of its
7-3/4% Convertible Subordinated Debentures (the "Debentures") due
2002. The Debentures are convertible into common stock at the
option of the holder at any time prior to maturity at a
conversion price of $16.795 per share. On or after November 1,
1995, the Company may redeem the Debentures, in whole or in part,
at specified redemption prices. The Debentures are unsecured and
subordinated to all other indebtedness of Hillhaven.
<PAGE>
<PAGE>
(5)<F5> Hillhaven participated in two mortgage financing
arrangements which were guaranteed by NME. Borrowings under
these arrangements were repaid with proceeds from the
Recapitalization.
</TABLE>
Hillhaven participates in a $40,000 accounts receivable-backed
credit facility whereby eligible Medicaid receivables of selected
nursing centers are sold to a wholly-owned subsidiary of
Hillhaven, formed specifically for the purpose of such
transactions. The purchase of receivables by the subsidiary may
be financed by a bank line of credit with interest payable at
either LIBOR plus 3/4% or the lenders' cost of funds. At May 31,
1994, the subsidiary had total assets of approximately $65,378,
which cannot be used to satisfy claims against Hillhaven or any
of its subsidiaries.
Certain loan agreements have, among other requirements,
restrictions on cash dividends, investments and borrowings and
require maintenance of specified operating ratios, levels of
working capital and net worth. Management believes that
Hillhaven is in compliance with all material covenants. There
are no compensating balance requirements for any of the credit
lines or borrowings.
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending May 31,
<S> <C>
1995 $ 43,427
1996 49,163
1997 55,994
1998 33,852
1999 24,996
Later years 413,946
$621,378
</TABLE>
The fair value of the Company's long-term borrowings at May 31,
1994 and 1993, excluding capitalized lease obligations, is
estimated to be $638,751 and $702,317 based on quoted market
prices or by discounting future cash flows at current rates
offered to the Company for debt of comparable types and
maturities.
7. Income Taxes
Effective June 1, 1992, Hillhaven adopted Statement of Financial
Accounting Standards No. 109 , "Accounting for Income Taxes"
("SFAS 109"). The implementation of SFAS 109 changes the
Company's method of accounting for income taxes from the deferred
method of APB Opinion No. 11 ("APB 11") to an asset and liability
approach. Under the asset and liability method of SFAS 109,
deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
<PAGE>
<PAGE>
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
Pursuant to the deferred method under APB 11, which was applied
in fiscal 1992 and prior years, deferred income taxes were
recognized for income and expense items that were reported in
different years for financial reporting purposes and income tax
purposes using the tax rate applicable for the year of the
calculation. Under the deferred method, deferred taxes were not
adjusted for subsequent changes in tax rates.
Adoption of SFAS 109 resulted in a charge of $1,103 to the 1993
statement of operations as the cumulative effect of a change in
accounting principle. Including the impact of this charge, the
effect on the year ended May 31, 1993 of the adoption of SFAS 109
was a reduction of net income tax expense and an increase in net
income of $7,710 as compared to amounts that would have been
reported under APB 11.
Income tax (expense) benefit on income (loss) from operations
before income taxes, reinstatement of discontinued operations,
extraordinary charge and cumulative effect of accounting change
consists of the following amounts:
<TABLE>
<CAPTION>
Years ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Current (expense) federal $(12,193) $(5,400) $(4,079)
Current (expense) state (2,493) (967) (930)
(14,686) (6,367) (5,009)
Deferred (expense) benefit
federal (7,338) 12,609 4,079
Deferred (expense) benefit
state (629) 1,125 523
(7,967) 13,734 4,602
$(22,653) $ 7,367 $ (407)
</TABLE>
<PAGE>
<PAGE>
An analysis of Hillhaven's effective income tax rate is as
follows:
<TABLE>
<CAPTION>
Years ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Statutory federal income tax rate 35% 34% 34%
Income tax (expense) benefit at
federal rate $ (28,412) $(11,349) $ 35,064
State income tax (expense)
benefit net of federal income
tax benefit (2,029) 104 (269)
Employee stock compensation 491 255 (470)
Nondeductible fees (21) (26) 151
Limitation on recognition of net
operating loss --- --- (34,742)
Nondeductible wages (968) (488) ---
Valuation allowance adjustment 1,090 18,992 ---
Targeted jobs tax credits
utilized 6,780 --- ---
Other 416 (121) (141)
Income tax (expense) benefit on
income (loss) from operations
before reinstatement of
discontinued operations,
extraordinary charge and
cumulative effect of
accounting change $(22,653) $ 7,367 $ (407)
</TABLE>
Under APB 11, deferred income tax (expense) benefits were created
by timing differences in the recognition of revenues and expenses
for tax and financial statement purposes. Deferred income tax
(expense) benefit for the year ended May 31, 1992 was comprised
of the following:
<TABLE>
<CAPTION>
<S> <C>
Excess of tax depreciation over book
depreciation $ (883)
Gain on sales of properties (128)
State income tax expense (345)
Compensation plans 847
Equity in partnership results of
operations 423
Restructuring charge 28,212
Direct write-off method for doubtful
accounts 998
Insurance liability 1,462
Vacation accruals 668
Limitation on recognition of net
operating loss (26,961)
Alternative minimum tax rate reduction 1,230
Other (921)
Total deferred income tax benefit $ 4,602
</TABLE>
<PAGE>
<PAGE>
The tax effects of temporary differences that give rise to
significant portions of the federal and state deferred tax assets
(liabilities) are comprised of the following:
<TABLE>
<CAPTION>
Years ended May 31,
1994 1993
<S> <C> <C>
Depreciation $(16,847) $(24,912)
Installment sales (1,691) (3,685)
Other (3,551) (1,148)
Gross deferred tax liabilities (22,089) (29,745)
Capital leases 8,110 7,090
Deferred partnership revenue 1,960 2,662
Insurance reserves 9,573 8,033
Vacation accruals 5,691 4,955
Deferred gain 4,350 5,882
Bad debt reserves 8,788 7,093
Restructuring reserves --- 20,293
Targeted jobs tax credits 5,296 7,546
Alternative minimum tax credits 2,649 1,534
Other 4,972 3,014
Gross deferred tax assets 51,389 68,102
Less valuation allowance (11,277) (12,367)
Deferred tax assets, net 40,112 55,735
Net deferred tax assets 18,023 25,990
Less amount included in
other current assets (18,946) (15,762)
Amount included in other
noncurrent assets (liabilities) $ (923) $ 10,228
</TABLE>
The decrease in the valuation allowance for deferred tax assets
of $1,090 was attributable to taxable income earned in the year
ended May 31, 1994 and, to a lesser extent, an increase in the
estimate of future income to be earned. For the Company to
realize its net deferred tax assets, it must continue to achieve
future pretax earnings. Although the Company believes such
pretax earnings will be achieved, a lack of earnings could result
in an increased provision for income taxes.
As of May 31, 1994, Hillhaven had $5,296 of targeted jobs tax
credits which expire between May 31, 2006 and May 31, 2009.
The Tax Reform Act of 1986 enacted an alternative minimum tax
system for corporations. The alternative minimum tax is assessed
at a rate of 20% on Hillhaven's alternative minimum taxable
income. Alternative minimum taxable income is determined by
making statutory adjustments to the Company's regular taxable
income. For the years ended May 31, 1994 and 1993, utilization
of regular tax credits was limited by alternative minimum tax
expense of $11,043 and $5,400, respectively. For the years ended
May 31, 1994, 1993 and 1992, regular income tax expense (before
utilization of tax credits) exceeded the alternative minimum tax
expense and resulted in the utilization of tax credits of $6,780,
$915, and $123, respectively.
<PAGE>
<PAGE>
8. Transactions with NME
Lending and Related Agreements. In connection with the spin-off
from NME in January 1990 (the "Spin-off"), Hillhaven entered into
certain financial arrangements with its former parent company.
Hillhaven issued unsecured notes to NME in the aggregate amount
of $145,859. The Company used the proceeds from the sale of both
the 8-1/4% Series C Preferred Stock to NME and the PIP Debentures
to repay $96,800 of these notes (Notes 2 and 6). As of May 31,
1993, one of the notes had been paid in full, and the outstanding
indebtedness on the remaining note was $49,059. NME also
provided mortgage financing to Hillhaven on certain nursing
centers purchased by the Company from NME. At May 31, 1993,
$98,156 was outstanding under these arrangements. In fiscal
1994, Hillhaven repaid all of the NME notes in the aggregate
principal amount of $147,202 with proceeds from the
Recapitalization. The Company also repaid debt which was
guaranteed by NME in the aggregate amount of $266,737 (Note 6).
Interest expense on NME notes totalled $3,696, $7,061 and $12,345
for the years ended May 31, 1994, 1993 and 1992.
Guarantee Reimbursement Agreement. NME and Hillhaven entered
into a guarantee reimbursement agreement providing for the
payment by Hillhaven of a fee in consideration of NME's guarantee
of certain Hillhaven obligations. At May 31, 1994 and 1993, an
aggregate total of approximately $279,000 and $699,000,
respectively, of long-term debt (Note 6), leases (Note 9) and
contingent liabilities (Note 11) were subject to this agreement.
In addition, NME guarantees $7,057 of Hillhaven debt and leases
for which Hillhaven is not charged a guarantee fee.
Insurance. Through May 31, 1994, substantially all of the
professional and general liability risks of Hillhaven were
insured by an insurance company which is owned by NME. Such
insurance expense amounted to $7,627, $7,344 and $6,025 for the
years ended May 31, 1994, 1993 and 1992, respectively. Beginning
June 1, 1994, Hillhaven obtained separate coverage for its
professional and general liability exposure.
Leases. At the time of the Spin-off, Hillhaven leased 115
nursing centers from NME. During the three years ended May 31,
1993, the Company purchased 92 of the leased nursing centers for
an aggregate purchase price of $346,900. At May 31, 1993,
Hillhaven leased 23 nursing centers from NME which were recorded
as capital leases at the aggregate purchase option price of
$135,400. As part of the Recapitalization (Note 6), the Company
purchased the remaining 23 nursing centers leased from NME for an
aggregate purchase price of $111,800. Interest expense on the
NME leases for the years ended May 31, 1994 and 1993 and the six
months ended May 31, 1992 amounted to $3,401, $19,889 and
$12,825, respectively. Rent expense on NME leases for the six
months ended November 30, 1991 amounted to $15,117.
Hillhaven is leasing certain nursing centers from Health Care
Property Partners, a joint venture in which NME has a minority
interest. Lease payments to this joint venture amounted to
$9,923, $9,699 and $9,507 for the years ended May 31, 1994, 1993
and 1992, respectively.
<PAGE>
<PAGE>
Equity Ownership. On November 30, 1991, NME purchased 35,000
shares of Hillhaven's 8-1/4% cumulative nonvoting Series C
Preferred Stock. The proceeds, $35,000, were used to reduce
notes payable to NME. NME is entitled to a cumulative dividend,
payable quarterly, at the annual rate of 8-1/4% of the $35,000
liquidation value. The Series C Preferred Stock is redeemable at
the option of the Company at any time, in whole or in part.
In connection with the Recapitalization, Hillhaven issued to NME
$120,000 of cumulative nonvoting payable-in-kind Series D
Preferred Stock. On February 28, 1994, NME tendered shares of
the Series D Preferred Stock in the amount of $63,300 in order to
exercise its warrants to purchase 6,000,000 shares of Hillhaven
common stock.
NME is entitled to receive cumulative quarterly dividends on the
Series D Preferred Stock at an annual rate of 6-1/2% of the
liquidation value which, as of May 31, 1994, was $60,546. The
dividends are payable in additional shares of Series D Preferred
Stock, compounded annually, until September 1998, when the
dividends will be paid in cash. The Company may, at its option,
redeem the Series D Preferred Stock at any time, in whole or in
part, subject to restrictions included in certain loan
agreements.
Management Agreement. Hillhaven provides management, consulting
and advisory services in connection with the operation of seven
nursing centers owned or leased by NME or its subsidiaries. In
return for such services, Hillhaven receives a management fee and
is reimbursed for certain costs and expenses. Hillhaven earned
$2,543, $2,440 and $2,300 for such services during fiscal 1994,
1993 and 1992, respectively. Management fees receivable from NME
amounted to $610 at May 31, 1994 and $545 at May 31, 1993.
9. Leases
As of May 31, 1994, Hillhaven leases 122 nursing centers, 78 of
which are operated by the Company. Most lease agreements cover
periods from 10 to 20 years and contain renewal options of 5 to
40 years. Hillhaven's pharmacy outlets are leased under terms
generally ranging from three to five years with three-year
renewal options.
<PAGE>
<PAGE>
Minimum lease payments under noncancelable leases and related
sublease income are as follows:
<TABLE>
<CAPTION>
Sublease
Year ending May 31, Capital Operating Income
<S> <C> <C> <C>
1995 $ 367 $ 38,570 $(12,047)
1996 369 33,954 (10,130)
1997 374 29,238 (7,732)
1998 378 26,963 (7,488)
1999 383 19,553 (5,819)
Thereafter 1,034 61,615 (20,560)
Total minimum lease
payments (income) 2,905 $209,893 $(63,776)
Less amount representing
interest (940)
Present value of net minimum
lease payments 1,965
Less current portion (168)
Long-term obligations $1,797
</TABLE>
Rent expense under operating leases is as follows:
<TABLE>
<CAPTION>
Years ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Rent expense $ 52,440 $ 52,537 $ 67,144
Sublease rental income (13,563) (10,390) (6,060)
$ 38,877 $ 42,147 $ 61,084
</TABLE>
10. Benefit Plans
Hillhaven's 1990 Stock Incentive Plan (the "1990 Plan") provides
for incentive stock option, nonqualified stock option, restricted
stock, stock appreciation right and cash bonus awards to certain
executive officers and other key employees of Hillhaven.
Incentive stock options are granted at an exercise price equal to
the fair market value of the shares on the date of grant, and
nonqualified stock options are granted at an exercise price of
not less than 50% of fair market value on the date of grant.
Restricted shares are issued at no cost to the employee, and
restrictions on such shares generally lapse over five years from
the date of the award as long as the employee continues to be
employed by Hillhaven.
In addition, Hillhaven has replaced its long-term cash bonus plan
with performance share awards ("Performance Shares") under the
1990 Plan. The Compensation Committee of the Board of Directors
identified key management employees who are eligible to receive
Performance Shares. Performance Shares represent potential
rights to receive common stock based upon the Company achieving
specified financial targets over a three-year period. Subject to
the Compensation Committee's sole discretion to award all or any
<PAGE>
<PAGE>
portion of the Performance Shares, participants may receive
shares of common stock based upon actual performance in relation
to the financial targets.
The fair market value on the date of award of restricted shares
and the excess of the fair market value of the Hillhaven shares
on the date of grant of nonqualified stock options over the
exercise price represents compensation which is deferred and
charged to operations as the forfeiture restrictions lapse and as
the nonqualified options vest. An estimate of the fair market
value of Performance Shares expected to be awarded also
represents compensation and is deferred and charged to operations
over a three-year period. Unearned compensation is recorded as a
deduction from stockholders' equity. No stock appreciation
rights or cash bonuses have been awarded under the 1990 Plan. At
May 31, 1994, there were 2,401,629 shares of common stock
available under the 1990 Plan for future awards.
Hillhaven also has a Directors' Stock Option Plan for directors
who are not employees of Hillhaven and are not eligible to
participate in the 1990 Plan. Nonstatutory options to purchase
2,000 shares of common stock are granted each year to each
qualified director at the fair market value of the shares on the
date of grant.
Information regarding stock option plans follows:
<TABLE>
<CAPTION>
1990 Directors'
Stock Stock
Incentive Option
Plan Plan
<S> <C> <C>
Shares under option:
Outstanding at May 31, 1991 305,597 20,000
Granted --- 12,000
Exercised (52,345) (2,000)
Canceled (4,350) ---
Outstanding at May 31, 1992 248,902 30,000
Granted 101,647 10,000
Exercised (49,079) ---
Canceled (1,542) (2,000)
Outstanding at May 31, 1993 299,928 38,000
Granted 66,002 10,000
Exercised (95,785) (2,000)
Canceled (6,532) (6,000)
Outstanding at May 31, 1994 263,613 40,000
Average option price per share $9.85 $14.41
Options exercisable at May 31, 1994 204,625 30,000
Average price of options exercised:
Year ended May 31, 1992 $5.00 $5.15
Year ended May 31, 1993 $5.02 ---
Year ended May 31, 1994 $5.84 $13.75
</TABLE>
<PAGE>
<PAGE>
Shares of common stock issued in the last three fiscal years in
connection with employee and director compensation and benefit
plans were 97,785 in 1994, 135,079 in 1993 and 134,345 in 1992.
Restricted shares forfeited and retired in the last three fiscal
years were 16,000 in 1994, 39,670 in 1993 and 37,915 in 1992.
Hillhaven maintains defined contribution retirement plans
covering substantially all full-time employees, whereby employee
contributions to the plans are matched by Hillhaven up to certain
limits. Defined contribution pension expense totalled $3,938,
$4,556 and $3,812 for the years ended May 31, 1994, 1993 and
1992, respectively.
Hillhaven also maintains supplemental retirement plans covering
outside directors, executive officers and certain other
management employees under which benefits are determined based
primarily upon the participants' compensation and length of
service to the Company. Expense under these plans amounted to
$730, $262 and $393 for the years ended May 31, 1994, 1993 and
1992, respectively. Accrued benefits under the plans amounted to
$2,518 and $1,829 at May 31, 1994 and 1993, respectively, and are
included in other long-term liabilities.
11. Commitments And Contingencies
Hillhaven is contingently liable at May 31, 1994 for $34,099
primarily as a guarantor of indebtedness of partnerships in which
Hillhaven has an ownership interest (Note 4) or with which it has
a management agreement. It is not practicable to estimate the
fair value of these off-balance sheet obligations. NME has
guaranteed $16,421 of these obligations for which Hillhaven has
agreed to indemnify NME under the terms of the Guarantee
Reimbursement Agreement (Note 8).
The Company maintains insurance coverage for its workers
compensation exposure. The estimated liability for retrospective
workers compensation premiums (included in other accrued
liabilities and other long-term liabilities) is based on
actuarially projected estimates discounted at an 8.4% average
rate to their present value, which amounted to $8,619 at May 31,
1994 and $16,805 at May 31, 1993.
Hillhaven is subject to various claims and lawsuits in the
ordinary course of business which are covered by insurance or
adequately provided for in Hillhaven's financial statements. In
the opinion of management, the ultimate resolution of these
matters will not have a material adverse effect on Hillhaven's
financial condition.
<PAGE>
<PAGE>
12. Statements of Cash Flows
Supplemental disclosures of cash flow information are as follows:
<TABLE>
<CAPTION>
Years ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Cash paid for:
Interest $ 44,966 $ 56,144 $ 53,454
Income taxes 10,925 7,250 5,678
Noncash investing and
financing activities:
Acquisition of previously
leased nursing centers
and pharmacies
Long-term debt assumed
and incurred 13,705 39,609 76,403
Adjustment to property
and equipment and
capital lease
obligations 23,600 6,780 ---
Notes received in connection
with sales of nursing centers 3,340 36,338 16,304
Preferred stock issued to
retire debt 56,601 --- ---
Consolidation of previously
unconsolidated investees
and reinstatement of
retirement housing
operations
Increase in assets 6,243 4,155 93,113
Increase in liabilities 6,292 4,942 66,367
Capitalization of leases --- --- 299,500
Preferred stock tendered
for the purchase of
common stock 63,300 --- ---
Reclassification of property
and equipment and
intangible assets to/from
assets held for disposition 52,537 --- 96,328
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Quarterly Financial Summary (Unaudited)
<CAPTION>
Year ended May 31, 1994
Quarters
First Second Third Fourth
<S> <C> <C> <C> <C>
Net operating
revenues (1)<F1> $354,814 $361,427 $363,973 $368,520
Income before
extraordinary
charge (2)<F2> $8,024 $25,812 $11,707 $12,982
Extraordinary charge --- (940) (73) (49)
Net income $8,024 $24,872 $11,634 $12,933
Income per share
- primary: (3)<F3>
Income before
extraordinary charge $.31 $.98 $.37 $.41
Extraordinary charge --- (.04) --- ---
Net income $.31 $.94 $.37 $.41
Income per share - fully
diluted: (3)<F3>
Income before
extraordinary charge $.28 $.77 $.33 $.37
Extraordinary charge --- (.03) --- ---
Net income $.28 $.74 $.33 $.37
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Year ended May 31, 1993
Quarters
First Second Third Fourth
<S> <C> <C> <C> <C>
Net operating
revenues (1)<F1> $331,992 $342,681 $344,065 $344,092
Income before
extraordinary charge
and cumulative effect $8,803 $11,117 $9,432 $11,395
Extraordinary charge --- --- (565) ---
Cumulative effect of
accounting change (1,103) --- --- ---
Net income $7,700 $11,117 $8,867 $11,395
Income per share -
primary: (3)<F3>
Income before
extraordinary charge
and cumulative effect $.37 $.46 $.36 $.47
Extraordinary charge --- --- (.02) ---
Cumulative effect of
accounting change (.05) --- --- ---
Net income $.32 $.46 $.34 $.47
<FN>
(1)<F1> Amounts for periods prior to September 1, 1993 have been
restated to include the revenues of facilities
previously held for disposition (Note 2).
(2)<F2> Includes a $21,904 restructuring credit recorded in the
1994 second quarter (Note 2).
(3)<F3> Adjusted to reflect a one-for-five reverse stock split
effected in November 1993.
</TABLE>
<PAGE>
<PAGE>
<TABLE> SCHEDULE V
THE HILLHAVEN CORPORATION
PROPERTY AND EQUIPMENT
(Dollar amounts are expressed in thousands)
<CAPTION>
Classification Balance at Balance at
beginning of Additions Sales and Other end of
period at cost (1)<F1> retirements changes(2)<F2> period
<S> <C> <C> <C> <C> <C>
Year ended
May 31, 1992
Land $ 32,161 $ 8,652 $ (2,316) $ 2,765 a $ 41,262
Buildings 345,612 102,731 (20,805) (2,774) a 424,764
Leasehold
improvements 28,445 4,530 (833) (10,862) a 21,280
Equipment 128,810 24,057 (9,033) (19,922) a 123,912
Construction in
progress 7,185 568 --- (1,466) b 6,287
Capitalized leases 5,515 299,500 --- (1,007) b 304,008
$547,728 $ 440,038 $ (32,987) $ (33,266) $ 921,513
Year ended
May 31, 1993
Land $ 41,262 $ 2,749 $ (944) $ 17,125 c $ 60,192
Buildings 424,764 20,880 (8,960) 135,128 c 571,812
Leasehold
improvements 21,280 3,016 (623) (5,240) c 18,433
Equipment 123,912 14,687 (4,524) 11,381 c 145,456
Construction in
progress 6,287 719 --- (87) c 6,919
Capitalized leases 304,008 --- (6,311) (160,300) c 137,397
$921,513 $ 42,051 $ (21,362) $ (1,993) $ 940,209
</TABLE>
<PAGE>
<PAGE>
<TABLE> SCHEDULE V
THE HILLHAVEN CORPORATION
PROPERTY AND EQUIPMENT
(Dollar amounts are expressed in thousands)
<CAPTION>
Classification Balance at Balance at
beginning of Additions Sales and Other end of
period at cost (1)<F1> retirements changes(2)<F2> period
<S> <C> <C> <C> <C> <C>
Year ended
May 31, 1994
Land $ 60,192 $ 2,459 $ (4,007) $ 18,399 d $ 77,043
Buildings 571,812 18,828 (25,505) 151,851 d 716,986
Leasehold
improvements 18,433 1,914 (155) (2,984) d 17,208
Equipment 145,456 22,844 (15,096) 19,788 d 172,992
Construction
in progress 6,919 7,296 --- 161 d 14,376
Capitalized
leases 137,397 --- --- (135,400) d 1,997
$940,209 $ 53,341 $ (44,763) $ 51,815 $1,000,602
</TABLE>
<PAGE>
<PAGE>
[FN]
(1)<F1> 1992 additions include the purchase of 24 previously
leased nursing centers and one retirement housing
facility: land, $7,420; buildings, $95,088; and
equipment, $7,397. Total consideration for the purchase
included debt totaling $76,212. Additions also include
the capitalization of 76 leases: land, $28,983;
buildings, $251,031; and equipment, $19,486, as part of
the restructuring transaction as described in Note 2 of
Notes to Consolidated Financial Statements.
(2)<F2> a. Reclassification to net assets held for disposition
as part of restructuring transaction: land,
$(8,473); buildings $(83,467); leasehold
improvements, $(10,963); equipment, $(26,820); and
construction in progress, $(261). The
restructuring is described in Note 2 of Notes to
Consolidated Financial Statements
Reinstatement of discontinued operations: land,
$11,309; building, $74,437; leasehold improvements,
$127; and equipment, $5,818.
Consolidation of previously unconsolidated
investee: land, $1, building, $5,611; and
equipment, $561. Adjustment to basis of retirement
housing property: land $(24); building, $(1,315);
and equipment, $(35).
b. Reclassification to other property and equipment
accounts.
c. Purchase of nursing centers, previously recorded as
capitalized leases: land $17,303; buildings
$131,095; and equipment $11,902. Adjustment to
building ($1,486) in connection with purchase of
partnership interests.
Reclassification to other property and equipment
accounts.
d. Purchase of 23 nursing centers and two retirement
housing facilities previously recorded as
capitalized leases: land, $11,105; buildings,
$117,059; and equipment, $7,236. Discount on
purchase of nursing centers, previously recorded as
capitalized leases: land, $(197); buildings,
$(22,880); and equipment, $(523). Reclassification
of leasehold improvements to buildings in
connection with the acquisition of previously
leased nursing centers, $4,048.
Consolidation of a previously unconsolidated
investee: land, $989; buildings, $7,874; and
equipment, $396.
<PAGE>
<PAGE>
[FN]
Effect of reinstatement of assets held for
disposition: land, $6,876; buildings, $47,042;
leasehold improvements, $1,061; equipment, $12,722;
and construction in progress, $347.
Reclassification to other property and equipment
accounts.
The annual provision for depreciation and amortization
is computed using the straight-line method over the
following useful lives: 20 to 45 years for buildings
and improvements, 5 to 10 years for equipment and the
lesser of the estimated useful life or the lease term
for leasehold improvements and certain capital leases.
<PAGE>
<PAGE>
<TABLE> SCHEDULE VI
THE HILLHAVEN CORPORATION
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY AND EQUIPMENT
(In thousands)
<CAPTION>
Additions
Balance at charged to Balance at
beginning of costs & Sales and Other end of
Description period expenses retirements changes period
<S> <C> <C> <C> <C> <C>
Year ended (19,101) (1)<F1>
May 31, 1992 $124,157 $ 41,485 $ (9,077) $ (1,737) (3)<F3> $135,727
Year ended (261) (2)<F2>
May 31, 1993 $135,727 $ 48,030 $ (6,526) $ (3,759) (3)<F3> $173,211
Year ended
May 31, 1994 $173,211 $ 48,356 $(20,055) $ 15,831 (3)<F3> $217,343
<FN>
(1)<F1> Reclassification to net assets held for disposition as
part of restructuring transaction. The restructuring is
described in Note 2 of Notes to Consolidated Financial
Statements $(25,181)
Reinstatement of discontinued operations 6,254
Reclassification to buildings upon acquisition of
previously leased nursing centers (185)
Consolidation of previously unconsolidated investees 593
Reclassification to buildings upon transfer of
property and equipment to a consolidated investee (582)
$(19,101)
(2)<F2> Reclassification to buildings upon acquisition of previously leased nursing centers.
(3)<F3> Effect of reinstatement of assets held for disposition; $15,766.
</TABLE>
<PAGE>
<PAGE>
<TABLE> SCHEDULE VIIITHE HILLHAVEN CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<CAPTION>
Additions
Balance at charged to Balance at
beginning costs & end of
Description of period expenses Deductions period
<S> <C> <C> <C> <C>
Year ended May 31, 1992:
Valuation accounts deducted
from assets:
Allowance for doubtful $ (5,370) (1)<F1>
accounts and notes 18 (2)<F2>
receivable $ 20,517 $ 5,962 478 (5)<F5> $21,605
Reserve for loss on
discontinued operations $ 23,753 $ --- $(23,753) (3)<F3> $---
Reserve for loss on assets
held for disposition $ --- $110,736 $ (7,662) (4)<F4> $103,074
Year ended May 31, 1993:
Valuation accounts deducted
from assets:
Allowance for doubtful
accounts and notes $ (5,686) (1)<F1>
receivable $ 21,605 $ 4,029 138 (5)<F5> $20,086
Reserve for loss on assets
held for disposition $103,074 $ --- $(46,428) (4)<F4> $56,646
Year ended May 31, 1994:
Valuation accounts deducted
from assets:
Allowance for doubtful
accounts and notes
receivable $ 20,086 $ 8,094 $ (3,567) (1)<F1> $24,613
Reserve for loss on assets $ (2,096) (4)<F4>
held for disposition $ 56,646 $ --- (54,550) (6)<F6> $---
</TABLE>
<PAGE>
<PAGE>
[FN]
(1)<F1> Write-off of accounts and notes receivable.
(2)<F2> Effect of reinstatement of discontinued operations.
(3)<F3> Elimination of loss reserve upon reinstatement of
discontinued operations.
(4)<F4> Operating losses related to nursing centers and
retirement housing facilities held for disposition were
charged to the reserve. See Note 2 of Notes to
Consolidated Financial Statements.
(5)<F5> Provision related to nursing centers and retirement
housing facilities held for disposition was charged to
the reserve for loss on assets held for disposition.
(6)<F6> Elimination of loss reserve upon reinstatement of assets
held for disposition.
<PAGE>
<PAGE>
<TABLE>
SCHEDULE X
THE HILLHAVEN CORPORATION
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In thousands)
<CAPTION>
Charged to costs and expenses
Year Ended May 31,
1994 1993 1992
<S> <C> <C> <C>
Repairs and maintenance $13,753 $13,148 $ 12,491
Taxes, other than payroll and
income taxes $16,644 $15,633 $ 17,359
Amortization of intangible assets and advertising costs are
less than one percent of net operating revenues. There are no
royalties.
</TABLE>
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Item/Document
(3) Articles of Incorporation and By-Laws
3.01 Amended and Restated Articles of Incorporation
of Hillhaven (Incorporated by reference to
Exhibit J to Exhibit 2 to the document referred
to in Note 1 below)
3.02 Amended and Restated By-Laws of Hillhaven
(4) Instruments Defining the Rights of Security Holders
4.01 Amended and Restated Articles of Incorporation
of Hillhaven (See Exhibit 3.01)
4.02 Amended and Restated By-Laws of Hillhaven (See
Exhibit 3.02)
4.03 Form of Common Stock Certificate of Hillhaven
(Incorporated by reference to Exhibit 4.3 to
the document referred to in Note 1 below)
4.04 Warrant and Registration Rights Agreement among
Hillhaven, NME and Manufacturers Hanover Trust
Company of California, dated as of January 31,
1990 (Incorporated by reference to Exhibit 4.4
to the document referred to in Note 1 below)
4.05 Rights Agreement between Hillhaven and
Manufacturers Hanover Trust Company of
California, dated as of January 31, 1990
(Incorporated by reference to Exhibit 4.6 to
the document referred to Note 1 below)
4.06 Form of Rights Certificate (Incorporated by
reference to Exhibit A to Exhibit 4.6 to the
document referred to in Note 1 below)
4.07 Agreement concerning purchase by NME Properties
Corp., of Series C Preferred Stock of Hillhaven
and prepayment by First Healthcare Corporation
of indebtedness to NME Properties Corp. dated
at or prior to 11:59 p.m. on November 30, 1991
between NME, NME Properties Corp., Hillhaven
and First Healthcare Corporation (Incorporated
by reference to Exhibit 4(a) to the document
referred to in Note 2 below)
4.08 Certificate of Designation, Preferences and
Rights of Series C Preferred Stock of Hillhaven
(Incorporated by reference to Exhibit 4(b) to
the document referred to in Note 2 below)
<PAGE>
<PAGE>
Exhibit
No. Item/Document
4.09 Certificate of First Amendment to Certificate
of Designation, Preferences and Rights of
Series C Preferred Stock of The Hillhaven
Corporation (Incorporated by reference to
Exhibit 4(b) to the document referred to in
Note 9 below)
4.10 Form of Indenture between Hillhaven and Bankers
Trust Company, as Trustee with respect to the
7-3/4% Convertible Subordinated Debentures Due
2002 (Incorporated by reference to Exhibit 4.14
to the document referred to in Note 4 below)
4.11 Form of 7-3/4% Convertible Subordinated
Debenture Due 2002 (Incorporated by reference
to Exhibit 4.15 to the document referred to in
Note 4 below)
4.12 Form of Indenture between Hillhaven and State
Street Bank and Trust Company, as Trustee with
respect to the 10-1/8% Senior Subordinated
Notes due 2001 (Incorporated by reference to
Exhibit 4.01 to the document referred to in
Note 5 below)
4.13 Form of 10-1/8% Senior Subordinated Note due
2001 (Incorporated by reference to Exhibit 4.02
to the document referred to in Note 5 below)
4.14 Agreement Concerning Purchase by NME Properties
Corp. and Certain Subsidiaries of Series D
Preferred Stock of The Hillhaven Corporation,
dated as of September 1, 1993 among Hillhaven,
First Healthcare Corporation, NME, NME
Properties Corp. and certain subsidiaries of
NME Properties Corp.
4.15 Certificate of Designation, Preferences and
Rights of Series D Preferred Stock of The
Hillhaven Corporation (Incorporated by
reference to Exhibit 4(a) to the document
referred to in Note 9 below)
4.16 Certificate Concerning Reverse Stock Split of
The Hillhaven Corporation (Incorporated by
reference to Exhibit 4(c) to the document
referred to in Note 9 below)
4.17 Credit Agreement dated as of September 2, 1993,
between First Healthcare Corporation, as
lender, and Hillhaven PIP Funding I, Inc., as
borrower (Incorporated by reference to Exhibit
4.07 to the document referred to in Note 8
below)
<PAGE>
<PAGE>
Exhibit
No. Item/Document
4.18 The Hillhaven Corporation 1991 Performance
Investment Plan (Incorporated by reference to
Exhibit 10.24 to the document referred to in
Note 1 below)
4.19 Certificate of Designation, Preferences and
Rights of Series B Convertible Preferred Stock
(Incorporated by reference to Exhibit 4.03 to
the document referred to in Note 8 below)
4.20 Form of Indenture between Hillhaven and
Chemical Bank, as Trustee with respect to the
Convertible Debentures due May 29, 1999
(Incorporated by reference to Exhibit 4.01 to
the document referred to in Note 8 below)
4.21 Form of Convertible Debenture due May 29, 1999
(Incorporated by reference to Exhibit 4.02 to
the document referred to in Note 8 below)
(10) Material Contracts
10.01 Services Agreement between Hillhaven and NME,
dated as of January 31, 1990 (Incorporated by
reference to Exhibit 10.2 to the document
referred to in Note 1 below)
10.02 Tax Sharing Agreement between Hillhaven and
NME, dated as of January 31, 1990 (Incorporated
by reference to Exhibit 10.3 to the document
referred to in Note 1 below)
10.03 Government Programs Agreement between Hillhaven
and NME, dated January 31, 1990 (Incorporated
by reference to Exhibit 10.4 to the document
referred to in Note 1 below)
10.04 Insurance Agreement between Hillhaven and NME,
dated as of January 31, 1990 (Incorporated by
reference to Exhibit 10.5 to the document
referred to in Note 1 below)
*10.05 Employee and Employee Benefits Agreement
between Hillhaven and NME, dated as of
January 31, 1990 (Incorporated by reference to
Exhibit 10.6 to the document referred to in
Note 1 below)
*10.06 Resignation Agreement and General Release
between Hillhaven and Richard K. Eamer, dated
as of September 15, 1993
*10.07 Employment Agreement between Hillhaven and
Leonard Cohen, dated as of January 31, 1990
(Incorporated by reference to Exhibit 10.21 to
the document referred to in Note 1 below)
<PAGE>
<PAGE>
Exhibit
No. Item/Document
*10.08 Amendment No. One to Employment Agreement
between Hillhaven and Leonard Cohen, dated as
of May 31, 1994
*10.09 Severance Agreement among Hillhaven, NME and
Christopher J. Marker, dated as of January 31,
1990 (Incorporated by reference to Exhibit
10.23 to the document referred to in Note 1
below)
*10.10 Severance Agreement between Hillhaven and
Christopher J. Marker, dated as of May 24, 1994
*10.11 Form of Severance Agreement between Hillhaven
and certain of its officers
10.12 Form of Indemnification Agreement between
Hillhaven and certain of its executive officers
(Incorporated by reference to Exhibit 4.8 to
the document referred to in Note 1 below)
*10.13 Hillhaven Directors' Stock Option Plan
(Incorporated by reference to Exhibit 10.18 to
the document referred to in Note 1 below)
*10.14 The Hillhaven Corporation Board of Directors
Retirement Plan
*10.15 Hillhaven Deferred Savings Plan (Incorporated
by reference to Exhibit 10.11 to the document
referred to in Note 1 below)
*10.16 Hillhaven 1990 Stock Incentive Plan
(Incorporated by reference to Exhibit 10.12 to
the document referred to in Note 1 below)
*10.17 Hillhaven Annual Incentive Plan (Incorporated
by reference to Exhibit 10.13 to the document
referred to in Note 1 below)
*10.18 Hillhaven Long Term Incentive Plan
(Incorporated by reference to Exhibit 10.14 to
the document referred to in Note 1 below)
*10.19 Hillhaven Deferred Compensation Master Plan
(Incorporated by reference to Exhibit 10.15 to
the document referred to in Note 1 below)
*10.20 Hillhaven Senior Management Deferred
Compensation Plan (Incorporated by reference to
Exhibit 10.16 to the document referred to in
Note 1 below)
<PAGE>
<PAGE>
Exhibit
No. Item/Document
*10.21 First Restatement of the Hillhaven Supplemental
Executive Retirement Plan
*10.22 Hillhaven Individual Retirement Annuity Plan
(Incorporated by reference to Exhibit 10.19 to
the document referred to in Note 1 below)
10.23 Form of Assignment and Assumption of Lease
Agreement between Hillhaven and certain
subsidiaries, on the one hand, and NME and
certain subsidiaries on the other hand,
together with the related Guaranty by
Hillhaven, dated on or prior to January 31,
1990 (Incorporated by reference to Exhibit 10.7
to the document referred to in Note 1 below)
10.24 Form of Management Agreement between First
Healthcare Corporation and certain NME
subsidiaries, dated on or prior to January 31,
1990 (Incorporated by reference to Exhibit
10.10 to the document referred to in Note 1
below)
10.25 Reorganization and Distribution Agreement
between Hillhaven and NME, dated as of
January 8, 1990, as amended on January 30, 1990
(Incorporated by reference to Exhibit 2.01 to
the document referred to in Note 1 below)
10.26 Guarantee Reimbursement Agreement between
Hillhaven and NME, dated as of January 31, 1990
(Incorporated by reference to Exhibit 10.8 to
the document referred to in Note 1 below)
10.27 First Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of October 30, 1990
10.28 First Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of May 30, 1991 (Incorporated by reference to
Exhibit 10.45 to the document referred to in
Note 3 below)
10.29 Second Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of October 2, 1991 (Incorporated by reference
to Exhibit 10.46 to the document referred to in
Note 3 below)
<PAGE>
<PAGE>
Exhibit
No. Item/Document
10.30 Third Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of April 1, 1992 (Incorporated by reference to
Exhibit 10.47 to the document referred to in
Note 3 below)
10.31 Fourth Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of November 12, 1992 (Incorporated by reference
to Exhibit 10.13 to the document referred to in
Note 6 below)
10.32 Fifth Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of February 19, 1993 (Incorporated by
reference to Exhibit 10.14 to the document
referred to in Note 6 below)
10.33 Sixth Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of May 28, 1993 (Incorporated by reference to
Exhibit 10.15 to the document referred to in
Note 6 below)
10.34 Seventh Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of May 28, 1993
10.35 Eighth Amendment to Guarantee Reimbursement
Agreement between Hillhaven and NME, dated as
of September 2, 1993
10.36 Amended and Restated Loan Agreement among
Hillhaven, New Pond Village Associates and
BayBank of Boston, N.A., dated as of August 25,
1989 and effective November 1, 1991
(Incorporated by reference to Exhibit 10.52 to
the document referred to in Note 3 below)
10.37 Facility Purchase and Sale Agreements, each
dated as of February 12, 1992, between First
Healthcare Corporation and Zevco Enterprises,
Inc. for the four nursing centers in Houston,
Texas (Incorporated by reference to Exhibit
10.41 to the document referred to in Note 3
below)
10.38 Facility Agreement among First Healthcare
Corporation and Certain Limited Partnerships,
dated as of April 23, 1992 relating to the sale
of 32 nursing centers (Incorporated by
reference to Exhibit 10.42 to the document
referred to in Note 3 below)
<PAGE>
<PAGE>
Exhibit
No. Item/Document
10.39 First Amendment to Facility Agreement among
First Healthcare Corporation and Certain
Limited Partnerships, dated as of July 31, 1992
relating to the sale of 32 nursing centers
(Incorporated by reference to Exhibit 10.43 to
the document referred to in Note 3 below)
10.40 Letter Agreement dated July 14, 1992,
concerning acquisition by Hillhaven from NME of
26 nursing centers and two adjacent retirement
housing communities (Incorporated by reference
to Exhibit 10.49 to the document referred to in
Note 3 below)
10.41 Letter Agreement dated August 4, 1992, between
Hillhaven and NME, amending the July 14, 1992
letter agreement concerning acquisition by
Hillhaven from NME of 26 nursing centers and
two adjacent retirement communities
(Incorporated by reference to Exhibit 10.50 to
the document referred to in Note 3 below)
10.42 Letter Agreement dated October 14, 1992,
between Hillhaven and NME, amending the
July 14, 1992 letter concerning acquisition by
Hillhaven from NME of 34 nursing centers and
two adjacent retirement housing communities
(Incorporated by reference to Exhibit 10.58 to
the document referred to in Note 6 below)
10.43 Purchase and Sale Agreement and Escrow
Instructions between First Healthcare
Corporation and certain NME subsidiaries, dated
as of November 4, 1992 relating to the
acquisition of 24 nursing centers (Incorporated
by reference to Exhibit 10.59 to the document
referred to in Note 6 below)
10.44 Purchase and Sale Agreement and Escrow
Instructions between First Healthcare
Corporation and certain NME subsidiaries, dated
as of February 1, 1993, relating to the
acquisition of 17 nursing centers (Incorporated
by reference to Exhibit 10.60 to the document
referred to in Note 6 below)
10.45 Facility Purchase and Sale Agreement, each
dated April 1, 1993, between First Healthcare
Corporation and Zevco Enterprises, Inc., an
Illinois corporation, relating to the sale of
13 nursing centers (Incorporated by reference
to Exhibit 10.61 to the document referred to in
Note 6 below)
<PAGE>
<PAGE>
Exhibit
No. Item/Document
10.46 Purchase and Sale Agreement and Escrow
Instructions between First Healthcare
Corporation and certain NME subsidiaries, dated
as of May 20, 1993 relating to the acquisition
of 11 nursing centers (Incorporated by
reference to Exhibit 10.62 to the document
referred to in Note 6 below)
10.47 Letter of Intent dated June 22, 1993 between
Hillhaven and NME (Incorporated by reference to
Exhibit 10.63 to the document referred to in
Note 6 below)
10.48 Credit Agreement dated as of September 1, 1993
among First Healthcare Corporation, The
Hillhaven Corporation, the Banks referred to
therein, the LC Issuing Banks referred to
therein, Morgan Guaranty Trust Company of New
York, Chemical Bank and J. P. Morgan Delaware
(Incorporated by reference to Exhibit B to the
document referred to in Note 7 below)
10.49 Amendment No. 1 to Credit Agreement, dated as
of October 12, 1993, among First Healthcare
Corporation, The Hillhaven Corporation, the
Banks referred to therein, the LC Issuing Banks
referred to therein, Morgan Guaranty Trust
Company of New York, Chemical Bank and J. P.
Morgan Delaware
10.50 Amendment No. 2 to Credit Agreement, dated as
of December 30, 1993, among First Healthcare
Corporation, The Hillhaven Corporation, the
Banks referred to therein, the LC Issuing Banks
referred to therein, Morgan Guaranty Trust
Company of New York, Chemical Bank and J. P.
Morgan Delaware
10.51 Amendment No. 3 to Credit Agreement, dated as
of May 27, 1994, among First Healthcare
Corporation, The Hillhaven Corporation, the
Banks referred to therein, the LC Issuing Banks
referred to therein, Morgan Guaranty Trust
Company of New York, Chemical Bank and J. P.
Morgan Delaware
10.52 Agreement and Waiver, dated as of September 2,
1993, by and among Hillhaven, First Healthcare
Corporation, NME and certain NME subsidiaries
<PAGE>
<PAGE>
Exhibit
No. Item/Document
10.53 Novation Agreement among Hillhaven Funding
Corporation, Banque Indosuez, New York Branch,
Banque Nationale de Paris, San Francisco
Agency, Bank of America National Trust and
Savings Association and Seattle-First National
Bank, dated as of April 29, 1994
10.54 Amended and Restated Master Sale and Servicing
Agreement among Hillhaven Funding Corporation,
Hillhaven and certain Hillhaven subsidiaries,
dated as of April 29, 1994
10.55 Amended and Restated Liquidity Agreement
between Hillhaven Funding Corporation, Bank of
America National Trust and Savings Association
and Seattle-First National Bank dated as of
April 29, 1994
(11) Computation of Per Share Earnings
11.01 Statement re: Computation of Per Share Earnings
(21) Subsidiaries
21.01 Subsidiaries of the Registrant
(23) Consent of Experts and Counsel
23.01 Consent of Independent Accountants, KPMG Peat
Marwick LLP
<PAGE>
<PAGE>
Note
Reference Document
1. Quarterly Report on Form 10-Q for the quarter ended
November 30, 1989, as amended.
2. Quarterly Report on Form 10-Q for the quarter ended
November 30, 1991, as amended.
3. Annual Report on Form 10-K for the year ended May 31,
1992, as amended.
4. Registration Statement on Form S-1 (File No. 33-48755).
5. Registration Statement on Form S-3 (File No. 33-65718).
6. Annual Report on Form 10-K for the year ended May 31,
1993.
7. Current Report on Form 8-K dated September 2, 1993.
8. Registration Statement on Form S-3 (File No. 33-50833).
9. Quarterly Report on Form 10-Q for the quarter ended
November 30, 1993.
___________________
* Management contracts and compensatory plans or
arrangements required to be filed as an Exhibit to comply
with Item 14(a)(3).
<PAGE>
Exhibit 3.02
THE HILLHAVEN CORPORATION
a Nevada Corporation
AMENDED AND RESTATED BY-LAWS
As Amended and Restated Through November 30, 1993
ARTICLE I
STOCKHOLDERS' MEETINGS
Section 1.1. Place of Meetings.
All meetings of the stockholders shall be held at the
principal office of the Corporation in the State of Washington,
or at any other place within or without the State of Nevada as
may be designated for that purpose from time to time by the Board
of Directors.
Section 1.2. Annual Meetings.
The annual meeting of the stockholders shall be held not
later than 210 days after the close of the fiscal year, on the
date and at the time set by the Board of Directors, at which time
the stockholders shall elect directors, consider reports of the
affairs of the Corporation, and transact such other business as
may properly be brought before the meeting.
Section 1.3 Special Meetings.
Except as otherwise required by law, special meetings of
stockholders of the Corporation may be called only by the Board
of Directors pursuant to a resolution adopted by a majority of
the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the
time any such resolution is presented to the Board of Directors
for adoption).
Section 1.4. Notice of Meetings.
1.4.1. Notice of each meeting of stockholders, whether
annual or special, shall be given at least 10 and not more than
60 days prior to the day thereof by the Secretary or any
Assistant Secretary causing to be delivered or mailed to each
stockholder of record entitled to vote at such meeting a written
notice stating the time and place of the meeting and the purpose
or purposes for which the meeting is called. Such notice shall
be signed by the Chairman of the Board, the Vice Chairman of the
Board, the President, the Secretary or any Assistant Secretary
and shall be delivered or mailed postage prepaid to each
stockholder at such stockholder's address as it appears on the
stock books of the Corporation. If any stockholder has failed to
supply an address, notice shall be deemed to have been given if
mailed to the address of the principal office of the Corporation,
<PAGE>
<PAGE>
or published at least once in a newspaper having general
circulation in the county in which the principal office is
located.
1.4.2. It shall not be necessary to give any notice of the
adjournment of or the business to be transacted at an adjourned
meeting other than by announcement at the meeting at which such
adjournment is taken; provided that when a meeting is adjourned
for 30 days or more, notice of the adjourned meeting shall be
given as in the case of an original meeting.
Section 1.5. Consent by Stockholders.
Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or
special meeting of stockholders of the Corporation, and no action
required to be taken or that may be taken at any annual or
special meeting of stockholders of the Corporation may be taken
without a meeting except by the unanimous written consent of all
stockholders entitled to vote on such action, and the power of
stockholders to consent in writing to the taking of any action by
less than unanimous consent of all such stockholders is
specifically denied.
Section 1.6. Quorum.
1.6.1. The presence in person or by proxy of the persons
entitled to vote a majority of the voting stock at any meeting
constitutes a quorum for the transaction of business. Particular
shares of stock shall not be counted in determining the number of
shares of stock represented or required for a quorum or in any
vote at a meeting, if voting of such shares at the meeting has
been enjoined or for any reason such shares cannot be lawfully
voted at the meeting.
1.6.2. The stockholders 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
stockholders to leave less than a quorum.
1.6.3. In the absence of a quorum, the holders of a
majority of the shares of stock present in person or by proxy and
entitled to vote may adjourn any meeting from time to time, but
not for a period of more than 30 days at any one time, until a
quorum shall attend.
Section 1.7. Voting Rights.
1.7.1 Except as otherwise provided by law or by or
pursuant to the Articles of Incorporation or any amendment
thereto, every stockholder of record of the Corporation entitled
to vote shall be entitled at each meeting of the stockholders to
one vote for each share of stock standing in such stockholder's
name on the books of the Corporation. Except as otherwise
provided by law or by the Articles of Incorporation or any
amendment thereto, or by these By-Laws, if a quorum is present,
the vote of the holders of a majority of votes cast on a
particular matter shall be binding upon all stockholders of the
Corporation.
<PAGE>
<PAGE>
1.7.2. The Board of Directors may designate a day not more
than 60 days prior to any meeting of the stockholders as the day
as of which stockholders entitled to notice of and to vote at
such meeting shall be determined.
Section 1.8. Proxies.
Every stockholder entitled to vote or to execute consents
may do so either in person or by written proxy executed in
accordance with the provisions of the Private Corporation Law of
the State of Nevada and filed with the Secretary of the
Corporation.
Section 1.9. Manner of Conducting Meetings.
To the extent not in conflict with the provisions of law
relating thereto, the Articles of Incorporation or any amendment
thereto, or these By-Laws, meetings shall be conducted pursuant
to such rules as may be adopted by the chairman presiding at, or
the holders of a majority of the shares of stock represented at,
the meeting.
Section 1.10. Business Brought Before Meetings.
At any annual meeting of stockholders, only such business
shall be conducted as shall have been brought before the meeting
(i) by or at the direction of the Board of Directors or (ii) by
any stockholder of the Corporation who is entitled to vote with
respect thereto and who complies with the notice procedures set
forth in this Section 1.10. For business to be properly brought
before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice must be
delivered or mailed by first class United States mail, postage
pre-paid, to the Secretary of the Corporation not less than 90
days in advance of the annual meeting. A stockholder's notice to
the Secretary shall set forth as to each matter such stockholder
proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at
the annual meeting, (ii) the name and address, as they appear on
the books of the Corporation, of the stockholder of the
Corporation proposing such business, (iii) the class and number
of shares of the capital stock of the Corporation that are
beneficially owned by such stockholder and (iv) any material
interest of such stockholder in such business. Notwithstanding
anything in these By-Laws to the contrary, no business shall be
brought before or conducted at an annual meeting except in
accordance with the foregoing procedures. The officer of the
Corporation or other person presiding over the annual meeting
shall, if the facts so warrant, determine and declare to the
meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 1.10 and, if
such person should so determine, such person shall so declare to
the meeting and any such business so determined to be not
properly brought before the meeting shall not be transacted.
Except as otherwise provided in these By-Laws, at any special
<PAGE>
<PAGE>
meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at
the direction of the Board of Directors.
Section 1.11. Notice of Nominations.
Nominations for the election of directors may be made by the
Board of Directors or by any stockholder entitled to vote for the
election of directors. A notice of the intent of a stockholder
to make any such nomination shall be made in writing, delivered
or mailed by first class United States mail, postage prepaid, to
the Secretary of the Corporation not less than 90 days in advance
of the annual meeting or, in the event of a special meeting of
stockholders for the election of directors, such notice shall be
delivered or mailed to the Secretary of the Corporation not later
than the close of business on the seventh day following the day
on which notice of the meeting is first mailed to stockholders.
Every such notice by a stockholder shall set forth (i) the name
and address, as they appear on the books of the Corporation, of
the stockholder of the Corporation who intends to make the
nomination, (ii) the class and number of shares of the capital
stock of the Corporation that are beneficially owned by such
stockholder and a representation that the stockholder intends to
appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice, (iii) a description of
all arrangements or understandings among the stockholder and each
nominee and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to
be made by the stockholder, (iv) such other information regarding
each nominee proposed by such stockholder as would have been
required to be included in a proxy statement filed pursuant to
the proxy rules of the Securities and Exchange Commission had
each nominee been nominated, or intended to be nominated, by the
Board of Directors, and (v) the consent of each nominee to serve
as director of the Corporation if so elected. Any nomination not
made in accordance with the foregoing procedure shall be
disregarded.
ARTICLE II
DIRECTORS - MANAGEMENT
Section 2.1. Powers.
Subject to any limitation contained in the laws of the State
of Nevada, the Articles of Incorporation or any amendment
thereto, or these By-Laws, or as to action to be authorized or
approved by the stockholders, all corporate powers shall be
exercised by or under authority of, and the business and affairs
of this Corporation shall be controlled by, the Board of
Directors.
Section 2.2. Number and Qualification.
The number of directors which shall constitute the whole
Board of Directors shall be not less than three nor more than 21,
except in the case of any increase in the number of directors by
<PAGE>
<PAGE>
reason of any provision entitling the holders of any one or more
series or class of preferred stock of the Corporation, voting as
a class, to elect additional directors in specified
circumstances. The number of directors shall be fixed from time
to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such
resolution is presented to the Board of Directors for adoption).
All directors shall be at least 18 years of age and at least a
majority of them shall be citizens of the United States.
Section 2.3. Classes of Directors and Term of Office.
2.3.1. The directors (exclusive of directors who may be
elected by the holders of one or more classes or series of
preferred stock) shall be divided into three classes, as nearly
equal in number as possible. Except as provided in Article FIFTH
of the Articles of Incorporation fixing the terms for the initial
classified board, each class of directors shall be elected for a
term of three years. In the event of vacancy, either by death,
resignation, or removal of a director, or by reason of an
increase in the number of directors, each replacement or new
director shall serve for the balance of the term of the class of
the director he or she succeeds or, in the event of an increase
in the number of directors, of the class to which he or she is
assigned. All directors elected for a term shall continue in
office until the election and qualification of their respective
successors, their death, their resignation in accordance with
Section 2.6, their removal in accordance with Section 2.5, or if
there has been a reduction in the number of directors and no
successor is to be elected, until the end of the term.
2.3.2. Directors elected by holders of preferred stock of
the Corporation voting as a class shall not be members of any of
the foregoing classes and shall hold office until the next annual
meeting of stockholders unless the terms of the series or class
of preferred stock of the Corporation provides otherwise.
Section 2.4. Election of Directors.
2.4.1. At each annual meeting of stockholders, the class of
directors to be elected at the meeting shall be chosen by a
plurality of the votes cast by the holders of shares entitled to
vote in the election at the meeting, provided a quorum is
present. The election of directors by the stockholders shall be
by written ballot if directed by the chairman of the meeting or
if the number of nominees exceeds the number of directors to be
elected.
2.4.2. Any vacancy on the Board of Directors shall be
filled by the affirmative vote of a majority of the remaining
directors, or a sole remaining director, though less than a
quorum.
2.4.3. If the holders of Preferred Stock voting as a class
are entitled to elect directors, those directors shall be elected
<PAGE>
<PAGE>
by a plurality of the votes cast by the holders of shares of
preferred stock of the Corporation entitled to vote voting
separately as a class.
Section 2.5. Removal of Directors.
Any director, other than a director elected by holders of
preferred stock of the Corporation voting as a class, may be
removed from office at any time but only upon the affirmative
vote of the holders of at least 66-2/3% of the voting power of
all of the then-outstanding shares of voting stock of the
Corporation, voting together as a single class.
Section 2.6. Resignations
Any director of the Corporation may resign at any time
either by oral tender of resignation at any meeting of the Board
of Directors or by giving written notice thereof to the Chairman
of the Board, the Vice Chairman of the Board, the President or
the Secretary of the Corporation. Such resignation shall take
effect at the time it specifies, and the acceptance of such
resignation shall not be necessary to make it effective.
Section 2.7. Place of Meetings.
Meetings of the Board of Directors shall be held at the
principal office of the Corporation or at such other place within
or without the State of Nevada as may be designated for that
purpose by the Board of Directors.
Section 2.8. Meetings After Annual Stockholders' Meeting.
The first meeting of the Board of Directors held after the
annual stockholders' meeting shall be held at such time and place
within or without the State of Nevada as shall be fixed by
announcement of the Chairman of the Board, the Vice Chairman of
the Board or the President of the Corporation given at the annual
stockholders' meeting, and no other notice of such meeting shall
be necessary, provided a majority of the whole Board shall be
present. Alternatively, such meeting may be held at such time
and place as shall be fixed pursuant to notice given under other
provisions of these By-Laws.
Section 2.9. Other Regular Meetings.
2.9.1. Regular meetings of the Board of Directors shall be
held at such time and place within or without the State of Nevada
as may be agreed upon from time to time by the Board.
2.9.2. No notice need be given of regular meetings, except
that a written notice shall be given to each director of the
resolution establishing specific meeting dates or regular
meetings dates, which notice shall set forth the day of the
month, the time, and the place of the meetings.
<PAGE>
<PAGE>
Section 2.10. Special Meetings
Special meetings of the Board of Directors shall be held
whenever called by the Chairman of the Board, the Vice Chairman
of the Board or the President of the Corporation or any two other
directors, except that when the Board of Directors consists of
one director, then the one director may call a special meeting.
Notice of any such meeting shall be mailed to each director not
later than three days before the day on which the meeting is to
be held, or shall be sent to him or her by telegraph, or
delivered personally or by telephone, not later than midnight of
the day before the day of the meeting. Any meeting of the Board
of Directors shall be a legal meeting, without any notice thereof
having been given, if each director consents to the holding
thereof or waives notice in the manner specified in Section 2.11.
Except as otherwise provided in these By-Laws or as may be
indicated in the notice thereof, any and all business may be
transacted at any special meeting.
Section 2.11. Waiver of Notice.
Anything herein to the contrary notwithstanding, notice of
any meeting of directors shall not be required as to any director
who shall waive notice in writing (including telex, facsimile
telephonic transmission, telegram, cablegram or radiogram) before
or after such meeting, which waiver shall be filed with the
Secretary of the Corporation. Attendance of a director at a
meeting shall be deemed equivalent to a written waiver of notice
of such meeting if such director's oral consent is entered in the
minutes or such director takes part in the deliberations thereat
without objection.
Section 2.12. 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 is
fixed at the meeting adjourned.
Section 2.13. Quorum.
A majority of the number of directors as fixed by the
Articles of Incorporation or any amendment thereto, or these 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 or fill vacant directorships in
accordance with Section 2.4 but may not transact any other
business. When the Board of Directors consists of one or two
directors, then the one or two directors, respectively, shall
constitute a quorum.
Section 2.14. Action by Unanimous Written Consent.
Any action required or permitted to be taken at any meeting
of the Board of Directors may be taken without a meeting, if all
<PAGE>
<PAGE>
members of the Board shall individually or collectively consent
in writing thereto. Such written consent 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 such directors.
Section 2.15. Compensation.
The directors may be paid their expenses of attendance at
each meeting of the Board of Directors. Additionally, the Board
of Directors may from time to time, in its discretion, pay to
directors either or both a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary for services
as a director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees
may be allowed like reimbursement and compensation for attending
committee meetings.
Section 2.16. Transactions Involving Interests of Directors.
In the absence of fraud, no contract or other transaction of
the Corporation shall be affected or invalidated by the fact that
any of the directors of the Corporation are in any way interested
in, or connected with, any other party to, such contract or
transaction, provided that such transaction satisfies the
applicable provisions of the Private Corporation Law of the State
of Nevada; and each and every person who may become a director of
the Corporation is hereby relieved, to the extent permitted by
law, from any liability that might otherwise exist from
contracting in good faith with the Corporation for the benefit of
himself or herself or any person in which he or she may be in any
way interested or with which he or she may be in any way
connected. Any director of the Corporation may vote and act upon
any matter, contract or transaction between the Corporation and
any other person without regard to the fact that he or she is
also a stockholder, director or officer of, or has any interest
in, such other person.
ARTICLE III
OFFICERS
Section 3.1. Executive Officers.
The executive officers of the Corporation shall be a Chief
Executive Officer (who may be the Chairman of the Board, the Vice
Chairman of the Board or the President), a Deputy Chief Executive
Officer (who may be the Chairman of the Board, the Vice Chairman
of the Board or the President), a President, one or more
Executive Vice Presidents, one or more Senior Vice Presidents, a
Secretary and a Treasurer. Any person may hold two or more
offices. The executive officers of the Corporation shall be
elected annually by the Board of Directors and shall hold office
for one year or until their respective successors shall be
elected and shall qualify.
<PAGE>
<PAGE>
Section 3.2. Appointed Officers: Titles.
3.2.1. The Chief Executive Officer or a person designated
by such officer, or the Secretary in the case of Assistant
Secretaries or the Treasurer in the case of Assistant Treasurers,
may appoint one or more Assistant Secretaries or one or more
Assistant Treasurers, each of whom shall hold such title at the
pleasure of the appointing officer, have such authority and
perform such duties as are provided in these By-Laws, or as the
Chief Executive Officer or other appointing officer may determine
from time to time. Any person appointed under this Section 3.2.1
to serve in any of the foregoing positions shall be deemed by
reason of such appointment or service in such capacity to be an
"officer" of the corporation.
3.2.2. The Chief Executive Officer or a person designated
by such officer may also appoint one or more vice presidents and
one or more assistant vice presidents for each corporate staff
function and a corporate controller and one or more assistant
controllers. Each of such persons will hold such title at the
pleasure of the Chief Executive Officer and have authority to act
for and shall perform duties with respect to only the staff
function for which the person is appointed. Any person appointed
under this Section 3.2.2 to serve in any of the foregoing
positions shall not be deemed by reason of such appointment or
service in such capacity to be an "officer" of the Corporation.
Section 3.3. Removal and Resignation.
3.3.1. 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. Any appointed
person may be removed from such position at any time by the
person making such appointment or such person's successor.
3.3.2. Any officer may resign at any time, by giving
written notice to the Board of Directors, the Chief Executive
Officer, the Deputy Chief Executive Officer, the President or 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 3.4. 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 By-Laws for regular appointments
to such office.
Section 3.5. Chairman of the Board and Vice Chairman of the
Board.
The Chairman of the Board shall preside at all meetings of
the Board of Directors and shall exercise and perform such other
powers and duties as may be from time to time assigned to him or
<PAGE>
<PAGE>
her by the Board of Directors or these By-Laws. The Vice
Chairman of the Board shall, in the absence of the Chairman,
preside at all meetings of the Board of Directors and shall
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
these By-Laws.
Section 3.6. Chief Executive Officer.
The Chief Executive Officer shall, subject to the control of
the Board of Directors, have general supervision, direction, and
control of the business and affairs of the Corporation. The
Chief Executive Officer shall preside at all meetings of the
stockholders and, in the absence of the Chairman of the Board and
the Vice Chairman of the Board, at all meetings of the Board of
Directors. The Chief Executive Officer shall be ex officio a
member of the Executive Committee and shall have the general
powers and duties of management usually vested in the office of
chief executive officer of a corporation and such other powers
and duties as may be prescribed by the Board of Directors or
these By-Laws.
Section 3.7. Deputy Chief Executive Officer.
In the absence or disability of the Chief Executive Officer,
the Deputy Chief Executive Officer shall perform all of the
duties of the Chief Executive Officer and when so acting shall
have all the powers and be subject to all the restrictions upon
the Chief Executive Officer, including the power to sign all
instruments and to take all actions which the Chief Executive
Officer is authorized to perform by the Board of Directors or
these By-Laws. The Deputy Chief Executive Officer shall have
such other powers and duties as may be prescribed by the Chief
Executive Officer or the Board of Directors or these By-Laws.
Section 3.8. President.
In the absence or disability of the Chief Executive Officer
and Deputy Chief Executive Officer, the President shall perform
all of the duties of the Chief Executive Officer and when so
acting shall have all the powers and be subject to all the
restrictions upon the Chief Executive Officer, including the
power to sign all instruments and to take all actions which the
Chief Executive Officer is authorized to perform by the Board of
Directors or these By-Laws. The President shall have the general
powers and duties usually vested in the office of president of a
corporation and such other powers and duties as may be prescribed
by the Chief Executive Officer, the Deputy Chief Executive
Officer or the Board of Directors or these By-Laws.
Section 3.9. Executive Vice President, Senior Vice President
and Vice President.
In the absence or disability of the Chief Executive Officer,
the Deputy Chief Executive Officer and the President, an
Executive Vice President or a Senior Vice President in the order
of his or her rank and seniority shall perform all of the duties
of the Chief Executive Officer, and when so acting shall have all
<PAGE>
<PAGE>
the powers of and be subject to all the restrictions upon the
Chief Executive Officer, including the power to sign all
instruments and to take all actions which the Chief Executive
Officer is authorized to perform by the Board of Directors or
these By-Laws. The Executive Vice Presidents, Senior Vice
Presidents and Vice Presidents shall have the general powers and
duties usually vested in the office of a vice president of a
corporation and each of them 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, the Executive
Committee of the Board of Directors, the Chief Executive Officer
or these By-Laws.
Section 3.10. Secretary and Assistant Secretaries.
3.10.1. The Secretary shall (1) attend all meetings of the
Board of Directors and all meetings of the stockholders; and (2)
record and keep, or cause to be kept, all votes and the minutes
of all proceedings in a book or books to be kept for that purpose
at the principal office of the Corporation, or at such other
place as the Board of Directors may from time to time determine,
specifying therein (i) the time and place of holding, (ii)
whether regular or special, and if special, how authorized, (iii)
the notice thereof given, (iv) the names of those present at
directors' meetings, (v) the number of shares of stock the
holders of which are present or represented at stockholders'
meetings, and (vi) the proceedings thereof; and (3) perform like
duties for the Executive and other standing committees, when
required. In addition, the Secretary shall keep or cause to be
kept, at the principal office of the Corporation in the State of
Nevada, those documents required to be kept thereat by Section
5.2 of these By-Laws and the applicable provisions of the Private
Corporation Law of the State of Nevada.
3.10.2. The Secretary shall give, or cause to be given,
notice of meetings of the stockholders and special meetings of
the Board of Directors, and shall have such other powers and
perform such other duties as may be prescribed by these By-Laws
or by the Board of Directors or the Chief Executive Officer, the
Deputy Chief Executive Officer or the President, under whose
supervision he or she shall be. The Secretary shall keep in safe
custody the seal of the Corporation and affix the same to any
instrument requiring it, and when so affixed, it shall be
attested by his or her signature or by the signature of the
Treasurer or an Assistant Secretary. The Secretary is hereby
authorized to issue certificates, to which the corporate seal may
be affixed, attesting to the incumbency of officers of this
Corporation or to action duly taken by the Board of Directors or
any committee thereof or the stockholders.
3.10.3. The Assistant Secretaries, in the order of their
seniority, 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 as the Chief Executive Officer,
the Deputy Chief Executive Officer or the President or the
Secretary shall prescribe.
<PAGE>
<PAGE>
Section 3.11. Treasurer and Assistant Treasurers.
3.11.1. The Treasurer shall deposit all moneys and other
valuables in the name, and to the credit, of the Corporation,
with such depositories as may be ordered by the Board of
Directors. The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, shall
render to the Chief Executive Officer, the Deputy Chief Executive
Officer or the President or directors, whenever they request it,
and an account of all his or her transactions as Treasurer, and
of the financial condition of the Corporation, and shall have
such other powers and perform such other duties as may be
prescribed by these By-Laws or by the Board of Directors or the
Chief Executive Officer, the Deputy Chief Executive Officer or
the President, under whose supervision he or she shall be.
3.11.2. The Assistant Treasurers, in the order of their
seniority, 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 as the Chief Executive Officer,
the Deputy Chief Executive Officer or the President or the
Treasurer shall prescribe.
Section 3.12. Additional Powers, Seniority and Substitution of
Officers.
In addition to the foregoing powers and duties specifically
prescribed for the respective officers, the Board of Directors
may from time to time by resolution (i) impose or confer upon any
of the officers such additional duties and powers as the Board of
Directors may see fit, (ii) determine the order of seniority
among the officers, and/or (iii) except as otherwise provided
above, provide that in the absence of any officer or officers,
any other officer or officers shall substitute for and assume the
duties, powers and authority of the absent officer or officers.
Any such resolution may be final, subject only to further action
by the Board of Directors, or the resolution may grant such
discretion, as the Board of Directors deems appropriate, to the
Chief Executive Officer (or in his or her absence the executive
officer serving in his or her place) to impose or confer
additional duties and powers, to determine the order of seniority
among officers, and/or provide for substitution of officers as
above described.
Section 3.13. Compensation.
The officers of the Corporation shall receive such
compensation as shall be fixed from time to time by the Board of
Directors. No officer shall be prohibited from receiving such
salary by reason of the fact that such officer is also a director
of the Corporation.
Section 3.14. Transaction Involving Interest of Officer.
In the absence of fraud, no contract or other transaction of
the Corporation shall be affected or invalidated by the fact that
any of the officers of the Corporation are in any way interested
in, or connected with, any other party to such contract or
<PAGE>
<PAGE>
transaction, or are themselves parties to such contract or
transaction, provided that such transaction complies with the
applicable provisions of the Private Corporation Law of the State
of Nevada; and each and every person who is or may become an
officer of the Corporation is hereby relieved, to the extent
permitted by law, when acting in good faith, from any liability
that might otherwise exist from contracting with the Corporation
for the benefit of such officer or any person in which he or she
may be in any way interested or with which he or she may be in
any way connected.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
Section 4.1. Standing.
The Board of Directors shall appoint an Executive Committee,
an Audit Committee and a Compensation Committee, consisting of
such number of its members as it may designate, consistent with
the laws of the State of Nevada, the Articles of Incorporation or
any amendment thereto, or these By-Laws, including, if deemed
desirable, alternate members who, in the order specified by the
Board of Directors, may replace any absent or disqualified member
at any meeting of the Committee.
4.1.1. The Executive Committee shall have and may exercise,
when the Board is not in session, all of the powers of the Board
of Directors in the management of the business and affairs of the
Corporation, but the Executive Committee shall not have the power
to fill vacancies on the Board, or to change the membership of or
to fill vacancies in the Executive Committee or any other
Committee of the Board, or to adopt, amend or repeal the By-Laws,
or to declare dividends.
4.1.2. The Audit Committee shall select and engage on
behalf of the Corporation, and fix the compensation of, a firm of
certified public accountants whose duty it shall be to audit the
books and accounts of the Corporation and its subsidiaries for
the fiscal year in which they are appointed, and who shall report
to such Committee. The Audit Committee shall confer with the
auditors and shall determine, and from time to time shall report
to the Board of Directors upon, the scope of the auditing of the
books and accounts of the Corporation and its subsidiaries. The
Audit Committee shall also be responsible for determining that
the business practices and conduct of employees and other
representatives of the Corporation and its subsidiaries comply
with the policies and procedures of the Corporation. A majority
of the members of the Audit Committee shall not be officers or
employees of the Corporation or any of its subsidiaries.
4.1.3.1. The Compensation Committee shall establish a
general compensation policy for the Corporation and shall have
responsibility for the approval of increases in directors' fees
and in salaries paid to officers and senior employees earning in
excess of an annual salary to be determined by the Committee.
The Compensation Committee also shall evaluate and make
recommendations to the Board of Directors with respect to the
<PAGE>
<PAGE>
adoption, substantive modification to or termination of any
benefit plan of this Corporation, and with respect to employee
benefit plans of the Corporation shall have such additional
responsibilities as are described in Section 4.1.3.2 hereof.
None of the members of the Compensation Committee shall be
officers or employees of the Corporation or any of its
subsidiaries.
4.1.3.2. To assist the Corporation in fulfilling its
business goals the Board of Directors may from time to time
establish or adopt those benefit plans, which it shall designate
as constituting a Level 1 plan (which designation generally shall
connote a compensatory plan in which participation is designed
solely for directors or senior management employees, or involves
stock of this Corporation, or is an incentive compensation plan
that includes senior management) or as constituting a Level 2
plan (which designation generally shall connote a compensatory
plan which is a savings plan or a corporate-wide capital
accumulation plan in which participation is broader than senior
management employees). The Board of Directors may modify or
terminate any such plan; provided, however, the Compensation
Committee is authorized to take action to adopt non-substantive
amendments to any Level 1 or Level 2 plan as it deems necessary
or appropriate, unless such plan involves the issuance of capital
stock of the Corporation. The Chief Executive Officer, or his
designee, may take any and all actions to establish or adopt any
Level 3 plan (which would include medical plans, dental plans,
insurance plans, welfare plans and other benefit plans and any
other plan which is not a Level 1 or Level 2 plan) which he deems
necessary or convenient to the management of the Corporation, or
to modify or terminate such Level 3 plan, so long as such action
is not primarily for the benefit of directors or senior
management employees of the Corporation, either individually or
collectively.
Notwithstanding the foregoing, the Compensation Committee shall
be responsible for the control and management of the operation
and administration (which shall exclude ministerial activities)
of the benefit plans of the Corporation, subject to the
limitations of this Section. The Compensation Committee shall be
responsible for the control and management of the operation and
administration (which shall exclude ministerial activities) of
those plans designated by the Board of Directors as Level 1
plans. The Compensation Committee's responsibilities with
respect to the control and management of the operation and
administration (which shall exclude ministerial activities) of
those plans designated by the Board of Directors as Level 2
plans, shall be limited to the appointment of members of any
committee as may be constituted as under such plans, and such
periodic oversight as the Compensation Committee deems prudent
under the circumstances then prevailing in order to evaluate the
prudence of the continued appointment of such members. The
Compensation Committee shall have no responsibility with respect
to the control and management of the operation and administration
of any Level 3 plan.
<PAGE>
<PAGE>
Section 4.2. Other Committees.
Subject to any limitations in the laws of the State of
Nevada, the Articles of Incorporation or any amendment thereto,
or these By-Laws as to action to be authorized or approved by the
stockholders, or duties not delegable by the Board of Directors,
any or all of the corporate powers may be exercised by or under
authority of, and the business and affairs of this Corporation
may be controlled by, such other committee or committees as may
be appointed by the Board of Directors. The powers to be
exercised by any such committee shall be designated by the Board
of Directors.
Section 4.3. Procedures.
Subject to any limitations in the laws of the State of
Nevada, the Articles of Incorporation or any amendment thereto,
or these By-Laws regarding the conduct of business by the Board
of Directors and its appointed committees, any committee created
under this Article may use any procedures for conducting its
business and exercising its powers, including but not limited to
actions by the unanimous written consent of its members in the
manner set forth in Section 2.14. A majority shall constitute a
quorum unless the Committee consists of one or two directors,
then the one or two directors, respectively, shall constitute a
quorum. Notices of meetings may be in any reasonable manner and
may be waived as for meetings of directors.
ARTICLE V
CORPORATE RECORDS AND REPORTS - INSPECTION
Section 5.1. 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 Washington as fixed
by the Board of Directors from time to time.
Section 5.2. Articles, By-Laws and Stock Ledger.
The Corporation shall maintain and keep the following
documents at its principal place of business in the State of
Nevada: (i) a certified copy of the Articles of Incorporation
and all amendments thereto; (ii) a certified copy of the By-Laws
and all amendments thereto; and (iii) a statement setting forth
the following: "The Secretary of the Corporation, whose address
is 1148 Broadway Plaza, Tacoma, Washington 98401-2264, is the
custodian of the duplicate stock ledger of the Corporation."
Section 5.3. Inspection.
Any person who has been a stockholder of record for at least
six months immediately preceding such stockholder's demand, or
<PAGE>
<PAGE>
any person holding, or thereunto authorized in writing by the
holders of, at least five percent of all of the Corporation's
outstanding stock, upon at least five days' written demand, or
any judgment creditor without prior demand, shall have the right
to inspect in person or by agent or attorney, during usual
business hours, the duplicate stock ledger of the Corporation and
to make extracts therefrom; provided, however, that such
inspection may be denied to any stockholder or other person upon
his or her refusal to furnish to the Corporation an affidavit
that such inspection is not desired for a purpose which is in the
interest of a business or object other than the business of the
Corporation and that he or she has not at any time sold or
offered for sale any list of stockholders of any corporation or
aided or abetted any person in procuring any such record of
stockholders for any such purpose.
Section 5.4. 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.
ARTICLE VI
OTHER AUTHORIZATIONS
Section 6.1. Execution of Contracts.
The Board of Directors, except as these By-Laws otherwise
provide, may authorize any officer or officers or 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, except in the ordinary course of
business, to bind the Corporation by any contract or engagement
or to pledge its credit, or to render it liable for any purpose
or in any amount.
Section 6.2. Representation of Other Corporations.
All stock of any other corporation, standing in the name of
the Corporation, shall be voted, represented, and all rights
incidental thereto exercised as directed by written consent or
resolution of the Board of Directors expressly referring thereto.
In general, such rights shall be delegated by the Board of
Directors under express instructions from time to time as to each
exercise thereof to the Chief Executive Officer, the Deputy Chief
Executive Officer, the President, any Executive Vice President,
any Senior Vice President, any Vice President, the Treasurer or
the Secretary of this Corporation, or any other person expressly
appointed by the Board of Directors. Such authority may be
exercised by the designated officers in person, or by any other
person authorized so to do by proxy, or power of attorney, duly
executed by such officers.
<PAGE>
<PAGE>
Section 6.3. Dividends.
The Board of Directors may from time to time declare, and
the Corporation may pay, dividends on its outstanding stock in
the manner and on the terms and conditions provided by the laws
of the State of Nevada, and the Articles of Incorporation or any
amendment thereto, subject to any contractual restrictions to
which the Corporation is then subject.
ARTICLE VII
CERTIFICATES FOR TRANSFER OF STOCK
Section 7.1. Certificates for Stock.
7.1.1. Certificates for stock shall be of such form and
device as the Board of Directors may designate and shall be
numbered and registered as they are issued. Each shall state the
name of the record holder of the stock represented thereby; its
number and date of issuance; the number of shares of stock for
which it is issued; the par value; a statement of the rights,
privileges, preferences and restrictions, if any; a statement as
to rights of redemption or conversion, if any; and a statement of
liens or restrictions upon transfer or voting, if any, or,
alternatively, a statement that certificates specifying such
matters may be obtained from the Secretary of the Corporation.
7.1.2. Every certificate for stock must be signed by the
Chief Executive Officer, the Deputy Chief Executive Officer or
the President and the Secretary or an Assistant Secretary, or
must be authenticated by facsimile signatures of the Chief
Executive Officer, the Deputy Chief Executive Officer or the
President and the Secretary or an Assistant Secretary. Before it
becomes effective, every certificate for stock authenticated by a
facsimile or 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.
7.1.3. Even though an officer who signed, or whose
facsimile signature has been written, printed or stamped on a
certificate for stock ceases, by death, resignation or otherwise,
to be an officer of the Corporation before the certificate is
delivered by the Corporation, the certificate shall be as valid
as though signed by a duly elected, qualified and authorized
officer, if it is countersigned by the signature or facsimile
signature of a transfer agent or transfer clerk and registered by
an incorporated bank or trust company, as registrar of transfers.
7.1.4. Even though a person whose signature as, or on
behalf of, the transfer agent or transfer clerk has been written,
printed or stamped on a certificate for stock ceases, by death,
resignation or otherwise, to be a person authorized to so sign
such certificate before the certificate is delivered by the
Corporation, the certificate shall be deemed countersigned by the
signature of a transfer agent or transfer clerk for purposes of
meeting the requirements of this section.
<PAGE>
<PAGE>
Section 7.2. Transfer on the Books.
Upon surrender to the Secretary of the Corporation or
transfer agent of the Corporation of a certificate for stock 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 7.3. Lost or Destroyed Certificates.
The Board of Directors may direct, or may authorize the
Secretary of the Corporation to direct, a new certificate or
certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to
have been lost or destroyed, upon the making of an affidavit of
that fact by the person claiming the certificate for stock so
lost or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors or Secretary
may in its or his or her discretion, and as a condition precedent
to the issuance thereof, require the owner of such lost or
destroyed certificate or certificates, or his or her legal
representative, to advertise the same in such manner as it shall
require and/or give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against
the Corporation with respect to the certificate alleged to have
been lost or destroyed.
Section 7.4. Transfer Agents and Registrars.
The Board of Directors may appoint one or more transfer
agents or transfer clerks, and one or more registrars, who may be
the same person, and may be the Secretary of the Corporation, or
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 7.5. Fixing Record Date for Dividends, Etc.
The Board of Directors may fix a time, not exceeding 60 days
preceding 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 stock shall go into effect, as a
record date for the determination of the stockholders entitled to
receive any such dividend or distribution, or any such allotment
of rights, or to exercise the rights with respect to any such
change, conversion, or exchange of stock, and, in such case, only
stockholders of record on the date so fixed shall be entitled to
receive such dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any
transfer of any shares of stock on the books of the Corporation
after any record date fixed as aforesaid.
<PAGE>
<PAGE>
Section 7.6. Record Ownership.
The Corporation shall be entitled to recognize the exclusive
right of a person registered as such on the books of the
Corporation as the owner of shares of the Corporation's stock to
receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in
such shares on the part of any other person, whether or not the
Corporation shall have express or other notice thereof, except as
otherwise provided by law.
ARTICLE VIII
AMENDMENTS TO BY-LAWS
Section 8.1. By Stockholders.
Except as otherwise required by the provisions of the
Articles of Incorporation or any amendments thereto and subject
to the right of the Board of Directors to adopt, amend or repeal
by-laws as provided in Section 8.2, new or restated by-laws may
be adopted, or these By-Laws may be repealed or amended, at the
annual stockholders' meeting or at any other meeting of the
stockholders called for that purpose, by a vote of stockholders
entitled to exercise a majority of the voting power of the
Corporation.
Section 8.2. By Directors.
Except as otherwise required by the provisions of the
Articles of Incorporation and subject to the right of the
stockholders to adopt, amend, or repeal by-laws as provided in
Section 8.1, the Board of Directors may adopt, amend, or repeal
any of these By-Laws by the affirmative vote of a majority of the
directors present at any organizational, regular or special
meeting of the Board of Directors. This power may not be
delegated to any committee appointed in accordance with these By-
Laws.
Section 8.3. Record of Amendments.
Whenever an amendment or a new By-Law is adopted, it shall
be copied in the book of minutes 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 IX
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 9.1. Indemnification for Expenses in Proceedings.
Each person who was or is a party or is threatened to be
made a party to or is involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative
<PAGE>
<PAGE>
(hereinafter a "proceeding"), by reason of the fact that such
person, or a person of whom such person is the legal
representative, is or was a director or officer of the
Corporation or is or was serving at the request of the
Corporation as a director, officer, employee, fiduciary or agent
of another corporation or of a partnership, joint venture, trust
or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged
action or inaction in an official capacity or in any other
capacity while serving as a director, officer, employee,
fiduciary or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent permitted by the laws of
Nevada, as the same exist or may hereafter be amended, against
all costs, charges, expenses, liabilities and losses (including
attorneys' fees, judgments, fines, employee benefit plan excise
taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection
therewith, and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee, fiduciary or
agent and shall inure to the benefit of such person's heirs,
executors and administrators; provided, however, that except as
provided in Section 9.2, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding
(or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board of
Directors. The right to indemnification conferred in this
Article IX shall include the right to be paid by the Corporation
the expenses incurred in defending any such proceeding in advance
of its final disposition; provided, however, that, if so required
by the Private Corporation Law of the State of Nevada, the
payment of such expenses incurred by a director or officer in
such person's capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such person
while a director or officer, including, without limitation,
service to any employee benefit plan) in advance of the final
disposition of a proceeding shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not
entitled to be indemnified under this Section 9.1 or otherwise.
The Corporation may, by action of the Board, provide
indemnification to employees and agents of the Corporation with
the same scope and effect as the foregoing indemnification of
directors and officers.
Section 9.2. Right to Bring Suit for Unpaid Claims.
If a claim under Section 9.1 is not paid in full by the
Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in
part, the Corporation shall also pay the expense of prosecuting
such claim. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition
where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has failed to meet
<PAGE>
<PAGE>
a standard of conduct which makes it permissible under Nevada law
for the Corporation to indemnify the claimant for the amount
claimed. Neither the failure of the Corporation (including the
Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant
is permissible in the circumstances because he or she has met
such standard of conduct, nor an actual determination by the
Corporation (including the Board of Directors, independent legal
counsel, or its stockholders) that the claimant has not met such
standard of conduct, shall be a defense to the action or create a
presumption that the claimant has failed to meet such standard of
conduct.
Section 9.3. Advancement of Expenses.
The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final
disposition conferred in this Article IX shall not be exclusive
of any other right which any person may have or hereafter acquire
under any provision of law, the Articles of Incorporation or any
amendment thereto, or these By-Laws, or of any agreement or vote
of stockholders or disinterested directors, or otherwise.
Section 9.4. Indemnification Insurance.
The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee, fiduciary or
agent of the Corporation or another corporation, partnership,
joint venture, trust or other enterprise against any such
expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense,
liability or loss under Nevada law.
Section 9.5. Indemnification Expenses of Witnesses.
To the extent that any director, officer, employee,
fiduciary or agent of the Corporation is by reason of such
position, or a position with another entity at the request of the
Corporation, a witness in any action, suit or proceeding, the
Corporation shall indemnify such person against all costs and
expenses actually and reasonably incurred by such person or on
such person's behalf in connection therewith.
Section 9.6. Indemnification Agreements.
The Corporation may enter into agreements with any director,
officer, employee, fiduciary or agent of the Corporation
providing for indemnification to the full extent permitted by
Nevada law.
Section 9.7. Severability.
If any provision of this Article IX shall for any reason be
determined to be invalid, the remaining provisions hereof shall
not be affected thereby but shall remain in full force and
effect.
<PAGE>
<PAGE>
Section 9.8. Federal Election Campaign Act.
The rights provided by this Article IX shall be applicable
to the officers (including without limitation the Chief Executive
Officer, the Deputy Chief Executive Officer, the President, the
Treasurer and any Assistant Treasurer) appointed from time to
time by the Chief Executive Officer or the Treasurer of the
Corporation or the designee of either of them to serve in the
administration and management of any separate, segregated fund
established for purposes of collecting and distributing voluntary
employee political contributions to federal election campaigns
pursuant to the Federal Election Campaign Act of 1971, as
amended.
ARTICLE X
CORPORATE SEAL
The Corporate Seal shall be circular in form and shall have
inscribed thereon the name of the Corporation, and the date of
its incorporation, and the word "Nevada".
ARTICLE XI
INTERPRETATION
Reference in these By-Laws to any provision of the Private
Corporation Law of the State of Nevada shall be deemed to include
all amendments thereto and the effect of the construction and
determination of validity thereof by the Nevada Supreme Court.
<PAGE>
<PAGE>
Exhibit 4.14
AGREEMENT CONCERNING PURCHASE BY NME PROPERTIES CORP.
AND CERTAIN SUBSIDIARIES OF SERIES D PREFERRED STOCK OF
THE HILLHAVEN CORPORATION
This Agreement is made and dated as of September 1, 1993,
among National Medical Enterprises, Inc., a Nevada corporation
("NME"), NME Properties Corp., a Tennessee corporation ("NMEP
Corp."), NME Properties, Inc., a Delaware corporation ("NMEP
Inc."), NME Properties West, Inc., a Delaware corporation ("NMEP
West"), The Hillhaven Corporation, a Nevada corporation
("Hillhaven") and First Healthcare Corporation, a Delaware
corporation ("First Healthcare"). NMEP Corp., NMEP Inc. and NMEP
West are sometimes herein referred to collectively as the "NMEP
Entities."
RECITALS
A. As part of the January, 1990 spinoff by NME to its
shareholders of shares of Hillhaven, First Healthcare, a wholly-
owned subsidiary of Hillhaven, delivered to NMEP Corp., a wholly-
owned subsidiary of NME, a promissory note dated as of January
31, 1990, in the original principal amount of $127,300,000.00,
which amount subsequently was adjusted (as reflected in the
addendum thereto) to reflect the actual adjusted principal amount
of $135,859,396.00. Such promissory note, as adjusted, and as
amended by that certain First Amendment to Promissory Note, dated
as of May 1, 1991, is referred to herein as the "FHC Promissory
Note." As of the Closing Date (as defined in Section 3 herein),
the outstanding balance of the FHC Promissory Note, including
unpaid accrued interest thereon is $49,072,836.93.
B. Pursuant to that certain Note Guarantee Agreement,
dated as of January 31, 1990 (the "Note Guarantee Agreement"),
Hillhaven has guarantied First Healthcare's obligations under the
FHC Promissory Note.
C. Pursuant to that certain letter agreement dated May 31,
1990, as amended by that certain Amendment No. One to Commitment
Letter dated as of May 1, 1991, First Healthcare has borrowed
from NMEP West the sum of $6,000,000.00, which loan is evidenced
by a promissory note dated July 20, 1992, in favor of NMEP West,
and is secured by a mortgage on the facility known as Clayton
House (Facility No. 445) (the "Clayton House Note"). As of the
Closing Date, the outstanding balance of the Clayton House Note,
including unpaid accrued interest thereon, is $5,911,097.51.
D. In connection with First Healthcare's purchase of
Greenbriar Terrace (Facility No. 592), NMEP Corp. provided a loan
to First Healthcare in the original sum of $1,452,626.42,
evidenced by promissory note and secured by a mortgage against
the real property (the "Greenbriar Note"). As of the Closing
Date, the outstanding balance of the Greenbriar Note, including
unpaid accrued interest thereon, is $969,110.79.
<PAGE>
<PAGE>
E. In connection with First Healthcare's purchase of
Birchwood Terrace (Facility No. 559), NMEP, Inc. provided a loan
to First Healthcare in the original sum of $893,194.45, evidenced
by a promissory note and secured by a mortgage against the real
property (the "Birchwood Note"). As of the Closing Date, the
outstanding balance of the Birchwood Note, including unpaid
accrued interest thereon, is $647,522.06.
F. On the terms and subject to the conditions set forth in
this Agreement, NME Properties desires to purchase from
Hillhaven, and Hillhaven desires to sell to the NMEP Entities,
120,000 shares of Hillhaven's Series D Preferred Stock (the
"Series D Preferred"), which Series D Preferred shall have the
rights and preferences specified in that certain Certificate of
Designation, Preferences and Rights of Series D Preferred Stock
of Hillhaven (the "Certificate of Designation"), a copy of which
is attached hereto as Exhibit A, for consideration of
$120,000,000.00.
NOW, THEREFORE, in consideration of the foregoing Recitals
and for other good and valuable consideration, the receipt and
adequacy of which are hereby
acknowledged, the parties hereto, intending to be legally bound,
hereby agree as follows:
AGREEMENT
1. Purchase of Series D Preferred. The NMEP Entities
hereby agrees to purchase from Hillhaven, and Hillhaven hereby
agrees to sell to the NMEP Entities, on the Closing Date, 120,000
shares of Series D Preferred for a purchase price of
$120,000,000.00 (the "Purchase Price"), payable as provided in
Section 3 below.
2. Representations and Warranties.
(a) In order to induce the NMEP Entities and NME to enter
into this Agreement and to consummate the transactions
contemplated hereby, Hillhaven hereby covenants, represents and
warrants to the NMEP Entities and NME that:
(i) Hillhaven is duly organized, validly existing and
in good standing under the laws of the State of Nevada.
(ii) Hillhaven has the corporate power, authority
and legal right to make, deliver and perform its obligations
under this Agreement and the Series D Preferred and has taken all
corporate action to authorize the execution, delivery and
performance of this Agreement and the Series D Preferred. No
consent of any other person (including, without limitation,
stockholders and creditors of Hillhaven), and no authorization
of, notice to or other act by or in respect of Hillhaven by, any
governmental authority, agency or instrumentality is required in
connection with the execution, delivery, performance, validity or
enforceability of this Agreement or the Series D Preferred. This
Agreement has been duly executed and delivered by Hillhaven, each
certificate evidencing shares of Series D Preferred has been duly
executed and delivered by Hillhaven and each of this Agreement
<PAGE>
<PAGE>
and each share of Series D Preferred constitutes a legal, valid
and binding obligation of Hillhaven enforceable against Hillhaven
in accordance with its terms.
(iii) The execution, delivery and performance by
Hillhaven of this Agreement and the Series D Preferred will not
violate any provision of any existing law or regulation
applicable to Hillhaven or any of its significant subsidiaries or
of any award, order or decree applicable to Hillhaven or any of
its significant subsidiaries of any court, arbitrator or
governmental authority, or of the Articles of Incorporation or
Bylaws of Hillhaven, or of any security issued by Hillhaven or
any material mortgage, indenture, lease, contract or other
agreement or undertaking to which Hillhaven is a party or by
which Hillhaven or any of its properties or assets may be bound,
and will not result in, or require, the creation or imposition of
any lien on any of its or their respective properties or revenues
pursuant to the provisions of any such mortgage, indenture,
contract, lease or other agreement. Without limiting the
generality of the foregoing, no material mortgage, indenture,
lease, contract or other agreement or undertaking to which
Hillhaven is a party or by which Hillhaven or any of its
properties or assets may be bound prohibits or restricts
Hillhaven from executing, delivering or performing its
obligations hereunder or under the Series D Preferred or from
declaring or paying the dividends contemplated by the Certificate
of Designation, except for the Guarantee Reimbursement Agreement
dated as of January 30, 1990 between NME and Hillhaven (as
amended, the "Guarantee Reimbursement Agreement"), the provisions
of which that so prohibit or restrict the payment or declaration
of the dividends contemplated by the Certificate of Designation
are being waived by NME pursuant to this Agreement.
(iv) No litigation, investigation or proceeding of or
before any arbitrator or governmental authority is pending or, to
the knowledge of Hillhaven, threatened by or against Hillhaven or
any of its subsidiaries or any of its or their respective
properties or revenues (a) with respect to this Agreement or the
Series D Preferred or any of the transactions contemplated hereby
or thereby, or (b) which, if adversely determined, would have a
material adverse effect on Hillhaven's ability to perform its
obligations under this Agreement or the Series D Preferred.
(v) Neither Hillhaven nor any of its significant
subsidiaries is in default in any material respect under or with
respect to any material contract, agreement or other instrument
to which it is a party or by which it or its assets is bound.
Except as would not have a material adverse effect on the
business, operations, properties or financial condition of
Hillhaven and its subsidiaries taken as a whole or on the ability
of Hillhaven to perform its obligations under this Agreement and
the Series D Preferred, Hillhaven is not in default under any
order, award or decree of any court, arbitrator, or other
governmental authority binding upon or affecting it or by which
any of its assets is bound or affected. Hillhaven is not subject
to any order, award or decree which would materially adversely
affect the ability of Hillhaven to perform its obligations under
any other order, award or decree or under this Agreement or the
Series D Preferred.
<PAGE>
<PAGE>
(vi) Hillhaven's guaranty referred to in Recital B
above remains in full force and effect and continues to be a
legal, valid and binding obligation of Hillhaven enforceable
against Hillhaven in accordance with its terms.
(vii) The Series D Preferred has been duly authorized
and issued by Hillhaven. The holders of the Series D Preferred
shall be entitled to all of the benefits of the Series D
Preferred as described in the Certificate of Designation. Upon
Hillhaven's receipt of the Purchase Price and its issuance of the
120,000 shares of Series D Preferred, such 120,000 shares of
Series D Preferred will be fully paid and non-assessable and will
not have been issued or delivered in violation of, or subject to,
any preemptive rights or other rights of any person to subscribe
for or purchase the Series D Preferred.
(b) In order to induce the NMEP Entities and NME to enter
into this Agreement and to consummate the transactions
contemplated hereby, First Healthcare hereby covenants,
represents and warrants to each of the NMEP Entities and NME
that:
(i) First Healthcare is duly organized, validly
existing and in good standing under the laws of the State of
Delaware.
(ii) First Healthcare has the corporate power,
authority and legal right to make, deliver and perform its
obligations under this Agreement and has taken all corporate
action to authorize the execution, delivery and performance of
this Agreement. No consent of any other person (including,
without limitation, stockholders and creditors of First
Healthcare), and no authorization of, notice to or other act by
or in respect of First Healthcare by, any governmental authority,
agency or instrumentality is required in connection with the
execution, delivery, performance, validity or enforceability of
this Agreement. This Agreement has been duly executed and
delivered by First Healthcare and this Agreement constitutes a
legal, valid and binding obligation
of First Healthcare enforceable against First Healthcare in
accordance with its terms.
(iii) The execution, delivery and performance by First
Healthcare of this Agreement will not violate any provision of
any existing law or regulation applicable to First Healthcare or
any of its significant subsidiaries or of any award, order or
decree applicable to First Healthcare or any of its significant
subsidiaries of any court, arbitrator or governmental authority,
or of the Articles of Incorporation or Bylaws of First
Healthcare, or of any security issued by First Healthcare or any
material mortgage, indenture, lease, contract or other agreement
or undertaking to which First Healthcare is a party or by which
First Healthcare or any of its properties or assets may be bound,
and will not result in, or require, the creation or imposition of
any lien on any of its or their respective properties or revenues
pursuant to the provisions of any such mortgage, indenture,
contract, lease or other agreement.
<PAGE>
<PAGE>
(iv) No litigation, investigation or proceeding of or
before any arbitrator or governmental authority is pending or, to
the knowledge of First Healthcare, threatened by or against First
Healthcare or any of its subsidiaries or any of its or their
respective properties or revenues (a) with respect to this
Agreement or any of the transactions contemplated hereby, or (b)
which, if adversely determined, would have a material adverse
effect on First Healthcare's ability to perform its obligations
under this Agreement.
(v) Neither First Healthcare nor any of its
significant subsidiaries is in default in any material respect
under or with respect to any material contract, agreement or
other instrument to which it is a party or by which it or its
assets is bound. Except as would not have a material adverse
effect on the business, operations, properties or financial
condition of First Healthcare and its subsidiaries taken as a
whole or on the ability of First Healthcare to perform its
obligations under this Agreement, First Healthcare is not in
default under any order, award or decree of any court,
arbitrator, or other governmental authority binding upon or
affecting it or by which any of its assets is bound or affected.
First Healthcare is not subject to any order, award or decree
which would materially adversely affect the ability of First
Healthcare to perform its obligations under this Agreement.
(vi) Each of the FHC Promissory Note, the Clayton House
Note, the Greenbriar Note, and the Birchwood Note remains in full
force and effect and continues to be a legal, valid and binding
obligation of First Healthcare, enforceable against First
Healthcare in accordance with its terms. First Healthcare is
current in the payment and performance of its obligations under,
and has not assigned its interests in any of, the FHC Promissory
Note, the Clayton House Note, the Greenbriar Note, and the
Birchwood Note.
(c) In order to induce Hillhaven and First Healthcare to
enter into this Agreement and to consummate the transactions
contemplated hereby, NME hereby covenants, represents and
warrants to Hillhaven and First Healthcare that:
(i) NME is duly organized, validly existing and in
good standing under the laws of the State of Nevada.
(ii) NME has the corporate power, authority and legal
right to make, deliver and perform its obligations under this
Agreement and has taken all corporate action to authorize the
execution, delivery and performance of this Agreement. No
consent of any other person (including, without limitation,
stockholders and creditors of NME), and no authorization of,
notice to or other act by or in respect of NME by, any
governmental authority, agency or instrumentality is required in
connection with the execution, delivery, performance, validity or
enforceability of this Agreement. This Agreement has been duly
executed and delivered by NME and this Agreement constitutes a
legal, valid and binding obligation of NME enforceable against
NME in accordance with its terms.
<PAGE>
<PAGE>
(iii) The execution, delivery and performance by NME of
this Agreement will not violate any provision of any existing law
or regulation applicable to NME or any of its significant
subsidiaries or of any award, order or decree applicable to NME
or any of its significant subsidiaries of any court, arbitrator
or governmental authority, or of the Articles of Incorporation or
Bylaws of NME, or of any security issued by NME or any material
mortgage, indenture, lease, contract or other agreement or
undertaking to which NME is a party or by which NME or any of its
properties or assets may be bound, and will not result in, or
require, the creation or imposition of any lien on any of its or
their respective properties or revenues pursuant to the
provisions of any such mortgage, indenture, contract, lease or
other agreement.
(iv) No litigation, investigation or proceeding of or
before any arbitrator or governmental authority is pending or, to
the knowledge of NME, threatened by or against NME or any of its
subsidiaries or any of its or their respective properties or
revenues (a) with respect to this Agreement or any of the
transactions contemplated hereby, or (b) which, if adversely
determined, would have a material adverse effect on NME's ability
to perform its obligations under this Agreement.
(v) Neither NME nor any of its significant
subsidiaries is in default in any material respect under or with
respect to any material contract, agreement or other instrument
to which it is a party or by which it or its assets is bound.
Except as would not have a material adverse effect on the
business, operations, properties or financial condition of NME
and its subsidiaries taken as a whole or on the ability of NME to
perform its obligations under this Agreement, NME is not in
default under any order, award or decree of any court,
arbitrator, or other governmental authority binding upon or
affecting it or by which any of its assets is bound or affected.
NME is not subject to any order, award or decree which would
materially adversely affect the ability of NME to perform its
obligations under this Agreement.
(d) In order to induce Hillhaven and First Healthcare to
enter into this Agreement and to consummate the transactions
contemplated hereby, each of NMEP Corp., NMEP Inc., and NMEP West
hereby covenants, represents and warrants to Hillhaven and First
Healthcare that:
(i) It is duly organized, validly existing and in good
standing under the laws of the state of incorporation of the
corporation.
(ii) It has the corporate power, authority and legal
right to make, deliver and perform its obligations under this
Agreement and has taken all corporate action to authorize the
execution, delivery and performance of this Agreement. No
consent of any other person (including, without limitation,
stockholders and creditors of the corporation), and no
authorization of, notice to or other act by or in respect of the
corporation by, any governmental authority, agency or
instrumentality is required in connection with the execution,
<PAGE>
<PAGE>
delivery, performance, validity or enforceability of this
Agreement. This Agreement has been duly executed and delivered
by the corporation and this Agreement constitutes a legal, valid
and binding obligation of the corporation enforceable against the
corporation in accordance with its terms.
(iii) The execution, delivery and performance by the
corporation of this Agreement will not violate any provision of
any existing law or regulation applicable to the corporation or
any of its significant subsidiaries or of any award, order or
decree applicable to the corporation or any of its significant
subsidiaries of any court, arbitrator or governmental authority,
or of the Articles of Incorporation or Bylaws of the corporation,
or of any security issued by the corporation or any material
mortgage, indenture, lease, contract or other agreement or
undertaking to which the corporation is a party or by which the
corporation or any of its properties or assets may be bound, and
will not result in, or require, the creation or imposition of any
lien on any of its or their respective properties or revenues
pursuant to the provisions of any such mortgage, indenture,
contract, lease or other agreement.
(iv) No litigation, investigation or proceeding of or
before any arbitrator or governmental authority is pending or, to
the knowledge of the corporation, threatened by or against the
corporation or any of its subsidiaries or any of its or their
respective properties or revenues (a) with respect to this
Agreement or any of the transactions contemplated hereby, or (b)
which, if adversely determined, would have a material adverse
effect on its ability to perform its obligations under this
Agreement.
(v) Neither the corporation nor any of its significant
subsidiaries is in default in any material respect under or with
respect to any material contract, agreement or other instrument
to which it is a party or by which it or its assets is bound.
Except as would not have a material adverse effect on the
business, operations, properties or financial condition of the
corporation and its subsidiaries taken as a whole or on the
ability of the corporation to perform its obligations under this
Agreement, the corporation is not in default under any order,
award or decree of any court, arbitrator, or other governmental
authority binding upon or affecting it or by which any of its
assets is bound or affected. The corporation is not subject to
any order, award or decree which would materially adversely
affect the ability of the corporation to perform its obligations
under this Agreement.
(vi) Except to the extent that the promissory notes
have been pledged and assigned to Swiss Bank Corporation pursuant
to that certain unrecorded Pledge and Security Agreement and
Master Assignment of Mortgages dated as of May 28, 1993 (the
"Pledge Agreement"), the NME Entities have not assigned their
interests in the promissory notes described in the above
Recitals. Upon release of the Pledge Agreement which shall occur
upon Hillhaven's repayment of the THC Facilities Corp. loan
evidenced by the Credit Agreement (as defined in the Pledge
<PAGE>
<PAGE>
Agreement) on September 2, 1993, NMEP Corp. will be the holder of
the FHC Promissory Note and the Greenbriar Note, NMEP West will
be the holder of the Clayton House Note, and NMEP Inc. will be
the holder of the Birchwood Note, free and clear of any liens or
encumbrances.
(vii) It is purchasing the Series D Preferred for
investment purposes and not in connection with or with a view
towards the distribution thereof.
3. The Closing. On September 2, 1993 (the "Closing Date"),
the parties hereto shall take the following actions:
(a) NMEP Corp. shall deposit with Escrow cash or
immediately available funds in the amount of $63,399,432.71, and
shall give written instructions to Escrow to transfer said funds
to First Healthcare's account at PNC Bank.
(b) NMEP Corp. shall assign to Hillhaven its interest in
the FHC Promissory Note, with an outstanding balance in the sum
of $49,072,836.93;
(c) NMEP Corp. shall assign to Hillhaven its interest in
the Greenbriar Note, with an outstanding balance in the sum of
$969,110.79;
(d) NMEP West shall assign to Hillhaven its interest in the
Clayton House Note, with an outstanding balance in the sum of
$5,911,097.51;
(e) NMEP Inc. shall assign to Hillhaven its interest in the
Birchwood Note, with an outstanding balance in the sum of
$647,522.06;
(f) In consideration of (i) payment of the cash sum
described in subparagraph (a) above, and (ii) the assignment to
Hillhaven of the promissory notes described in subparagraphs (b),
(c), (d) and (e) above, Hillhaven shall deliver to the NME
Entities the following certificates representing a total of
120,000 shares of Series D Preferred:
(i) Certificate representing 63,399 shares of Series D
Preferred in the name of NME Properties Corp.;
(ii) Certificate representing 50,042 shares of Series D
Preferred in the name of NME Properties Corp.;
(iii) Certificate representing 5911 shares of Series D
Preferred in the name of NME Properties West, Inc.; and
(iv) Certificate representing 648 shares of Series D
Preferred in the name of NME Properties, Inc.
4. NME Waivers. NME hereby waives the provisions of
Section 5(h) of that certain Guarantee Reimbursement Agreement to
the extent that such provisions would prohibit Hillhaven from
paying dividends on the Series D Preferred; provided, however,
that such waiver shall be limited to Hillhaven being permitted to
<PAGE>
<PAGE>
pay dividends only on the Series D Preferred (and on Series C
Preferred for which a waiver was previously obtained) and not on
any other series or class of stock of Hillhaven or any of its
subsidiaries.
5. Survival of Certain Representations and Warranties and
Covenants. Hillhaven's representations and warranties set forth
in Section 2(a)(vii) shall survive the execution, delivery and
performance of this Agreement.
6. Miscellaneous.
(a) This Agreement may be executed in as many counterparts
as may be deemed necessary or convenient, and by the different
parties hereto on separate counterparts, each of which, when so
executed, shall be deemed an original but all such counterparts
shall constitute one and the same agreement.
(b) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
(c) No waiver or modification of any provision of this
Agreement shall be (i) valid or enforceable unless it is in
writing and has been executed by the party against whom such
enforcement is sought, or (ii) construed as a waiver or
modification of any other provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the day and year
first above written.
National Medical Enterprises, Inc.,
a Nevada corporation
By: /s/ Maris Andersons
Title: Executive Vice President
NME Properties Corp.,
a Tennessee corporation
By: /s/ Maris Andersons
Title: Senior Vice President
NME Properties, Inc.,
a Delaware corporation
By: /s/ Maris Andersons
Title: Senior Vice President
<PAGE>
<PAGE>
NME Properties West, Inc.,
a Delaware corporation
By: /s/ Maris Andersons
Title: Senior Vice President
The Hillhaven Corporation,
a Nevada corporation
By: /s/ Robert K. Schneider
Title: Vice President & Treasurer
First Healthcare Corporation,
a Delaware corporation
By: /s/ Robert K. Schneider
Title: Vice President & Treasurer
<PAGE>
<PAGE>
Exhibit 10.06
RESIGNATION AGREEMENT AND GENERAL RELEASE
This Resignation Agreement and General Release (the
"Agreement") dated as of September 15, 1993, by and between The
Hillhaven Corporation, a Nevada corporation (the "Corporation"),
and Richard K. Eamer ("Mr. Eamer").
WITNESSETH:
WHEREAS, Mr. Eamer is a member of the Board of Directors of
the Corporation; and
WHEREAS, Mr. Eamer and the Corporation entered into an
Employment Agreement dated January 31, 1990 (the "Employment
Agreement"); and
WHEREAS, Mr. Eamer served as Chairman and, until April 1,
1991, as Chief Executive Office of the Corporation; and
WHEREAS, the Employment Agreement contemplates that Mr.
Eamer would remain employed by the Corporation until January 31,
1995; and
WHEREAS, Mr. Eamer has decided to resign as a director and
as Chairman of the Corporation, and resign from employment with
the Corporation, effective as of the date hereof under the terms
set forth herein; and
WHEREAS, the terms of this Agreement are the product of
mutual negotiation and compromise between Mr. Eamer and the
Corporation; and
WHEREAS, Mr. Eamer has been advised to consult with or seek
advice from an attorney prior to execution of this Agreement and
has in fact done so; and
WHEREAS, Mr. Eamer has carefully considered other
alternatives to executing this Agreement.
NOW, THEREFORE, for and in consideration of the premises and
for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree
as follows:
Section 1. Resignation. Mr. Eamer hereby resigns as a
director and as Chairman of the Corporation, and his employment
pursuant to the Employment Agreement, effective of the date
hereof.
Section 2. Severance Pay. The Corporation will pay to Mr.
Eamer the sum of Two Hundred Six Thousand Two Hundred Fifty and
00/100 Dollars ($206,250.00) as severance pay. The Corporation
shall make the required withholding for taxes.
<PAGE>
<PAGE>
Section 3. Annual Incentive Plan. Mr. Eamer shall not be
eligible to participate in the Corporation's Annual Incentive
Plan for any period after May 31, 1993, and Mr. Eamer shall not
receive any further payment with respect to such Annual Incentive
Plan.
Section 4. Long Term Incentive Plan. Mr. Eamer shall not
be eligible to participate in the Corporation's Long Term
Incentive Plan for future cycles, and Mr. Eamer shall not receive
any further payments with respect to such Long Term Incentive
Plan.
Section 5. Restricted Shares. Pursuant to Incentive Stock
Award RS 90-000001 dated February 5, 1990, Mr. Eamer was granted
1,500,000 shares of restricted stock, the restrictions on which
were to lapse as follows: February 5, 1991, 300,000 shares;
February 5, 1992, 300,000 shares; February 5, 1993, 300,000
shares; February 5, 1994, 300,000 shares; and February 5, 1995,
300,000 shares. The restrictions on the 600,000 shares which
would lapse on February 5, 1994 and February 5, 1995 shall now
lapse on the date hereof; provided, however, that the parties
shall execute an Amendment of Mr. Eamer's Incentive Stock Award
evidencing such change in the restrictions.
Section 6. Stock Optional Performance Shares. On July 15,
1992 and July 27, 1993, Mr. Eamer was granted stock options to
acquire 19,250 and 12,550 shares, respectively, of the
Corporation's common stock (the "Options"), and the Corporation's
Compensation Committee declared Mr. Eamer eligible to receive
19,250 Performance Shares with respect to the three (3) year
period ending May 31, 1995 and 12,550 Performance Shares with
respect to the three (3) year period ending May 31, 1996 (the
"Performance Shares"). Regardless of any contrary provisions in
any instrument, certificate or document pertaining to the
Options, Mr. Eamer shall have from the date hereof through the
unexpired term thereof in which to exercise each particular
option. Mr. Eamer hereby relinquishes all right, title and
interest in and to the Performance Shares.
Section 7. Hillhaven Capacity. The Corporation enters into
this Agreement for the benefit of itself as well as its
shareholders, partners, affiliates, subsidiaries, divisions,
successors and assigns, and the present and/or former employees,
officers, directors and agents thereof, both in their official
and individual capacities. All references to the "Corporation"
in this Agreement shall be deemed to include all the persons and
entities previously referenced in this section.
Section 8. Confidentiality; Cooperation With Legal Process.
(a) Mr. Eamer acknowledges that he has held a sensitive
management position with the Corporation and that, by virtue of
having held such position, he has had access to and has learned
the Corporation's and its subsidiaries' and affiliates'
confidential and proprietary information and trade secrets
pertaining to its operations, officers and directors. Mr. Eamer
agrees that he shall keep all such information confidential and
that he shall not disclose any such information to any other
<PAGE>
<PAGE>
person, except as may be required by law. Without limiting the
generality of the foregoing, Mr. Eamer agrees that he will not
respond to or in any way participate in or contribute to any
public discussion, notice or other publicity concerning or in any
way related to propriety or confidential information concerning
the Corporation, its subsidiaries, affiliates, operations,
officers or directors, or any matters concerning his employment
with the Corporation.
(b) The parties agree that no provision of this Section 8
or any other provision of this Agreement shall be construed or
interpreted in any way to limit, restrict or preclude either
party hereto from cooperating with any governmental agency in the
performance of its investigatory or other lawful duties or
producing materials or giving testimony pursuant to a court
proceeding.
(c) The parties agree that they will keep the terms,
amounts and facts of this Agreement completely confidential, and
that they will not hereafter disclose any information concerning
this Agreement to anyone except their respective attorneys or
accountants, including, but not limited to, any past, present, or
prospective employees of the Corporation or any of its parent,
subsidiary or related companies or entities, except, in each
case, as may be required by law, including, without limitation,
filings with the Securities and Exchange Commission.
(d) Mr. Eamer agrees that if he receives a subpoena or is
otherwise required by law to provide information to a
governmental entity or other person concerning the activities of
the Corporation or his activities in connection with the
Corporation's business, he will immediately notify the
Corporation of subpoena or requirement and deliver to the
Corporation a copy of such subpoena.
Section 9. Release By Mr. Eamer. Mr. Eamer agrees that
this Agreement settles any and all claims and disputes he has
against the Corporation. Except as hereinafter provided, Mr.
Eamer fully releases and forever discharges the Corporation from
any and all known or unknown actions, causes of action, claims,
debts, obligations, promises, contracts, liabilities, suits,
complaints and all other matters whatsoever, in law or equity,
which Mr. Eamer, his marital community, heirs, executors,
administrators, successors and assigns may now have or hereafter
can, shall or may have against the Corporation for, upon or by
reason of any matter, cause or thing whatsoever including, but
not limited to, any and all matters arising out of his employment
by the Corporation and the cessation of said employment, and
including, but not limited to, any alleged violation of Title VII
of the Civil Rights Act of 1964, Section 1981 through 1988 of
Title 42 of the United States Code, the Immigration Reform and
Control Act of 1986, the Employee Retirement Income Security Act
of 1974, the Americans with Disabilities Act, the Consolidated
Omnibus Budget Reconciliation Act of 1985, the Vocational
Rehabilitation Act of 1973, the Age Discrimination in Employment
Act of 1967, the National Labor Relations Act, the Fair Labor
Standards Act, the Occupational Safety and Health Act, the
Securities Act of 1933, the Securities Exchange Act of 1934 and
<PAGE>
<PAGE>
any other federal, state or local civil, labor, wage-hour, human
rights or securities law, or any other alleged violation of any
local, state or federal law, regulation or ordinance, and/or
public policy, contract, tort or common law which he ever had,
now has, may have or shall have as of the date of this Agreement.
It is understood and agreed that this is a full and general
release covering all unknown, undisclosed and unanticipated
losses, wrongs, injuries, debts, claims or damages to Mr. Eamer
which may have arisen, or may arise from any act or omission
prior to the date of this Agreement. The Release in this Section
shall not apply to the Corporation's performance of this
Agreement. Notwithstanding the foregoing, nothing in the Release
set forth in this Section 9 nor anything else in this Agreement
shall be deemed to be a waiver or release by Mr. Eamer of any
right that Mr. Eamer has or may have to claim indemnity for
liabilities in connection with his activities as a director,
officer or employee of the Corporation pursuant to any applicable
statute, under any insurance policy, pursuant to the Articles of
Incorporation or Bylaws of the Corporation or pursuant to any
agreement of indemnification by and between the Corporation and
Mr. Eamer.
Section 10. Release By The Corporation. The Corporation
fully releases and forever discharges Mr. Eamer, his marital
community, heirs, executors, administrators, successors and
assigns from any and all known or unknown actions, causes of
action, claims, debts, obligations, promises, contracts,
liabilities, suits, complaints and all other matters whatsoever,
in law or equity, which the Corporation, its successors and
assigns may now have or hereafter can, shall or may have against
Mr. Eamer for, upon or by reason of any matter, cause or thing
whatsoever including, but not limited to, any and all matters
arising out of Mr. Eamer's employment by the Corporation and the
cessation of said employment. It is understood and agreed that
this is a full and general Release covering all unknown,
undisclosed and unanticipated losses, wrongs, injuries, debts,
claims or damages to the Corporation which may have arisen, or
may arisen from any act or omission prior to the date of this
Agreement.
Section 11. Section 1542. It is understood and agreed that
each of the releases set forth in Sections 9 and 10 is a full and
general release covering all unknown, undisclosed and
unanticipated losses, wrongs, injuries, debts, claims or damages
to Mr. Eamer or the Corporation which may have arisen, or may
arise from any act or omission prior to the date of execution of
this Agreement including, but not limited to, all matters arising
out of or related, directly or indirectly, to Mr. Eamer's
employment, compensation, or resignation. Mr. Eamer and the
Corporation each hereby waives any and all rights or benefits
which he or it may now have, or in the future may have, under the
terms of Section 1542 of the California Civil Code, which
provides as follows:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor
at the time of executing the release, which if known by
him must have materially affected his settlement with
the Debtor.
<PAGE>
<PAGE>
Section 12. Severability. Should any provision of this
Agreement be declared illegal or unenforceable by any court of
competent jurisdiction in any action or proceeding instituted by,
on behalf or for the benefit of either party with respect to this
Agreement, and such provision cannot be modified to be
enforceable, such provision shall immediately become null and
void and the parties shall renegotiate such provision in good
faith, leaving the remainder of this Agreement in full force and
effect.
Section 13. Governing Law; Forum; Attorneys' Fees. This
Agreement is to be governed by and construed in accordance with
the substantive law of the State of California applicable to
contracts made and to be performed therein, without giving effect
to its conflicts of law provisions. In the event of the
commencement of suit to enforce any of the terms or conditions in
this Agreement, the prevailing party in such litigation shall be
entitled to recover its attorney's fees and costs.
Section 14. Construction. The parties acknowledge that
this Agreement was the subject of negotiation and that both have
participated in the drafting of the Agreement and thus it should
not be construed against either party.
Section 15. Non-Reliance; Entire Agreement. Mr. Eamer and
the Corporation each represents and acknowledges that in
executing this Agreement, he or it does not rely and has not
relied upon any promise, representation or statement by the other
party or by any of the other party's employees, agents,
representatives or attorneys not set forth herein with regard to
the subject matter, basis or effect of this Agreement. This
Agreement represents the complete understanding of and between
the parties.
Section 16. Binding Effect. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
upon their marital community, heirs, administrators,
representatives, executors, successors and assigns.
Section 17. Amendments. This Agreement may not be amended,
modified or altered except in a writing signed by both parties
which specifically references this Agreement.
Section 18. Headings. The headings used herein are for
convenience of reference only and shall not be used in
interpreting this Agreement.
Section 19. 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.
THEREFORE, the parties to this Resignation Agreement and
General Release now voluntarily and knowingly execute this
Resignation Agreement and General Release as of the date first
set forth above.
<PAGE>
<PAGE>
THE HILLHAVEN CORPORATION
By: /s/ Bruce L. Busby
Bruce L. Busby
Chief Executive Officer
/s/ Richard K. Eamer
Richard K. Eamer
The undersigned attorney acknowledges that he has reviewed
this Resignation Agreement and General Release and has
represented and advised Mr. Eamer in connection herewith.
By: /s/ Melvin S. Spears
Date: September 15, 1993
The undersigned attorney acknowledges that he has reviewed
this Resignation Agreement and General Release and has
represented and advised The Hillhaven Corporation in connection
herewith.
By: /s/ Richard P. Adcock
Date: September 20, 1993
<PAGE>
<PAGE>
Exhibit 10.08
AMENDMENT NO. ONE TO EMPLOYMENT AGREEMENT
This Amendment No. One to Employment Agreement (the
"Amendment") dated as of May 31, 1994, between The Hillhaven
Corporation, a Nevada corporation (the "Company"), and Leonard
Cohen ("Mr. Cohen").
WITNESSETH:
WHEREAS, the Company and Mr. Cohen are parties to that
certain Employment Agreement dated as of January 31, 1990 (the
"Agreement"), pursuant to which the Company employed Mr. Cohen as
its Vice Chairman and Deputy Chief Executive Officer; and
WHEREAS, Mr. Cohen has previously voluntarily relinquished
his position as Deputy Chief Executive Officer; and
WHEREAS, Mr. Cohen's term as a director of the Company
expires at the 1994 Annual Meeting of Shareholders of the
Company, and Mr. Cohen has decided not to stand for reelection;
and
WHEREAS, Mr. Cohen and the Company have agreed to amend the
Agreement pursuant to the terms and conditions set forth herein;
NOW, THEREFORE, for and in consideration of the premises,
and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Amendment to Agreement. The Agreement is hereby amended
in the following respects:
A. Sections 1, 2 and 3(b)(iii) of the Agreement are hereby
amended by deleting the phrase "Vice Chairman and Deputy Chief
Executive Officer of the Company" wherever it appears in such
sections and replacing it with the phrase "Vice Chairman and
Deputy Chief Executive Officer of, or as a consultant to, the
Company".
B. The second sentence of Section 5(c) of the Agreement is
hereby amended by deleting the phrase "from his office as Vice
Chairman and Deputy Chief Executive Officer of the Company" and
replacing it with the phrase "as Vice Chairman and Deputy Chief
Executive Officer of, and as a consultant to, the Company,".
C. Section 5(d) of the Agreement is hereby amended by
deleting Subsection (C) in its entirety and replacing it with the
following: "(C) any removal of Mr. Cohen as consultant to the
Company, except in connection with termination of Mr. Cohen's
employment for Cause, or".
<PAGE>
<PAGE>
2. Effect on Agreement. Except as expressly amended by
this Amendment, all of the terms and conditions of the Agreement
shall remain in full force and effect, including, without
limitation, the provisions of Section 3(a) entitling Mr. Cohen to
his salary through January 31, 1995. In addition, nothing
contained herein shall restrict Mr. Cohen from receiving the
final installment of 48,000 shares of the Company's Common Stock
on February 5, 1995 pursuant to the terms of that certain
Incentive Stock Award (Restricted Shares) dated as of February 5,
1990.
3. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of California.
4. Counterparts. This Amendment may be executed in one or
more counterparts, each of which shall be deemed an original, and
all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment effective as of the date first set forth above.
/s/ Leonard Cohen
Leonard Cohen
THE HILLHAVEN CORPORATION
By: /s/ Bruce L. Busby
Chairman and Chief Executive Officer
<PAGE>
<PAGE>
Exhibit 10.10
AGREEMENT
This Agreement dated as of May 24, 1994 (this "Agreement"),
between The Hillhaven Corporation, a Nevada corporation (the
"Company"), and Christopher J. Marker (the "Executive").
WITNESSETH:
WHEREAS, the Executive is currently employed by the Company
or one of its subsidiaries as its President and Chief Operating
Officer (the "Position"); and
WHEREAS, the Executive has extensive management experience
in long term care and the operation of the Company, and such
experience is very important to the continued success of the
Company, as well as to the orderly transition of the Company
should a change in corporate control and ownership occur; and
WHEREAS, changes in corporate control and ownership are
common occurrences in the current business environment, which can
be disruptive to a company's business and operations and
detrimental to the best interests of its shareholders; and
WHEREAS, the Company believes that it is in the best
interests of the Company and its shareholders to enter into
agreements with certain key officers, including the Executive, in
order to ensure their retention and to promote their objectivity
in reviewing proposed changes in control which may occur in the
future.
NOW, THEREFORE, the parties agree as follows:
1. Definitions. For purposes of this Agreement, the terms
set forth in this Section shall have the following meanings:
(a) a "Change in Control" of the Company shall be
deemed to have occurred if: (i) any Person, alone or
together with its Affiliates and Associates, is or becomes
the beneficial owner directly or indirectly of securities of
the Company representing 30% or more of the general voting
power of the Company; (ii) during any period of two
consecutive years during the term of this Agreement,
individuals who at the beginning of such period constitute
the Board of Directors of the Company cease for any reason
other than death or disability to constitute at least a
majority thereof; or (iii) any Person makes any filing under
Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended, with respect to the Company.
(b) "Person" shall mean an individual, firm,
corporation or other entity or any successor to such entity,
together with all Affiliates and Associates of such Person,
but "Person" shall not include the Company, National Medical
Enterprises, Inc. ("NME"), any subsidiary of the Company or
NME, any Affiliate or Associate of NME, any employee benefit
<PAGE>
<PAGE>
plan or employee stock plan of the Company, any subsidiary
of the Company, NME or any subsidiary of NME, or any Person
organized, appointed, established or holding Voting Stock
by, for or pursuant to the terms of such a plan or any
Person who acquires 20% or more of the general voting power
of the Company in a transaction or series of transactions
approved prior to such transaction or series of transactions
by the Board of Directors of the Company.
(c) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of
the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended.
(d) "Voting Stock" means shares of the Company's
capital stock having general voting power, with "voting
power" meaning the power under ordinary circumstances (and
not merely upon the happening of a contingency) to vote in
the election of directors.
(e) "Cause" shall mean: the willful, substantial,
continued and unjustified refusal of the Executive to
perform the duties of his or her office to the extent of his
or her ability to do so; any conduct on the part of the
Executive which constitutes a breach of any statutory or
common law duty of loyalty to the Company; any illegal or
publicly immoral act by the Executive which materially and
adversely affects the business of the Company; the physical
or mental disability of the Executive as determined by the
Board of Directors of the Company and resulting in his or
her inability to perform his or her duties hereunder; or the
death of the Executive.
2. Payments Upon Change in Control.
(a) If a Change in Control of the Company occurs at
any time and if at any time during the two-year period
thereafter, the Company (i) terminates the Executive without
Cause from the Position or from a comparable or higher position
with the Company, (ii) assigns to the Executive responsibilities
or title materially less than his or her responsibilities and
title as of the date hereof, (iii) reduces his or her salary,
(iv) reduces his or her fringe benefits other than in accordance
with a reduction in fringe benefits applicable to substantially
all employees of the Company, or (v) requires the Executive to
relocate to any location beyond a 30-mile radius of his or her
current principal place of employment, then in any such event,
the Company shall pay the Executive a severance benefit in cash
within 30 days after the occurrence of any such event in an
amount equal to two years' base salary.
(b) Whether or not any payment is made pursuant to
Section 2(a), if a Change in Control of the Company occurs at any
time and the Executive reasonably determines that any payment or
distribution by the Company or any of its Affiliates or
Associates to or for the benefit of the Executive, whether paid
or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including
<PAGE>
<PAGE>
without limitation any restricted stock, stock option, stock
appreciation right or similar right, or the lapse or termination
of any restriction on or the vesting or exerciseability of any of
the foregoing (individually and collectively, a "Payment"), would
be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") (or any
successor provision thereto) by reason of being considered
"contingent on a change in ownership or control" of the Company,
within the meaning of Section 280G of the Code (or any successor
provision thereto), or any interest or penalties with respect to
such excise tax (such excise tax, together with any such interest
and penalties, being hereinafter collectively referred to as the
"Excise Tax"), then the Company shall pay to the Executive an
additional payment or payments (individually and collectively, a
"Gross-Up Payment"). The Gross-Up Payment shall be in an amount
such that, after payment by the Executive of all taxes required
to be paid by the Executive with respect to the receipt thereof
under the terms of any Federal, state or local government or
taxing authority (including any interest or penalties imposed
with respect to such taxes), including any Excise Tax imposed
with respect to the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed
upon the Payment. The Company shall pay the Gross-Up Payment to
the Executive within 30 days of its receipt of written notice
from the Executive that such Excise Tax has been paid or will be
payable at any time in the future.
3. Assignment; Binding Effect. Neither this Agreement nor
any rights or obligations hereunder may be assigned or pledged by
the Executive. This Agreement and the rights and obligations of
the parties hereunder shall be binding upon, and inure to the
benefit of, the parties hereto, the heirs and legal
representatives of the Executive and the successors and assigns
of the Company.
4. No Right to Employment. Nothing herein shall confer
upon the Executive any right to continue in the employ of the
Company or a subsidiary thereof or shall interfere in any way
with the right of the Company or any subsidiary to terminate such
employment at any time.
5. Severability. Should any provision of this Agreement
be declared illegal or unenforceable by any court of competent
jurisdiction in any action or proceeding, and such provision
cannot be modified to be enforceable, such provision shall
immediately become null and void and the parties shall
renegotiate such provision in good faith, leaving the remainder
of this Agreement in full force and effect.
6. Notices. Any notice to be given hereunder shall be
effective upon receipt, shall be in writing and shall be
personally delivered or sent by registered or certified mail,
postage prepaid to the following address or such other places as
either party shall designate in writing:
<PAGE>
<PAGE>
If to the Company: The Hillhaven Corporation
1148 Broadway Plaza
Tacoma, Washington 98402
Attention: Chief Executive Officer
with a copy to: The Hillhaven Corporation
1148 Broadway Plaza
Tacoma, Washington 98402
Attention: General Counsel
If to the Executive: Christopher J. Marker
3427 Evergreen Point Road
Bellevue, Washington 98004
7. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Washington.
8. Attorneys' Fees; Etc. In the event that the Executive
brings any suit, action or other legal proceeding to enforce any
of the terms of this Agreement, and the Executive prevails in any
such suit, action or proceeding, the Company shall reimburse the
Executive for all costs and expenses, including reasonable
attorneys' fees, incurred by or for the account of the Executive
in connection with such suit, action or proceeding. The Company
shall pay such amount within ten days after receipt of the
Executive's demand therefor.
9. Headings. The headings and captions used in this
Agreement are for convenience of reference only, and shall not in
any way limit or affect the construction or interpretation of any
provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of the date first above written.
THE HILLHAVEN CORPORATION
By: /s/ Bruce L. Busby
Its: Chief Executive Officer
/s/ Christopher J. Marker
Christopher J. Marker
<PAGE>
<PAGE>
<PAGE>
Exhibit 10.11
AGREEMENT
This Agreement dated as of ________________, 199____ (this
"Agreement"), between The Hillhaven Corporation, a Nevada
corporation (the "Company"), and ____________________________
(the "Executive").
WITNESSETH:
WHEREAS, the Executive is currently employed by the Company
or one of its subsidiaries as its ______________________________
(the "Position"); and
WHEREAS, the Executive has extensive management experience
in long term care and the operation of the Company, and such
experience is very important to the continued success of the
Company, as well as to the orderly transition of the Company
should a change in corporate control and ownership occur; and
WHEREAS, changes in corporate control and ownership are
common occurrences in the current business environment, which can
be disruptive to a company's business and operations and
detrimental to the best interests of its shareholders; and
WHEREAS, the Company believes that it is in the best
interests of the Company and its shareholders to enter into
agreements with certain key officers, including the Executive, in
order to ensure their retention and to promote their objectivity
in reviewing proposed changes in control which may occur in the
future.
NOW, THEREFORE, the parties agree as follows:
1. Definitions. For purposes of this Agreement, the terms
set forth in this Section shall have the following meanings:
(a) a "Change in Control" of the Company shall be
deemed to have occurred if: (i) any Person, alone or
together with its Affiliates and Associates, is or becomes
the beneficial owner directly or indirectly of securities of
the Company representing 30% or more of the general voting
power of the Company; (ii) during any period of two
consecutive years during the term of this Agreement,
individuals who at the beginning of such period constitute
the Board of Directors of the Company cease for any reason
other than death or disability to constitute at least a
majority thereof; or (iii) any Person makes any filing under
Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended, with respect to the Company.
(b) "Person" shall mean an individual, firm,
corporation or other entity or any successor to such entity,
together with all Affiliates and Associates of such Person,
but "Person" shall not include the Company, National Medical
Enterprises, Inc. ("NME"), any subsidiary of the Company or
NME, any Affiliate or Associate of NME, any employee benefit
<PAGE>
<PAGE>
plan or employee stock plan of the Company, any subsidiary
of the Company, NME or any subsidiary of NME, or any Person
organized, appointed, established or holding Voting Stock
by, for or pursuant to the terms of such a plan or any
Person who acquires 20% or more of the general voting power
of the Company in a transaction or series of transactions
approved prior to such transaction or series of transactions
by the Board of Directors of the Company.
(c) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of
the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended.
(d) "Voting Stock" means shares of the Company's
capital stock having general voting power, with "voting
power" meaning the power under ordinary circumstances (and
not merely upon the happening of a contingency) to vote in
the election of directors.
(e) "Cause" shall mean: the willful, substantial,
continued and unjustified refusal of the Executive to
perform the duties of his or her office to the extent of his
or her ability to do so; any conduct on the part of the
Executive which constitutes a breach of any statutory or
common law duty of loyalty to the Company; any illegal or
publicly immoral act by the Executive which materially and
adversely affects the business of the Company; the physical
or mental disability of the Executive as determined by the
Board of Directors of the Company and resulting in his or
her inability to perform his or her duties hereunder; or the
death of the Executive.
2. Payments Upon Change in Control.
(a) If a Change in Control of the Company occurs at
any time and if at any time during the [one/two]-year period
thereafter, the Company (i) terminates the Executive without
Cause from the Position or from a comparable or higher position
with the Company, (ii) assigns to the Executive responsibilities
or title materially less than his or her responsibilities and
title as of the date hereof, (iii) reduces his or her salary,
(iv) reduces his or her fringe benefits other than in accordance
with a reduction in fringe benefits applicable to substantially
all employees of the Company, or (v) requires the Executive to
relocate to any location beyond a 30-mile radius of his or her
current principal place of employment, then in any such event,
the Company shall pay the Executive a severance benefit in cash
within 30 days after the occurrence of any such event in an
amount equal to two years' base salary.
(b) Whether or not any payment is made pursuant to
Section 2(a), if a Change in Control of the Company occurs at any
time and the Executive reasonably determines that any payment or
distribution by the Company or any of its Affiliates or
Associates to or for the benefit of the Executive, whether paid
or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including
<PAGE>
<PAGE>
without limitation any restricted stock, stock option, stock
appreciation right or similar right, or the lapse or termination
of any restriction on or the vesting or exerciseability of any of
the foregoing (individually and collectively, a "Payment"), would
be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") (or any
successor provision thereto) by reason of being considered
"contingent on a change in ownership or control" of the Company,
within the meaning of Section 280G of the Code (or any successor
provision thereto), or any interest or penalties with respect to
such excise tax (such excise tax, together with any such interest
and penalties, being hereinafter collectively referred to as the
"Excise Tax"), then the Company shall pay to the Executive an
additional payment or payments (individually and collectively, a
"Gross-Up Payment"). The Gross-Up Payment shall be in an amount
such that, after payment by the Executive of all taxes required
to be paid by the Executive with respect to the receipt thereof
under the terms of any Federal, state or local government or
taxing authority (including any interest or penalties imposed
with respect to such taxes), including any Excise Tax imposed
with respect to the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed
upon the Payment. The Company shall pay the Gross-Up Payment to
the Executive within 30 days of its receipt of written notice
from the Executive that such Excise Tax has been paid or will be
payable at any time in the future.
3. Assignment; Binding Effect. Neither this Agreement nor
any rights or obligations hereunder may be assigned or pledged by
the Executive. This Agreement and the rights and obligations of
the parties hereunder shall be binding upon, and inure to the
benefit of, the parties hereto, the heirs and legal
representatives of the Executive and the successors and assigns
of the Company.
4. No Right to Employment. Nothing herein shall confer
upon the Executive any right to continue in the employ of the
Company or a subsidiary thereof or shall interfere in any way
with the right of the Company or any subsidiary to terminate such
employment at any time.
5. Severability. Should any provision of this Agreement
be declared illegal or unenforceable by any court of competent
jurisdiction in any action or proceeding, and such provision
cannot be modified to be enforceable, such provision shall
immediately become null and void and the parties shall
renegotiate such provision in good faith, leaving the remainder
of this Agreement in full force and effect.
6. Notices. Any notice to be given hereunder shall be
effective upon receipt, shall be in writing and shall be
personally delivered or sent by registered or certified mail,
postage prepaid to the following address or such other places as
either party shall designate in writing:
If to the Company: The Hillhaven Corporation
1148 Broadway Plaza
Tacoma, Washington 98402
Attention: Chief Executive Officer
<PAGE>
<PAGE>
with a copy to: The Hillhaven Corporation
1148 Broadway Plaza
Tacoma, Washington 98402
Attention: General Counsel
If to the Executive: _______________________________
_______________________________
_______________________________
7. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Washington.
8. Attorneys' Fees; Etc. In the event that the Executive
brings any suit, action or other legal proceeding to enforce any
of the terms of this Agreement, and the Executive prevails in any
such suit, action or proceeding, the Company shall reimburse the
Executive for all costs and expenses, including reasonable
attorneys' fees, incurred by or for the account of the Executive
in connection with such suit, action or proceeding. The Company
shall pay such amount within ten days after receipt of the
Executive's demand therefor.
9. Headings. The headings and captions used in this
Agreement are for convenience of reference only, and shall not in
any way limit or affect the construction or interpretation of any
provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of the date first above written.
THE HILLHAVEN CORPORATION
By: __________________________
Its: _________________________
______________________________
(Type Executive's name here)
<PAGE>
<PAGE>
Exhibit 10.14
The Hillhaven Corporation
Board of Directors Retirement Plan
Effective January 1, 1994
Section 1
STATEMENT OF PURPOSE
The Board of Directors Retirement Plan (the "Plan") of The
Hillhaven Corporation has been adopted to attract, retain,
motivate and provide financial security to members of the Board
of Directors who are not employees of the Company (the
"Participants").
Section 2
DEFINITIONS
2.1 Agreement. "Agreement" means a written agreement
substantially in the form of Exhibit A between The Hillhaven
Corporation and a Participant.
2.2 Annual Board Retainer. "Annual Board Retainer" means the
total annual retainer paid to a Director by The Hillhaven
Corporation for Service on The Hillhaven Corporation's Board
of Directors, excluding any separate fees paid for meeting
attendance or service on any committees of the Board of
Directors.
2.3 Committee. "Committee" means the members of the Executive
Committee of the Board of Directors of The Hillhaven
Corporation who are employees of the Company.
2.4 Company. "Company" means The Hillhaven Corporation and its
Subsidiaries.
2.5 Change of Control. "Change of Control" shall be deemed to
have occurred if (a) any person as such term is used in
Sections 13(c) and 14(d)(2) of the Securities and Exchange
Act of 1934, or as amended, is or becomes the beneficial
owner directly or indirectly of securities of The Hillhaven
Corporation representing thirty percent or more of the
combined voting power of The Hillhaven Corporation's then
outstanding securities, or (b) during any two year period
after January 1, 1994, individuals who at the beginning of
such period constitute the Board of Directors of The
Hillhaven Corporation cease for any reason other than death
or disability to constitute a majority of the board;
provided, however, that a Change of Control shall not be
deemed to have occurred if National Medical Enterprises,
Inc. ("NME") or any subsidiary of NME, becomes the
beneficial owner of thirty percent or more of the general
voting power of THC solely on account of NME's acquisition
of shares of THC's Common Stock pursuant to its exercise of
warrants under that certain Warrant and Registration Rights
Agreement dated as of January 31, 1990 among NME, THC and
Manufacturers Hanover Trust Company of California.
<PAGE>
<PAGE>
2.6 Director. A "Director" is any member of the Board of
Directors of The Hillhaven Corporation who is not an
employee of the Company and who enters into an Agreement to
participate in this Plan.
2.7 Eligible Children. "Eligible Children" means all natural or
adopted children of a Participant under the age of 21,
including any child conceived prior to the death of a
Participant.
2.8 Final Annual Board Retainer. "Final Annual Board Retainer"
means the Annual Board Retainer being paid to a Director at
the time of his or her Termination of Service on the Board
of Directors of The Hillhaven Corporation.
2.9 Normal Retirement Age. "Normal Retirement Age" under this
Plan is age 65.
2.10 Participant. "Participant" shall include any Director who
is not an employee of The Hillhaven Corporation and who,
with the permission of the Committee, enters into an
Agreement to participate in the Plan.
2.11 Service. "Service" refers to service as a Director of The
Hillhaven Corporation.
2.12 Subsidiary. A "Subsidiary" of the Company is any
corporation, partnership, venture or other entity in which
the Company owns 50% of the capital stock or otherwise has a
controlling interest as determined by the Committee, in its
sole and absolute discretion.
2.13 Surviving Spouse. "Surviving Spouse" means the person
legally married to the Participant for at least one year
prior to the Participant's death or Termination of Service.
2.14 Termination of Service. "Termination of Service" means the
cessation of a Participant's service as a Director of The
Hillhaven Corporation for any reason whatsoever, whether
voluntarily or involuntarily.
2.15 Year. A "Year" is a period of twelve consecutive calendar
months.
2.16 Year of Service. "Year of Service" means each complete year
of Service as a Director of The Hillhaven Corporation.
Years of Service shall be deemed to have begun as of the
first day of the calendar month of service and to have
ceased on the last day of the calendar month of service.
<PAGE>
<PAGE>
Section 3
RETIREMENT BENEFITS
3.1 Retirement Benefit.
(a) Upon the later of a Participant's Termination of
Service or attainment of Normal Retirement Age, The
Hillhaven Corporation agrees to pay to the Participant
an annual Retirement Benefit for ten years in an amount
equal to 50% of his or her Final Annual Board Retainer,
subject to the limitation of Section 3.1(b) and the
vesting of Section 3.2.
(b) The Retirement Benefit shall not exceed $12,000 (50% of
the Annual Board Retainer in 1993) increased by a
compounded rate of six percent per year from 1994 to
the year of the Participant's Termination of Service.
3.2 Vesting of Retirement Benefit. A Participant's interest in
his Retirement Benefit shall, subject to Section 5.5, vest
in accordance with the following schedule:
Years of Service Vested Benefit
Less than 5 0%
5 50%
6 60%
7 70%
8 80%
9 90%
10 100%
All Years of Service as a Director shall count towards
vesting credit.
3.3 Survivor Benefit
(a) If a Participant who is receiving a Retirement Benefit
dies, his or her Surviving Spouse or Eligible Children
shall be entitled to receive (in accordance with
Sections 3.4 and 3.5) the installments of the
Participant's Retirement Benefit for the remainder of
the ten year period.
(b) If a Participant, who has a vested interest under
Section 3.2, dies while serving as a Director of The
Hillhaven Corporation, his or her Surviving Spouse or
Eligible Children shall be entitled at the
Participant's death to receive (in accordance with
Sections 3.4 and 3.5) the installments of the
Retirement Benefit which would have been payable to the
Participant in accordance with Section 3.1 for a period
of ten years. The limitation set forth in Section
3.1(b) will be based upon the date of the Participant's
death.
<PAGE>
<PAGE>
(c) If a Participant, who has a vested interest under
Section 3.2, dies after Termination of Service but at
death is not receiving any Retirement Benefits under
this Plan, the Surviving Spouse or Eligible Children
shall be entitled at Participant's death to receive (in
accordance with Sections 3.4 and 3.5) the installments
of the Retirement Benefit which would have been payable
to the Participant if he or she had retired on the day
before he or she died based on his or her vested
interest under Section 3.2. The limitation set forth
in Section 3.1(b) will be based upon the date of the
Participant's death.
3.4 Form and Duration of Benefit Payment. Retirement Benefits
shall be paid in equal monthly installments over a period of
ten years.
Surviving Spouse payments shall be paid in equal monthly
installments over the remainder of the ten year period.
Eligible Children benefit payments shall be paid monthly
over the remainder of the ten year period, but not beyond
the date when the youngest of the Eligible Children reaches
age 21.
3.5 Recipients of Benefit Payments. If a Participant dies
without a Surviving Spouse but is survived by any Eligible
Children, then benefits will be paid to the Eligible
Children or their legal guardian, if applicable. The total
monthly benefit payment will be equal to the monthly benefit
that a Surviving Spouse would have received, which will be
paid in equal shares to each of the Eligible Children for
the remainder of the ten year period or until the youngest
of the Eligible Children attains age 21, whichever comes
first. When any of the Eligible Children reaches age 21,
his or her share will be reallocated equally to the
remaining Eligible Children.
If the Surviving Spouse dies after the death of the
Participant but is survived by Eligible Children, the total
monthly benefit previously paid to the Surviving Spouse will
be paid in equal shares to each of the Eligible Children for
the remainder of the ten year period or until the youngest
of the Eligible Children attains age 21, whichever comes
first. When any of the Eligible Children reaches age 21,
his or her share will be reallocated equally to the
remaining Eligible Children.
3.6 Change of Control. In the event of a Change of Control of
The Hillhaven Corporation while this Plan remains in effect
which results in a Participant's Termination of Service as a
Director of The Hillhaven Corporation or a Participant's
failure to be reelected as a Director of The Hillhaven
Corporation when his or her term of office expires, (i) a
Participant's Retirement Benefit hereunder will be fully
vested in the Participant without regard to his or her Years
of Service with The Hillhaven Corporation and (ii)
notwithstanding any other provisions of this Plan, a
<PAGE>
<PAGE>
Participant will be entitled to receive the full Normal
Retirement Benefit commencing at age 65.
Section 4
PAYMENT
4.1 Commencement of Payments. Payments under this Plan shall
begin not later than the first day of the calendar month
following the occurrence of an event which entitles a
Participant (or his or her Surviving Spouse or Eligible
Children) to payments under this Plan.
4.2 Withholding; Unemployment Taxes. To the extent required by
the law in effect at the time payments are made, The
Hillhaven Corporation shall report all payments hereunder
and shall withhold therefrom any taxes required to be
withheld by the Federal or any state or local government.
4.3 Recipients of Payments. All payments to be made by The
Hillhaven Corporation under this Plan shall be made to the
Participant during his or her lifetime. All subsequent
payments under the Plan shall be made by The Hillhaven
Corporation to the Participant's Surviving Spouse, Eligible
Children or their guardian, if applicable.
4.4 No Other Benefits. The Hillhaven Corporation shall pay no
benefits hereunder to the Participant, his or her Surviving
Spouse or Eligible Children or their legal guardian, if
applicable, by reason of Termination of Service or
otherwise, except as specifically provided herein.
Section 5
CONDITIONS RELATED TO BENEFITS
5.1 Administration of Plan. The Committee has been authorized
to administer the Plan and to interpret, construe and apply
its provisions in accordance with its terms. The Committee
shall administer the Plan and shall establish, adopt or
revise such rules and regulations as it may deem necessary
or advisable for the administration of the Plan. All
decisions of the Committee shall be by vote or written
consent of the majority of its members and shall be final
and binding.
5.2 No Right to Assets. Neither a Participant nor any other
person shall acquire by reason of the plan any right in or
title to any assets, funds or property of The Hillhaven
Corporation and its subsidiaries whatsoever including,
without limiting the generality of the foregoing, any
specific funds or assets which The Hillhaven Corporation, in
its sole discretion, may set aside in anticipation of a
liability hereunder. No trust shall be created in
accordance with or by the execution or adoption of this Plan
or any Agreement with a Participant, and any benefits which
become payable hereunder shall be paid from the general
assets of The Hillhaven Corporation. A Participant shall
have only an unsecured contractual right to the amounts, if
any, payable hereunder.
<PAGE>
<PAGE>
5.3 No Tenure Rights. Nothing herein shall constitute a
contract of continuing service or in any manner obligate The
Hillhaven Corporation to continue the Service of a Director,
or obligate a Director to continue in the Service of The
Hillhaven Corporation, and nothing herein shall be construed
as fixing or regulating the compensation paid to a Director.
5.4 Right to Terminate or Amend. Except during any two year
period after any Change of Control of The Hillhaven
Corporation, The Hillhaven Corporation reserves the sole
right to terminate the Plan at any time and to terminate an
Agreement with any Participant at any time. In the event of
termination of the Plan or of a Participant's Agreement, a
Participant shall be entitled only to the vested portion of
his or her accrued benefits under Section 3 of the Plan as
of the time of the termination of the Plan or his or her
Agreement.
Benefits will be paid in the amounts specified and will
commence at the time specified in Section 3 as appropriate.
The Hillhaven Corporation further reserves the right in its
sole discretion to amend the Plan in any respect except that
Plan benefits cannot be reduced during any two year period
after any Change of Control of The Hillhaven Corporation.
No amendment of the Plan (whether there has or has not been
a Change of Control of The Hillhaven Corporation) that
reduces the value of the benefit theretofore accrued and
vested by the Participant shall be effective.
5.5 Eligibility. Eligibility to participate in the Plan is
expressly conditional upon a Director's furnishing to The
Hillhaven Corporation certain information and taking
physical examinations and such other relevant action as may
be reasonably requested by The Hillhaven Corporation. Any
Participant who refuses to provide such information or to
take such action shall not be enrolled as or shall thereupon
cease to be a Participant under the Plan. Any Participant
who commits suicide during the two year period beginning on
the date of his or her Agreement, or who makes any material
misstatement of information or non-disclosure of medical
history, will not receive any benefits hereunder unless, in
the sole discretion of the Committee, benefits in a reduced
amount are awarded.
5.6 Offset. If at the time payments or installments of payments
are to be made hereunder, any Participant or his or her
Surviving Spouse or both are indebted to The Hillhaven
Corporation or its Subsidiaries, then the payments remaining
to be made to the Participant or his Surviving Spouse or
both may, at the discretion of the Committee, be reduced by
the amount of such indebtedness; provided, however, that an
election by the Committee not to reduce any such payment or
payments shall not constitute a waiver of any claim for such
indebtedness.
5.7 Conditions Precedent. No Retirement Benefits will be
payable hereunder to any Participant (i) whose Service with
The Hillhaven Corporation is terminated because of willful
<PAGE>
<PAGE>
misconduct or gross negligence in the performance of his or
her duties or (ii) who within three years after Termination
of Service becomes an employee, director or consultant to
any third party engaged in any line of business in
competition with the Company that accounts for more than ten
percent of the gross revenues of the Company taken as a
whole.
Section 6
MISCELLANEOUS
6.1 Nonassignability. Neither a Participant nor any other
person shall have any right to commute, sell, assign,
transfer, pledge, anticipate, mortgage or otherwise
encumber, transfer, hypothecate or convey in advance of
actual receipt the amounts, if any, payable hereunder, or
any part thereof, which are, and all rights to which are,
expressly declared to be unassignable and non-transferrable.
No part of the amounts payable shall, prior to actual
payment, be subject to seizure, or sequestration for the
payment of any debts, judgments, alimony or separate
maintenance owed by a Participant or any other person, nor
be transferrable by operation of law in the event of a
Participant's or any person's bankruptcy or insolvency.
6.2 Gender and Number. Wherever appropriate herein, the
masculine may mean the feminine and the singular may mean
the plural or vice versa.
6.3 Notice. Any notice required or permitted to be given to the
Committee under the Plan shall be sufficient if in writing
and hand delivered, or sent by registered or certified mail,
to the principal office of The Hillhaven Corporation,
directed to the attention of the Secretary of the Committee.
Such notice shall be deemed given as of the date of delivery
or, if it is made by mail, as of the date shown on the
postmark or on the receipt for registration or
certification.
6.4 Validity. In the event any provision of this Plan is held
invalid, void or unenforceable, the same shall not affect,
in any respect whatsoever, the validity of any other
provision of this Plan.
6.5 Applicable Law. This Plan shall be governed and construed
in accordance with the laws of the State of Washington.
6.6 Successors in Interest. This Plan shall inure to the
benefit of, and be binding upon, and be enforceable by, any
corporate successor to The Hillhaven Corporation or
successor to substantially all of the assets of The
Hillhaven Corporation.
6.7 No Representation on Tax Matters. The Hillhaven Corporation
makes no representation to Participants regarding current or
future income tax ramifications of the Plan.
<PAGE>
<PAGE>
Exhibit A
THE HILLHAVEN CORPORATION
BOARD OF DIRECTORS RETIREMENT PLAN AGREEMENT
THIS AGREEMENT is made and entered into at Tacoma, Washington, as
of the first day of January, 1994, by and between The Hillhaven
Corporation (the "Company") and
__________________________________ ("Director").
WHEREAS, THE HILLHAVEN CORPORATION has adopted a Board of
Directors Retirement Plan (the "Plan"); and
WHEREAS, since the Director presently serves as a member of the
Board of Directors of The Hillhaven Corporation and is not an
employee of the Company, the Director is eligible to participate
in the Plan; and
WHEREAS, the Plan requires that an agreement be entered into
between The Hillhaven Corporation and Director setting out
certain terms and benefits of the Plan as they apply to the
Director;
NOW, THEREFORE, The Hillhaven Corporation and the Director hereby
agree as follows:
1. The Plan, a copy of which is attached, is hereby
incorporated into and made a part of this Agreement as
though set forth in full herein. The parties shall be
bound by, and have the benefit of, each and every
provision of the Plan, including but not limited to the
non-assignability provisions of Section 6.1 of the
Plan.
2. The Director was born on ____________________, 19_____,
and his or her present service as a member of the Board
of Directors of The Hillhaven Corporation began on
____________________, 19_____.
3. This Agreement shall inure to the benefit of, and be
binding upon, The Hillhaven Corporation, its successors
and assigns, and the Director and his or her surviving
Spouse and Eligible Children.
IN WITNESS WHEREOF, the parties hereto have signed and entered
into this Agreement on and as of the date first above written.
The Hillhaven Corporation
By _________________________________________________________
Its _________________________________________________________
Director ____________________________________________________
<PAGE>
<PAGE>
Exhibit 10.21
THE HILLHAVEN CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Adopted December 28, 1989
FIRST RESTATEMENT
as of November 11, 1993
SECTION 1 - STATEMENT OF PURPOSE
The Supplemental Executive Retirement Plan (the "Plan") has
been adopted by The Hillhaven Corporation ("THC") to attract,
retain, motivate and provide financial security to highly
compensated management employees (the "Participants") who render
valuable services to THC and its Subsidiaries.
SECTION 2 - DEFINITIONS
2.1 ACQUISITION. "Acquisition" refers to a company of which
substantially all of its assets or a majority of its capital
stock are acquired by, or which is merged with or into, THC or a
Subsidiary.
2.2 ACTUAL FINAL AVERAGE EARNINGS. "Actual Final Average
Earnings" means the highest average monthly Earnings for any 60
consecutive months during the ten years, or actual employment
period if less, preceding Termination of Employment.
2.3 AGREEMENT. "Agreement" means a written agreement
substantially in the form of Exhibit A between THC and a
Participant.
2.4 COMMITTEE. "Committee" means the Compensation Committee
of the Board of Directors of THC.
2.5 CHANGE IN CONTROL. A "Change in Control" shall be
deemed to have occurred when a Person, alone or together with its
Affiliates and Associates, becomes the beneficial owner of 30% or
more of the general voting power of THC; provided, however, that
a Change of Control shall not be deemed to have occurred if
National Medical Enterprises, Inc. ( NME ) or any subsidiary of
NME, becomes the beneficial owner of 30% or more of the general
voting power of THC solely on account of NME s acquisition of
shares of THC s Common Stock pursuant to its exercise of warrants
under that certain Warrant and Registration Rights Agreement
dated as of January 31, 1990 among NME, THC and Manufacturers
Hanover Trust Company of California.
"Affiliate or Associate" shall have the respective meanings
ascribed of such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934.
"Person" for the purpose of this numbered paragraph of the
Plan, means an individual, firm, corporation or other entity or
any successor to such entity, but "Person" shall not include THC,
any Subsidiary, any employee benefit plan or employee stock plan
of THC or any Subsidiary, or any Person organized, appointed,
established
<PAGE>
<PAGE>
<PAGE>
or holding Voting Stock by, for or pursuant to the terms of such
a plan or any Person who acquires 20 percent or more of the
general voting power of THC in a transaction or series of
transactions approved prior to such transaction or series of
transactions by the Board of Directors of THC.
"Voting Stock" means shares of THC's capital stock having
general voting power, with "voting power" meaning the power under
ordinary circumstances (and not merely upon the happening of a
contingency) to vote in the election of directors.
2.6 DATE OF EMPLOYMENT. "Date of Employment" means the date
on which a person became an Employee of THC or a Subsidiary, or
the date on which a person became an employee of NME or a
subsidiary of NME prior to the divestiture of THC by NME. Where
a person is an employee of an entity that is acquired by THC or a
Subsidiary through an Acquisition, "Date of Employment" means the
effective date of the Acquisition; provided, the Committee, in
its sole discretion, may approve as a Date of Employment the date
on which a person began to perform services for the acquired
entity in a position comparable to one at THC which would have
been eligible for participation in the Plan.
2.7 DATE OF ENROLLMENT. For purposes of determining
benefits under the Plan, "Date of Enrollment" means the "Plan
Entry Date" which is the date on which an Employee first becomes
a Participant in the Plan, except that for any Employee who was a
participant in the NME SERP prior to the divestiture of THC by
NME, the "Plan Entry Date" related to former participation in the
NME SERP shall be the "Plan Entry Date" for this Plan provided
that any Employee who became a Participant in the NME SERP prior
to June 1, 1985 shall be deemed to have a Date of Enrollment of
the later of Date of Employment or June 1, 1984.
2.8 DISABILITY. "Disability" means any Termination of
Employment during the life of a Participant and prior to Normal
Retirement or Early Retirement by reason of a Participant's total
and permanent disability, as determined by the Committee, in its
sole and absolute discretion. A Participant, who makes
application for and qualifies for disability benefits under THC's
Group Long-Term Disability Plan or under any similar plan
provided by THC or a Subsidiary, as now in effect or as
hereinafter amended (the "LTD Plans"), shall usually qualify for
Disability under this Plan, unless the Committee determines that
the Participant is not totally and permanently disabled. A
Participant who fails to qualify for disability benefits under
the LTD Plans (whether or not the Participant makes application
for disability benefits thereunder) shall not be deemed to be
totally and permanently disabled under this Plan, unless the
Committee otherwise determines, based upon the opinion of a
qualified physician or medical clinic selected by the Committee
to the effect that a condition of total and permanent disability
exists.
2.9 EARLY RETIREMENT. "Early Retirement" means any
Termination of Employment during the life of a Participant prior
to Normal Retirement and after the Participant attains age 55 and
has completed ten Years of Service or attains age 62 with no
minimum Years of Service.
<PAGE>
<PAGE>
<PAGE>
2.10 EARNINGS. "Earnings" means the base salary paid to a
Participant by THC or a Subsidiary, excluding bonuses, car and
other allowances and other cash and non-cash compensation.
2.11 ELIGIBLE CHILDREN. "Eligible Children" means all
natural or adopted children of a Participant under the age of 21,
including any child conceived prior to the death of a
Participant.
2.12 EMPLOYEE. "Employee" means any person who regularly
performs Services on a full-time basis (that is, works a minimum
of 32 hours a week) for THC or a Subsidiary and receives a salary
plus employee benefits normally made available to persons of
similar status.
2.13 EMPLOYMENT OR SERVICE. "Employment" or "Service" means
any continuous period during which an Employee is actively
engaged in performing services for THC and its Subsidiaries plus
the term of any leave of absence approved by the Committee plus
any continuous period of service performed with NME or a
subsidiary of NME immediately prior to the divestiture of THC by
NME.
2.14 EXISTING RETIREMENT BENEFIT PLANS ADJUSTMENT FACTOR.
"Existing Retirement Benefit Plans Adjustment Factor" means the
assumed benefit the Participant would be eligible for under
Social Security and all retirement plans of THC and its
Subsidiaries whether or not he participates in such plans. This
Factor will be used for calculating all benefits under the Plan
and is a projection of the benefits payable under the Social
Security regulations and retirement plans in effect June 1, 1984
and once established for a Participant will not thereafter be
altered to reflect any reduction in benefits under Social
Security or such retirement plans unless the Participant is
transferred to different retirement plans or unless such company
sponsored retirement plans are substantially altered in terms of
benefit provided. The existing Retirement Benefit Plans
Adjustment Factor is expressed as a percentage and is determined
by specific formula as approved by the Committee.
2.15 FINAL AVERAGE EARNINGS. "Final Average Earnings" means
the lesser of (i) Actual Final Average Earnings or (ii), if the
Participant has completed at least 60 months of Service,
Projected Final Average Earnings.
2.16 NORMAL RETIREMENT. "Normal Retirement" means any
Termination of Employment during the life of a Participant on or
after the date on which the Participant attains age 65.
2.17 PARTICIPANT. "Participant" means any Employee selected
to participate in this Plan by the Committee, in its sole and
absolute discretion.
2.18 PRIOR SERVICE CREDIT PERCENTAGE. "Prior Service Credit
Percentage" means the percentage applied to a Participant's Years
of Service with THC and its Subsidiaries (and NME and its
subsidiaries prior to the divestiture of THC by NME) which is
prior to his Date of Enrollment in the Plan, in accordance with
the following formula:
<PAGE>
<PAGE>
<PAGE>
Years of Service Prior Service Credit
After Date of Enrollment Percentage
During 1st Year 25
During 2nd Year 35
During 3rd Year 45
During 4th Year 55
During 5th Year 75
After 5th Year 100
2.19 PROJECTED EARNINGS. "Projected Earnings" means the
actual Earnings of an Employee on the Date of Enrollment plus an
assumed increase of eight percent per annum. In the event of any
Promotion subsequent to the Date of Enrollment, Projected
Earnings shall mean actual earnings of an Employee on the
effective date of the Promotion plus an assumed increase of eight
percent per annum.
2.20 PROJECTED FINAL AVERAGE EARNINGS. "Projected Final
Average Earnings" means the average of a Participant's Projected
Earnings during the 60 months preceding Termination of
Employment.
2.21 SUBSIDIARY. A "Subsidiary" of the Company is any
corporation, partnership, venture or other entity in which the
Company owns 50% of the capital stock or otherwise has a
controlling interest as determined by the Committee, in its sole
and absolute discretion.
2.22 SURVIVING SPOUSE. "Surviving Spouse" means the person
legally married to a Participant for at least one year prior to
the Participant's death or Termination of Employment.
2.23 TERMINATION OF EMPLOYMENT. "Termination of Employment"
means the ceasing of the Participant's Employment for any reason
whatsoever, whether voluntarily or involuntarily.
2.24 YEAR. A "Year" is a period of twelve consecutive
calendar months.
2.25 YEAR OF SERVICE. "Year of Service" means each complete
year (up to a maximum of 20) of continuous Service (up to age 65)
as an Employee of THC and its Subsidiaries beginning with the
Date of Employment with THC and its Subsidiaries or with NME and
its subsidiaries immediately prior to the divestiture of THC by
NME. Years of Service shall be deemed to have begun as of the
first day of the calendar month of Employment and to have ceased
on the last day of the calendar month of Employment.
2.26 PROMOTION. Promotion means an advancement in an
employee s job title accompanied by a substantial increase in
duties, responsibilities and salary. The Committee, in its sole
discretion, may determine if a Promotion has occurred based upon
all the facts and circumstances.
<PAGE>
<PAGE>
<PAGE>
SECTION 3 - RETIREMENT BENEFITS
3.1 NORMAL RETIREMENT BENEFIT.
a. Upon a Participant's Normal Retirement, the Company
agrees to pay to the Participant a monthly Normal Retirement
Benefit for the Participant's lifetime which is determined in
accordance with the Benefit Formula set forth below, adjusted by
the Vesting Percentage in Section 3.3. Except as provided below,
the amount of such monthly Normal Retirement Benefit will be
determined by using the following formula:
Z = A x [B1 + [B2 x C]] x [2.7% - D] x E
Z = Normal Retirement Benefit
A = Final Average Earnings
B1 = Years of Service After Date of Enrollment
B2 = Years of Service Prior to Date of Enrollment
C = Prior Service Credit Percentage
D = Existing Retirement Benefit Plans Adjustment Factor
V = Vesting Percentage
NOTE: B1 and B2 Years of Service combined cannot exceed 20
years.
b. In the event of the death or Disability of a
Participant at any age or the Normal or Early Retirement of a
Participant after age 60, the Normal or Early Retirement Benefit
will be determined on the basis of a Prior Service Credit
Percentage of 100.
c. If a Participant who is receiving a Normal Retirement
Benefit dies, his Surviving Spouse or Eligible Children shall be
entitled to receive (in accordance with Sections 3.5 and 3.6) 50%
of the Participant's Normal Retirement Benefit.
d. If a Participant who is eligible for Normal
Retirement dies while an Employee of the Company after attaining
age 65, his Surviving Spouse or Eligible Children shall be
entitled to receive (in accordance with Sections 3.5 and 3.6) the
installments of the Normal Retirement Benefit which would have
been payable to the Surviving Spouse or Eligible Children in
accordance with this Section 3.1 as if the Participant had
retired on the day before he died.
3.2 EARLY RETIREMENT BENEFIT.
a. Upon a Participant's Early Retirement, THC shall pay
the Participant a monthly Early Retirement Benefit for the
Participant's lifetime commencing on the first day of the
calendar month following the date he attains age 65, calculated
in accordance with Sections 3.1 and 3.3 with the following
adjustments:
(i) Only the Participant's actual Years of
Service, adjusted appropriately for the Prior
Service Credit Percentage, as of the date of Early
Retirement shall be used.
<PAGE>
<PAGE>
<PAGE>
(ii) For purposes of determining the Actual Final
Average Earnings and Projected Final Average
Earnings, only the Participant's Earnings and
Projected Earnings as of the date of Early
Retirement shall be used.
(iii) To arrive at the payments to commence at age
65 the amount calculated under paragraphs a(i) and
a(ii) of this Section 3.2 will be reduced by .42%
for each month Early Retirement commences before
age 62.
b. Upon the written request of the Participant prior to
Termination of Employment, the Committee, in its sole and
absolute discretion, may authorize payment of the Early
Retirement Benefit at a date prior to the Participant's
attainment of age 65; provided, however, that in such event the
amount calculated under paragraphs a(i), a(ii) and a(iii) of this
Section 3.2 shall be further reduced by .42% for each month that
the date of the commencement of payment precedes the date on
which the Participant will attain age 62.
c. If a Participant dies after commencement of payment
of his Early Retirement Benefit, the Surviving Spouse or Eligible
Children shall be entitled to receive (in accordance with
Sections 3.5 and 3.6) 50% of the Participant's Early Retirement
Benefit.
d. If a Participant dies after his Early Retirement but
before benefits have commenced, or while on Disability, the
Surviving Spouse or Eligible Children shall be entitled to
receive (in accordance with Sections 3.5 and 3.6) 50% of the
benefit that would have been payable on the date the Participant
elected to have benefits commence.
e. If a Participant dies after becoming eligible for
Early Retirement but before taking Early Retirement or while on
Disability, the Surviving Spouse or Eligible Children shall be
entitled to receive (in accordance with Sections 3.5 and 3.6) 50%
of the Participant's Early Retirement Benefit determined as if
the Participant had retired on the day prior to his death with
payments commencing on the first of the month following the
Participant's death. The benefits payable to a Surviving Spouse
or Eligible Children under this paragraph shall be no less than
the benefits payable to a Surviving Spouse or Eligible Children
under Section 3.4 as if the Participant had died immediately
prior to age 55.
3.3 VESTING OF RETIREMENT BENEFIT. A Participant's interest
in his Retirement Benefit shall, subject to Sections 5.5 and 5.7,
vest in accordance with following schedule:
Years of Service Vesting
Less than 5 0%
5 but less than 6 25%
6 through 20 5% per year
Notwithstanding the foregoing, a Participant who is at least 60
years old and who has completed at least 5 Years of Service will
be fully vested, subject to Sections 5.5 and 5.7, in his
Retirement Benefits. No Years of Service will be credited for
Service after age 65 or for more than 20 years.
<PAGE>
<PAGE>
<PAGE>
3.4 TERMINATION BENEFIT. Upon any Termination of Employment
of the Participant before Normal Retirement or Early Retirement
for reasons other than death or Disability, THC shall pay,
commencing at age 65, to the Participant a Retirement Benefit
calculated under Sections 3.1 and 3.3 but with the following
adjustments:
a. Only the Participant's actual Years of Service,
adjusted appropriately for the Prior Service Credit Percentage,
as of the date of Termination of Employment shall be used.
b. For purposes of determining the Actual Final Average
Earnings and the Projected Final Average Earnings, as used in
Section 3.1, only the Participant's Earnings and Projected
Earnings prior to the date of his Termination of Employment shall
be used.
c. (i) If a Participant dies after commencement of
payment of his or her Retirement Benefit under
this Section 3.4, the Surviving Spouse or Eligible
Children shall be entitled at Participant's death
to receive (in accordance with Sections 3.5 and
3.6) 50% of the Participant's Retirement Benefit.
(ii) If a Participant, who has vested interest
under Section 3.3, dies after Termination of
Employment but at death is not receiving any
Retirement Benefits under this Plan, the Surviving
Spouse or Eligible Children shall be entitled to
receive (in accordance with Sections 3.5 and 3.6)
commencing on the date when the Participant would
have attained age 65, 50% of the Retirement
Benefit which would have been payable to the
Participant at age 65.
(iii) If a Participant, who has vested interest
under Section 3.3, dies while still actively
employed by THC or a Subsidiary or on Disability
before he was eligible for Early Retirement, his
Surviving Spouse or Eligible Children shall be
entitled at the Participant's death to receive (in
accordance with Sections 3.5 and 3.6) 50% of the
Retirement Benefit calculated as if the
Participant were age 55 and eligible for Early
Retirement on the day before Participant's death;
however, the combined reductions for Early
Retirement and early payment shall not exceed
35.28% of the amount calculated under paragraphs
a(i) and a(ii) of Section 3.2.
d. To arrive at the payments to commence at age 65, the
amount calculated under paragraphs a, b, c(i) and c(ii) of this
section 3.4 will be reduced by the maximum percentage reduction
for Early Retirement at age 55 (i.e., 35.28%).
3.5 DURATION OF BENEFIT PAYMENT. Normal and Early
Retirement Benefit payments shall be for the life of the
Participant.
Surviving Spouse Benefit payments shall be for the
Surviving Spouse's lifetime. All benefits payable to the
Surviving Spouse are subject to actuarial reduction if Surviving
Spouse is more than 3 years younger than the Participant.
<PAGE>
Eligible Children Benefit payments shall be made until
the youngest of the Eligible Children reaches age 21.
<PAGE>
<PAGE>
3.6 RECIPIENTS OF BENEFIT PAYMENTS. If a Participant dies
without a Surviving Spouse but is survived by any Eligible
Children, then benefits will be paid to the Eligible Children or
their legal guardian, if applicable. The total monthly benefit
payable will be equal to the monthly benefit that a Surviving
Spouse would have received without actuarial reduction. This
benefit will be paid in equal shares to all Eligible Children
until the youngest of the Eligible Children attains age 21.
If the Surviving Spouse dies after the death of the
Participant but is survived by Eligible Children, then the total
monthly benefit previously paid to the Surviving Spouse will be
paid in equal shares to all Eligible Children until the youngest
of the Eligible Children attains age 21. When any of the
Eligible Children reaches age 21, his share will be reallocated
equally to the remaining Eligible Children.
3.7 DISABILITY. Any Participant who is under Disability
upon reaching age 65 will be paid the Normal Retirement Benefit
in accordance with Sections 3.1 and 3.3.
Upon a Participant's Disability while an Employee of the
Company, the Participant will continue to accrue Years of Service
during his Disability until the earliest of:
a. Recovery from Disability.
b. His 65th birthday, or
c. Death.
If a Participant is receiving Disability payments, he
shall
not be entitled to receive an Early Retirement Benefit.
For purposes of calculating the foregoing benefits, the
Participant's Actual Final Average Earnings and Projected Final
Average Earnings shall be determined using his Earnings and
Projected Earnings up to the date of Disability.
3.8 CHANGE IN CONTROL. In the event of a Change in Control
of THC while this Plan remains in effect or in the event that any
Person makes any filing under Sections 13(d) or 14(d) of the
Exchange Act with respect to the Company, (i) a Participant's
Retirement Benefits hereunder (a) will be determined on the basis
of receiving full Prior Service Credit under Sections 3.1 and 3.2
for all Years of Service prior to his Date of Enrollment and (b)
will be fully vested in the Participant without regard to his
Years of Service with THC and its Subsidiaries and (ii)
notwithstanding any other provisions of the Plan, a Participant
will be entitled to receive the Normal Retirement Benefit on or
after age 60 with no reduction by virtue of paragraphs a(iii) and
b of Section 3.2.
SECTION 4 - PAYMENT
4.1 COMMENCEMENT OF PAYMENTS. Payments under this Plan
shall begin not later than the first day of the calendar month
following the occurrence of an event which entitles a Participant
(or a Surviving Spouse or Eligible Children) to payments under
this Plan.
4.2 WITHHOLDING; UNEMPLOYMENT TAXES. To the extent
required by the law in effect at the time payments are made, THC
<PAGE>
shall withhold from payments made hereunder any taxes required to
be withheld by the Federal or any state or local government.
<PAGE>
<PAGE>
4.3 RECIPIENTS OF PAYMENTS. All payments to be made by THC
under the Plan shall be made to the Participant during his
lifetime. All subsequent payments under the Plan shall be made
by THC to the Participant's Surviving Spouse, Eligible Children
or their legal guardian, if applicable.
4.4 NO OTHER BENEFITS. THC shall pay no benefits hereunder
to the Participant, his Surviving Spouse, Eligible Children or
their legal guardian, if applicable, by reason of Termination of
Employment or otherwise, except as specifically provided herein.
SECTION 5 - CONDITIONS RELATED TO BENEFITS
5.1 ADMINISTRATION OF PLAN. The Committee has been
authorized to administer the Plan and to interpret, construe and
apply its provisions in accordance with its terms. The Committee
shall administer the Plan and shall establish, adopt or revise
such rules and regulations as it may deem necessary or advisable
for the administration of the Plan. All decisions of the
Committee shall be by vote or written consent of the majority of
its members and shall be final and binding. Members of the
Committee shall not be eligible to participate in the Plan while
serving as a member of the Committee.
5.2 NO RIGHT TO ASSETS. Neither a Participant nor any other
person shall acquire by reason of the Plan any right in or title
to any assets, funds or property of THC and its Subsidiaries
whatsoever including, without limiting the generality of the
foregoing, any specific funds or assets which THC, in its sole
discretion, may set aside in anticipation of a liability
hereunder. No trust shall be created in accordance with or by
the execution or adoption of this Plan or any Agreement with a
Participant, and any benefits which become payable hereunder
shall be paid from the general assets of THC. A Participant
shall have only an unsecured contractual right to the amounts, if
any, payable hereunder.
5.3 NO EMPLOYMENT RIGHTS. Nothing herein shall constitute a
contract of continuing employment or in any manner obligate THC
and its Subsidiaries to continue the service of a Participant, or
obligate a Participant to continue in the service of THC and its
Subsidiaries, and nothing herein shall be construed as fixing or
regulating the compensation paid to a Participant.
5.4 RIGHT TO TERMINATE OR AMEND. Except during any two year
period after any Change in Control of THC, THC reserves the sole
right to terminate the Plan at any time and to terminate an
Agreement with any Participant at any time. In the event of
termination of the Plan or of a Participant's Agreement, a
Participant shall be entitled to only the vested portion of his
or her accrued benefits under Section 3 of the Plan as of the
time of the termination of the Plan or his Agreement. All
further vesting and benefit accrual shall cease on the date of
Plan or Agreement termination. Benefit payments would be in the
amounts specified and would commence at the time specified in
Section 3 as appropriate. THC further reserves the right in its
sole discretion to amend the Plan in any respect except that Plan
benefits cannot be reduced during any two year period after any
Change in Control
<PAGE>
<PAGE>
<PAGE>
of THC. No amendment of the Plan (whether there has or has not
been a Change in Control of THC) that reduces the value of the
benefits theretofore accrued by and vested with respect to the
Participant shall be effective.
5.5 ELIGIBILITY. Eligibility to participate in the Plan is
expressly conditional upon an Employee's furnishing to THC
certain information and taking physical examinations and such
other relevant action as may be reasonably requested by THC. Any
Employee Participant who refuses to provide such information or
to take such action shall not be enrolled as or cease to be a
Participant under the Plan. Any Participant who commits suicide
during the two-year period beginning on the date of his or her
Agreement, or who makes any material misstatement of information
or non-disclosure of medical history, will not receive any
benefits hereunder unless, in the sole discretion of the
Committee, benefits in a reduced amount are awarded.
5.6 OFFSET. If at the time payments or installments of
payments are to be made hereunder, any Participant or his or her
Surviving Spouse or both are indebted to THC and its
Subsidiaries, then the payments remaining to be made to the
Participant or his Surviving Spouse or both may, at the
discretion of the Committee, be reduced by the amount of such
indebtedness; provided, however, that an election by the
Committee not to reduce any such payment or payments shall not
constitute a waiver of any claim for such indebtedness.
5.7 CONDITIONS PRECEDENT. No Retirement Benefits will be
payable hereunder to any Participant (i) whose Employment with
THC or a Subsidiary is terminated because of his willful
misconduct or gross negligence in the performance of his duties
or (ii) who within 3 years after Termination of Employment
becomes an employee with or consultant to any third party engaged
in any line of business in competition with THC and/or its
subsidiaries (a) in a line of business in which the Participant
has performed Services for THC and its Subsidiaries provided that
a person who is also an employee of NME shall not be construed to
be a third party engaged in competition with THC and/or its
Subsidiaries or (b) that accounts for more than ten percent of
the gross revenues of THC and its Subsidiaries taken as a whole.
Notwithstanding the foregoing paragraph, the Committee, in its
sole discretion, may approve the payment of Retirement Benefits
to an Employee who would otherwise be ineligible under (ii) above
if the Committee determines that is in THC s best interest to do
so.
SECTION 6 - MISCELLANEOUS
6.1 NONASSIGNABILITY. Neither a Participant nor any other
person shall have any right to commute, sell, assign, transfer,
pledge, anticipate, mortgage or otherwise encumber, transfer,
hypothecate or convey in advance any provision hereunder, or any
part thereof, which are, and all rights to which are, expressly
declared to be unassignable and non-transferable. No part of the
amounts payable shall, prior to actual payment, be subject to
seizure or sequestration for the payment of any debts, judgments,
alimony or separate maintenance owed by a Participant or any
other person, nor be transferable by operation of law in the
event of a
<PAGE>
<PAGE>
<PAGE>
Participant's or any person's bankruptcy or insolvency. THC may
assign this Plan to any Subsidiary which employs any Participant.
6.2 GENDER AND NUMBER. Wherever appropriate herein, the
masculine may mean the feminine and the singular may mean the
plural or vice versa.
6.3 NOTICE. Any notice required or permitted to be given to
the Committee under the Plan shall be sufficient if in writing
and hand delivered, or sent by registered or certified mail, to
the principal office of THC, directed to the attention of the
Secretary of the Committee. Such notice shall be deemed given as
of the date of delivery or, if delivery is made by mail, as of
the date shown on the postmark or on the receipt for registration
or certification.
6.4 VALIDITY. In the event any provision of this Plan is
held invalid, void or unenforceable, the same shall not affect,
in any respect whatsoever, the validity of any other provision of
this Plan.
6.5 APPLICABLE LAW. This Plan shall be governed and
construed in accordance with the laws of the State of Washington.
6.6 SUCCESSORS IN INTEREST. This Plan shall inure to the
benefit of, be binding upon, and be enforceable by, any corporate
successor to THC or successor to substantially all of the assets
of THC.
6.7 NO REPRESENTATION ON TAX MATTERS. THC makes no
representation to Participants regarding current or future income
tax ramifications of the Plan.
6.8 EFFECTIVE DATE. The Plan shall, upon adoption by the
Board and approval of NME, become effective as of January 31,
1990, unless the Plan is previously terminated.
<PAGE>
<PAGE>
Exhibit 10.27
FIRST AMENDMENT TO GUARANTEE REIMBURSEMENT AGREEMENT
This FIRST AMENDMENT TO GUARANTEE REIMBURSEMENT AGREEMENT
(the "First Amendment") is being entered into as of October 30,
1990, between National Medical Enterprises, Inc., a Nevada
corporation ("NME") and The Hillhaven Corporation, a Nevada
corporation ("New Hillhaven").
RECITALS
A. NME and Hillhaven have entered into that certain
Guarantee Reimbursement Agreement, dated as of January 31, 1990
(the "Agreement").
B. Excluded from the reimbursement Obligations (as defined
in the Agreement) of New Hillhaven under Section 1(a) of the
Agreement are the Obligations set forth in Appendix B to the
Agreement ("Appendix B").
C. The Obligation set forth as item 3 of Appendix B is the
Obligation with respect to $6,200,000 aggregate principal amount
of The Industrial Development Authority of the County of Yavapai
Industrial Development Revenue Refunding Bonds (Kachina Pointe
Project) Series 1988 (the "Bonds").
D. Hillhaven Properties, Ltd. ("Hillhaven Properties")
desires to acquire the Kachina Pointe Project (the "Project").
In connection with its acquisition of the Project, Hillhaven
Properties must assume the Obligations of the Kachina Pointe
Limited Partnership (the "Partnership") under its Reimbursement
Agreement, dated as of August 1, 1988, with Swiss Bank
Corporation (the "Bank"). The reimbursement obligations of the
Partnership to the Bank are guarantied by NME pursuant to a
Guaranty Agreement, dated as of August 11, 1988 (the "Guaranty").
E. In order to induce the Bank to allow Hillhaven
Properties to assume the obligations of the Partnership under the
Reimbursement Agreement with the Bank, NME must affirm to the
Bank that its Guaranty will remain effective with respect to
Hillhaven Properties to the same extent that it is effective with
respect to the Partnership, which affirmation is evidenced by
that certain Affirmation of Guaranty, dated as of even date
herewith, from NME to the Bank (the "Affirmation").
F. In order to induce NME to execute the Affirmation, New
Hillhaven, which owns all of the issued and outstanding stock of
Hillhaven Properties, has agreed to amend the Guarantee
Reimbursement Agreement to delete item 3 from Appendix B.
NOW, THEREFORE, in consideration of the foregoing Recitals
and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
<PAGE>
<PAGE>
AGREEMENT
1. Amendment of Agreement. New Hillhaven and NME hereby
agree to amend the Agreement by deleting item 3 from Appendix B
to the Agreement. Appendix B to the Agreement is hereby amended
by deleting in its entirety the following: "3. $6,200,000
aggregate principal amount of The Industrial Development
Authority of the County of Yavapai Industrial Development Revenue
Refunding Bonds (Kachina Pointe Project) Series 1988."
2. Obligations Includes Kachina Pointe Bonds. New
Hillhaven and NME hereby agree that upon NME's execution and
delivery of the above-referenced Affirmation, the Agreement shall
be amended to include within the definition of Obligations for
all purposes, including, without limitation, for purposes of
Section 1, the Kachina Pointe Bond Obligations referred to in
item 3 of Appendix B, which Obligations have been deleted from
Appendix B pursuant to paragraph 1 of this First Amendment.
3. Full Force and Effect. Except as expressly amended
hereby, the Agreement remains in full force and effect.
4. Counterparts. This First Amendment may be executed in
several counterparts, each of which shall be deemed an original,
but such counterparts shall together shall constitute but one and
the same instrument.
5. Governing Law. This First Amendment shall be governed
by and construed in accordance with the laws of the State of
California.
IN WITNESS WHEREOF, the parties hereto have caused this
First Amendment to be executed and delivered as of the day and
year first above stated.
The Hillhaven Corporation,
a Nevada corporation
By: /s/ Robert F. Pacquer
Name: Robert F. Pacquer
Title: Senior Vice President
National Medical Enterprises,
Inc., a Nevada corporation
By: /s/ Marcus E. Powers
Name: Marcus E. Powers
Title: Senior Vice President
<PAGE>
<PAGE>
Exhibit 10.34
SEVENTH AMENDMENT TO GUARANTEE REIMBURSEMENT AGREEMENT
THIS SEVENTH AMENDMENT TO GUARANTEE REIMBURSEMENT AGREEMENT
(the "Amendment") is made and dated as of May 28, 1993, between
National Medical Enterprises, Inc., a Nevada corporation ("NME")
and The Hillhaven Corporation, a Nevada corporation
("Hillhaven").
RECITALS
A. NME and Hillhaven are parties to that certain Guarantee
Reimbursement Agreement, dated as of January 31, 1990 (as the
same has been or may from time to time be amended, restated,
renewed, replaced, modified or supplemented from time to time,
the "Reimbursement Agreement").
B. Hillhaven has requested that NME enter into that
certain Pledge and Security Agreement and Master Assignment of
Mortgages, dated as of May 28, 1993 (the "Pledge Agreement"),
pursuant to which NME is assigning certain promissory notes from
Hillhaven to NME, and the mortgages securing such promissory
notes, to Swiss Bank Corporation, as Collateral Agent, to secure
NME's obligations under a guaranty of certain of Hillhaven's
"Obligations" (as defined in the Reimbursement Agreement).
C. In order to induce NME to enter into the Pledge
Agreement, Hillhaven has agreed to amend the Reimbursement
Agreement as set forth in this Agreement.
NOW THEREFORE, in consideration of the foregoing Recitals
and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
AGREEMENT
1. Section 1(a) of the Reimbursement Agreement hereby is
amended and restated to read in its entirety as follows:
(a) Reimbursement. New Hillhaven shall reimburse
NME, promptly on demand, for all Obligations (including
those Obligations set forth in Appendix B to the
Reimbursement Agreement) paid by NME or its
subsidiaries after the Distribution Date not
theretofore reimbursed by New Hillhaven. Without
limiting the generality of the foregoing, in the event
that NME pledges or assigns collateral directly or
indirectly to secure any Obligations or NME's
obligations with respect thereto, under a guaranty or
otherwise, the amount to be reimbursed by New Hillhaven
to NME hereunder with respect to such Obligations shall
be the greater of (x) the face value of any collateral
applied to the satisfaction of the Obligations, and any
other sums then outstanding with respect to such
collateral, including accrued and unpaid interest
<PAGE>
<PAGE>
thereon, and (y) the fair market value of any collateral,
and any proceeds thereon, applied to the satisfacton of the
Obligations (provided, however, that if the collateral is a
note secured by a mortgage or deed of trust, the fair market
value of such note shall not include the fair market value
of the real property securing such note). Payments and
notices shall be made or given, as the case may be, in
accordance with the provisions of Sections 1(c), 3 and 9(b).
2. Reimbursement Agreement Remains in Effect. Except as
expressly amended hereby, the Reimbursement Agreement shall
remain in full force and effect.
3. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of
California.
4. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed an original,
but such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the day and year
first above written.
NATIONAL MEDICAL ENTERPRISES, INC.,
a Nevada corporation
By: /s/ Maris Andersons
Title: Executive Vice President
THE HILLHAVEN CORPORATION,
a Nevada corporation
By: /s/ Robert K. Schneider
Title: Vice President & Treasurer
<PAGE>
<PAGE>
Exhibit 10.35
EIGHTH AMENDMENT TO GUARANTEE REIMBURSEMENT AGREEMENT
This Eighth Amendment to Guarantee Reimbursement Agreement
("Amendment") dated as of September 2, 1993, is entered into by
and between National Medical Enterprises, Inc., a Nevada
corporation ("NME") and The Hillhaven Corporation, a Nevada
corporation ("New Hillhaven").
RECITALS
A. New Hillhaven and NME are parties to that certain Guarantee
Reimbursement Agreement, dated as of January 31, 1990 (as the
same has been or may be amended, restated, modified,
supplemented, renewed or replaced from time to time, the
"Reimbursement Agreement"), which provides, among other things,
for the reimbursement by New Hillhaven of all Obligations (as
defined in the Reimbursement Agreement) paid by NME. Unless
otherwise defined herein, all capitalized terms used herein shall
have the same meaning ascribed to such terms in the Reimbursement
Agreement.
B. New Hillhaven, NME, and certain subsidiaries of New
Hillhaven and NME, have entered into that certain letter
agreement dated June 22, 1993 (the "June 22 Letter"), which among
other things, restructures certain relationships of the
companies. Among the provisions contained in the June 22 Letter
that are pertinent to this Reimbursement Agreement, are the
following:
(1) New Hillhaven will obtain financing consisting of
(a) third party bank financing in the approximate
amount of $400 million, and (b) public or private debt
financing in the approximate amount of $175 million
(collectively, the "Financing"), a portion of the
proceeds of which Financing will be used to (i) repay
certain Obligations currently guaranteed by NME, and
(ii) cause NME and/or certain of its subsidiaries to be
released from certain other Obligations currently
guaranteed by NME and/or certain of its subsidiaries;
(2) The annual guarantee fee payable by New Hillhaven
under this Reimbursement Agreement in connection with
the Obligations shall be limited to a maximum of 2% of
the Obligations outstanding and the manner of
calculating the fee charged on the Obligations
outstanding shall be revised; and
(3) NME and/or certain subsidiaries of NME shall assign
to New Hillhaven's subsidiary, First Healthcare
Corporation ("FHC"), and FHC shall assume the renewal
and/or purchase options contained in the Assumed Leases
(as that term is defined in the Reimbursement
Agreement) that were not assigned to FHC on or before
the Distribution Date for those facilities described in
<PAGE>
<PAGE>
Exhibit 1 attached hereto and incorporated herein by this
reference (the "Assumed Lease Options"), and those Assumed
Lease Options shall be added to the Obligations covered by
this Reimbursement Agreement, as more specifically provided
herein.
C. New Hillhaven and NME desire to amend the Reimbursement
Agreement as set forth in this Agreement.
NOW THEREFORE, in consideration of the foregoing Recitals and for
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree to amend, modify and
supplement the Reimbursement Agreement as follows:
AGREEMENT
1. Calculation of the Guarantee Fee After Completion of
Financing. The provisions of Section 2(c) of the Reimbursement
Agreement are hereby amended to provide that, commencing with the
quarterly payment due for the fiscal quarter ending February 28,
1993, the guarantee fee for each quarter shall be the product of
(i) the amount of the Obligations outstanding at the close of
business on the last day of the preceding fiscal quarter
multiplied by (ii) a fraction which is equal to the applicable
fraction for the previous fiscal year multiplied by 1.2;
provided, however, that at no time shall the fraction to be used
in calculating the guarantee fee exceed 2%. Furthermore,
notwithstanding the foregoing guaranty fee provisions, the
principal amounts of the Obligations described in Exhibit 2 and
Exhibit 3 attached hereto shall not be included as part of the
Obligations for the purposes of calculating the guarantee fee in
the foregoing sentence. Instead, in accordance with prior
agreements, (x) New Hillhaven shall pay to NME a guarantee fee of
1% per annum on those Obligations described in Exhibit 2, and (y)
no guarantee fee shall be charged on those Obligations described
in Exhibit 3.
2. Proration of Guarantee Fee on Obligations Paid With Proceeds
of Financing. Notwithstanding any provisions to the contrary,
the guarantee fee paid with respect to those Obligations that are
paid in full, or as to which NME's guaranty has been released,
with proceeds of the Financing during the fiscal year ending May
31, 1994 shall be prorated to the date of payoff, based on the
actual number of days elapsed until such Obligation is paid in
full or such guaranty has been released.
3. Inclusion of the Assumed Lease Options as Obligations. The
Assumed Lease Options are hereby added as, and shall be deemed to
be, "Obligations" under (and as defined in) the Reimbursement
Agreement, and all terms, covenants and conditions of the
Reimbursement Agreement shall apply; provided, however, that the
guarantee fee set forth in Paragraph 1 above shall be charged on
the aggregate amount of the rents that will become due for the
renewal period for any such Assumed Lease, commencing on the
earlier of the date that FHC exercises or is required to exercise
such Assumed Lease Option, as provided by the terms of the
assignment of such Assumed Lease Option.
<PAGE>
<PAGE>
4. Inclusion of Certain Assumed Obligations. To the extent NME
or any subsidiary or affiliate of NME remains primarily or
contingently liable therefor, each of the Assumed Existing Debt
and the Assumed Lease described in Exhibit 4 attached hereto is
hereby added as, and shall be deemed to be, an "Obligation" under
(and as defined in) the Reimbursement Agreement, and all terms,
covenants and conditions of the Reimbursement Agreement,
including payment of a guarantee fee as provided in Paragraph 1
above, shall apply to such Assumed Existing Debt and Assumed
Lease.
5. Reaffirmation of Reimbursement Agreement. New Hillhaven
reaffirms that the Reimbursement Agreement, as amended hereby,
shall remain in full force and effect, and shall continue to be
binding upon New Hillhaven.
6. Captions. The captions and headings used herein are for
the convenience of reference and shall not be construed in any
manner to limit or modify any of the terms hereof.
7. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of California.
8. Counterparts. This Amendment may be executed in
counterparts, each of which shall be an original, but all of
which together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has caused
this Amendment to be duly executed on its behalf as of the date
first set forth above.
NATIONAL MEDICAL ENTERPRISES,
INC.
By: _________________________
Title: ______________________
THE HILLHAVEN CORPORATION
By: _________________________
Title: ______________________
<PAGE>
<PAGE>
EXHIBIT 1
No. Facility Name
272 Hughes Springs Nursing Home
Hughes Springs, Texas
273 Pinecrest Convalescent Home
Daingerfield, Texas
274 Coastal Care Center
Texas City, Texas
275 Great Southwest Convalescent Center
Grand Prairie, Texas
292 Twin City Nursing Home
Gas City, Indiana
298 Driftwood Convalescent Hospital
Yuba City, California
299 Marysville Convalescent Hospital
Marysville, California
305 University Nursing Center
Upland, Indiana
880 Four States Nursing Home
Texarkana, Texas
881 Southwest Senior Care Center
Las Vegas, New Mexico
760 Ridgeview Nursing and Convalescent Center
Wichita Falls, Texas 76392
860 Blue Hills Centre
Kansas City, Missouri
849 Iliff Care Center
Denver, Colorado
295 Whitehouse Country Manor
Whitehouse, Ohio
184 Greystone Healthcare Center
Blountville, Tennessee
183 Hillhaven Convalescent Center - Ripley
Ripley, Tennessee
189 Fairpark Healthcare Center
Maryville, Tennessee
179 Hillhaven Convalescent Center of Huntington
Huntington, Tennessee
<PAGE>
<PAGE>
175 Hillhaven of Jefferson City
Jefferson City, Tennessee
171 Hillhaven Convalescent Center
Bolivar, Tennessee
EXHIBIT 2
A ONE PERCENT GUARANTEE FEE IS PAYABLE ON OBLIGATIONS COVERING
THE FOLLOWING FACILITIES:
Facility 462: Queen Anne Care Center, WA
Facility 158: Bellingham Care Center, Bellingham, WA
Facility 461: Edmonds Care Center, Edmonds, WA
Facility 825: Nansemond Convalescent Center, Suffolk, VA
Facility 829: Holmes Convalescent Center, Virginia Beach, VA
EXHIBIT 3
NO GUARANTEE FEE IS PAYABLE ON OBLIGATIONS COVERING THE FOLLOWING
FACILITIES:
Facility 525: Hillhaven Convalescent Hospital, Orange, CA
Facility 781: Bashford East Health Care Center, Bashford, KY
Facility 804: Hillhaven Convalescent Center and Nursing Home,
Birmingham, AL
Facility 824: Hillhaven Convalescent Center & Nursing Home,
Mobile, AL
Facility 160: First Hill Care Center, WA
Facility 560: Franklin Woods Healthcare Center, OH
Facility 570: Pickerington Health Care Center, OH
Facility 822: Hillhaven Convalescent Center, Memphis, TN
Facility 416: Park Place Hillhaven Convalescent Center, Great
Falls, MT
Facility 572: Canal Winchester, OH -- No guarantee fee shall be
payable on the Assumed Lease. A guarantee shall
be payable on the Assumed Existing Debt as
provided in Paragraph 1 of the Amendment.
EXHIBIT 4
ASSUMED OBLIGATIONS
ASSUMED EXISTING DEBT
Facility 572: Canal Winchester Loan Agreement, dated April 1,
1983, between County of
Franklin and Aeon, Inc., with
an outstanding principal
balance as of September 2,
1993 of $1,955,000, secured by
an Open-End Mortgage and
Security Agreement dated April
1, 1983.
<PAGE>
<PAGE>
Facility 416: Park Place All-Inclusive Promissory
Note Secured by Mortgage,
dated September 1, 1983,
in favor of B.G.M.
Enterprises, with an
outstanding principal
balance as of September
2, 1993 of $257,998.44.
All-Inclusive Promissory
Note Secured by Mortgage,
dated September 1, 1983,
in favor of B.G.M.
Enterprises, with an
outstanding principal
balance as of September
2, 1993 of $1,357,016.39.
ASSUMED LEASE
Facility 572: Canal Winchester Lease and Sublease Agreement,
dated October 10, 1985,
between Aeon, Inc. and First
Healthcare Corporation, and
any amendments thereto.
<PAGE>
<PAGE>
Exhibit 10.49
AMENDMENT NO. 1 TO CREDIT AGREEMENT
AMENDMENT dated as of October 12, 1993 to the Credit
Agreement dated as of September 1, 1993 (the "Credit Agreement")
among FIRST HEALTHCARE CORPORATION (the "Borrower"), THE
HILLHAVEN CORPORATION (the "Guarantor"), the BANKS referred to in
the Credit Agreement (the "Banks"), the LC ISSUING BANKS referred
to in the Credit Agreement (the "LC Issuing Banks"), MORGAN
GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"),
CHEMICAL BANK, as Administrative Agent (the "Administrative
Agent"), and J.P. MORGAN DELAWARE, as Collateral Agent (the
"Collateral Agent").
W I T N E S S E T H:
WHEREAS, in lieu of selling residential units at
retirement housing facilities in Walpole, Massachusetts and
Nashua, New Hampshire, the Guarantor or its Subsidiaries have
heretofore issued, and wish to continue issuing, bonds to tenants
in amounts related to the value of such residential units, which
bonds are repayable upon termination of the tenants' respective
tenancies; and the parties hereto wish to (i) amend Section 5.11
of the Credit Agreement to permit such bonds to continue to be
issued and remain outstanding and (ii) amend Section 2.08 of the
Credit Agreement to avoid mandatory prepayments of the Term Loans
by reason of the issuance of such bonds; and
WHEREAS, the compliance levels required by Sections 5.23
and 5.24 of the Credit Agreement were negotiated on the basis of
pro forma figures assuming completion of the transactions
consummated on the Closing Date; and the parties hereto desire to
provide that calculations of certain amounts referred to in said
covenants as of any time prior to the Closing Date will be
calculated on the same pro forma basis; and
WHEREAS, the initial $230,000,000 Minimum Compliance
Level for Consolidated Tangible Net Worth specified in clause (i)
of the definition of "Minimum Compliance Level" in Section 5.25
of the Credit Agreement was determined on a pro forma basis
reflecting the issuance of the Series D Preferred Stock to be
issued on the Closing Date; and the parties hereto wish to amend
clause (iii) of said definition of Minimum Compliance Level to
exclude such Series D Preferred Stock, so that it will not be
reflected in the Minimum Compliance Level twice;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise
specifically defined herein, each term used herein which is
defined in the Credit Agreement has the meaning assigned to such
term in the Credit Agreement. Each reference to "hereof",
"hereunder", "herein" and "hereby" and each other similar
<PAGE>
<PAGE>
reference and each reference to "this Agreement" and each other
similar reference contained in the Credit Agreement shall from
and after the date hereof refer to the Credit Agreement as
amended hereby.
SECTION 2. Amendment of Section 2.08. Section
2.08(c)(i)(B) is amended by inserting the words "and paragraph
(n)" immediately after the words "paragraphs (a) through (l)".
SECTION 3. Amendment of Section 5.11. Section 5.11 of
the Credit Agreement is amended by deleting the word "and" at the
end of paragraph (l), changing the period at the end of paragraph
(m) to "; and", and adding the following new paragraph (n):
(n) Debt evidenced by bonds issued by the Guarantor or
any of its Subsidiaries to tenants of residential units at
New Pond Village in Walpole, Massachusetts or The Greens at
Hanover in Nashua, New Hampshire evidencing the obligation
to repay at the end of their tenancies amounts paid by them
at the beginning of their tenancies, provided that the
aggregate outstanding principal amount of all such bonds
(including any such bonds outstanding on the Closing Date
and referred to in paragraph (b) above) does not exceed
$45,000,000.
SECTION 4. Compliance with Sections 5.23 and 5.24. For
the purposes of the covenants in Sections 5.23 and 5.24 of the
Credit Agreement:
(i) if Consolidated Debt for Borrowed Money is to be
determined as of any date prior to the Closing Date, it
shall be determined on a pro forma basis as if all Debt that
the Guarantor and its Subsidiaries repaid on the Closing
Date had been repaid on June 1, 1993 and all Debt that the
Guarantor and its Subsidiaries incurred on the Closing Date
had been incurred on June 1, 1993; and
(ii) if Consolidated Tangible Net Worth is to be
determined as of any date prior to the Closing Date, it
shall be determined on a pro forma basis as if the Series D
Preferred Stock that the Guarantor issued on the Closing
Date had been issued on June 1, 1993.
The foregoing pro forma adjustments shall not be made for
purposes of determining compliance with said covenants at any
time on or after the Closing Date.
SECTION 5. Amendment of Section 5.25. Section 5.25 of
the Credit Agreement is amended by adding, at the end of clause
(iii) of the definition of "Minimum Compliance Level", the phrase
"(excluding Series D Preferred Stock issued on the Closing
Date)".
SECTION 6. Governing Law. This Amendment shall be
governed by and construed in accordance with the laws of the
State of New York.
<PAGE>
<PAGE>
SECTION 7. Counterparts; Effectiveness. This Amendment
may be signed in any number of counterparts, each of which shall
be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Amendment shall
become effective as of the date hereof when the Agent shall have
received duly executed counterparts hereof signed by the
Borrower, the Required Banks and the Agents (or, in the case of
any party as to which an executed counterpart shall not have been
received, the Agent shall have received telegraphic, telex or
other written confirmation from such party of execution of a
counterpart hereof by such party).
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their respective authorized
officers as of the day and year first above written.
FIRST HEALTHCARE CORPORATION
By /s/ Robert K. Schneider
Title: Vice President
and Treasurer
THE HILLHAVEN CORPORATION
By /s/ Robert K. Schneider
Title: Vice President
and Treasurer
BANKS
Managing Agents:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Diana H. Imhof
Title: Associate
CHEMICAL BANK
By /s/ Robert L. Parker
Title: Vice President
<PAGE>
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ Brad W. DeSpain
Title: Vice President
THE BANK OF NEW YORK
By /s/ Daniel L. Black
Title: Senior Vice President
and Manager
THE CHASE MANHATTAN BANK, N.A.
By /s/ Ruth I. Dreessen
Title: Vice President
CONTINENTAL BANK N.A.
By /s/ David F. McLeese
Title: Vice President
THE LONG-TERM CREDIT BANK
OF JAPAN, LTD.,
LOS ANGELES AGENCY
By /s/ Hiroshi Norizuki
Title: Deputy General Manager
NATIONSBANK OF TEXAS, N.A.
By /s/ Pamela F. Randell
Title: Vice President
<PAGE>
<PAGE>
BANKS (cont'd)
PNC BANK, NATIONAL ASSOCIATION
By /s/ J. Gregory Seibly
Title: Vice President
SEATTLE-FIRST NATIONAL BANK
By /s/ Michael J. Collum
Title: Vice President
SWISS BANK CORPORATION,
SAN FRANCISCO BRANCH
By /s/ David L. Parrot
Title: Associate Director
Merchant Banking
By /s/ William B. Walzer
Title: Associate Director
Accounting
THE TORONTO-DOMINION BANK
By /s/ Bruce E. Gordon
Title: Director
Health Care Finance
U.S. BANK OF WASHINGTON,
NATIONAL ASSOCIATION
By /s/ Erin M. Keyser
Title: Vice President
<PAGE>
<PAGE>
BANKS (cont'd)
Co-Agents:
BANK OF HAWAII
By /s/ Robert S. Harrison
Title: Vice President
BANQUE NATIONALE DE PARIS
By /s/ Deborah Y. Gohh
Title: Vice President
By /s/ Jennifer Cho
Title: Vice President
BHF-BANK
By /s/ Sheldon J. Kleiman
Title: Assistant Vice President
By /s/ John P. Judge
Title: Assistant Treasurer
KREDIETBANK N.V.
By /s/ Robert Snauffer
Title: Vice President
By /s/ Diane M. Grimmig
Title: Vice President
<PAGE>
<PAGE>
BANKS (cont'd)
Lenders:
DRESDNER BANK AG,
LOS ANGELES AGENCY/
GRAND CAYMAN BRANCH
By /s/ Bryan P. Read
Title: Assistant Vice President
By /s/ Sidney S. Jordan
Title Vice President
FIRST INTERSTATE BANK OF
WASHINGTON, N.A.
By /s/ Donald H. Ralston
Title: Vice President
FLEET BANK OF MASSACHUSETTS
By /s/ Virginia Stolzenthaler
Title: Vice President
THE FUJI BANK, LIMITED,
LOS ANGELES AGENCY
By /s/ Yasuji Ikawa
Title: Joint General Manager
<PAGE>
<PAGE>
AGENTS
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By /s/ Diana H. Imhof
Title: Associate
CHEMICAL BANK,
as Administrative Agent
By /s/ Robert L. Parker
Title: Vice President
J.P. MORGAN DELAWARE,
as Collateral Agent
By /s/ Robert J. Henchey
Title: Vice President
<PAGE>
<PAGE>
Exhibit 10.50
AMENDMENT NO. 2 TO CREDIT AGREEMENT
AMENDMENT NO. 2 dated as of December 30, 1993 to the
Credit Agreement dated as of September 1, 1993 (as amended by
Amendment No. 1 thereto dated as of October 12, 1993, the "Credit
Agreement") among FIRST HEALTHCARE CORPORATION (the "Borrower"),
THE HILLHAVEN CORPORATION (the "Guarantor"), the BANKS referred
to in the Credit Agreement (the "Banks"), the LC ISSUING BANKS
referred to in the Credit Agreement (the "LC Issuing Banks"),
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the
"Agent"), CHEMICAL BANK, as Administrative Agent (the
"Administrative Agent"), and J.P. MORGAN DELAWARE, as Collateral
Agent (the "Collateral Agent").
W I T N E S S E T H:
WHEREAS, the Guarantor and the Borrower desire to amend
the Credit Agreement to allow IRB Letters of Credit (as defined
in the Credit Agreement) to be issued to backstop letters of
credit that provide credit support for (i) industrial revenue
bonds in an aggregate original principal amount of $6,925,000
that were issued with respect to the Meridian House retirement
housing facility located in Lantana, Florida or (ii) any other
industrial revenue bonds or similar instruments issued for the
benefit of the Borrower, any of its Subsidiaries (as defined in
the Credit Agreement) or any partnership in which the Borrower or
one of its Subsidiaries is a general partner (or for which the
Borrower is otherwise liable) that were outstanding on the
Effective Date (as defined in the Credit Agreement) and that may
hereafter be designated by the Borrower by written notice to the
Banks, in each case subject to the limitation on the aggregate
original face amount of IRB Letters of Credit that may be issued
under the Credit Agreement; and
WHEREAS, the parties hereto wish to amend the definition
of "Designated IRB Debt" contained in the Credit Agreement, as
well as Schedule IX to the Credit Agreement, to give effect to
the foregoing;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise
specifically defined herein, each term used herein which is
defined in the Credit Agreement has the meaning assigned to such
term in the Credit Agreement. Each reference to "hereof",
"hereunder", "herein" and "hereby" and each other similar
reference and each reference to "this Agreement" and each other
similar reference contained in the Credit Agreement shall from
and after the date hereof refer to the Credit Agreement as
amended hereby.
<PAGE>
<PAGE>
SECTION 2. Amendment of Section 1.01. Section 1.01 is
amended by replacing the definition of "Designated IRB Debt"
contained therein with the following:
"Designated IRB Debt" means industrial revenue bonds or
similar instruments issued for the benefit of the Borrower,
any of its Subsidiaries or any partnership in which the
Borrower or one of its Subsidiaries is a general partner (or
for which the Borrower is otherwise liable) which are
outstanding on the Effective Date and (x) identified in
Schedule IX hereto or (y) designated by the Borrower by
written notice to the Banks as "Designated IRB Debt" for all
purposes hereunder.
SECTION 3. Amendment of Schedule IX. Schedule IX is
amended by adding the following industrial revenue bond issue as
new "24." on such schedule, by changing the numbering of the
subsequent industrial revenue bond issues accordingly and by
changing the sums of the relevant figures accordingly:
24. 7138 Meridian House Bank Cal 6,925,000
SECTION 4. Governing Law. This Amendment shall be
governed by and construed in accordance with the laws of the
State of New York.
SECTION 5. Counterparts; Effectiveness. This Amendment
may be signed in any number of counterparts, each of which shall
be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Amendment shall
become effective as of the date hereof when the Agent shall have
received duly executed counterparts hereof signed by the
Borrower, the Required Banks and the Agents (or, in the case of
any party as to which an executed counterpart shall not have been
received, the Agent shall have received telegraphic, telex or
other written confirmation from such party of execution of a
counterpart hereof by such party).
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their respective authorized
officers as of the day and year first above written.
FIRST HEALTHCARE CORPORATION
By /s/ Robert K. Schneider
Vice President & Treasurer
THE HILLHAVEN CORPORATION
By /s/ Robert K. Schneider
Vice President & Treasurer
<PAGE>
<PAGE>
BANKS
Managing Agents:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Diana H. Imhof
Title: Associate
CHEMICAL BANK
By /s/ Robert L. Parker
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ Brad W. DeSpain
Title: Vice President
THE BANK OF NEW YORK
By /s/ Lisa Y. Brown
Title: Vice President
THE CHASE MANHATTAN BANK, N.A.
By /s/ Andris G. Kalnins
Title: Managing Director
<PAGE>
<PAGE>
CONTINENTAL BANK N.A.
By /s/ Elizabeth M. Nolan
Title: Vice President
THE LONG-TERM CREDIT BANK
OF JAPAN, LTD.,
LOS ANGELES AGENCY
By /s/ Yutaka Kamisawa
Title: Deputy General Manager
NATIONSBANK OF TEXAS, N.A.
By /s/ Pamela F. Randell
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By /s/ J. Gregory Seilby
Title: Vice President
SEATTLE-FIRST NATIONAL BANK
By /s/ Thomas P. Rook
Title: Vice President
SWISS BANK CORPORATION,
SAN FRANCISCO BRANCH
By /s/ David L. Parrot
Title: Associate Director
Merchant Banking
By /s/ Colin T. Taylor
Title: Director Merchant Banking
<PAGE>
<PAGE>
THE TORONTO-DOMINION BANK
By /s/ Sara A. Tirner
Title: Attorney-in-Fact
U.S. BANK OF WASHINGTON,
NATIONAL ASSOCIATION
By /s/ Erin Keyser
Title: Vice President
Co-Agents:
BANK OF HAWAII
By /s/ Peter S. Ho
Title: Assistant Vice President
BANQUE NATIONALE DE PARIS
By /s/ Judith A. Dowling
Title: Vice President
By /s/ William LaHerran
Title: Associate
BHF-BANK
By /s/ Robert Suehnholz
Title: Senior Vice President
By /s/ Linda Pace
Title: Assistant Treasurer
<PAGE>
<PAGE>
KREDIETBANK N.V.
By /s/ Robert Snauffer
Title: Vice President
By /s/ Tod R. Angus
Title: Vice President
Lenders:
DRESDNER BANK AG,
LOS ANGELES AGENCY/
GRAND CAYMAN BRANCH
By /s/ Jon M. Bland
Title: Senior Vice President
By /s/ Sidney S. Jordan
Title Vice President
FIRST INTERSTATE BANK OF
WASHINGTON, N.A.
By /s/ Donald H. Ralston
Title: Vice President
FLEET BANK OF MASSACHUSETTS
By /s/ Ginger Stolzenthaler
Title: Vice President
<PAGE>
<PAGE>
THE FUJI BANK, LIMITED,
LOS ANGELES AGENCY
By /s/ Yasuji Ikawa
Title: Joint General Manager
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY
By /s/ Koji Okawa
Title: Joint General Manager
AGENTS
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By /s/ Diana H. Imhof
Title: Associate
CHEMICAL BANK,
as Administrative Agent
By /s/ Robert L. Parker
Title: Vice President
J.P. MORGAN DELAWARE,
as Collateral Agent
By /s/ Robert J. Henchey
Title: Vice President
<PAGE>
<PAGE>
Exhibit 10.51
AMENDMENT NO. 3 TO CREDIT AGREEMENT
AMENDMENT NO. 3 dated as of May 27, 1994 to the Credit
Agreement dated as of September 1, 1993 (as heretofore amended,
the "Credit Agreement") among FIRST HEALTHCARE CORPORATION (the
"Borrower"), THE HILLHAVEN CORPORATION (the "Guarantor"), the
BANKS referred to in the Credit Agreement (the "Banks"), the LC
ISSUING BANKS referred to in the Credit Agreement (the "LC
Issuing Banks"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
Agent (the "Agent"), CHEMICAL BANK, as Administrative Agent (the
"Administrative Agent"), and J.P. MORGAN DELAWARE, as Collateral
Agent (the "Collateral Agent").
W I T N E S S E T H:
WHEREAS, the parties hereto desire to amend the Credit
Agreement (A) to permit the Guarantor and its Subsidiaries (i) to
use a captive insurance company Subsidiary of the Guarantor to
insure their professional and general liability exposure and (ii)
to place their excess insurance and reinsurance with one or more
insurers of equal or better quality as insurers having not less
than an A.M. Best rating of "A" or "A- XI", and (B) to permit the
Guarantor to use its captive insurance company Subsidiary to
provide professional and general liability exposure insurance to
others;
WHEREAS, the Borrower wishes to finance the cost
(approximately $1,800,000) of acquiring certain computer
equipment for use in the Mortgaged Facilities through outside
lenders which as a condition to such financing require that they
obtain a first priority Lien on such equipment;
WHEREAS, the outside lenders' Lien on such equipment will
constitute a purchase money Lien permitted by Section 5.12(e) of
the Credit Agreement, but for technical reasons may not
constitute a "purchase money security interest" under the Uniform
Commercial Code with respect to some or all of such equipment and
therefore may be junior to the Collateral Agent's Lien on such
equipment under the relevant Mortgages; and
WHEREAS, the Guarantor has asked the Banks to permit the
Collateral Agent to enter into an agreement with the outside
lenders in order to ensure that they will obtain the first
priority Lien on such equipment that they have required as a
condition to financing the acquisition thereof;
<PAGE>
<PAGE>
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise
specifically defined herein, each term used herein which is
defined in the Credit Agreement has the meaning assigned to such
term in the Credit Agreement. Each reference to "hereof",
"hereunder", "herein" and "hereby" and each other similar
reference and each reference to "this Agreement" and each other
similar reference contained in the Credit Agreement shall from
and after the date hereof refer to the Credit Agreement as
amended hereby.
SECTION 2. Amendment of Section 5.04. Section 5.04 is
amended by replacing clauses (ii) and (iii) thereof with the
following:
(ii) professional and general liability insurance (including
products/completed operations liability coverage) in amounts
not less than those listed in part B of Schedule X hereto
and (iii) such other insurance coverage in such amounts and
with respect to such risks as the Required Banks may
reasonably request. The Guarantor and its Subsidiaries may
use a captive insurance company Subsidiary of the Guarantor
to insure their professional and general liability exposure,
provided that excess insurance and reinsurance are carried
in such amounts as are customary with owners of similar
businesses, and said excess insurance and reinsurance are
placed with companies having not less than an A.M. Best
rating "A" or "A- XI" or with other insurers of equal or
better quality. The foregoing shall not prohibit the
Guarantor from maintaining insurance coverage with X.L.
Insurance Company, Ltd., in amounts, and with deductibles,
not exceeding those in effect on the Closing Date and
covering such risks as are covered by X.L. Insurance
Company, Ltd. under policies in effect on the Closing Date.
SECTION 3. Permitted Lines of Business. The undersigned
parties hereby waive the provisions of Section 5.08 of the Credit
Agreement to the extent, if any, required to permit a captive
insurance company Subsidiary of the Guarantor to insure the
professional and general liability exposure of the Guarantor and
its Subsidiaries and to provide such insurance to others. Except
as expressly waived hereby, the provisions of Section 5.08 of the
Credit Agreement shall remain in full force and effect.
SECTION 4. Entry into Agreement to Subordinate by the
Collateral Agent. In order to permit the Borrower to finance the
cost (approximately $1,800,000) of acquiring certain computer
equipment for use in the Mortgaged Facilities through outside
lenders which as a condition to such financing require that they
obtain a first priority Lien on such equipment, the Collateral
Agent is authorized and directed, if requested to do so by the
Borrower, to enter into an agreement with such lenders, in form
and substance satisfactory to the Agent, for the purpose of
subordinating the Collateral Agent's Lien on such equipment under
the relevant Mortgages to the Lien of such lenders securing
advances made to finance the cost of such equipment.
<PAGE>
<PAGE>
SECTION 5. Governing Law. This Amendment shall be
governed by and construed in accordance with the laws of the
State of New York.
SECTION 6. Counterparts; Effectiveness. This Amendment
may be signed in any number of counterparts, each of which shall
be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Amendment shall
become effective as of the date hereof when the Agent shall have
received duly executed counterparts hereof signed by the
Borrower, Banks having at least 90% of the aggregate amount of
the Credit Exposures (said 90% to be calculated net of any
participating interests as to which such Banks are not permitted
to vote pursuant to directions given in accordance with Section
10.06(b) of the Credit Agreement), the Agent and the Collateral
Agent (or, in the case of any party as to which an executed
counterpart shall not have been received, the Agent shall have
received telegraphic, telex or other written confirmation from
such party of execution of a counterpart hereof by such party).
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their respective authorized
officers as of the day and year first above written.
FIRST HEALTHCARE CORPORATION
By /s/ Robert Schneider
Vice President & Treasurer
THE HILLHAVEN CORPORATION
By /s/ Robert Schneider
Vice President & Treasurer
BANKS
Managing Agents:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Diana H. Imhof
Title: Associate
<PAGE>
<PAGE>
CHEMICAL BANK
By /s/ Neil R. Boylan
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ Brad DeSpain
Title: Vice President
THE BANK OF NEW YORK
By /s/ Lisa Y. Brown
Title: Vice President
THE CHASE MANHATTAN BANK, N.A.
By /s/ Michael K. Bayley
Title: Vice President
CONTINENTAL BANK N.A.
By /s/ David F. McLeese
Title: Vice President
THE LONG-TERM CREDIT BANK
OF JAPAN, LTD.,
LOS ANGELES AGENCY
By /s/ Yutaka Kamisawa
Title: Deputy General Manager
<PAGE>
<PAGE>
NATIONSBANK OF TEXAS, N.A.
By /s/ Pamela Randell Levy
Title: Senior Vice President
PNC BANK, NATIONAL ASSOCIATION
By /s/ J. Gregory Seibly
Title: Vice President
SEATTLE-FIRST NATIONAL BANK
By /s/ Thomas P. Rook
Title: Vice President
SWISS BANK CORPORATION,
SAN FRANCISCO BRANCH
By /s/ David L. Parrot
Title: Associate Director
Merchant Banking
By /s/ Hans-Ueli Surber
Title: Executive Director
Merchant Banking
THE TORONTO-DOMINION BANK
By /s/ Warren Finlay
Title: Manager Credit
<PAGE>
<PAGE>
U.S. BANK OF WASHINGTON,
NATIONAL ASSOCIATION
By /s/ Erin Keyser
Title: Vice President
Co-Agents:
BANK OF HAWAII
By /s/ Peter S. Ho
Title: Assistant Vice President
BANQUE NATIONALE DE PARIS
By /s/ Deborah Y. Gohh
Title: Vice President
By /s/ Jennifer Cho
Title: Vice President
BHF-BANK
By /s/ Evon Contos
Title: Vice President
By /s/ Peter J. Becker
Title: Assistant Vice President
KREDIETBANK N.V.
By /s/ Robert Snauffer
Title: Vice President
<PAGE>
<PAGE>
Lenders:
DRESDNER BANK AG,
LOS ANGELES AGENCY/
GRAND CAYMAN BRANCH
By /s/ Kenneth I. Bowman
Title: Vice President
By /s/ Jon M. Bland
Title: Senior Vice President
FIRST INTERSTATE BANK OF
WASHINGTON, N.A.
By /s/ Donald H. Ralston
Title: Vice President
FLEET BANK OF MASSACHUSETTS
By /s/ Ginger Stolzenthaler
Title: Vice President
THE FUJI BANK, LIMITED,
LOS ANGELES AGENCY
By /s/ Yasuji Ikawa
Title: Joint General Manager
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY
By /s/ Toshinari Iyoda
Title: Senior Vice President
<PAGE>
<PAGE>
AGENTS
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By /s/ Diana H. Imhof
Title: Associate
J.P. MORGAN DELAWARE,
as Collateral Agent
By /s/ Robert J. Henchey
Title: Vice President
<PAGE>
<PAGE>
Exhibit 10.52
AGREEMENT AND WAIVER
This AGREEMENT AND WAIVER (this "Agreement") dated as of
September ___, 1993, by and among National Medical Enterprises,
Inc., a Nevada corporation ("NME"), the subsidiaries of NME which
are signatories hereto, The Hillhaven Corporation, a Nevada
corporation ("Hillhaven"), and First Healthcare Corporation, a
Delaware corporation ("FHC").
WITNESSETH:
WHEREAS, pursuant to that certain Revolving Credit and Term
Loan Agreement dated as of January 31, 1990 between NME and
Hillhaven, as amended by that certain First Amendment thereto
dated as of November 12, 1992 (as amended, the "Revolving Credit
Agreement"), NME agreed to make certain loans to Hillhaven
through May 31, 1994 subject to the conditions set forth therein;
and
WHEREAS, pursuant to that certain Commitment Letter dated
May 31, 1990, between NME and FHC, as amended by that certain
Amendment No. One thereto dated as of May 1, 1991 (as amended,
the "Commitment Letter"), NME agreed to make certain loans to FHC
subject to the conditions set forth therein; and
WHEREAS, pursuant to that certain Master Loan Agreement
dated as of April 1, 1992 among the lenders parties thereto, NME,
FHC and Hillhaven, as amended by that certain First Amendment
thereto dated as of November 12, 1992 (as amended, the "Master
Loan Agreement"), the lenders which were parties thereto agreed
to finance up to 100% of the purchase price of the facilities
referred to therein; and
WHEREAS, pursuant to that certain Guaranty dated as of April
1, 1992 from Hillhaven in favor of the lenders listed thereon
(the "Master Loan Agreement Guaranty"), Hillhaven guaranteed the
obligations of FHC under the Master Loan Agreement; and
WHEREAS, pursuant to that certain Master Loan Agreement for
Purchase of Nine Facilities dated as of June 1, 1992 among the
lenders parties thereto and FHC (the "Second Master Loan
Agreement"), the lenders which were parties thereto agreed to
finance up to 100% of the purchase price of the facilities
referred to therein; and
WHEREAS, pursuant to that certain Guaranty dated as of June
1, 1992 from Hillhaven in favor of the lenders listed thereon
(the "Second Master Loan Agreement Guaranty"), Hillhaven
guaranteed FHC's obligations under the Second Master Loan
Agreement; and
WHEREAS, pursuant to that certain Promissory Note dated
January 31, 1990 (the "Promissory Note") by FHC in favor of NME
Properties Corp., a Tennessee corporation (formerly known as The
Hillhaven Corporation), FHC owes certain monies to NME Properties
Corp.; and
<PAGE>
<PAGE>
WHEREAS, pursuant to that certain Note Guarantee Agreement
dated as of January 31, 1990 among Hillhaven, NME and the payees
identified therein (the "Note Guarantee Agreement"), Hillhaven
guaranteed FHC's obligations under the Promissory Note; and
WHEREAS, Hillhaven is restructuring its relationship with
NME to, inter alia, repay amounts owing to NME pursuant to the
Master Loan Agreement, the Second Master Loan Agreement and the
Promissory Note, and terminate NME's commitment to loan funds
pursuant to the Revolving Credit Agreement and the Master Loan
Agreement; and
WHEREAS, in connection therewith the parties desire to
eliminate NME's commitments under the Revolving Credit Agreement,
and the Master Loan Agreement, and to terminate Hillhaven's
obligations under the Master Loan Agreement Guaranty, Second
Master Loan Agreement Guaranty and Note Guarantee Agreement; and
WHEREAS, the aforesaid restructuring will be financed
through (1) the issuance by Hillhaven to NME or its subsidiaries
of $120 million of a newly created series of payable-in-kind
preferred stock, (2) the incurrence by FHC of up to $360 million
of indebtedness in the form of term loans, letters of credit and
working capital loans under a secured credit facility with Morgan
Guaranty Trust Company of New York and a syndicate of other
lenders (the "Bank Financing"), (3) the sale by Hillhaven of
senior subordinated notes in the approximate amount of $175
million (the "Notes"), (4) the extension of FHC's commercial
paper program backed by certain of its (and certain of its
subsidiaries') Medicaid accounts receivable and increase in
permitted borrowings under such program from $30.0 million to
$40.0 million and (5) the use of available cash; and
WHEREAS, in connection with the Bank Financing, Hillhaven
has transferred its bank accounts to FHC; and
WHEREAS, pursuant to Sections 5(a), 5(b) and 5(i) of that
certain Guarantee Reimbursement Agreement, as amended (as so
amended, the "Guarantee Reimbursement Agreement"), Hillhaven
agreed, inter alia, to certain covenants which may be violated as
a result of the Bank Financing, the Notes and the transfer of
bank accounts to FHC;
NOW, THEREFORE, in consideration of the foregoing recitals
and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto
intending to be legally bound, hereby agree as follows:
1. Termination of Obligations to Lend. NME's obligations
to loan funds to Hillhaven under the Revolving Credit Agreement,
the Master Loan Agreement, the Second Master Loan Agreement, the
Promissory Note and the Commitment Letter shall terminate as of
the date hereof.
2. Termination of Guarantees. Hillhaven's obligations
under the Master Loan Agreement Guaranty, Second Master Loan
Agreement Guaranty and Note Guarantee Agreement shall terminate
as of the date hereof.
<PAGE>
<PAGE>
3. Waiver. NME hereby waives compliance with the
following provisions of the Guarantee Reimbursement Agreement:
(a) Sections 5(a) and 5(b) of the Guarantee
Reimbursement Agreement are hereby waived to the
extent necessary to permit (i) the transactions
contemplated by the Bank Financing, including the
placement of mortgages on facilities owned by FHC
or its subsidiaries, the substitution of
facilities as collateral and any subsequent
addition of collateral, and (ii) the issuance of
the Notes.
(b) Section 5(i) of the Guarantee Reimbursement
Agreement is hereby waived to the extent necessary
to permit Hillhaven to transfer any or all of its
bank accounts to FHC.
4. Costs. Each party shall bear its own cost and expenses
in connection with the transactions contemplated in this
Agreement.
5. Cooperation. The parties agree to execute and deliver
such other documents and instruments and do all such other acts
and things as may be reasonably required to give effect to the
agreements contained in this Agreement.
6. Amendment. No amendment or modifications of this
Agreement shall be effective unless in writing signed by the
parties.
7. Governing Law. This Agreement shall be governed by and
construed in accordance with California law.
8. Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but all of
which together shall constitute but one and the same instrument.
9. No Further Waiver. The waivers set forth herein shall
be effective only for the specific purposes for which given.
IN WITNESS WHEREOF, each of the parties hereto has caused
this Agreement to be duly executed on its behalf as of the date
first set forth above.
NATIONAL MEDICAL ENTERPRISES, INC.,
a Nevada corporation
By: /s/ Timothy Pullen
Its: Vice President
<PAGE>
<PAGE>
NME PROPERTIES CORP.,
a Tennessee corporation
By: /s/ Timothy Pullen
Its: Vice President
NME PROPERTIES, INC.,
a Delaware corporation
By: /s/ Timothy Pullen
Its: Vice President
NME PROPERTY HOLDING CO., INC.,
a Delaware corporation
By: /s/ Timothy Pullen
Its: Vice President
NME PROPERTIES WEST, INC.,
a Delaware corporation
By: /s/ Timothy Pullen
Its: Vice President
HAMMOND HOLIDAY HOME, INC.,
a Kansas corporation
By: /s/ Timothy Pullen
Its: Vice President
SEDGWICK CONVALESCENT CENTER, INC.,
a Kansas corporation
By: /s/ Timothy Pullen
Its: Vice President
NORTHWEST CONTINUUM CARE
CENTER, INC.,
a Washington corporation
By: /s/ Timothy Pullen
Its: Vice President
<PAGE>
<PAGE>
FLAGG INDUSTRIES, INC.,
a California corporation
By: /s/ Timothy Pullen
Its: Vice President
GUARDIAN MEDICAL SERVICES, INC.,
a North Carolina corporation
By: /s/ Timothy Pullen
Its: Vice President
NHE ARIZONA, INC.,
an Arizona corporation
By: /s/ Timothy Pullen
Its: Vice President
LAKE HEALTH CARE FACILITIES, INC.,
a Delaware corporation
By: /s/ Timothy Pullen
Its: Vice President
THE HILLHAVEN CORPORATION,
a Nevada corporation
By: /s/ Robert K. Schneider
Its: Vice President & Treasurer
FIRST HEALTHCARE CORPORATION
a Delaware corporation
By: /s/ Robert K. Schneider
Its: Vice President & Treasurer
<PAGE>
<PAGE>
<PAGE>
Exhibit 10.53
NOVATION AGREEMENT
THIS NOVATION AGREEMENT (this "Agreement") is made as of
April 29, 1994, among HILLHAVEN FUNDING CORPORATION (the
"Issuer"), BANQUE INDOSUEZ, New York Branch ("Banque Indosuez"),
BANQUE NATIONALE DE PARIS, San Francisco Agency ("Banque
Nationale"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION ("Bank of America"), and SEATTLE-FIRST NATIONAL BANK
("Seafirst"). Collectively, Banque Indosuez and Banque Nationale
shall be called the "Prior Banks", and Bank of America and
Seafirst shall be called the "Successor Banks".
The Issuer, the Prior Banks as "Banks," and Banque Indosuez
as agent for the Banks ("Agent") have entered into a Liquidity
Agreement dated as of July 1, 1990 and amended September 17, 1991
and November 23, 1992 (as so amended, the "Liquidity Agreement").
Pursuant to the Liquidity Agreement, the Issuer and Morgan
Guaranty Trust Company of New York ("Morgan Guaranty"), as
collateral agent (the "Collateral Agent") have entered into a
Pledge and Security Agreement dated as of July 1, 1990 (the
"Pledge Agreement").
The parties hereto wish to substitute the Successor Banks as
"Banks" under the Liquidity Agreement in lieu of the Prior Banks,
to substitute Bank of America as Agent under the Liquidity
Agreement in lieu of Banque Indosuez, and to substitute Seafirst
as Collateral Agent under the Liquidity Agreement and the Pledge
Agreement in lieu of Morgan Guaranty.
NOW, THEREFORE, the parties hereto agree on and as of the
date hereof:
1. The Issuer represents and warrants to the Successor
Banks that: the Liquidity Agreement is in full force and effect
and has not been altered, modified, waived, amended or revoked;
no Loans or Supported Notes (as those terms are defined in the
Liquidity Agreement) or any other amounts under the Liquidity
Agreement or the Pledge Agreement are outstanding; this Agreement
constitutes the legal, valid and binding obligation of the
Issuer, enforceable against it in accordance with the terms
hereof; no consents or approvals, other than those herein
contained, are necessary to the execution and delivery of this
Agreement by the Issuer; no Collateral (as defined in the Pledge
Agreement) is in the possession of Morgan Guaranty as Collateral
Agent; the Issuer is not in default under the Liquidity Agreement
or the Pledge Agreement; and to the best knowledge of the Issuer,
Banque Indosuez is not in default under the Liquidity Agreement
either in its capacity as Bank or in its capacity as Agent,
Morgan Guaranty is not in default in its capacity as Collateral
Agent, and Banque Nationale is not in default under the Liquidity
Agreement.
2. The Prior Banks each represent and warrant to the
Successor Banks that: the Liquidity Agreement is in full force
and effect and has not been altered, modified, waived, amended or
<PAGE>
<PAGE>
revoked; no Loans or any other amounts under the Liquidity
Agreement or the Pledge Agreement are outstanding, and to the
best of the Prior Banks' knowledge, no Supported Notes (as those
terms are defined in the Liquidity Agreement), are outstanding;
such Prior Bank is the legal and beneficial owner of the rights
transferred hereunder, which are subject to no lien, charge or
encumbrance whatsoever; this Agreement constitutes the legal,
valid and binding obligation of such Prior Bank, enforceable
against it in accordance with the terms hereof; no consents or
approvals, other than those herein contained, are necessary to
the execution and delivery of this Agreement by such Prior Bank;
and to the best knowledge of the Prior Banks, the Issuer is not
in default under the Liquidity Agreement or the Pledge Agreement
and Morgan Guaranty is not in default in its capacity as
Collateral Agent.
3. Morgan Guaranty represents and warrants to the
Successor Banks that to the best of its knowledge and belief it
has taken all necessary actions to release, terminate or assign
its security interest in all Purchased Receivables (as defined in
the Master Sales and Servicing Agreement dated as of July 1, 1990
among Hillhaven Funding Corporation, First Healthcare
Corporation, Northwest Health Care, Inc., Pasatiempo Development
Corp., The Hillhaven Corporation and certain wholly-owned
subsidiaries of the Hillhaven Corporation, which may become
parties thereto as provided therein (the "Sales Agreement")).
Further, Morgan Guaranty (a) hereby releases and assigns to
Seafirst, as successor Collateral Agent, any right, title or
interest in any bank account (including without limitation the
Collateral Account and the Collection Account (as defined in the
Pledge Agreement) and all amounts, securities or investments
deposited or held therein; (b) hereby releases and assigns to
Seafirst, as successor Collateral Agent, any right title or
interest in the Records (as defined in the Pledge Agreement); (c)
hereby releases and assigns to Seafirst, as successor Collateral
Agent, any right, title or interest in any and all Eligible
Investments (as defined in the Sales Agreement); and (d) hereby
releases and assigns to Seafirst, as successor Collateral Agent,
all additions and accessions to, and all substitutions or
replacements for, and all payments, proceeds, products,
distributions (whether in money, securities or other property)
and collections from or with respect to any and all of the
foregoing.
4. Banque Indosuez represents to the Successor Banks that
Banque Indosuez is not in default under the Liquidity Agreement
either in its capacity as Bank or in its capacity as Agent.
Banque Nationale represents to the Successor Banks that Banque
Nationale is not in default under the Liquidity Agreement.
5. Banque Indosuez resigns as Agent under the Liquidity
Agreement. As Banks under the Liquidity Agreement, Banque
Indosuez and Banque Nationale each appoint Bank of America as
successor Agent. Bank of America accepts this appointment, and
the Issuer consents thereto.
<PAGE>
<PAGE>
6. Bank of America as successor Agent under the Liquidity
Agreement removes Morgan Guaranty as Collateral Agent under the
Pledge Agreement and appoints Seafirst Bank as successor
Collateral Agent. Seafirst Bank accepts this appointment, and
the Issuer consents thereto.
7. The Prior Banks each assign to the Successor Banks
jointly and severally all rights of the Prior Banks in their
capacity as Banks under the Liquidity Agreement. The Successor
Banks accept such assignment and jointly and severally assume all
obligations of the Prior Banks in their capacity as Banks under
the Liquidity Agreement.
8. This Agreement constitutes a novation by which the
Successor Banks are substituted for the Prior Banks as Banks
under the Liquidity Agreement, Bank of America is substituted for
Banque Indosuez as Agent under the Liquidity Agreement, and
Seafirst is substituted for Morgan Guaranty as Collateral Agent
under the Pledge Agreement.
9. The Prior Banks and the Successor Banks acknowledge that
as of the date hereof, National Medical Enterprises, Inc. ("NME")
will be released from its shortfall guaranty provided pursuant to
the terms of that certain letter agreement dated July 1, 1990,
from NME to Banque Indosuez.
10. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving
effect to the principles of conflict of laws. The undersigned
hereby irrevocably consent to the non-exclusive jurisdiction of
any New York State or federal court sitting in the City of New
York over any suit, action or proceeding arising out of, or
relating to, this Agreement and hereby irrevocably waive any
objection to the venue of any such suit, action or proceeding as
well as any objection with respect thereto of inconvenient forum.
11. Except as expressly modified herein, each of the
Liquidity Agreement and Pledge Agreement shall remain in full
force and effect, and such agreements are hereby ratified and
confirmed in all respects.
12. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall as to such jurisdiction
be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions
hereof or affecting the validity or enforceability of such
provision in any other jurisdiction. To the extent permitted by
applicable law, the parties waive any provision of law which
renders any provision hereof prohibited or unenforceable in any
respect.
13. This Agreement shall become effective on the date on
which the Issuer shall have paid Banque Indosuez as agent for the
Prior Banks in immediately available funds, the amount of
$36,164.48 (together with, if applicable, interest at the rate of
$150.00 for each day subsequent to April 29, 1994 and prior to
closing under the Liquidity Agreement with the Successor Banks).
The Issuer shall provide evidence satisfactory to the Successor
<PAGE>
<PAGE>
Banks prior to the date of closing under the Liquidity Agreement
that such amounts have been paid in full.
14. This Agreement may be executed in multiple
counterparts, and by different parties on separate counterparts,
each of which shall be an original, but all of which together
shall constitute a single instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers thereunto duly
authorized as of the date and year first above written.
ISSUER:
HILLHAVEN FUNDING CORPORATION, a Nevada
Corporation
By: /s/ Robert K. Schneider
Its: Vice President & Treasurer
PRIOR BANKS:
BANQUE INDOSUEZ, New York Branch, in its
capacity as Agent and as Bank
By: /s/ Katherine B. Merle
Its: First Vice President
By: /s/ Padma S. Desai
Its: Assistant Vice President
BANQUE NATIONALE DE PARIS, San Francisco
Agency, as Bank
By: /s/ Deborah Y. Gohh
Its: Vice President
BANQUE NATIONALE DE PARIS, San Francisco
Agency, as Bank
By: /s/ Jennifer Y. Cho
Its: Vice President
PRIOR COLLATERAL AGENT:
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, as prior Collateral Agent
By: /s/ Lloyd A. Baggs
Its: Trust Officer
<PAGE>
<PAGE>
SUCCESSOR BANKS:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as successor Agent
under the Liquidity Agreement and as a
Bank under the Liquidity Agreement
By: /s/ Brad DeSpain
Its: Vice President
SEATTLE-FIRST NATIONAL BANK, as
successor Collateral Agent under the
Liquidity Agreement and the Pledge
Agreement and as a Bank under the
Liquidity Agreement
By: /s/ Thomas P. Rook
Its: Vice President
<PAGE>
<PAGE>
Exhibit 10.54
AMENDED AND RESTATED
MASTER SALE AND SERVICING AGREEMENT
among
HILLHAVEN FUNDING CORPORATION,
FIRST HEALTHCARE CORPORATION,
NORTHWEST HEALTH CARE, INC.,
PASATIEMPO DEVELOPMENT CORP.,
THE HILLHAVEN CORPORATION
and
CERTAIN WHOLLY-OWNED SUBSIDIARIES
OF THE HILLHAVEN CORPORATION
WHICH MAY BECOME PARTIES
HERETO AS PROVIDED HEREIN
Dated as of April 29, 1994
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS 1
Section 1.1. Definitions 1
Section 1.2. Accounting Terms 14
ARTICLE II SALES OF RECEIVABLES 14
Section 2.1. Sales of Receivables 14
Section 2.2. Repurchase of Certain Purchased
Receivables 17
Section 2.3. Termination 18
ARTICLE III REPRESENTATIONS AND WARRANTIES 18
Section 3.1. Representations and Warranties of
the Seller 18
Section 3.2. Representations and Warranties of the
Seller Relating to the Agreement and
the Receivables 20
Section 3.3. Representation and Warranties of
Hillhaven 21
Section 3.4. Representations and Warranties of
Northwest 23
Section 3.5. Representations and Warranties of
Pasatiempo 26
ARTICLE IV COVENANTS 28
Section 4.1. Covenants of the Seller 28
Section 4.2. Covenants of Hillhaven 32
Section 4.3. Covenants of Northwest 35
Section 4.4. Covenants of Pasatiempo 38
ARTICLE V ADMINISTRATION AND SERVICING OF RECEIVABLES 41
Section 5.1. General 41
Section 5.2. Servicer Compensation 42
Section 5.3. Expenses 42
Section 5.4. Repurchase by Servicers 42
Section 5.5. Master Servicer 43
Section 5.6. Notices to the Seller 43
ARTICLE VI ALLOCATION AND APPLICATION OF COLLECTIONS 44
Section 6.1. Establishment of Issuer Accounts;
Investments 44
Section 6.2. Collections and Allocations 44
Section 6.3. Application of Collection Account and
Collateral Account 44
Section 6.4. Purchase Money Note 47
Section 6.5. Daily Reports 47
Section 6.6. Adjustment Procedures 47
Section 6.7. Adjustments for Miscellaneous Credits
and Erroneous Charges 49
ARTICLE VII CERTAIN MATTERS RELATING TO THE SELLER 50
Section 7.1. Merger or Consolidation of, or
Assumption of the Obligations of,
the Seller 50
<PAGE>
<PAGE>
ARTICLE VIII OTHER MATTERS RELATING TO SERVICING 50
Section 8.1. Liability of the Servicers and Master
Servicer; Indemnification 50
Section 8.2. Merger or Consolidation of, or
Assumption of the Obligations of,
the Servicers or Master Servicer 50
Section 8.3. Servicers and Master Servicer
Not To Resign 51
Section 8.4. Delegation of Duties 51
Section 8.5. Monitoring 51
Section 8.6. Confidentiality 52
ARTICLE IX SERVICING DEFAULTS 52
Section 9.1. Servicing Defaults 52
Section 9.2. Appointment of Successor Servicer or
Successor Master Servicer 55
Section 9.3. Collection of Medicaid Payments
by Servicers 56
ARTICLE X MATTERS RELATING TO THE ISSUER 57
Section 10.1. Recourse 57
Section 10.2. Inspection of Books and Records 57
ARTICLE XI INDEMNITY 57
Section 11.1. Indemnity 57
ARTICLE XII MISCELLANEOUS PROVISIONS 62
Section 12.1. Transfer Termination Date 62
Section 12.2. Termination of Agreement;
Sale of Receivables 62
Section 12.3. Amendment 62
Section 12.4. Intention of the Parties 62
Section 12.5. Governing Law 62
Section 12.6. Notices 63
Section 12.7. Severability of Provisions 65
Section 12.8. Assignment 65
Section 12.9. Further Assurances 65
Section 12.10. No Waiver; Cumulative Remedies 65
Section 12.11. Counterparts 66
Section 12.12. Binding Effect; Benefit of Agreement 66
Section 12.13. Nonpetition Covenant 66
Section 12.14. Headings 66
Section 12.15. General Provision as to Payments 66
Section 12.16. Additional Parties Hereto 66
Section 12.17. Arbitration 67
Section 12.18. Replacement of Original Master Sale
and Servicing Agreement 68
EXHIBITS
A Northwest Agreement
B Pasatiempo Agreement
C Settlement Statement
D Confirming Assignment
E Northwest Confirming Assignment
F Pasatiempo Confirming Assignment
G Hillhaven Note
H Purchase Money Note
I Daily Report
<PAGE>
<PAGE>
SCHEDULES
I - Conditions Precedent to Closing Date
II - Principal Place of Business, Location of Records, List of
Facilities
III - Excluded Facilities
AMENDED AND RESTATED MASTER SALE
AND SERVICING AGREEMENT
THIS AMENDED AND RESTATED MASTER SALE AND SERVICING
AGREEMENT (this "Agreement") is dated as of April 29, 1994, among
HILLHAVEN FUNDING CORPORATION, a Nevada corporation and a wholly-
owned subsidiary of The Hillhaven Corporation (the "Issuer"), THE
HILLHAVEN CORPORATION, a Nevada corporation ("Hillhaven", or, in
its capacity as such, the "Master Servicer"), FIRST HEALTHCARE
CORPORATION, a Delaware corporation and a wholly-owned subsidiary
of Hillhaven (the "Seller"), PASATIEMPO DEVELOPMENT CORP., a
California corporation and a wholly-owned subsidiary of the
Seller ("Pasatiempo" or, in its capacity as a servicer hereunder
with respect to Pasatiempo Receivables, a "Servicer"), and
NORTHWEST HEALTH CARE, INC., an Idaho corporation and a wholly-
owned subsidiary of the Seller ("Northwest" or, in its capacity
as a servicer hereunder with respect to Northwest Receivables, a
"Servicer"; and, together with the Seller in its capacity as a
Servicer with respect to Purchased Receivables originated by the
Seller and Pasatiempo in its capacity as a Servicer with respect
to Pasatiempo Receivables, collectively, the "Servicers"). In
addition, as provided herein, certain wholly-owned subsidiaries
of Hillhaven may become parties hereto.
This Agreement amends and restates that certain Master Sale
and Servicing Agreement dated as of July 1, 1990 among the
Issuer, Hillhaven, the Seller, Pasatiempo and Northwest (as
amended, the "Original Master Sale and Servicing Agreement").
The Original Master Sale and Servicing Agreement was amended by
the First Amendment to Master Sale and Servicing Agreement dated
as of June 1, 1991 among the Issuer, the Seller, Hillhaven,
Pasatiempo, Northwest, and Banque Indosuez, New York Branch as
the Agent and as a Bank, and by the Omnibus Second Amendment to
Liquidity Agreement and Second Amendment to Master Sale and
Servicing Agreement by and among the foregoing and by Banque
Nationale de Paris, San Francisco Agency as a Bank, dated
November 23, 1992.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. All capitalized terms used
herein undefined shall have the respective meanings set forth
below:
"Affiliate" shall have the meaning ascribed in the
Liquidity Agreement. "Affiliates" shall have a correlative
meaning.
<PAGE>
<PAGE>
"Agency Receivable" shall mean, at any time, any
Medicaid Receivable which is listed in the Seller's (or, in the
case of Northwest Receivables or Pasatiempo Receivables,
Northwest's or Pasatiempo's, as the case may be) computer records
as an "Agency Receivable" and which was not originated at an
Excluded Facility.
"Amortization Event" shall mean any of the following
events:
(a) the Seller or Hillhaven shall fail (i) to
make (or cause to be made) any payment or deposit on or
before the date occurring five Business Days after the date
when it is required to do so under the terms of this
Agreement; or (ii) to observe or perform in any material
respect any of its other covenants or agreements, set forth
herein for a period of five Business Days (in the case of
covenants contained in Section 2.2 or 6.7) or 30 days (in
the case of other covenants and agreements herein) after
there shall have been given, by registered or certified mail
to the Seller or Hillhaven, as the case may be, by the
Issuer or the Liquidity Agent Bank, a written notice
specifying such failure and requiring it to be remedied;
(b) the Receivables Information, any
representation or warranty made (or deemed made) by the
Seller, Northwest, Pasatiempo or Hillhaven or any
information required to be given by the Seller, Northwest,
Pasatiempo or Hillhaven to the Issuer or the Liquidity Agent
Bank with respect to the Purchased Receivables as a whole
proves to have been incorrect in any material respect with
respect to the Purchased Receivables as a whole when made
(or deemed made) or when delivered;
(c) involuntary proceedings or an involuntary
petition shall be commenced or filed against Hillhaven,
Northwest, Pasatiempo or the Seller under any bankruptcy,
insolvency or similar law or seeking dissolution or
reorganization of Hillhaven, Northwest, Pasatiempo or the
Seller or the appointment of a receiver, trustee, custodian
or liquidator for Hillhaven, Northwest, Pasatiempo or the
Seller or a substantial part of the property, assets or
business of Hillhaven, Northwest, Pasatiempo or the Seller,
or any writ, order, judgment, warrant of attachment,
execution or similar process shall be issued or levied
against a substantial part of the property, assets or
business of Hillhaven, Northwest, Pasatiempo or the Seller
and such proceeding or petition shall not be dismissed, or
such writ, order, judgment, warrant or attachment, execution
or similar process shall not be released, vacated or fully
bonded (or an order to continue business under existing
contracts obtained), within 21 days after commencement,
filing or levy, as the case may be;
(d) Hillhaven, Northwest, Pasatiempo or the
Seller shall commence a voluntary case under any applicable
Federal or state bankruptcy, insolvency or other similar law
now or hereafter in effect, or consent to the entry of an
<PAGE>
<PAGE>
order for relief in an involuntary case under any such law,
or consent to the appointment or taking possession by a
receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of Hillhaven, Northwest,
Pasatiempo or the Seller or for any substantial part of any
of their respective property, or make any general assignment
for the benefit of creditors, or the failure by Hillhaven,
Northwest, Pasatiempo or the Seller generally to pay its
debts as such debts become due, or the taking of any action
by Hillhaven, Northwest, Pasatiempo or the Seller in
furtherance of any of the foregoing;
(e) the Issuer is or becomes an "investment
company" within the meaning of the Investment Company Act of
1940, as amended; or the Issuer or any of its Securities
becomes subject to a registration requirement under any
Applicable Securities Law;
(f) a Servicing Default shall have occurred and
be continuing;
(g) an Event of Default under the Liquidity
Agreement shall have occurred and be continuing;
(h) Issuer Equity is at any time less than zero;
or
(i) the consolidated net worth (the sum of
(A) the consolidated common stockholder's equity minus
(B) to the extent included in determining such consolidated
common stockholder's equity (i) goodwill and (ii) general
intangibles) of Hillhaven and its consolidated subsidiaries
as at the end of any fiscal quarter shall be less than
$150,000,000 and such condition shall continue unremedied
for a period of 30 days.
"Applicable Securities Law" shall mean any of: (i) the
Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, and the Investment Company Act of 1940, as
amended, (ii) all state securities and "blue sky" laws; or
(iii) any other Requirement of Law imposed by the United States
or any Governmental Authority thereof or therein pertaining to
the distribution, investment, holding or disposition of
securities.
"Authorized Officer" shall mean (i) the President, any
Vice President, the Secretary or the Treasurer of the Master
Servicer or any Servicer, as the case may be, or (ii) any other
person duly authorized by the Master Servicer or any Servicer, as
the case may be, to perform any act or discharge any duty in
connection with the execution, issuance, and delivery of this
Agreement and the transactions contemplated hereby.
"Balance" shall mean, at the time of reference with
respect to any Receivable, the outstanding balance of such
Receivable.
<PAGE>
<PAGE>
"Business Day" shall mean any day other than a
Saturday, a Sunday or a day on which banking institutions or
trust companies in Seattle or Tacoma, Washington, Los Angeles,
California or Pittsburgh, Pennsylvania are authorized or
obligated by law, regulation or executive order to remain closed.
"Closing Date" shall mean, with respect to matters
arising under the Original Master Sale and Servicing Agreement,
the date designated as such by the Seller thereunder and on which
the conditions specified thereunder were satisfied, and with
respect to matters arising on and after the date hereof, the date
designated as such by the Seller pursuant to Section 2.1(b) by
notice in writing to the Issuer, and on which the conditions
specified in Schedule I are satisfied.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and any regulations (including, without limitation,
temporary and proposed regulations) thereunder.
"Collateral Account" shall have the meaning specified
in Section 6.1.
"Collateral Agent" shall mean Seattle-First National
Bank or any successor Collateral Agent under the Pledge
Agreement.
"Collection Account" shall have the meaning specified
in Section 6.1.
"Collection Period" shall mean each calendar month
during the term of this Agreement; provided, that, the initial
Collection Period shall commence on the Closing Date and end on
the last day of the calendar month immediately following the
calendar month in which the Closing Date occurs.
"Collections" shall mean, in each case regardless of
the form of payment: (i) all payments in respect of Purchased
Receivables; (ii) all payments of the Repurchase Price under
Section 2.2 or 5.4; and (iii) all adjustments pursuant to
Sections 6.6(i) and 6.7.
"Confirming Assignment" shall have the meaning
specified in Section 2.1(e).
"Contractual Obligation" shall mean, as to any Person,
any provision of any Security issued by such Person or of any
agreement, instrument or undertaking of any kind to which such
Person is a party or by which it or any of its property is bound.
"Controlled Group" shall mean all members of a
controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which,
together with Hillhaven, are treated as a single employer under
Section 414(b) or 414(c) of the Code.
"Credits Outstanding" shall mean, on any date, the
aggregate principal amount of Liquidity Loans then outstanding.
<PAGE>
<PAGE>
"Daily Facility Costs" shall mean, for each day, the
aggregate of:
(i) all interest expense of the Issuer accruing
for such day with respect to all Liquidity Loans, plus
(ii) all interest expense of the Issuer accruing
for such day with respect to the Purchase Money Note and the
Hillhaven Note, plus
(iii) all liabilities of the Issuer for
commitment, facility and other fees accruing for such day
pursuant to the Liquidity Agreement, plus
(iv) the sum of all amounts payable by the Issuer
on (or accruing for) such day with respect to the
transactions contemplated hereby and by the Liquidity
Agreement and the Related Documents in respect of the
following: (1) fees and expenses of the Collateral Agent,
(2) legal, auditing, printing, reproduction and closing fees
and expenses, (3) auditors', accountants' and attorneys'
fees and expenses, (4) franchise, income and other taxes of
the Issuer, (5) Servicing Fees, (6) without duplication, all
other amounts (including, without limitation, fees,
indemnities, expenses, prepayment premiums and compensation
in respect of increased costs or capital adequacy) of any
kind or description under the Liquidity Agreement or any
Related Document and (7) any other administrative fees and
expenses incurred by the Issuer not exceeding $50,000 for
any one item of such administrative fees and expenses
referred to in this subclause (7) and not exceeding $100,000
in the aggregate for each successive twelve-month period for
all such items of administrative fees and expenses referred
to in this subclause (7).
"Daily Report" shall mean the report in the form
attached as Exhibit I.
"Date of Processing" shall mean, with respect to any
Receivable, the Business Day on which such Receivable is first
recorded by input in the respective Servicer's computerized
customer record file (without regard to the effective date of
such recordation).
"Defaulted Receivable" shall mean each Purchased
Receivable, other than an Ineligible Receivable, which the
respective Servicer has written off as uncollectible in
accordance with such Servicer's customary and usual servicing
procedures for servicing Receivables comparable to the Purchased
Receivables; provided, that, no Purchased Receivable which has
been written off or compromised as permitted by Section 4.1(j),
4.3(j) or 4.4(j) (whether or not a payment in respect thereof is
required under Section 6.7) shall be a Defaulted Receivable.
Subject to the foregoing, a Receivable shall become a Defaulted
Receivable on the date on which such Receivable is recorded as
written off on the respective Servicer's computerized customer
record file.
<PAGE>
<PAGE>
"Discount Factor" shall mean 98.6%.
"Dollars" and "$" mean lawful currency of the United
States.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
"Excluded Facilities" shall mean those facilities of
the Seller, Northwest or Pasatiempo at which are originated
Agency Receivables with respect to which the Seller is unable to
convey to the Issuer title that is free and clear of all Liens.
The Excluded Facilities on the Execution Date are listed in
Schedule III; subsequent to the Execution Date, "Excluded
Facilities" shall mean those facilities listed in Schedule III,
as amended, supplemented or modified from time to time in writing
by notice from the Issuer to the Liquidity Agent Bank and the
Collateral Agent.
"Execution Date" shall mean April 29, 1994, the date
this Agreement is executed and delivered by the parties hereto.
"Governmental Authority" shall mean any nation or state
or any political subdivision thereof and any person or entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government,
including without limitation any court or tribunal.
"Hillhaven Note" shall mean the subordinated promissory
note of the Issuer to Hillhaven, in substantially the form of
Exhibit G hereto, which Note shall evidence any advances made to
the Issuer by Hillhaven.
"Ineligible Receivable" shall mean any Receivable:
(a) which is not denominated and payable solely
(i) in Dollars, (ii) in the continental United States, and
(iii) by an Obligor which is a United States Person;
(b) which was not originated by the Seller (or,
in the case of Northwest Receivables or Pasatiempo
Receivables, by Northwest or by Pasatiempo, as the case may
be) in compliance with all Requirements of Law and
Contractual Obligations applicable to the Seller, Northwest
or Pasatiempo, as the case may be, or to the respective
Receivable; or was not properly entered into consistent with
the Seller's (or, in the case of Northwest Receivables or
Pasatiempo Receivables, Northwest's or Pasatiempo's, as the
case may be) usual and customary credit policies, practices
and procedures;
(c) with respect to which any consent, license,
approval or authorization of, or filing, registration or
declaration with, any Governmental Authority or other Person
required to be obtained, effected or given in connection
with the creation of such Receivable or its transfer to the
Issuer pursuant hereto (or in the case of Northwest
Receivables or Pasatiempo Receivables, its transfer to the
Seller pursuant to the Northwest Agreement or the Pasatiempo
<PAGE>
<PAGE>
Agreement, as the case may be) or its pledge pursuant to the
Pledge Agreement, has not been duly obtained, effected or
given or is not irrevocable and in full force and effect;
(d) as to which, at the time of the transfer of
such Receivable to the Issuer, the Seller was not the sole
owner thereof or did not have good and marketable title
thereto free and clear of all Liens;
(e) which is not the legal, valid and binding
payment obligation of the Obligor thereon, enforceable
against such Obligor in accordance with its terms;
(f) which does not constitute either an "account"
or a "general intangible" under and as defined in Article 9
of the UCC;
(g) which at the time of its transfer to the
Issuer had been (or subsequent thereto becomes) waived or
modified in any respect except as permitted under this
Agreement;
(h) which is subject to any right of rescission,
setoff, counterclaim or defense;
(i) as to which the Seller (or, in the case of
Northwest Receivables or Pasatiempo Receivables, any of the
Seller, Pasatiempo or Northwest) has done anything, at the
time of transfer (or subsequent thereto), to impair the
rights of the Issuer (or of the Seller) except as permitted
under this Agreement;
(j) that is the subject of any material dispute
as to whether the services which were the subject of the
Purchased Receivables were properly rendered between the
related Obligor and the Seller (or, in the case of Northwest
Receivables or Pasatiempo Receivables, between the related
Obligor and any of the Seller, Pasatiempo or Northwest);
(k) becomes a Purchased Receivable following the
Seller (or the respective Servicer or the Master Servicer)
having determined that the related Obligor (i) is bankrupt
or insolvent or (ii) is the Obligor on another Purchased
Receivable which is a Defaulted Receivable;
(l) is not an Agency Receivable;
(m) as to which any of the applicable
representations and warranties set forth in Section 3.2
hereof are not true and correct on and as of all times
prior to the payment and satisfaction in full of such
Receivable; or
(n) which was originated by the Seller (or
in the case of Northwest Receivables or Pasatiempo
Receivables, any of the Seller, Pasatiempo or
Northwest) as part of a Medicaid program in which the
Seller, Northwest or Pasatiempo, as the case may be,
shall have been disqualified by any Governmental
<PAGE>
<PAGE>
Authority, or with respect to which any Governmental
Authority shall have commenced a proceeding or given notice
of its intent to commence a proceeding seeking such a
disqualification, whether or not such program shall have
been disqualified or proceeding commenced prior to or
subsequent to origination of such Receivable; or which is
defined as an Account Ineligible for Borrowing under the
Borrowing Plan attached as Exhibit A to the Liquidity
Agreement.
"Issuer Accounts" shall have the meaning specified in
Section 6.1.
"Issuer Equity" shall mean on any date, in each case
for the period beginning on the incorporation date of the Issuer
and ending as of the close of business on such date: (A) the sum
of (i) the aggregate cash received by the Issuer as the
subscription price for its stock or as a contribution to capital
plus (ii) the cumulative net income of the Issuer minus (B) the
aggregate amount of Restricted Payments paid by the Issuer.
"JCAHO" shall mean the Joint Commission on the
Accreditation of Healthcare Organizations and any successor
thereto.
"Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), preference, priority or other security
agreement or preferential arrangement of any kind or nature
whatsoever, including, without limitation, any conditional sale
or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing
and the filing of any financing statement under the UCC or
comparable law of any jurisdiction to evidence any of the
foregoing.
"Liquidity Agent Bank" shall mean Bank of America
National Trust and Savings Association, or any successor Agent as
defined in the Liquidity Agreement.
"Liquidity Agreement" shall mean the Amended and
Restated Liquidity Agreement, dated as of the date hereof, among
the Issuer, the Liquidity Banks, the Liquidity Agent Bank, and
the Collateral Agent as from time to time amended, supplemented
or modified.
"Liquidity Banks" shall mean the Banks as defined in
the Liquidity Agreement.
"Liquidity Facility Termination Date" shall mean, at
any time, the then current Expiration Date as defined in the
Liquidity Agreement.
"Liquidity Loans" shall mean the loans made by the
Liquidity Banks to the Issuer under the Liquidity Agreement.
"Master Servicer" shall mean Hillhaven or any successor
Master Servicer pursuant hereto.
<PAGE>
<PAGE>
"Medicaid Receivable" shall mean any Receivable with
respect to which the Obligor is a state Governmental Authority
(or agent thereof) obligated to pay, pursuant to federal and
state Medicaid program statutes and regulations, for services
rendered to eligible beneficiaries thereunder and not in contra-
vention of any statute or regulation applicable thereto.
"Minimum Equity Percentage" shall mean, on any date on
or after a Settlement Date but prior to the next succeeding
Settlement Date, the percentage change (stated as a positive
number) from Line 12 (Total Borrowing Base) to Line 8 (Total
Assigned Accounts Outstanding, this certificate) of the Borrowing
Base Certificate as presented to the Banks on the immediately
preceding Settlement Date.
"Minimum Issuer Equity" shall mean, on any date, the
product of (i) the Credits Outstanding on such date multiplied by
(ii) the Minimum Equity Percentage on such date, but in no event
less than zero; provided, that on any date that there are Credits
Outstanding, the Minimum Issuer Equity shall be at least
$1,000,000.
"Northwest Agreement" shall mean the amended and
restated Agreement, dated the date hereof, between the Seller and
Northwest, in substantially the form of Exhibit A hereto, as
amended, supplemented or modified from time to time.
"Northwest Confirming Assignment" shall have the
meaning specified in Section 2.1(e).
"Northwest Receivable" shall mean Northwest's patient
accounts (and any and all rights to receive payments due or to
become due thereon and any direct or indirect Proceeds thereof)
sold to the Seller pursuant to the Northwest Agreement.
"Novation Agreement" shall mean the Novation Agreement
dated as of the date hereof by and among the Issuer, Banque
Indosuez, New York Branch, Banque Nationale de Paris, San
Francisco Agency, and the Liquidity Banks.
"Obligor" shall mean with respect to any Receivable,
the Person or Persons obligated to make payments with respect to
such Receivable, including any guarantor thereof.
"Officer's Certificate" shall mean, with respect to any
Person, a certificate signed by a duly authorized officer of such
Person.
"Opinion of Counsel" shall mean a favorable written
opinion of counsel, who, unless otherwise specified, may be
counsel for, or an employee of, the Person providing the opinion
and who shall be reasonably acceptable to the Liquidity Agent
Bank.
"Pasatiempo Agreement" shall mean the amended and
restated Agreement, dated the date hereof, between the Seller and
Pasatiempo, in substantially the form of Exhibit B hereto, as
amended, supplemented or modified from time to time.
<PAGE>
<PAGE>
"Pasatiempo Confirming Assignment" shall have the
meaning specified in Section 2.1(e).
"Pasatiempo Receivable" shall mean Pasatiempo's patient
accounts (and any and all rights to receive payments due or to
become due thereon and any direct or indirect Proceeds thereof)
sold to the Seller pursuant to the Pasatiempo Agreement.
"PBGC" shall mean the Pension Benefit Guaranty
Corporation or any entity succeeding to any or all of its
functions under ERISA.
"Person" shall mean any individual, estate,
corporation, partnership, joint venture, association, joint stock
company, trust (including any beneficiary thereof),
unincorporated organization, or government or any agency or
political subdivision thereof.
"Plan" shall mean at any time an employee pension
benefit plan which is covered by Title IV of ERISA or subject to
the minimum funding standards under Section 412 of the Code and
is either (i) maintained by a member of the Controlled Group for
employees of a member of the Controlled Group or (ii) 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" shall mean the Amended and Restated
Pledge and Security Agreement, dated as of the date hereof,
between the Issuer and the Collateral Agent, in the form of
Exhibit C to the Liquidity Agreement, as from time to time
amended, supplemented or modified.
"Proceeds" shall have the meaning set forth in
Section 9-306 of the UCC and shall include, without limitation,
any and all proceeds of any applicable insurance, indemnity,
warranty or guaranty, any and all payments (in any form
whatsoever) made or due and payable from time to time in
connection with the requisition, confiscation, condemnation,
seizure or foreclosure by any governmental body, authority,
bureau or agency (or any person acting under color of
Governmental Authority), and all other amounts from time to time
payable under or in connection with any of the Receivables, in
each case wherever located or deposited.
"Purchase Money Note" shall mean the unsecured short-
term purchase money obligation of the Issuer, substantially in
the form of Exhibit H hereto.
"Purchase Price" shall mean, on any date, with respect
to any Receivable, the product of its then outstanding Balance
and the Discount Factor.
"Purchased Receivable" shall mean any Agency Receivable
(including, without limitation, any Re-eligible Receivable)
purchased by the Issuer hereunder or under the Original Master
Sale and Servicing Agreement.
<PAGE>
<PAGE>
"Receivables" shall mean each of (i) the Seller's
patient accounts, (ii) Northwest Receivables, (iii) Pasatiempo
Receivables, (iv) any and all rights to receive payments due or
to become due on any thereof, and (v) any direct or indirect
Proceeds of any thereof.
"Receivables Information" shall mean all information
concerning the Purchased Receivables at any time or from time to
time provided, either orally or in writing (including by
microfilm or microfiche), by or on behalf of the Seller,
Northwest or Pasatiempo or any of their respective affiliates to
the Liquidity Agent Bank.
"Records" shall mean all ledger sheets, files, records,
documents, computer tapes and correspondence, whether presently
existing or hereafter created pertaining to any Purchased
Receivables.
"Re-eligible Receivable" shall mean any Ineligible
Receivable which, following repurchase thereof by the Seller, has
ceased to be an Ineligible Receivable.
"Reference Rate" shall mean, on any day, the rate of
interest publicly announced by the Liquidity Agent Bank in
Los Angeles, California, from time to time in its sole discretion
as its Reference Rate, and may not be the lowest rate charged to
its customers. Loans may be priced at, above or below the
Reference Rate, which is merely a reference rate with respect to
which effective rates of interest are calculated.
"Regional Center" shall mean the center at which
Records pertaining to the Purchased Receivables are maintained.
As of the Execution Date, the Regional Center shall mean the
center located at 1149 Market Street, Tacoma, Washington 98402 or
any other center as shall subsequently be designated by the
Seller in a written notice to the Liquidity Agent Bank, the
Collateral Agent and the Issuer.
"Regulatory Change" shall mean any change after the
date hereof in any Requirement of Law or any interpretation,
directive or request of or by any Governmental Authority -
(whether or not having the force of law) or in the interpretation
or administration of any or all thereof.
"Related Documents" shall mean this Agreement, the
Northwest Agreement, the Pasatiempo Agreement, the Liquidity
Agreement, the Pledge Agreement, the Purchase Money Note, the
Hillhaven Note, and the Novation Agreement, in each case, as from
time to time amended, supplemented or modified.
"Repurchase Price" shall mean, on any date, with
respect to any Purchased Receivable, an amount equal to the then
Balance of such Purchased Receivable.
"Required Liquidity Banks" shall have the meaning set
forth for Required Banks in the Liquidity Agreement.
<PAGE>
<PAGE>
"Requirement of Law" for any Person shall mean the
certificate of incorporation and by-laws or other organizational
or governing documents of such Person, and any law, treaty, rule
or regulation, judgment, injunction, order, decree or other
determination of an arbitrator or Governmental Authority, in each
case applicable to or binding upon such Person or to which such
Person is subject.
"Restricted Payment" shall have the meaning set forth
in the Liquidity Agreement.
"Security" shall have the meaning ascribed in
Section 2(1) of the Securities Act of 1933, as amended.
"Servicing Default" shall have the meaning specified in
Section 9.1.
"Servicing Fees" shall have the meaning specified in
Section 5.2.
"Settlement Date" shall mean the 23rd calendar day of
each month during the term of this Agreement (commencing with the
calendar month immediately following the end of the initial
Collection Period) or, if any such day is not a Business Day, the
next succeeding Business Day.
"Settlement Statement" shall mean the monthly
settlement statement in the form of Exhibit C to be delivered by
the Master Servicer pursuant to Section 6.6.
"Successor Master Servicer" shall have the meaning
specified in Section 9.2(a) hereof.
"Successor Servicer" shall have the meaning specified
in Section 9.2(a) hereof.
"Termination Notice" shall have the meaning specified
in Section 9.1.
"Transfer Termination Date" shall mean the earliest to
occur of (i) the Business Day following the day on which an
Amortization Event occurs; provided, that from and after the date
that any Amortization Event is no longer continuing, the Transfer
Termination Date shall be deemed not to have occurred, (ii) the
120th day prior to the Liquidity Facility Termination Date or
(iii) the date of any termination pursuant to Section 2.3.
"UCC" unless the context otherwise requires, shall mean
the Uniform Commercial Code, as in effect in the relevant
jurisdiction, as amended from time to time.
"United States Person" means (i) in the case of a
natural Person, a Person who is a citizen or permanent resident
of, and whose permanent residence is in, the United States; and
(ii) otherwise, a Person organized under the laws of, and whose
principal place of business and the location of whose principal
assets is located in, the United States.
<PAGE>
<PAGE>
Section 1.2. Accounting Terms. As used herein and in any
certificate or other document made or delivered pursuant hereto
or thereto, accounting terms not defined in Section 1.1, and
accounting terms partly defined in Section 1.1 to the extent not
defined, shall have the respective meanings given to them under
generally accepted accounting principles.
ARTICLE II
SALES OF RECEIVABLES
Section 2.1. Sales of Receivables.
(a) No Sale Prior to Closing Date. No sale of Agency
Receivables shall occur hereunder prior to the Closing Date
except such sales that have occurred in accordance with the
Original Master Sales and Servicing Agreement.
(b) Designation and Effectiveness of Closing Date.
Following execution hereof, the Seller may send notice to the
Issuer of a proposed Closing Date. If, on the proposed Closing
Date, the conditions specified in Schedule I hereto have been
satisfied, the Closing Date shall be deemed to have occurred on
such proposed Closing Date for all purposes hereof and of the
Related Documents.
(c) On the Closing Date. The Seller does hereby sell,
transfer, assign, set over and otherwise convey to the Issuer on
the Closing Date (without any further action by the parties),
without recourse (except as specifically provided herein), and
the Issuer does hereby purchase from the Seller on the Closing
Date, all right, title and interest of the Seller in, to and
under its Agency Receivables existing at the Closing Date,
together with all monies due or to become due and all amounts
received with respect thereto and all Proceeds thereof, subject
to the limitations and restrictions of Section 9.3 hereof.
(d) After the Closing Date. On each Business Day after the
Closing Date and prior to the Transfer Termination Date, the
Seller shall, without any further action by itself or any other
Person, sell, transfer, assign, set over and otherwise convey to
the Issuer, and the Issuer, without further action by itself or
any other Person, shall purchase from the Seller, all right,
title and interest of the Seller in, to and under its Agency
Receivables created (or acquired) subsequent to the last sale
hereunder and in, to and under all of its Re-eligible Receivables
which became Re-eligible Receivables subsequent to the last sale
hereunder, together with all monies due or to become due and all
amounts received with respect thereto and all Proceeds thereof,
subject to the limitations and restrictions of Section 9.3
hereof.
(e) General Provisions as to Transfers. (i) The Seller
shall deliver to the Issuer on the Closing Date and on each
Settlement Date a duly executed and appropriately completed
Confirming Assignment (each, a "Confirming Assignment") in
substantially the form of Exhibit D hereto; on the Closing Date
and on each Settlement Date the Seller will deliver to the Issuer
the duly executed and appropriately completed corresponding
<PAGE>
<PAGE>
Northwest Confirming Assignments or Pasatiempo Confirming
Assignments (each a "Northwest Confirming Assignment" or a
"Pasatiempo Confirming Assignment," as the case may be), in
substantially the forms of Exhibits E and F hereto, with respect
to Northwest Receivables and Pasatiempo Receivables included in
the Confirming Assignment then being delivered. Failure to
deliver any such Confirming Assignment, Northwest Confirming
Assignment or Pasatiempo Confirming Assignment shall not limit or
otherwise affect the absolute conveyance of the Agency
Receivables pursuant to Subsections (a) or (b) above, as the case
may be.
(ii) In connection with the initial sale hereunder, the
Seller, Northwest and Pasatiempo each agrees to record and file,
at its own expense, financing statements (and continuation
statements with respect to such financing statements when
applicable) with respect to all of its Agency Receivables (now in
existence or hereafter created, acquired or arising) meeting all
requirements of applicable law in such manner and in such
jurisdictions as are necessary to provide notice of the sale and
assignment of its respective Agency Receivables to the Issuer
(or, in the case of Northwest and Pasatiempo, to the Seller), and
to deliver a file-stamped copy of such financing statements or
other evidence of such filing to the Issuer and the Liquidity
Agent Bank on or prior to the Closing Date.
(iii) In connection with each sale hereunder, the
Seller further agrees, at its own expense: (x) on or prior to
the date of such sale to indicate in its computer files (and, in
the case of Northwest Receivables or Pasatiempo Receivables, to
cause Northwest or Pasatiempo, as the case may be, to indicate in
its computer files) that the Agency Receivables being sold or
resold, as the case may be, on such date have been transferred to
the Issuer pursuant to this Agreement, and (y) on a monthly
basis, to generate a computer list identifying each of the Agency
Receivables which has been sold or resold, as the case may be,
and containing details as to the Obligors thereon and other
relevant information which a prudent healthcare provider would
maintain with respect to its patient accounts. The computer
list(s) referred to in the preceding clause (y), shall be held in
trust for the Issuer, the Liquidity Banks, the Collateral Agent
and the Liquidity Agent Bank in separate containers (prominently
marked to reflect the foregoing) and in safe places at the
respective Regional Centers. The same shall be at all times open
to inspection and audit by the Issuer, the Liquidity Agent Bank,
the Liquidity Banks, the Collateral Agent and their respective
representatives. During the continuance of an Amortization
Event, all such list(s) shall, at the request of the Liquidity
Agent Bank or the Collateral Agent be delivered to, or upon the
direction of, the Liquidity Agent Bank or the Collateral Agent,
as the case may be.
(f) (i) Payment of Purchase Price. The Purchase Price
payable by the Issuer for the Purchased Receivables on the
Closing Date shall be payable by Federal funds. The aggregate
Purchase Price payable on the Closing Date with respect to Agency
Receivables sold to the Issuer on the Closing Date under
Section 2.1(a) will be calculated on an estimated basis. On the
<PAGE>
<PAGE>
first Settlement Date, any discrepancies between actual Balances
and estimated Balances shall be adjusted as part of the regular
adjustment process specified in Section 6.6.
(ii) The Purchase Price payable by the Issuer for
the Purchased Receivables being purchased on any Business Day
after the Closing Date shall be paid to the Seller in cash
(except to the extent the Purchase Money Note is used as
permitted by Section 6.4).
(g) No Transfer of Liability. No sale pursuant hereto
shall constitute or is intended to result in a creation or an
assumption by the Issuer of any liability or obligation
including, without limitation, any obligation to any Obligors of
the Seller, any Servicer or any other Person in connection with
the Receivables, pursuant to any Contractual Obligation relating
thereto or in any other manner whatsoever.
Section 2.2. Repurchase of Certain Purchased Receivables.
In the event that (i) any Purchased Receivable is or becomes at
any time an Ineligible Receivable or (ii) there is a breach of
any representation, warranty or covenant under Section 3.1, 3.2,
3.4, 3.5, 4.1, 4.3 or 4.4 with respect to any Purchased
Receivable which breach would have a material adverse effect on
the interests of the Issuer or the Liquidity Banks in such
Purchased Receivable, then, if the foregoing is continuing on the
first Settlement Date occurring at least 30 days after the
earlier to occur of the discovery of any such event by the Seller
or receipt by the Seller of written notice of any such event
given by the Issuer, the Master Servicer, the Liquidity Agent
Bank or the Collateral Agent, the Seller shall repurchase all
such Purchased Receivables by depositing in the Collection
Account in immediately available funds an amount equal to the
Repurchase Price for such Receivables. Any such repurchased
Receivables shall be treated as if paid in full in the Collection
Period in which such obligation to repurchase arises. Such
Repurchase Price shall be treated as a collection of the related
Purchased Receivables in the Collection Period in which the
obligation to repurchase such Receivables arose and shall be
applied in accordance with Article VI. Upon each repurchase by
the Seller of such a Purchased Receivable, the Issuer hereby
appoints the respective Servicer to effect, automatically and
without further action on the Issuer's part, the sale, transfer,
assignment, set over and other conveyance to the Seller on behalf
of the Issuer, without recourse, representation or warranty, of
all the right, title and interest of the Issuer in and to such
Purchased Receivable, all monies due or to become due with
respect thereto, and all Proceeds thereof. The Issuer shall
execute such documents and instruments of transfer or assignment
and take such other actions as shall reasonably be requested by
the Seller to effect the conveyance of such Purchased Receivable
pursuant to this subsection. The obligation of the Seller to
repurchase any such Purchased Receivable pursuant to this
Section 2.2 shall survive the termination of this Agreement. The
parties intend that this Section 2.2 not be applied to provide
direct or indirect assurance to the Issuer against loss by reason
of the bankruptcy or insolvency (or other credit condition) of,
or default by the Obligor on, or the uncollectability of, any
Purchased Receivable.
<PAGE>
<PAGE>
Section 2.3. Termination. The Seller may, upon 30 days
prior written notice to the Issuer and the Liquidity Agent Bank,
terminate its right and obligation to sell Receivables to the
Issuer hereunder. Upon the effectiveness of such termination,
the provisions of this Agreement pertaining to purchases under
Section 2.1(b) of the Seller's Receivables shall terminate. All
other provisions hereof, including, without limitation, all other
obligations of the Seller hereunder, shall remain in effect.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties of the Seller.
The Seller hereby represents and warrants to the Issuer as of the
date hereof and as of each date on which any Receivables are sold
hereunder that:
(a) Organization, Good Standing and Due
Qualification. The Seller is duly organized and validly
existing in good standing under the laws of its state of
incorporation, and has, in all material respects, full
corporate power, authority and legal right to own its
property and conduct its business as contemplated by the
Related Documents and as such property is presently owned
and such business is presently conducted, and to execute,
deliver and perform its obligations under the Related
Documents to which it is, or is to be, a party. The Seller
is duly qualified to do business and is in good standing as
a foreign corporation (or is exempt from such requirements)
and has obtained all necessary licenses and approvals in
each jurisdiction in which failure to so qualify or to
obtain such licenses and approvals would have a material
adverse effect on the Seller's ability to perform its
obligations under the Related Documents to which it is, or
is to be, a party. The Seller is a direct or indirect
wholly owned subsidiary of Hillhaven.
(b) Due Authorization. The execution and
delivery of the Related Documents to which it is, or is to
be, a party by the Seller and the consummation of the
transactions provided for therein have been duly authorized
by the Seller by all necessary corporate action on the part
of the Seller.
(c) No Conflict. Except as would not affect the
validity or enforceability of any Related Document or the
Agency Receivables, would not have a material adverse effect
on the business, operations, assets or financial or other
condition of the Seller or its ability to perform its
obligations under the Related Documents and would not have a
material adverse effect on the ownership or servicing of the
Agency Receivables, the execution and delivery of the
Related Documents to which it is, or is to be, a party, the
performance of the transactions contemplated thereby and the
fulfillment of the terms thereof, will not conflict with,
result in any breach of any of the terms and provisions of,
or constitute (with or without notice or lapse of time or
<PAGE>
<PAGE>
both) a default under, any Contractual Obligation applicable
to the Seller or any of its properties.
(d) No Violation. Except as would not affect the
validity or enforceability of any Related Document or the
Agency Receivables, would not have a material adverse effect
on the business, operations, assets or financial or other
condition of the Seller or its ability to perform its
obligations under the Related Documents and would not have a
material adverse effect on the ownership or servicing of the
Agency Receivables, the execution and delivery of the
Related Documents to which it is, or is to be, a party, the
performance thereof, the transactions contemplated hereby
and thereby and the fulfillment of the terms thereof, will
not conflict with or violate any Requirement of Law
applicable to the Seller or any of its properties.
(e) No Proceedings. There are no proceedings or
investigations, to the best knowledge of the Seller, pending
or threatened against the Seller, before any court,
regulatory body, administrative agency, or other tribunal or
Governmental Authority (i) asserting the invalidity of any
Related Document or the Agency Receivables, (ii) seeking to
prevent the consummation of any of the transactions
contemplated by the Related Documents, (iii) seeking any
determination or ruling that would materially and adversely
affect the performance by the Seller of its obligations
under the Related Documents, (iv) seeking any determination
or ruling that would materially and adversely affect the
validity or enforceability of any Related Document or the
Agency Receivables, or (v) seeking to affect adversely the
income tax attributes of the beneficial ownership interests
in the Issuer under the United States federal, or any
applicable state, income tax systems.
(f) No Default. Except as would not affect the
validity or enforceability of any Related Document or the
Agency Receivables, would not have a material adverse effect
on the business, operations, assets or financial and other
condition of the Seller or its ability to perform its
obligations under the Related Documents and would not have a
material adverse effect on the ownership or servicing of the
Agency Receivables, the Seller is not in breach or default
of any Contractual Obligation, and is not in violation of
any Requirement of Law, applicable to it or its properties.
(g) Good Title. None of the Seller's Agency
Receivables has been sold, assigned or pledged to any Person
other than the Issuer. Immediately prior to their
conveyance to the Issuer hereunder the Seller has good title
thereto, free and clear of any Lien, and, as of each date
Agency Receivables are sold hereunder, the Seller will have
conveyed good title to such Agency Receivables to the Issuer
free and clear of any Lien.
(h) Sole Owner. Immediately prior to their
conveyance to the Issuer hereunder the Seller is the sole
owner of all right, title and interest in and to the
Purchased Receivables.
<PAGE>
<PAGE>
(i) Receivables Information. The Receivables
Information does not contain any untrue statement of a
material fact or omit to state a material fact necessary to
make the statements in the Receivables Information, in light
of the circumstances in which they were made, not
misleading.
(j) Place of Business. The chief executive
office of the Seller and location of the Records pertaining
to its respective Receivables is the address listed for the
Seller on Schedule II hereto.
The representations and warranties set forth in this
Section 3.1 shall survive each sale and assignment of Agency
Receivables to the Issuer hereunder, and termination of the
rights and obligations of the Seller as a Servicer pursuant to
Section 9.1.
Section 3.2. Representations and Warranties of the Seller
Relating to the Agreement and the Receivables. The Seller hereby
represents and warrants to the Issuer that as of each date on
which any Agency Receivables are sold hereunder or were sold
under the Original Master Sale and Servicing Agreement:
(a) Validity. Each of this Agreement and the
Confirming Assignment constitutes a legal, valid and binding
obligation of the Seller enforceable against the Seller in
accordance with its terms.
(b) Eligibility. No Purchased Receivable is an
Ineligible Receivable.
(c) No Liens. Each Purchased Receivable has been
conveyed to the Issuer free and clear of any Lien.
(d) Consents. With respect to each Purchased
Receivable, all consents, licenses, approvals or
authorizations of or registrations or declarations with any
Governmental Authority required to be obtained, effected or
given by the Seller in connection with the conveyance of
such Receivable to the Issuer have been duly obtained,
effected or given and are in full force and effect.
(e) Valid Transfer. This Agreement constitutes a
valid sale, transfer and assignment to the Issuer of all
right, title and interest in and to the Agency Receivables
and the Proceeds thereof, subject to the limitations and
restrictions of Section 9.3; or, if this Agreement is
determined not to constitute a sale of such property, it
constitutes a grant of a "security interest" in such
property to the Issuer, which is enforceable against all
Persons with respect to all Purchased Receivables and the
Proceeds thereof. The Issuer has or will have, upon the
filing of the financing statements described in Section 2.1,
a first priority perfected ownership or security interest in
all Purchased Receivables.
<PAGE>
<PAGE>
(f) Compliance with Law. All applicable
Requirements of Law with respect to the Purchased
Receivables, including without limitation any pertaining to
the transfer thereof hereunder (or, in the case of Northwest
Receivables or Pasatiempo Receivables, hereunder or under
the Northwest Agreement or the Pasatiempo Agreement), have
been complied with in all material respects.
The representations and warranties set forth in this Section 3.2
shall survive each sale and assignment of the Agency Receivables
to the Issuer, and termination of the rights and obligations of
the Seller as a Servicer pursuant to Section 9.1.
Section 3.3. Representation and Warranties of Hillhaven.
Hillhaven hereby represents and warrants to the Issuer that, as
of the date hereof and as of each date on which Agency
Receivables are sold hereunder or were sold under the Original
Master Sale and Servicing Agreement:
(a) Organization, Good Standing and Due
Qualification. Hillhaven is duly organized and validly
existing in good standing under the laws of its state of
incorporation, and has, in all material respects, full
corporate power, authority and legal right to own its
property and conduct its business as contemplated by this
Agreement and as such property is presently owned and such
business is presently conducted, and to execute, deliver and
perform its obligations under this Agreement. Hillhaven is
duly qualified to do business and is in good standing as a
foreign corporation (or is exempt from such requirements)
and has obtained all necessary licenses and approvals in
each jurisdiction in which failure to so qualify or to
obtain such licenses and approvals would have a material
adverse effect on Hillhaven's ability to perform its
obligations under this Agreement.
(b) Due Authorization. The execution and
delivery of this Agreement by Hillhaven and the consummation
of the transactions provided for in this Agreement have been
duly authorized by Hillhaven by all necessary corporate
action on the part of Hillhaven.
(c) No Conflict. Except as would not affect the
validity or enforceability of any Related Document or the
Agency Receivables, would not have a material adverse effect
on the business, operations, assets or financial or other
condition of Hillhaven or on its ability to perform its
obligations under this Agreement and would not have a
material adverse effect on the ownership or servicing of the
Agency Receivables, the execution and delivery of this
Agreement, the performance of the transactions contemplated
hereby and the fulfillment of the terms hereof, will not
conflict with, result in any breach of any of the terms and
provisions of, or constitute (with or without notice or
lapse of time or both) a default under any Contractual
Obligation applicable to Hillhaven or any of its properties.
<PAGE>
<PAGE>
(d) No Violation. Except as would not affect the
validity or enforceability of any Related Document or the
Agency Receivables, would not have a material adverse effect
on the business, operations, assets or financial or other
condition of Hillhaven or its ability to perform its
obligations under this Agreement and would not have a
material adverse effect on the ownership or servicing of the
Agency Receivables, the execution and delivery of this
Agreement, the performance of the transactions contemplated
hereby, and the fulfillment of the terms hereof, will not
conflict with or violate any Requirement of Law applicable
to Hillhaven or any of its properties.
(e) No Proceedings. There are no proceedings or
investigations, to the best knowledge of Hillhaven, pending
or threatened against Hillhaven, before any court,
regulatory body, administrative agency, or other tribunal or
governmental instrumentality (i) asserting the invalidity of
this Agreement, (ii) seeking to prevent the consummation of
any of the transactions contemplated by this Agreement,
(iii) seeking any determination or ruling that would
materially and adversely affect the performance by Hillhaven
of its obligations under this Agreement or (iv) seeking any
determination or ruling that would materially and adversely
affect the validity or enforceability of this Agreement.
(f) No Default. Except as would not have a
material adverse effect on the business, operations, assets
or financial or other condition of Hillhaven or its ability
to perform its obligations under the Related Documents and
would not have a material adverse effect on the ownership or
servicing of the Agency Receivables or the validity or
enforceability of the Related Documents or the Agency
Receivables, Hillhaven is not in breach or default of any
Contractual Obligation, and is not in violation of any
Requirement of Law, applicable to it or its properties.
The representations and warranties set forth in this
Section 3.3 shall survive each sale and assignment of Agency
Receivables to the Issuer hereunder, and termination of the
rights and obligations of Hillhaven as Master Servicer pursuant
to Section 9.1.
Section 3.4. Representations and Warranties of Northwest.
Northwest hereby represents and warrants to the Issuer as of the
date hereof and as of each date on which any Northwest
Receivables are sold hereunder or were sold under the Original
Master Sale and Servicing Agreement that:
(a) Organization, Good Standing and Due
Qualification. Northwest is duly organized and validly
existing in good standing under the laws of its state of
incorporation, and has, in all material respects, full
corporate power, authority and legal right to own its
property and conduct its business as contemplated by the
Related Documents to which it is, or is to be, a party and
as such property is presently owned and such business is
presently conducted, and to execute, deliver and perform its
obligations under the Related Documents to which it is, or
<PAGE>
<PAGE>
is to be, a party. Northwest is duly qualified to do
business and is in good standing as a foreign corporation
(or is exempt from such requirements) and has obtained all
necessary licenses and approvals in each jurisdiction in
which failure to so qualify or to obtain such licenses and
approvals would have a material adverse effect on
Northwest's ability to perform its obligations under the
Related Documents to which it is, or is to be, a party.
Northwest is a direct or indirect wholly-owned subsidiary of
the Seller.
(b) Due Authorization. The execution and
delivery of the Related Documents to which it is, or is to
be, a party by Northwest and the consummation of the
transactions provided for in this Agreement have been duly
authorized by Northwest by all necessary corporate action on
the part of Northwest.
(c) No Conflict. Except as would not affect the
validity or enforceability of any Related Document or the
Northwest Receivables, would not have a material adverse
effect on the business, operations, assets or financial or
other condition of Northwest or its ability to perform its
obligations under the Related Documents and would not have a
material adverse effect on the ownership or servicing of the
Northwest Receivables, the execution and delivery of the
Related Documents to which it is, or is to be, a party, the
performance of the transactions contemplated thereby and the
fulfillment of the terms thereof, will not conflict with,
result in any breach of any of the terms and provisions of,
or constitute (with or without notice or lapse of time or
both) a default under, any Contractual Obligation applicable
to Northwest or any of its properties.
(d) No Violation. Except as would not affect the
validity or enforceability of any Related Document or the
Northwest Receivables, would not have a material adverse
effect on the business, operations, assets or financial or
other condition of Northwest or its ability to perform its
obligations under the Related Documents and would not have a
material adverse effect on the ownership or servicing of the
Northwest Receivables, the execution and delivery of the
Related Documents to which it is, or is to be, a party, the
performance of the transactions contemplated by the Related
Documents to which it is, or is to be, a party, and the
fulfillment of the terms thereof, will not conflict with or
violate any Requirement of Law applicable to Northwest or
any of its properties.
(e) No Proceedings. There are no proceedings or
investigations, to the best knowledge of Northwest, pending
or threatened against Northwest, before any court,
regulatory body, administrative agency, or other tribunal or
Governmental Authority (i) asserting the invalidity of any
Related Document or the Northwest Receivables, (ii) seeking
to prevent the consummation of any of the transactions
contemplated by the Related Documents to which it is, or is
to be, a party, (iii) seeking any determination or ruling
<PAGE>
<PAGE>
that would materially and adversely affect the performance
by Northwest of its obligations under the Related Documents
to which it is, or is to be, a party, or (iv) seeking any
determination or ruling that would materially and adversely
affect the validity or enforceability of any Related
Document or the Northwest Receivables.
(f) No Default. Except as would not have a
material adverse effect on the business, operations, assets
or financial or other condition of Northwest or on its
ability to perform its obligations under the Related
Documents and would not have a material adverse effect on
the ownership or servicing of the Northwest Receivables or
the validity or enforceability of the Related Documents or
the Northwest Receivables, Northwest is not in breach or
default of any Contractual Obligations, and is not in
violation of any Requirement of Law, applicable to it or its
properties.
(g) Good Title. None of Northwest's Agency
Receivables has been sold, assigned or pledged to any Person
other than the Seller and, pursuant hereto, the Issuer.
Immediately prior to their conveyance to the Seller pursuant
to the Northwest Agreement, Northwest has good title to all
its Agency Receivables, free and clear of any Lien, and, as
of each date Northwest Receivables are conveyed pursuant to
the Northwest Agreement, Northwest will have conveyed good
title to such Receivables to the Seller free and clear of
any Lien.
(h) Sole Owner. Immediately prior to their
conveyance to the Seller pursuant to the Northwest
Agreement, Northwest is the sole owner of all right, title
and interest in and to Northwest's Agency Receivables.
(i) Receivables Information. The Receivables
Information does not contain any untrue statement of a
material fact or omit to state a material fact necessary to
make the statements in the Receivables Information, in light
of the circumstances in which they were made, not
misleading.
(j) Place of Business. The chief executive
office of Northwest and location of the Records pertaining
to its respective Receivables is the address listed for
Northwest on Schedule II hereto.
The representations and warranties set forth in this
Section 3.4 shall survive each sale and assignment of Agency
Receivables to the Issuer, and termination of the rights and
obligations of Northwest as a Servicer pursuant to Section 9.1.
Section 3.5. Representations and Warranties of Pasatiempo.
Pasatiempo hereby represents and warrants to the Issuer as of the
date hereof and as of each date on which any Pasatiempo
Receivables are sold hereunder that:
<PAGE>
<PAGE>
(a) Organization, Good Standing and Due
Qualification. Pasatiempo is duly organized and validly
existing in good standing under the laws of its state of
incorporation, and has, in all material respects, full
corporate power, authority and legal right to own its
property and conduct its business as contemplated by the
Related Documents to which it is, or is to be, a party and
as such property is presently owned and such business is
presently conducted, and to execute, deliver and perform its
Obligations under the Related Documents to which it is, or
is to be, a party. Pasatiempo is duly qualified to do
business and is in good standing as a foreign corporation
(or is exempt from such requirements) and has obtained all
necessary licenses and approvals in each jurisdiction in
which failure to so qualify or to obtain such licenses and
approvals would have a material adverse effect on
Pasatiempo's ability to perform its obligations under the
Related Documents to which it is, or is to be, a party.
Pasatiempo is a direct or indirect wholly-owned subsidiary
of the Seller.
(b) Due Authorization. The execution and
delivery of the Related Documents to which it is, or is to
be, a party by Pasatiempo and the consummation of the
transactions provided for therein have been duly authorized
by Pasatiempo by all necessary corporate action on the part
of Pasatiempo.
(c) No Conflict. Except as would not affect the
validity or enforceability of any Related Document or the
Pasatiempo Receivables, would not have a material adverse
effect on the business, operations, assets or financial or
other condition of Pasatiempo or its ability to perform its
obligations under the Related Documents and would not have a
material adverse effect on the ownership or servicing of the
Pasatiempo Receivables, the execution and delivery of the
Related Documents to which it is, or is to be, a party, the
performance of the transactions contemplated thereby and the
fulfillment of the terms thereof, will not conflict with,
result in any breach of any of the terms and provisions of,
or constitute (with or without notice or lapse of time or
both) a default under, any Contractual Obligation applicable
to Pasatiempo or any of its properties.
(d) No Violation. Except as would not affect the
validity or enforceability of any Related Document or the
Pasatiempo Receivables, would not have a material adverse
effect on the business, operations, assets or financial or
other condition of Pasatiempo or its ability to perform its
obligations under the Related Documents and would not have a
material adverse effect on the ownership or servicing of the
Pasatiempo Receivables, the execution and delivery of the
Related Documents to which it is, or is to be, a party, the
performance of the transactions contemplated by the Related
Documents to which it is, or is to be, a party, and the
fulfillment of the terms thereof, will not conflict with or
violate any Requirement of Law applicable to Pasatiempo or
any of its properties.
<PAGE>
<PAGE>
(e) No Proceedings. There are no proceedings or
investigations, to the best knowledge of Pasatiempo, pending
or threatened against Pasatiempo, before any court,
regulatory body, administrative agency, or other tribunal or
Governmental Authority (i) asserting the invalidity of any
Related Document or the Pasatiempo Receivables, (ii) seeking
to prevent the consummation of any of the transactions
contemplated by the Related Documents to which it is, or is
to be, a party, (iii) seeking any determination or ruling
that would materially and adversely affect the performance
by Pasatiempo of its obligations under the Related Documents
to which it is, or is to be, a party, or (iv) seeking any
determination or ruling that would materially and adversely
affect the validity or enforceability of any Related
Document or the Pasatiempo Receivables.
(f) No Default. Except as would not have a
material adverse effect on the business, operations, assets
or financial or other condition of Pasatiempo or its ability
to perform its obligations under the Related Documents and
would not have a material adverse effect on the ownership or
servicing of the Pasatiempo Receivables or the validity or
enforceability of the Related Documents or the Pasatiempo
Receivables, is not in breach or default of any Contractual
Obligation, and is not in violation of any Requirement of
Law, applicable to it or its properties.
(g) Good Title. None of Pasatiempo's Agency
Receivables has been sold, assigned or pledged to any Person
other than the Seller and, pursuant hereto, the Issuer.
Immediately prior to their conveyance to the Seller pursuant
to the Pasatiempo Agreement, Pasatiempo has good title to
all its Agency Receivables, free and clear of any Lien, and,
as of each date Pasatiempo Receivables are conveyed pursuant
to the Pasatiempo Agreement, Pasatiempo will have conveyed
good title to such Receivables to the Seller free and clear
of any Lien.
(h) Sole Owner. Immediately prior to their
conveyance to the Seller pursuant to the Pasatiempo
Agreement, Pasatiempo is the sole owner of all right, title
and interest in and to Pasatiempo's Agency Receivables.
(i) Receivables Information. The Receivables
Information does not contain any untrue statement of a
material fact or omit to state a material fact necessary to
make the statements in the Receivables Information, in light
of the circumstances in which they were made, not
misleading.
(j) Place of Business. The chief executive
office of Pasatiempo and location of the Records pertaining
to its respective Receivables is the address listed for
Pasatiempo on Schedule II hereto.
The representations and warranties set forth in this
Section 3.5 shall survive each sale and assignment of Agency
Receivables to the Issuer, and termination of the rights and
obligations of Pasatiempo as a Servicer pursuant to Section 9.1.
<PAGE>
<PAGE>
ARTICLE IV
COVENANTS
Section 4.1. Covenants of the Seller. The Seller hereby
covenants that:
(a) Receivables Not To Be Evidenced by
Instruments. The Seller will take no action to cause any
Receivables to be evidenced by any instrument (as defined in
the UCC).
(b) No Liens. The Seller will not create,
permit or suffer to exist, and will defend the Issuer's
rights to Purchased Receivables against, and take such
other actions as are necessary to remove, any Lien,
claim or right in, to or on any Purchased Receivables,
and will defend the right, title and interest of the
Issuer in and to the Purchased Receivables against the
claims and demands of all Persons whomsoever, other
than the Liens created hereby and by the Pledge
Agreement.
(c) Status of Receivables. The Seller will
comply in all material respects with all Contractual
Obligations applicable to the Seller or to the Purchased
Receivables or any part thereof.
(d) Corporate Existence. The Seller will
keep in full effect its existence, rights and
franchises as a corporation under the laws of the state
of its incorporation (unless it becomes organized under
the laws of any other state or of the United States of
America, in which case the Seller will keep in full
effect its existence, rights and franchises under the
laws of such other jurisdiction), will preserve and
maintain its licenses, permits and other authorizations
necessary for the conduct of its business and will
obtain and preserve its qualification to do business in
each jurisdiction in which such qualification is or
shall be necessary to protect the validity and
enforceability of this Agreement, the Related Documents
and each other instrument or agreement necessary or
appropriate to the proper administration of this
Agreement and the transactions contemplated hereby.
(e) Indemnity. In any suit, proceeding or action
brought by the Collateral Agent, the Liquidity Banks, the
Liquidity Agent Bank or the Issuer for any sum owing with
respect to a Purchased Receivable, the Seller will save,
indemnify and keep the Collateral Agent, the Liquidity
Banks, the Liquidity Agent Bank or the Issuer, as the case
may be, harmless from and against all expense, loss or
damage suffered by reason of any defense, setoff,
counterclaim, recoupment or reduction of liability
whatsoever under such Purchased Receivable, arising out of a
breach by the Seller of any obligation under such Purchased
Receivable or arising out of any other agreement,
<PAGE>
<PAGE>
indebtedness or liability at any time owing to or in favor
of a patient or provider or its successor from the Seller,
and all such obligations of the Seller shall be and remain
enforceable against and only against the Seller, and shall
not be enforceable against the Collateral Agent, the
Liquidity Banks, the Liquidity Agent Bank or the Issuer, as
the case may be. The parties intend that this
Subsection (e) not be applied to provide direct or indirect
assurance to the Collateral Agent, the Liquidity Banks, the
Liquidity Agent Bank or the Issuer, as the case may be,
against loss by reason of the bankruptcy or insolvency (or
other credit condition) of, or default by, the Obligor on,
or the uncollectability of, any Purchased Receivable.
(f) Compliance with Law. The Seller will comply,
in all material respects, with all Requirements of Law
applicable to it or to the Purchased Receivables or any part
thereof.
(g) Access and Information. Unless prohibited by
applicable governmental regulations or any regulations of
JCAHO, the Issuer, the Master Servicer, the Liquidity Agent
Bank, the Liquidity Banks and their respective
representatives shall at all times have full and free access
during normal business hours to all the books,
correspondence and records of the Seller insofar as they
relate to the Purchased Receivables, and the Issuer, the
Master Servicer, the Liquidity Agent Bank, the Liquidity
Banks and their respective representatives may examine the
same, take extracts therefrom and make photocopies thereof,
and the Seller agrees to render to the Issuer, the Master
Servicer, the Liquidity Agent Bank, the Liquidity Banks and
their respective representatives, at the Seller's cost and
expense, such clerical and other assistance as may be
reasonably requested with regard thereto; provided, however,
that the Issuer, the Master Servicer, the Liquidity Agent
Bank and the Liquidity Banks each acknowledges that in
exercising its rights and privileges conferred in this
Section 4.1(g) it or its representatives may, from time to
time, obtain knowledge of information, practices, books,
correspondence and records of a confidential nature and in
which the Seller has a proprietary interest. The Issuer,
the Master Servicer, the Liquidity Agent Bank and the
Liquidity Banks each agrees that all such information,
practices, books, correspondence and records so obtained by
it are to be regarded as confidential information and that
such information may be subject to laws, rules and
regulations regarding patient confidentiality, and agrees
that (i) it shall retain in confidence and shall use its
best efforts to ensure that its representatives retain in
confidence and will not disclose without the prior written
consent of the Seller any or all of such information,
practices, books, correspondence and records furnished to
them and (ii) that it will not, and will use its best
efforts to ensure that its representatives will not, make
any use whatsoever (other than for the purposes contemplated
by the Related Documents) of any of such information,
practices, books, correspondence and records without the
<PAGE>
<PAGE>
prior written consent of the Seller, unless such information
is generally available to the public or is required by law
to be disclosed.
(h) Change of Location. The Seller will not,
without providing 20 days notice to the Issuer, the
Collateral Agent and the Liquidity Agent Bank and without
filing such amendments to any previously filed financing
statements as the Issuer, the Liquidity Agent Bank and the
Collateral Agent may require, (i) change the location of its
chief executive office or of any Regional Center or the
location of the offices where the Records relating to the
Receivables are kept or (ii) change its name, identity or
corporate structure in any manner which would, could or
might make any financing statement or continuation statement
filed by the Seller in accordance herewith seriously
misleading within the meaning of Section 9-402(7) of any
applicable enactment of the UCC.
(i) Payor Contracts. Subject to compliance with
Section 4.1(j), the Seller may change the terms of the payor
contracts and agreements relating to the Purchased
Receivables (or any part thereof) or its policies and
procedures with respect to the servicing thereof (including
without limitation the amount and timing of finance charges,
fees and write-offs) if such change would not, in the
reasonable belief of the Seller and the Master Servicer,
cause an Amortization Event to occur.
(j) Nonimpairment of Purchased Receivables.
Except as permitted by Section 6.7, the Seller will not take
or omit to take any action, or permit any Servicer or the
Master Servicer to take or omit to take any action, which
action or omission would materially reduce or impair the
rights of the Issuer or the Liquidity Banks with respect to
any Purchased Receivable. Without limiting the generality
of the foregoing, the Seller shall not take any of the
following actions, or permit any Servicer or the Master
Servicer to take any of the following actions:
(i) rescind, cancel or modify any provision
of any Purchased Receivable;
(ii) waive any right with respect to any
Purchased Receivable; or
(iii) take or omit to take any action which
might subject any Purchased Receivable to offset,
counterclaim, deduction or defense.
Notwithstanding the foregoing, the Seller may adjust or
write-off the amount of any Purchased Receivable if such
adjustment is determined by the Seller to be desirable and
appropriate based on the same standards the Seller would
apply had it not sold such Receivable hereunder but
continued to hold such Receivable for its own account.
<PAGE>
<PAGE>
(k) Obligations. The Seller will duly fulfill
all obligations on its part to be fulfilled under or in
connection with each Purchased Receivable and will do
nothing to impair the rights of the Issuer therein except as
otherwise expressly permitted in this Agreement.
(l) Subordinated Debt. The Seller agrees that
the indebtedness owing from the Issuer to the Seller under
the Purchase Money Note shall be subordinated to the
indebtedness owed to the Liquidity Banks in accordance with
the terms of such Note in effect as of the date hereof.
Section 4.2. Covenants of Hillhaven. Hillhaven hereby
covenants that:
(a) Financial Statements.
(i) Hillhaven will assure that (A) its
consolidated financial statements will reflect, by
footnote or otherwise, the separate existence of the
Issuer, the extent of its separate assets and the
unavailability of those assets to satisfy claims of the
creditors of Hillhaven or any Affiliate other than the
Issuer (as well as the fact that the Purchased
Receivables generated by Pasatiempo, Northwest and
First Healthcare are owned by the Issuer and are
unavailable to the creditors of Pasatiempo, Northwest
and First Healthcare); and (B) any separate financial
statements of the Seller, Northwest or Pasatiempo,
reflect, by footnote or otherwise, the ownership of the
Purchased Receivables by the Issuer.
(ii) Hillhaven will deliver to the Issuer
and the Liquidity Agent Bank:
(A) as soon as available and in any
event within 90 days after the end of each fiscal year
of Hillhaven, a consolidated balance sheet of Hillhaven
and its consolidated subsidiaries as at the end of such
year and consolidated statements of income and cash
flows of Hillhaven and its consolidated subsidiaries
for such year, setting forth in each case in
comparative form corresponding consolidated figures for
the preceding fiscal year, certified by a firm of
independent public accountants of nationally recognized
standing;
(B) as soon as available and in any
event within 60 days after the end of each of the first
three quarters of each fiscal year of Hillhaven, its
unaudited consolidated balance sheet and the related
unaudited statements of income and cash flows for such
quarter, certified as to fairness of presentation,
generally accepted accounting principles and
consistency by the chief financial officer of
Hillhaven;
<PAGE>
<PAGE>
(C) simultaneously with the delivery of
each set of financial statements referred to in
clause (A) above, a statement of the chief financial
officer of Hillhaven to the effect that nothing has
come to his attention to cause him to believe that
there existed on the date of such statements any
Amortization Event or event or condition which, with
the giving of notice or lapse of time or both, would
become an Amortization Event;
(D) forthwith upon the occurrence of
any Amortization Event or event or condition which,
with the giving of notice or lapse of time or both,
would become an Amortization Event or upon becoming
aware that any of the representations and warranties
contained in Article III have ceased to be true and
correct, a certificate of the president, any vice
president or the chief financial officer or the chief
accounting officer of Hillhaven setting forth the
details thereof and the action which Hillhaven is
taking or proposes to take with respect thereto;
(E) if and when any member of the
Controlled Group (i) gives or is required to give
notice to the PBGC of any "reportable event" (as
defined in Section 4043 of ERISA) with respect to any
Plan which might constitute grounds for a termination
of such Plan under Title IV of ERISA, or knows that the
plan administrator of any Plan has given or is required
to give notice of any such reportable event, a copy of
the notice of such reportable event given or required
to be given to the PBGC; (ii) receives notice of
complete or partial withdrawal liability under Title IV
of ERISA, a copy of such notice; or (iii) receives
notice from the PBGC under Title IV of ERISA of an
intent to terminate or appoint a trustee to administer
any Plan, a copy of such notice;
(F) from time to time such additional
information regarding the financial position or
business of Hillhaven and its subsidiaries as the
Liquidity Agent Bank may reasonably request.
(b) Lines of Business. Hillhaven will not, and
will not permit any subsidiary to, enter into any new line
of business (which is materially different from, or
unrelated to, the lines of business respectively conducted
by them) or change materially the nature of the business
respectively conducted by them on the date hereof.
(c) Performance of Obligations; Compliance with
Law. Hillhaven will, and will cause each subsidiary to,
comply in all material respects with their respective
Contractual Obligations and with all applicable Requirements
of Law.
<PAGE>
<PAGE>
(d) Access and Information. Unless prohibited by
applicable governmental regulations or any regulations of
JCAHO, the Issuer, the Liquidity Agent Bank, the Liquidity
Banks and their respective representatives shall at all
times have full and free access during normal business hours
to all the books, correspondence and records of Hillhaven
insofar as they relate to Purchased Receivables, and the
Issuer, the Liquidity Agent Bank, the Liquidity Banks and
their respective representatives may examine the same, take
extracts therefrom and make photocopies thereof, and
Hillhaven agrees to render to the Issuer, the Liquidity
Agent Bank, the Liquidity Banks and their respective
representatives, at Hillhaven's cost and expense, such
clerical and other assistance as may be reasonably requested
with regard thereto; provided, however, that the Issuer, the
Liquidity Agent Bank and the Liquidity Banks each
acknowledges that in exercising its respective rights and
privileges conferred in this Section 4.2(d) it or its
representatives may, from time to time, obtain knowledge of
information, practices, books, correspondence and records of
a confidential nature and in which Hillhaven has a
proprietary interest. The Issuer, the Liquidity Agent Bank
and the Liquidity Banks each agrees that all such
information, practices, books, correspondence and records so
obtained by it are to be regarded as confidential
information and that such information may be subject to
laws, rules and regulations regarding patient
confidentiality, and agrees that (i) it shall retain in
confidence and shall use its best efforts to ensure that its
representatives retain in confidence and will not disclose
without the prior written consent of Hillhaven any or all of
such information, practices, books, correspondence and
records furnished to them and (ii) that it will not, and
will use its best efforts to ensure that its representatives
will not, make any use whatsoever (other than for the
purposes contemplated by the Related Documents) of any of
such information, practices, books, correspondence and
records without the prior written consent of Hillhaven,
unless such information is generally available to the public
or is required by law to be disclosed.
(e) Corporate Formalities. Hillhaven will, and
will cause its Affiliates to, comply with the provisions of
Section 7.13(b) of the Liquidity Agreement (to the extent
the same relate to Hillhaven and its Affiliates).
(f) Subordinated Debt. Hillhaven agrees that the
indebtedness owing from the Issuer to Hillhaven under the
Hillhaven Note shall be subordinated to the indebtedness
owed to the Liquidity Banks in accordance with the terms of
such Note in effect as of the date hereof.
Section 4.3. Covenants of Northwest. Northwest hereby
covenants that:
(a) Receivables Not to Be Evidenced by
Instruments. Northwest will take no action to cause any
Northwest Receivable to be evidenced by any instrument (as
defined in the UCC).
<PAGE>
<PAGE>
(b) No Liens. Northwest will not create, permit
or suffer to exist, and will defend the Issuer's rights to
its respective Purchased Receivables against, and take such
other actions as are necessary to remove, any Lien, claim or
right in, to or on any Purchased Receivables, and will
defend the right, title and interest of the Issuer in and to
the Purchased Receivables against the claims and demands of
all Persons whomsoever, other than the Liens created hereby
and by the Pledge Agreement.
(c) Status of Receivables. Northwest shall
comply in all material respects with all Contractual
Obligations applicable to Northwest or the Northwest
Receivables or any part thereof.
(d) Corporate Existence. Northwest will
keep in full effect its existence, rights and
franchises as a corporation under the laws of the state
of its incorporation (unless it becomes organized under
the laws of any other state or of the United States of
America, in which case Northwest will keep in full
effect its existence, rights and franchises under the
laws of such other jurisdiction), will preserve and
maintain its licenses, permits and other authorizations
necessary for the conduct of its business and will
obtain and preserve its qualification to do business in
each jurisdiction in which such qualification is or
shall be necessary to protect the validity and
enforceability of this Agreement, the Related Documents
and each other instrument or agreement necessary or
appropriate to the proper administration of this
Agreement and the transactions contemplated hereby.
(e) Indemnity. In any suit, proceeding or action
brought by the Collateral Agent, the Liquidity Agent Bank,
the Liquidity Banks or the Issuer for any sum owing with
respect to a Northwest Receivable, Northwest will save,
indemnify and keep the Collateral Agent, the Liquidity Agent
Bank, the Liquidity Banks or the Issuer, as the case may be,
harmless from and against all expense, loss or damage
suffered by reason of any defense, setoff, counterclaim,
recoupment or reduction of liability whatsoever under such
Northwest Receivable, arising out of a breach by Northwest
of any obligation under such Northwest Receivable or arising
out of any other agreement, indebtedness or liability at any
time owing to or in favor of a patient or provider or its
successor from Northwest, and all such obligations of
Northwest shall be and remain enforceable against and only
against Northwest, and shall not be enforceable against the
Collateral Agent, the Liquidity Banks, the Liquidity Agent
Bank or the Issuer, as the case may be. The parties intend
that this Subsection (e) not be applied to provide direct or
indirect assurance to the Collateral Agent, the, Liquidity
Banks, the Liquidity Agent Bank or the Issuer, as the case
may be, against loss by reason of the bankruptcy or
insolvency (or other credit condition) of, or default by,
the Obligor on, or the uncollectability of, any Purchased
Receivable.
<PAGE>
<PAGE>
(f) Compliance with Law. Northwest will comply,
in all material respects, with all Requirements of Law
applicable to it or to the Northwest Receivables or any part
thereof.
(g) Access and Information. Unless prohibited by
applicable governmental regulations or any regulations of
JCAHO, the Issuer, the Master Servicer, the Liquidity Agent
Bank, the Liquidity Banks and their respective
representatives shall at all times have full and free access
during normal business hours to all the books,
correspondence and records of Northwest insofar as they
relate to Northwest Receivables, and the Issuer, the Master
Servicer, the Liquidity Agent Bank, the Liquidity Banks and
their respective representatives may examine the same, take
extracts therefrom and make photocopies thereof, and
Northwest agrees to render to the Issuer, the Master
Servicer, the Liquidity Agent Bank, the Liquidity Banks and
its representatives, at Northwest's cost and expense, such
clerical and other assistance as may be reasonably requested
with regard thereto; provided, however, that the Issuer, the
Master Servicer, the Liquidity Agent Bank and the Liquidity
Banks each acknowledges that in exercising their respective
rights and privileges conferred in this Section 4.3(g) it or
its representatives may, from time to time, obtain knowledge
of information, practices, books, correspondence and records
of a confidential nature and in which Northwest has a
proprietary interest. The Issuer, the Master Servicer, the
Liquidity Agent Bank and the Liquidity Banks each agrees
that all such information, practices, books, correspondence
and records so obtained by it are to be regarded as
confidential information and that such information may be
subject to laws, rules and regulations regarding patient
confidentiality, and agrees that (i) it shall retain in
confidence and shall use its best efforts to ensure that its
representatives retain in confidence and will not disclose
without the prior written consent of Northwest any or all of
such information, practices, books, correspondence and
records furnished to them and (ii) that it will not, and
will use its best efforts to ensure that its representatives
will not, make any use whatsoever (other than for the
purposes contemplated by the Related Documents) of any of
such information, practices, books, correspondence and
records without the prior written consent of Northwest,
unless such information is generally available to the public
or is required by law to be disclosed.
(h) Change of Location. Northwest will not,
without providing 20 days notice to the Issuer, the
Collateral Agent and the Liquidity Agent Bank and without
filing such amendments to any previously filed financing
statements as the Issuer, the Liquidity Agent Bank, and the
Collateral Agent may require, (i) change the location of its
chief executive office or of any Regional Center or the
location of the offices where the Records relating to the
Northwest Receivables are kept or (ii) change its name,
identity or corporate structure in any manner which would,
could or might make any financing statement or continuation
<PAGE>
<PAGE>
statement filed by Northwest in accordance herewith
seriously misleading within the meaning of Section 9-402(7)
of any applicable enactment of the UCC.
(i) Payor Contracts. Subject to Section 4.3(j),
Northwest may change the terms of the payor contracts and
agreements relating to Northwest Receivables (or any part
thereof) or its policies and procedures with respect to the
servicing thereof (including without limitation the amount
and timing of finance charges, fees and write-offs) if such
change would not, in the reasonable belief of Northwest and
the Master Servicer, cause an Amortization Event to occur.
(j) Nonimpairment of Purchased Receivables.
Except as permitted by Section 6.7, Northwest will not take
or omit to take any action, or permit any Servicer or the
Master Servicer to take or omit to take any action, which
action or omission would materially reduce or impair the
rights of the Issuer and the Liquidity Banks with respect to
any Purchased Receivable. Without limiting the generality
of the foregoing, Northwest shall not take any of the
following actions, or permit any Servicer or the Master
Servicer to take any of the following actions:
(i) rescind, cancel or modify any provision
of any Northwest Receivable;
(ii) waive any right with respect to any
Northwest Receivable; or
(iii) take or omit to take any action which
might subject any Northwest Receivable to offset,
counterclaim, deduction or defense.
Notwithstanding the foregoing, Northwest may adjust or
write-off the amount of any Purchased Receivable if such
adjustment is determined by Northwest to be desirable and
appropriate based on the same standards Northwest would
apply had it not sold such Receivable hereunder but
continued to hold such Receivable for its own account.
(k) Obligations. Northwest will duly fulfill all
obligations on its part to be fulfilled under or in
connection with each Northwest Receivable and will do
nothing to impair the rights of the Issuer therein except as
otherwise expressly permitted in this Agreement.
Section 4.4. Covenants of Pasatiempo. Pasatiempo hereby
covenants that:
(a) Receivables Not To Be Evidenced by
Instruments. Pasatiempo will take no action to cause any
Pasatiempo Receivable to be evidenced by any instrument (as
defined in the UCC).
<PAGE>
<PAGE>
(b) No Liens. Pasatiempo will not create, permit
or suffer to exist, and will defend the Issuer's rights to
its respective Purchased Receivables against, and take such
other actions as are necessary to remove, any Lien, claim or
right in, to or on any Purchased Receivables, and will
defend the right, title and interest of the Issuer in and to
the Purchased Receivables against the claims and demands of
all Persons whomsoever, other than the Liens created hereby
and by the Pledge Agreement.
(c) Status of Receivables. Pasatiempo shall
comply in all material respects with all Contractual
Obligations applicable to Pasatiempo or the Pasatiempo
Receivables or any part thereof.
(d) Corporate Existence. Pasatiempo will keep in
full effect its existence, rights and franchises as a
corporation under the laws of the state of its incorporation
(unless it becomes organized under the laws of any other
state or of the United States of America, in which case
Pasatiempo will keep in full effect its existence, rights
and franchises under the laws of such other jurisdiction),
will preserve and maintain its licenses, permits and other
authorizations necessary for the conduct of its business and
will obtain and preserve its qualification to do business in
each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this
Agreement, the Related Documents and each other instrument
or agreement necessary or appropriate to the proper
administration of this Agreement and the transactions
contemplated hereby.
(e) Indemnity. In any suit, proceeding or action
brought by the Collateral Agent, the Liquidity Agent Bank,
the Liquidity Banks or the Issuer for any sum owing with
respect to a Pasatiempo Receivable, Pasatiempo will save,
indemnify and keep the Collateral Agent, the Liquidity Agent
Bank or the Issuer, as the case may be, harmless from and
against all expense, loss or damage suffered by reason of
any defense, setoff, counterclaim, recoupment or reduction
of liability whatsoever under such Pasatiempo Receivable,
arising out of a breach by Pasatiempo of any obligation
under such Pasatiempo Receivable or arising out of any other
agreement, indebtedness or liability at any time owing to or
in favor of a patient or provider or its successor from
Pasatiempo, and all such obligations of Pasatiempo shall be
and remain enforceable against and only against Pasatiempo,
and shall not be enforceable against the Collateral Agent,
the Liquidity Banks, the Liquidity Agent Bank or the Issuer,
as the case may be. The parties intend this Subsection (e)
not be applied to provide direct or indirect assurance to
the Collateral Agent, the Liquidity Banks, the Liquidity
Agent Bank or the Issuer, as the case may be, against loss
by reason of the bankruptcy or insolvency (or other credit
condition) of, or default by, the Obligor on, or the
uncollectability of, any Purchased Receivable.
<PAGE>
<PAGE>
(f) Compliance with Law. Pasatiempo will comply,
in all material respects, with all Requirements of Law
applicable to it or to the Pasatiempo Receivables or any
part thereof.
(g) Access and Information. Unless prohibited by
applicable governmental regulations or any regulations of
JCAHO, the Issuer, the Master Servicer, the Liquidity Agent
Bank, the Liquidity Banks and their respective
representatives shall at all times have full and free access
during normal business hours to all the books,
correspondence and records of Pasatiempo insofar as they
relate to Pasatiempo Receivables, and the Issuer, the Master
Servicer, the Liquidity Agent Bank, the Liquidity Banks and
their respective representatives may examine the same, take
extracts therefrom and make photocopies thereof, and
Pasatiempo agrees to render to the Issuer, the Master
Servicer, the Liquidity Agent Bank, the Liquidity Banks and
their respective representatives, at Pasatiempo's cost and
expense, such clerical and other assistance as may be
reasonably requested with regard thereto; provided, however,
that the Issuer, the Master Servicer, the Liquidity Agent
Bank and the Liquidity Banks each acknowledges that in
exercising its rights and privileges conferred in this
Section 4.4(g) it or its representatives may, from time to
time, obtain knowledge of information, practices, books,
correspondence and records of a confidential nature and in
which Pasatiempo has a proprietary interest. The Issuer,
the Master Servicer, the Liquidity Agent Bank and the
Liquidity Banks each agrees that all such information,
practices, books, correspondence and records so obtained by
it are to be regarded as confidential information and that
such information may be subject to laws, rules and
regulations regarding patient confidentiality, and agrees
that (i) it shall retain in confidence and shall use its
best efforts to ensure that its representatives retain in
confidence and will not disclose without the prior written
consent of Pasatiempo any or all of such information,
practices, books, correspondence and records furnished to
them and (ii) that it will not, and will use its best
efforts to ensure that its representatives will not, make
any use whatsoever (other than for the purposes contemplated
by the Related Documents) of any of such information,
practices, books, correspondence and records without the
prior written consent of Pasatiempo, unless such information
is generally available to the public or is required by law
to be disclosed.
(h) Change of Location. Pasatiempo will not,
without providing 20 days notice to the Issuer, the
Collateral Agent and the Liquidity Agent Bank and without
filing such amendments to any previously filed financing
statements as the Issuer, the Liquidity Agent Bank, and the
Collateral Agent may require, (i) change the location of its
chief executive office or of any Regional Center or the
location of the offices where the Records relating to the
Pasatiempo Receivables are kept or (ii) change its name,
identity or corporate structure in any manner which would,
could or might make any financing statement or continuation
<PAGE>
<PAGE>
statement filed by Pasatiempo in accordance herewith
seriously misleading within the meaning of Section 9-402(7)
of any applicable enactment of the UCC.
(i) Payor Contracts. Subject to Section 4.4(j),
Pasatiempo may change the terms of the payor contracts and
agreements relating to Pasatiempo Receivables (or any part
thereof) or its policies and procedures with respect to the
servicing thereof (including without limitation the amount
and timing of finance charges, fees and writeoffs) if such
change would not, in the reasonable belief of Pasatiempo and
the Master Servicer, cause an Amortization Event to occur.
(j) Nonimpairment of Purchased Receivables.
Except as permitted by Section 6.7, Pasatiempo will not take
or omit to take any action, or permit any Servicer or the
Master Servicer to take or omit to take any action, which
action or omission would materially reduce or impair the
rights of the Issuer and the Liquidity Banks with respect to
any Purchased Receivable. Without limiting the generality
of the foregoing, Pasatiempo shall not take any of the
following actions, or permit any Servicer or the Master
Servicer to take any of the following actions:
(i) rescind, cancel or modify any provision of
any Pasatiempo Receivable;
(ii) waive any right with respect to any
Pasatiempo Receivable; or
(iii) take or omit to take any action which might
subject any Pasatiempo Receivable to offset,
counterclaim, deduction or defense.
Notwithstanding the foregoing, Pasatiempo may adjust or
write off the amount of any Purchased Receivable if such
adjustment is determined by Pasatiempo to be desirable and
appropriate based on the same standards Pasatiempo would
apply had it not sold such Receivable hereunder but
continued to hold such Receivable for its own account.
(k) Obligations. Pasatiempo will duly fulfill
all obligations on its part to be fulfilled under or in
connection with each Pasatiempo Receivable and will do
nothing to impair the rights of the Issuer therein except as
otherwise expressly permitted in this Agreement.
<PAGE>
<PAGE>
ARTICLE V
ADMINISTRATION AND SERVICING
OF RECEIVABLES
Section 5.1. General. The Seller agrees to act as a
Servicer under this Agreement with respect to the Purchased
Receivables other than Northwest Receivables and Pasatiempo
Receivables; Northwest agrees to act as a Servicer hereunder with
respect to Northwest Receivables; Pasatiempo agrees to act as a
Servicer hereunder with respect to Pasatiempo Receivables;
Hillhaven agrees to act as Master Servicer hereunder; and the
Issuer consents to the foregoing. Each Servicer shall service
and administer its Purchased Receivables and shall collect
payments due under its respective Purchased Receivables in
accordance with its usual and customary servicing policies and
procedures for servicing accounts comparable to such Purchased
Receivables, and shall have full power and authority, acting
alone or through any Person properly designated by it hereunder
to do any and all things in connection with such servicing and
administration which it may deem necessary or desirable. Each
Servicer recognizes that the Master Servicer will be acting
hereunder on the basis of information provided it by the
respective Servicer; and each Servicer agrees to cooperate with
the Master Servicer and, to the extent necessary, the other
Servicers such that the Master Servicer's obligations hereunder
may be fulfilled in a timely fashion.
Section 5.2. Servicer Compensation. As compensation for
its acting as Servicer hereunder, each Servicer shall be entitled
to receive a Servicing Fee, payable monthly in arrears on each
Settlement Date, of 1.0% per annum of the weighted average
outstanding balance of the Purchased Receivables being serviced
by such Servicer (collectively the "Servicing Fees").
Section 5.3. Expenses. Each Servicer and the Master
Servicer, respectively, shall pay out of its own funds all
expenses incurred in connection with the servicing activities
hereunder including, without limitation, expenses related to
enforcement of the Purchased Receivables and the expenses of a
firm of public independent accountants and all other fees and
expenses, including but not limited to the costs of filing UCC
continuation statements and preparing any certificates required
hereunder or under any Related Document.
Section 5.4. Repurchase by Servicers. In the event there
is any breach of any of the representations, warranties or
covenants of any Servicer contained in this Agreement, then if
such breach or failure has a material adverse effect on the
interests of the Issuer or the Liquidity Banks in such Purchased
Receivables and if such event is continuing on the first
Settlement Date occurring at least 30 days after the earlier to
occur of (a) the discovery of such event by such Servicer or
(b) receipt by such Servicer of written notice of such event
given by the Liquidity Agent Bank or the Issuer, such Servicer
shall purchase all of its respective Purchased Receivables as to
which such event relates. The Servicer shall purchase a
Purchased Receivable by making a deposit into the Collection
Account in immediately available funds in an amount equal to the
<PAGE>
<PAGE>
Repurchase Price for such Receivable. Such Repurchase Price
shall be treated as a Collection of the related Purchased
Receivables and shall be applied in accordance with Article VI.
Upon each such purchase by the Servicer, the Issuer shall
automatically and without further action be deemed to sell,
transfer, assign and set over, and otherwise convey to the
Servicer, without recourse, representation or warranty, all
right, title and interest of the Issuer in and to such Purchased
Receivable, all monies due or to become due with respect thereto
and all proceeds thereof. The Issuer shall execute such
documents and instruments of transfer or assignment and take such
other actions as shall be reasonably requested by the Servicer to
effect the conveyance of any Purchased Receivable pursuant to
this Section. The parties intend that this Section 5.4 not be
applied to provide direct or indirect assurance to the Issuer
against loss by reason of the bankruptcy or insolvency (or other
credit condition) of, or default by, the related Obligor on, or
the uncollectability of, any Purchased Receivable. The
obligation to repurchase any such Purchased Receivable pursuant
to this Section 5.4 shall survive the termination of this
Agreement.
Section 5.5. Master Servicer.
(a) General. To the extent not inconsistent with
Requirements of Law, the Master Servicer shall assist the
Servicers in the performance of their respective duties under
this Article. In addition, the Master Servicer shall assist the
Issuer and the Liquidity Agent Bank in monitoring compliance by
the Seller, Northwest and Pasatiempo (and of their respective
Purchased Receivables) with the requirements of this Agreement.
(b) Settlement Statement. The Master Servicer, on the
basis of information provided by the Servicers, will deliver
appropriately completed Settlement Statements as provided in
Section 6.6.
Section 5.6. Notices to the Seller. In the event that the
Seller, Northwest or Pasatiempo, as the case may be, is no longer
acting as a Servicer or Hillhaven is no longer acting as Master
Servicer hereunder, any Successor Servicer or Successor Master
Servicer appointed pursuant to Section 9.2 shall deliver or make
available to the Seller, Northwest, Pasatiempo or Hillhaven, as
the case may be, each certificate and report required to be
prepared, forwarded or delivered thereafter pursuant to
Sections 5.4 and 5.5.
ARTICLE VI
ALLOCATION AND APPLICATION
OF COLLECTIONS
Section 6.1. Establishment of Issuer Accounts; Investments.
The Issuer shall, pursuant hereto and to the Pledge Agreement,
establish and maintain at Pittsburgh National Bank, Pittsburgh,
Pennsylvania in the joint names of the Issuer and the Collateral
Agent two segregated deposit accounts (the "Collection Account"
and the "Collateral Account" and, collectively, the "Issuer
Accounts"). Under the Pledge Agreement, the Collateral Agent
<PAGE>
<PAGE>
will appoint the Master Servicer to act as its non-exclusive
agent in connection with any withdrawals or deposits from or to
the Issuer Accounts required or permitted to be made by the
Collateral Agent pursuant to the terms hereof or of the Pledge
Agreement or as instructed in writing by the Collateral Agent
from time to time.
Section 6.2. Collections and Allocations. All collections
shall be deposited (or caused to be deposited) by the respective
Servicer in immediately available funds to the Collection Account
within two Business Days of receipt thereof by such Servicer.
Any Collections received by the Master Servicer shall be
similarly so deposited. Pending such transfer, the respective
Servicer or the Master Servicer, as the case may be, may deposit
the same in a concentration account in which funds of Hillhaven
and its subsidiaries may also be deposited; provided, that, each
Servicer and the Master Servicer shall maintain records
permitting a determination on a daily basis of the amount and
location of all Collections which have been so deposited. In the
event of the commencement of a bankruptcy, insolvency,
reorganization or similar proceeding with respect to the Seller,
Pasatiempo, Northwest or any Servicer or upon the receipt by the
Seller, Pasatiempo, Northwest or any Servicer of notice from the
Liquidity Agent Bank that an Event of Default under the Liquidity
Agreement has occurred, then, immediately upon the occurrence of
such event and thereafter, the Seller and the Servicers shall
immediately remit (or cause to be remitted) all Collections on
the Purchased Receivables directly to the Collateral Agent for
deposit into the Collection Account, and in no event shall it
thereafter commingle any such Collections with other funds or
deposit any such collections thereafter into any account
established, held or maintained by itself.
Section 6.3. Application of Collection Account and
Collateral Account.
(a) Except during the continuation of an Amortization Event
or following the occurrence of any event described in clause (ii)
or (iii) of the definition of "Transfer Termination Date" (and
subject to the other provisions of this Article VI), amounts on
deposit in the Collection Account shall be applied on a daily
basis in the following order:
(i) First, to pay interest then due and payable or
overdue on Liquidity Loans;
(ii) Second, to repay principal of Liquidity Loans then
due and payable;
(iii) Third, to pay amounts described in clauses (iii)
and (iv) of the definition of "Daily Facility
Costs" which are then due and payable;
(iv) Fourth, for deposit into the Collateral Account of
an amount equal to all Daily Facility Costs (other
than those described in clause (ii) of the
definition of "Daily Facility Costs") which have
accrued but are not payable on such day;
<PAGE>
<PAGE>
(v) Fifth, to pay the Seller the Purchase Price of
Purchased Receivables pursuant to Section 2.1(d)
hereof;
(vi) Sixth, to pay amounts described in clause (ii) of
the definition of "Daily Facility Costs" which are
then due and payable;
(vii) Seventh, at the option of the Issuer, to the
payment of principal of the Purchase Money Note
(or, if there is no outstanding balance on the
Purchase Money Note, to the payment of principal
of the Hillhaven Note) or to the prepayment of
Liquidity Loans that are then prepayable without
premium or penalty (or in the case of Eurodollar
Loans (as defined in the Liquidity Agreement) at
the end of an Interest Period applicable thereto);
provided, that, the Purchase Money Note and the
Hillhaven Note may not be prepaid hereunder unless
the conditions specified in Section 2.01(c) of the
Liquidity Agreement are satisfied on the date of
such prepayment; and
(viii) Eighth, at the option of the Issuer to be
(x) retained by the Issuer or (y) paid out by the
Issuer as a Restricted Payment or (z) otherwise
applied by the Issuer; provided that, in each
case, all applicable Requirements of Law and
Contractual Obligations are complied with.
(b) Amounts on deposit in the Collateral Account shall be
applied, together with any amounts being applied pursuant to
subsection (a) above, to pay on the due date thereof the
respective Daily Facility Costs with respect to which they were
deposited in the Collateral Account.
(c) The order of application of amounts to pay Daily
Facility Costs pursuant to Subsection (a)(iii) and (b) shall be
as follows:
(i) First, to amounts described in clause (iii) of the
definition of "Daily Facility Costs"; and
(ii) Second, to amounts described in clause (iv) of the
definition of "Daily Facility Costs" (in such
order as the Issuer shall determine).
(d) During the continuation of an Amortization Event or
following the occurrence of any event described in clause (ii) or
(iii) of the definition of "Transfer Termination Date", the order
of application of amounts referred to in Subsection (a) above
shall be as follows:
(i) First, to pay interest then due and payable or
overdue on Liquidity Loans;
(ii) Second, to repay principal of Liquidity Loans then
due and payable or overdue;
<PAGE>
<PAGE>
(iii) Third, to be held as cash collateral to secure
payment of amounts referred to in clauses (i)
through (ii) hereof until all such amounts have
been paid and satisfied in full;
(iv) Fourth, to the payment of amounts described in
clause (iii) of the definition of "Daily Facility
Costs";
(v) Fifth, to the payment of the amounts described in
clause (iv) of the definition of "Daily Facility
Costs";
(vi) Sixth, to the prepayment in full of all Liquidity
Loans which are then prepayable without premium or
penalty, together with interest accrued thereon;
(vii) Seventh, to the payment of interest and then
principal of the Purchase Money Note;
(viii) Eighth, to the payment of interest and then
principal of the Hillhaven Note, and
(ix) Ninth, the balance, if any, to be retained by the
Issuer or as a court of competent jurisdiction
shall otherwise direct.
Section 6.4. Purchase Money Note
(a) If, and to the extent that, the Issuer is unable on any
Business Day to fund (from all sources available to it,
including, without limitation, internally generated funds as well
as external funding sources) the Purchase Price of Agency
Receivables being sold under Section 2.1(d), the Issuer shall
authorize appropriate notations to increase the amount of the
Purchase Money Note.
(b) The principal balance of the Purchase Money Note is
subject to mandatory adjustment as provided in Section 6.6 and to
prepayment as provided in Section 6.3.
(c) The Issuer agrees that it will utilize all funding
sources available to it (including without limitation, internally
generated funds) such that the principal balance of the Purchase
Money Note is (at least as frequently as each Settlement Date)
the minimum possible.
Section 6.5. Daily Reports. On each Date of Processing,
each Servicer will determine (based on estimates) and report to
the Master Servicer, for the preceding day, Collections with
respect to such Servicer's respective Purchased Receivables and
such Servicer's respective new Receivables; and the Master
Servicer shall determine for the preceding day the aggregate
Collections and aggregate new Purchased Receivables and shall
determine for such day the Daily Facility Costs, and shall
prepare a report (the "Daily Report") setting forth such
information and such other information specified in Exhibit I.
<PAGE>
<PAGE>
Section 6.6. Adjustment Procedures. On each Settlement
Date, the Master Servicer shall determine the actual amount of
Collections and the actual Balances of Purchased Receivables
purchased during the preceding Collection Period (and, in the
case of the initial Settlement Date, the actual Balances of
Purchased Receivables purchased on the Closing Date) and shall
prepare a statement (the "Settlement Statement") setting forth
such actual amounts and the other calculations and information
specified in the form of Settlement Statement attached as
Exhibit C for the prior Collection Period. The Master Servicer
shall complete such Settlement Statement and deliver it to the
Issuer, the Liquidity Agent Bank and the Collateral Agent by
12:00 noon (City of Los Angeles time) on each Settlement Date.
Each Settlement Statement may be transmitted by telecopy to the
telecopy numbers specified in Section 12.6 and shall thereafter
be promptly mailed to the Liquidity Agent Bank, the Collateral
Agent, and the Issuer at the address for notices for each such
party specified in Section 12.6 (and in the case of the Liquidity
Agent Bank, to its Notice Office). To the extent the actual
amounts specified in the Settlement Statement differ from the
estimates calculated pursuant to Section 6.5 or as contemplated
by Section 2.1(f), the following adjustments shall be made:
(i) If and to the extent that the estimated Balance of
new Purchased Receivables exceeds the actual Balance of new
Purchased Receivables, the Issuer shall decrease the Balance
of its Purchased Receivables and decrease the outstanding
principal balance of the Purchase Money Note by the amount
of such excess multiplied by the Discount Factor; provided,
that, if so decreasing the outstanding principal balance of
the Purchase Money Note would reduce the outstanding
principal balance of the Purchase Money Note below $0, the
Seller shall pay to the Issuer, in immediately available
funds, an amount equal to the amount by which the
outstanding principal balance of the Purchase Money Note
would otherwise be reduced below $0.
(ii) If and to the extent that the actual Balance of
new Purchased Receivables exceeds the estimated Balance of
new Purchased Receivables, the Issuer shall increase the
Balance of its Purchased Receivables and pay to the Seller,
in immediately available funds, an amount equal to the
amount of such excess multiplied by the Discount Factor or
to the extent the Issuer is unable to fund (from all sources
available to it, including without limitation internally
generated funds as well as external funding sources) such
payment, increase the outstanding principal balance of the
Purchase Money Note by the amount of such excess multiplied
by the Discount Factor.
(iii) If and to the extent that the estimated amount of
Collections exceeds the actual amount of Collections, the
Issuer shall (A) increase the Balance of its Purchased
Receivables by the amount of such excess multiplied by the
Discount Factor, (B) decrease its gross revenues by 1.4%
multiplied by the amount of such excess and (C) pay to the
Seller, in immediately available funds, an amount equal to
the amount of such excess, or to the extent the Issuer is
unable to fund (from all sources available to it, including
<PAGE>
<PAGE>
without limitation internally generated funds as well as
external funding sources) such payment, increase the
outstanding balance of the Purchase Money Note by the amount
of such excess.
(iv) If and to the extent that the actual amount of
Collections exceeds the estimated amount of Collections, the
Issuer shall (A) decrease the Balance of its Purchased
Receivables by the amount of such excess multiplied by the
Discount Factor, (B) increase its gross revenues, by 1.4%
multiplied by the amount of such excess and (C) decrease the
outstanding principal balance of the Purchase Money Note;
provided, however, that if so decreasing the outstanding
principal balance of the Purchase Money Note would reduce
the outstanding principal balance thereof to less than $0,
in lieu of decreasing the outstanding principal balance of
the Purchase Money Note below $0 the Seller shall pay to the
Issuer, in immediately available funds, an amount equal to
the amount by which the outstanding principal balance of the
Purchase Money Note otherwise would be reduced below $0.
Section 6.7. Adjustments for Miscellaneous Credits and
Erroneous Charges.
(a) If during any Collection Period the respective Servicer
or the Seller, as applicable, (i) adjusts the amount of any
Receivable because of a rebate, refund or billing error to an
Obligor, or (ii) discovers that a Receivable was created through
an erroneous charge or (iii) otherwise compromises, adjusts,
reduces, modifies or cancels any indebtedness evidenced by a
Receivable without receiving cash therefor, the Servicer will
deposit, or the Seller shall deposit, as applicable, cash into
the Collection Account in an amount equal to such offset within
two Business Days following such adjustment or discovery. Such
offset shall be treated as a Collection of the related
Receivables in the Collection Period in which the obligation to
repurchase such Receivables arose and shall be applied in
accordance with this Article VI. The obligation of the Servicer
and the Seller to make such offsets shall survive the termination
of this Agreement. Notwithstanding the foregoing, any adjustment
or compromise permitted as described in the last sentences of
Sections 4.1, 4.3 or 4.4 shall be made by the respective Servicer
or Seller without any obligation to make any payment hereunder.
(b) If any Purchased Receivable included in its outstanding
Balance on the date of transfer thereof to the Issuer pursuant to
Section 2.1 hereof any amounts which should have been written off
by the Seller prior to the date of transfer thereof in accordance
with the Seller's customary write-off procedures and practices,
the Seller shall, within two Business days following discovery
thereof by the Seller, deposit cash into the Collection Account
in an amount equal to such amounts which so should have been
written-off. Such deposit shall be treated as a Collection of
the related Purchased Receivables in the Collection Period in
which the obligations to make such deposit arose and shall be
applied in accordance with this Article VI.
<PAGE>
<PAGE>
ARTICLE VII
CERTAIN MATTERS RELATING TO THE SELLER
Section 7.1. Merger or Consolidation of, or Assumption of
the Obligations of, the Seller.
(a) Any corporation into which a Seller may be merged or
consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Seller shall be a party,
or any Person succeeding to the business of the Seller shall be
the successor of the Seller hereunder (without relieving the
Seller of its responsibilities hereunder if it survives such
merger, conversion or consolidation) without the execution or
filing of any paper or any further act on the part of any of the
parties hereto; provided, however, that, upon the request of the
Issuer, the successor to the Seller shall execute an assumption
agreement providing for the assumption by the successor to the
Seller of the rights and obligations of the Seller hereunder in a
form reasonably satisfactory to the Issuer; and provided further
that (x) the surviving corporation shall be a direct or indirect
wholly-owned subsidiary of Hillhaven and (y) the Liquidity Agent
Bank shall have been notified of any such action.
(b) The obligations of the Seller hereunder shall not be
assignable nor shall any Person succeed to the obligations of the
Seller hereunder except in each case in accordance with the
provisions of Section 7.1(a).
ARTICLE VIII
OTHER MATTERS RELATING TO SERVICING
Section 8.1. Liability of the Servicers and Master
Servicer; Indemnification. Each Servicer and the Master
Servicer, respectively, will indemnify the Issuer, its beneficial
owners, the Liquidity Agent Bank, the Liquidity Banks and the
Collateral Agent from and against any loss, liability, expense,
damage or injury suffered or sustained arising from acts or
omissions of such Servicer or the Master Servicer, as the case
may be. The foregoing indemnity shall not be construed as to
limit any rights (including without limitations rights to
indemnity) which any such indemnified person shall be entitled
under applicable law, rule, regulation or court decree, at equity
or otherwise.
Section 8.2. Merger or Consolidation of, or Assumption of
the Obligations of, the Servicers or Master Servicer. Any
corporation into which any Servicer or the Master Servicer may be
merged or consolidated, or any corporation resulting from any
merger, conversion or consolidation to which such Servicer or the
Master Servicer shall be a party, or any Person succeeding to the
business of such Servicer or the Master Servicer shall be the
successor of such Servicer or the Master Servicer, as the case
may be, hereunder (without relieving such Servicer or the Master
Servicer of its responsibilities hereunder if it survives such
merger, conversion or consolidation), without the execution or
filing of any paper; provided, however, that, upon the request of
the Issuer, the successor to such Servicer or the Master
<PAGE>
<PAGE>
Servicer, as the case may be, shall execute an assumption
agreement providing for the assumption by the successor to such
Servicer or the Master Servicer, as the case may be, of the
rights and obligations of such Servicer or the Master Servicer
hereunder in a form reasonably satisfactory to the Issuer; and
provided further that (x) the surviving corporation shall be a
direct or indirect wholly-owned subsidiary of Hillhaven and
(y) the Liquidity Agent Bank shall have been notified of any such
action.
Section 8.3. Servicers and Master Servicer Not To Resign.
No Servicer or the Master Servicer shall resign from the
obligations and duties hereby imposed on it except upon
determination that (i) the performance of its duties hereunder is
no longer permissible under applicable Requirements of Law and
(ii) there is no reasonable action which the Servicer or the
Master Servicer could take to make the performance of its duties
hereunder permissible under applicable law or regulation. Any
such determination permitting the resignation of any Servicer or
the Master Servicer shall be evidenced as to clause (i) above by
an Opinion of Counsel to such effect delivered to the Issuer and
the Liquidity Agent Bank.
Section 8.4. Delegation of Duties. In the ordinary course
of business, a Servicer or the Master Servicer may at any time
delegate any of its duties hereunder to any Person who agrees to
conduct such duties in accordance with the terms of this
Agreement; provided, however (a) such delegation is not
inconsistent with Section 9.3 and is otherwise in compliance with
all applicable Requirements of Law; (b) such delegation shall not
relieve the Servicer or the Master Servicer of its liability and
responsibility with respect to such duties, and shall not
constitute a resignation within the meaning of Section 8.3
hereof; and (c) the Servicer or the Master Servicer shall assign
to the Issuer all of the Servicer's or Master Servicer's, as the
case may be, rights under the agreement or agreements pursuant to
which such delegation is made.
Section 8.5. Monitoring. If the Issuer and the Liquidity
Agent Bank do not elect to replace a Servicer or the Master
Servicer with a Successor Servicer or Successor Master Servicer
following the occurrence of a Servicing Default, to the extent
permitted by law, the Issuer and the Liquidity Agent Bank shall
have the right to appoint a firm of independent public
accountants to maintain the servicing of Purchased Receivables
and to furnish to the Issuer and the Liquidity Agent Bank such
letters, certificates and reports as either shall reasonably
request. The respective Servicer and the Master Servicer shall
cooperate with such firm of independent public accountants. The
fees and expenses of such firm of independent public accountants
shall be paid for by the respective Servicer or the Master
Servicer, as the case may be.
Section 8.6. Confidentiality. Notwithstanding any
provision of this Agreement to the contrary, including, without
limitation, Sections 4.1(g), 4.2(d), 4.3(g), 4.4(g), 8.5, 9.1 and
10.2, in no event shall the Issuer, the Master Servicer, the
Liquidity Agent Bank or any Liquidity Bank have access to any
patient records required by any law, rule or regulation of any
<PAGE>
<PAGE>
Governmental Authority, the JCAHO or any similar agency, or any
other regulatory or professional organization to which the Master
Servicer, the Seller, Pasatiempo or Northwest belongs or is
subject, to be kept confidential; provided, however, that the
Master Servicer, the Seller, Pasatiempo and Northwest shall each
use its reasonable efforts to furnish, or cause to be furnished,
information reasonably requested by the Issuer, Master Servicer,
Liquidity Agent Bank or any Liquidity Bank, as the case may be,
relating to the Purchased Receivables without violating any such
law, rule or regulation.
ARTICLE IX
SERVICING DEFAULTS
Section 9.1. Servicing Defaults. If any one of the
following events (a "Servicing Default") shall occur and be
continuing:
(a) any failure by any Servicer or the Master Servicer
to make any payment, transfer or deposit or any demand,
report, statement or other certification (in any such case,
of any kind whatsoever) to give instructions or notice to
the Issuer or the Liquidity Agent Bank on or before the date
occurring five Business Days after the date such payment,
transfer, deposit or report, statement or other
certification (in any such case, of any kind whatsoever) or
such instruction or notice is required to be made or given,
as the case may be, under the terms of this Agreement;
(b) any Servicer or the Master Servicer shall assign
its duties under this Agreement, except as permitted by
Section 8.4;
(c) failure on the part of any Servicer or the Master
Servicer duly to observe or perform in any material respect
any of its other respective covenants or agreements set
forth in this Agreement, which continues unremedied for a
period of 30 days after the earlier of (i) knowledge of such
failure by any Servicer or the Master Servicer, as the case
may be, or (ii) there shall have been given, by registered
or certified mail, to any Servicer or the Master Servicer by
the Issuer or the Liquidity Agent Bank a written notice
specifying such failure and requiring that it be remedied;
(d) any representation, warranty or certification made
(or deemed made) by any Servicer or the Master Servicer in
this Agreement or in any certificate delivered pursuant to
this Agreement shall prove to have been incorrect in any
material respect when made (or deemed made) or when
delivered and such incorrectness is not remedied in all
material respects within 30 days after the earlier of
(i) knowledge of such failure by such Servicer or the Master
Servicer, as the case may be, or (ii) there shall have been
given, by registered or certified mail to such Servicer or
the Master Servicer by the Issuer or the Liquidity Agent
Bank, a written notice specifying such incorrectness and
requiring that it be remedied;
<PAGE>
<PAGE>
(e) the entry of a decree or order for relief by a
court having jurisdiction in the premises in respect of any
Servicer or the Master Servicer in an involuntary case under
any applicable Federal or state bankruptcy, insolvency, or
other similar law now or hereafter in effect, or appointing
a receiver, liquidator, assignee, custodian, trustee,
sequestrator, or similar official of Hillhaven or any Seller
or for any substantial part of any of their respective
property, or ordering the winding up or liquidation of any
Servicer or the Master Servicer and such order, decree or
appointment remains unstayed and in effect for more than 60
days;
(f) any Servicer or the Master Servicer shall commence
a voluntary case under any applicable Federal or state
bankruptcy, insolvency or similar law now or hereafter in
effect, or consent to the entry of an order for relief in an
involuntary case under any such law, or consent to the
appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar
official of any Servicer or the Master Servicer or for any
substantial part of any of their respective property, or
make any general assignment for the benefit of creditors, or
the failure by any Servicer or the Master Servicer generally
to pay its debts as such debts become due, or the taking of
any action by any Servicer or the Master Servicer in
furtherance of any of the foregoing;
then, so long as the Servicing Default shall not have been waived
or remedied, either the Issuer or the Liquidity Agent Bank by
written notice to the affected Servicer or the Master Servicer (a
"Termination Notice"), may terminate all of the rights and
obligations of such Servicer or of the Master Servicer, as the
case may be, under this Agreement.
Upon the occurrence of any such event, the affected Servicer
or the Master Servicer, as the case may be, shall not be relieved
from using its best efforts to perform its obligations in a
timely manner in accordance with the terms of this Agreement and
such Servicer or the Master Servicer, as the case may be, shall
provide the Issuer and the Liquidity Agent Bank prompt notice of
such failure or delay by it, together with a description of its
efforts to so perform its obligations. Each Servicer or the
Master Servicer, as the case may be, shall immediately notify the
Issuer and the Liquidity Agent Bank in writing of any Servicing
Default.
After receipt by a Servicer or the Master Servicer, as the
case may be, of such Termination Notice, and on the date that a
Successor Servicer or Successor Master Servicer, as the case may
be, shall have been appointed by the Issuer or the Liquidity
Agent Bank pursuant to Section 9.2, all authority and power of
such Servicer or Master Servicer, as the case may be, under this
Agreement shall pass to and be vested in a Successor Servicer or
Successor Master Servicer, as the case may be; and, without
limitation, the Issuer is hereby authorized and empowered (upon
the failure of the Servicer or Master Servicer, as the case may
be, to cooperate) to execute and deliver, on behalf of such
<PAGE>
<PAGE>
Servicer or Master Servicer, as the case may be, as attorney-in-
fact or otherwise, all documents and other instrument or
instruments, and to do and accomplish all other acts or things
necessary or appropriate to effect the purposes of such transfer
of servicing rights. The affected Servicer or Master Servicer,
as the case may be, agrees to cooperate at its expense with the
Issuer and such Successor Servicer or Successor Master Servicer,
as the case may be, in effecting the termination of the
responsibilities and rights of such Servicer or the Master
Servicer, as the case may be, to conduct servicing hereunder,
including, without limitation, the transfer to such Successor
Servicer or Successor Master Servicer, as the case may be, of all
authority of the affected Servicer or Master Servicer, as the
case may be, to service the Purchased Receivables provided for
under this Agreement, including, without limitation, all
authority over all Collections which shall on the date of
transfer be held by the affected Servicer or Master Servicer, as
the case may be, for deposit, or which have been deposited by
such Servicer or Master Servicer, as the case may be, in the
Issuer Accounts, or which shall thereafter be received with
respect to the Purchased Receivables and to assist the Successor
Servicer or Successor Master Servicer. The affected Servicer or
Master Servicer, as the case may be, shall promptly transfer its
electronic records relating to the Purchased Receivables to the
Successor Servicer or Successor Master Servicer in such
electronic form as the Successor Servicer or Successor Master
Servicer may reasonably request and shall promptly transfer to
the Successor Servicer or Successor Master Servicer all other
records, correspondence and documents necessary for the continued
servicing of the Purchased Receivables in the manner and at such
times as the Successor Servicer or Successor Master Servicer
shall reasonably request. To the extent that compliance with
this Section 9.1 shall require the affected Servicer or Master
Servicer, as the case may be, to disclose to the Successor
Servicer or Successor Master Servicer information of any kind
which the affected Servicer or Master Servicer, as the case may
be, reasonably deems to be confidential, the Successor Servicer
or Successor Master Servicer shall be required to enter into such
customary licensing and confidentiality agreements as the
affected Servicer or Master Servicer, as the case may be, shall
deem necessary to protect its interest.
Section 9.2. Appointment of Successor Servicer or
Successor Master Servicer.
(a) On and after the receipt by a Servicer or Master
Servicer, as the case may be, of a Termination Notice pursuant to
Section 9.1, the affected Servicer or Master Servicer, as the
case may be, shall continue to perform all servicing functions
under this Agreement until the date specified in the Termination
Notice or otherwise specified by the Issuer or the Liquidity
Agent Bank, as the case may be, by notice to such Servicer or
Master Servicer, as the case may be, or, if no such date is
specified in such Termination Notice, or otherwise specified by
the Issuer or the Liquidity Agent Bank, as the case may be, until
a date mutually agreed upon by such Servicer or the Master
Servicer, as the case may be, and the Issuer or the Liquidity
Agent Bank, as the case may be. The Issuer and the Liquidity
Agent Bank shall as promptly as possible after the giving of a
<PAGE>
<PAGE>
Termination Notice appoint a successor Servicer (a "Successor
Servicer") or successor Master Servicer (a "Successor Master
Servicer"), as the case may be, and such Successor Servicer or
Successor Master Servicer shall accept its appointment by a
written assumption in a form acceptable to the Issuer and the
Liquidity Bank.
(b) Upon its appointment, the Successor Servicer or
Successor Master Servicer shall be the successor in all respects
to the respective Servicer or Master Servicer, as the case may
be, with respect to servicing functions under this Agreement and
shall be subject to all the responsibilities, duties and
liabilities relating thereto placed on the respective Servicer or
Master Servicer, as the case may be, by the terms and provisions
hereof, and all references in this Agreement to the respective
Servicer or Master Servicer, as the case may be, shall be deemed
to refer to the Successor Servicer or Successor Master Servicer.
Without limiting the foregoing, the Successor Servicer or
Successor Master Servicer shall be deemed to make as to itself
each of the representations set forth herein in Section 3.1 or
3.3, as the case may be.
(c) The Successor Servicer or Successor Master Servicer
shall be entitled to servicing compensation with respect to the
Purchased Receivables sufficient to pay the Successor Servicer or
Successor Master Servicer a reasonable fee (including the
estimated costs of such servicing and a reasonable profit). Such
servicing compensation shall be a reasonable fee determined by
the Issuer in the following manner: (i) if it is commercially
reasonable to obtain estimates or bids of five or more potential
Servicers prepared to service the Purchased Receivables, a
reasonable fee shall not exceed 15% in excess of the average of
such bids or estimates; (ii) if it is commercially reasonable to
obtain estimates or bids of only three or four potential
Servicers prepared to service the Purchased Receivables, a
reasonable fee shall not exceed 10% in excess of the average of
such bids or estimates; (iii) if estimates or bids are obtained
from only two potential Servicers prepared to service the
Purchased Receivables, a reasonable fee shall not exceed 5% in
excess of the average of such bids or estimates; and (iv) if an
estimate or bid is received from only one potential Servicer
prepared to service the Purchased Receivables, such estimate or
bid shall be deemed a reasonable fee. In the event that such fee
shall exceed the previous Servicing Fee, the outgoing Servicer
shall be liable to, and shall make payment to, the Successor
Servicer or the Successor Master Servicer, as the case may be, in
the amount of such shortfall for each period during which such
Successor Servicer or the Successor Master Servicer, as the case
may be, is acting hereunder.
Section 9.3. Collection of Medicaid Payments by Servicers.
Notwithstanding any provision of any Related Document to the
contrary, (a) all Medicaid payments which are made by an Obligor
with respect to any Purchased Receivable shall be collected from
such Obligor only by the Servicer which furnished the services
for which such payments are made, except to the extent that an
Obligor may be required to submit any such payments directly to a
Person other than the Servicer pursuant to a court-ordered
<PAGE>
<PAGE>
assignment which is valid, binding and enforceable under
applicable federal and state Medicaid laws, rules and
regulations; and no Related Document shall be construed to permit
any other Person, in violation of applicable federal and state
Medicaid laws, rules and regulations to collect or receive, or to
be entitled to collect or receive, any such payments prior to the
Servicer's receipt thereof, and (b) this Agreement and the
Related Documents shall not effect, nor shall this be construed
to effect, any assignment of Medicaid payments in contravention
of applicable federal and state Medicaid laws, rules and
regulations. Each party hereto consents to entry, after an
Amortization Event has occurred and so long as it is continuing,
of court orders requiring Obligors to submit such payments
directly to the Collateral Agent for application in accordance
with Section 6.3.
ARTICLE X
MATTERS RELATING TO THE ISSUER
Section 10.1. Recourse. Except as otherwise expressly
provided herein, the Issuer is purchasing and will purchase the
Purchased Receivables without recourse to the Seller (or
Northwest or Pasatiempo) or the respective Servicer or the Master
Servicer and the Issuer shall bear all economic benefit and
economic risk of loss inherent in owning the Purchased
Receivables. The Issuer, as opposed to the Seller (or Northwest
or Pasatiempo) or the Servicers, shall bear all losses arising
out of any default of the Obligor with respect to any Purchased
Receivable while such Purchased Receivable is owned by the
Issuer.
Section 10.2. Inspection of Books and Records. The Issuer
shall have the right to review and inspect the Seller's and the
Servicers' books and records as such books and records apply to
the respective Purchased Receivables and to make copies and
extracts therefrom and cause such books and records, as they
relate to the respective Purchased Receivables, to be audited by
a firm of independent public accountants selected by the Issuer.
ARTICLE XI
INDEMNITY
Section 11.1. Indemnity.
(a) By the Seller. The Seller agrees to indemnify the
Issuer, the Liquidity Agent Bank, the Collateral Agent and the
Liquidity Banks (the "Indemnified Parties") and each of them
against any and all losses, liabilities, claims, damages, costs
and expenses (including without limitation reasonable fees and
expenses of counsel) imposed on, asserted against or suffered or
incurred by any of them and which in any way arise out of or
relate to:
(i) any taxes which may be asserted or imposed at any
time in respect of purchases and sales of any Purchased
Receivable (or in connection with payments by the related
Obligor thereunder);
<PAGE>
<PAGE>
(ii) the lack of enforceable ownership and/or first
perfected priority and general first Lien status against all
Persons (including without limitation any bankruptcy trustee
or similar Person) in favor of the Issuer in any Purchased
Receivable or any direct or indirect proceeds thereof;
(iii) any omission, misrepresentation or breach by the
Seller hereunder or under, or in connection with, any of its
respective Purchased Receivables or the transactions out of
which it arose;
(iv) any Purchased Receivable which is or becomes an
Ineligible Receivable;
(v) the inaccuracy in any material respect at each
time made or deemed made of the Receivable Information or of
any representation or warranty made by the Seller (or any of
its Authorized Officers) under or in connection with or any
Related Documents or in any information or report delivered
by the Seller pursuant hereto or thereto;
(vi) the failure by the Seller to comply with any
applicable Requirement of Law or Contractual Obligation with
respect to any of its respective Purchased Receivables;
(vii) any dispute, claim, offset or defense of the
Obligor to the payment of any of its respective Purchased
Receivables (including, without limitation, a defense based
on such Receivables not being a legal, valid and binding
obligation of such Obligor enforceable against it in
accordance with its terms);
(viii) any failure of the Seller to perform its duties or
obligations in accordance with the provisions of this
Agreement;
(ix) any non-compliance by the Seller with the "bulk
transfer" or analogous laws of any jurisdiction or
jurisdictions; or
(x) any Regulatory Change which (i) changes the method
or basis of taxation of any amounts payable to the Issuer
under this Agreement in respect of any Purchased Receivables
(ii) is applicable to banks generally notwithstanding the
financial condition of any particular bank and imposes or
modifies any reserve, special deposit, deposit insurance or
assessment, capital or similar requirements relating to any
extensions of credit or other assets of, or any deposits
with or other liabilities of, the Liquidity Agent Bank or
any Liquidity Bank or (iii) imposes any other condition
affecting any Related Document (or any of such extensions of
credit or liabilities).
(b) By Northwest. Northwest agrees to indemnify the
Indemnified Parties, and each of them, against any and all
losses, liabilities, claims, damages, costs and expenses
(including without limitation reasonable fees and expenses of
counsel) imposed on, asserted against or suffered or incurred by
any of them and which in any way arise out of or relate to:
<PAGE>
<PAGE>
(i) any omission, misrepresentation or breach by
Northwest hereunder or under, or in connection with, any
Northwest Receivable or the transactions out of which it
arose;
(ii) the inaccuracy in any material respect at each
time made or deemed made of the Receivable Information or of
any representation or warranty made by Northwest (or any of
its Authorized Officers) under or in connection with any
Related Document or in any information or report delivered
by Northwest pursuant thereto;
(iii) the failure by Northwest to comply with any
applicable Requirement of Law or Contractual Obligation with
respect to any Northwest Receivable;
(iv) any dispute, claim, offset or defense of the
Obligor to the payment of any Northwest Receivable
(including, without limitation, a defense based on such
Receivable not being a legal, valid and binding obligation
of such Obligor enforceable against it in accordance with
its terms);
(v) any failure of Northwest to perform its duties or
obligations in accordance with the provisions of this
Agreement; or
(vi) any non-compliance by Northwest in connection
herewith or with the Northwest Agreement with the "bulk
transfer" or analogous laws of any jurisdiction or
jurisdictions.
(c) By Pasatiempo. Pasatiempo agrees to indemnify the
Indemnified Parties, and each of them, against any and all
losses, liabilities, claims, damages, costs and expenses
(including without limitation reasonable fees and expenses of
counsel) imposed on, asserted against or suffered or incurred by
any of them and which in any way arise out of or relate to:
(i) any omission, misrepresentation or breach by
Pasatiempo hereunder or under, or in connection with, any
Pasatiempo Receivable or the transactions out of which it
arose;
(ii) the inaccuracy in any material respect at each
time made or deemed made of the Receivable Information or of
any representation or warranty made by Pasatiempo (or any of
its Authorized Officers) under or in connection with any
Related Document or in any information or report delivered
by Pasatiempo pursuant thereto;
(iii) the failure by Pasatiempo to comply with any
applicable Requirement of Law or Contractual Obligation with
respect to any Pasatiempo Receivable;
<PAGE>
<PAGE>
(iv) any dispute, claim, offset or defense of the
Obligor to the payment of any Pasatiempo Receivable
(including, without limitation, a defense based on such
Receivable not being a legal, valid and binding obligation
of such Obligor enforceable against it in accordance with
its terms);
(v) any failure of Pasatiempo to perform its duties or
obligations in accordance with the provisions of this
Agreement; or
(vi) any noncompliance by Pasatiempo in connection
herewith or with the Pasatiempo Agreement with the "bulk
transfer" or analogous laws of any jurisdiction or
jurisdictions.
(d) Third-Party Claims.
(i) Any Indemnified Party shall notify the Seller,
Northwest or Pasatiempo (each, an "Indemnifying Party"), as the
case may be, promptly after such Indemnified Party's receipt of
notice, or such Indemnified Party otherwise becoming aware, of
any third party claims with respect to which indemnification may
be sought under this Section 11.1. Such notice shall be in
writing and shall be delivered in accordance with the provisions
of Section 12.6 hereof. If any such action is brought against
any Indemnified Party and it notifies the Indemnifying Party of
the commencement thereof, the Indemnifying Party shall promptly
assume the defense thereof with counsel chosen by it and approved
by the Indemnified Party (who shall not, except with the consent
of the Indemnified Party, be counsel to the Indemnifying Party),
so long as the Indemnified Party is reasonably satisfied with the
Indemnifying Party's defense thereof and the Indemnified Party
does not reasonably determine that the Indemnifying Party's
participation in or assumption of the defense would be
inappropriate due to actual differing interests between the
Indemnified Party and the Indemnifying Party. Without limiting
the generality of the foregoing, any one or more of the
Indemnified Parties shall have the right to employ counsel in any
such action, and the Indemnifying Party shall indemnify and hold
harmless the Indemnified Party from and against any loss or
liability by reason of such third party claim, including without
limitation reasonable attorneys' fees and costs (including the
costs of in-house counsel), except to the extent that the
Indemnifying Party has assumed the defense thereof in accordance
with this Section 11.1 and provided that the Indemnifying Party's
liability for the fees and expenses of the Indemnified Party's
counsel shall not extend to more than one separate firm of
attorneys at any point in time for any Indemnified Party for any
one claim or any one group of substantially similar or related
separate claims arising out of the same allegations or
circumstances. At such time as the Indemnified Party notifies
the Indemnifying Party that (a) the Indemnified Party is not
reasonably satisfied with such defense or counsel or (b) the
Indemnified Party has reasonably determined that the Indemnifying
Party's assumption of the defense has become inappropriate due to
actual differing interests between the Indemnified Party and the
Indemnifying Party, the Indemnified Party shall deliver notice to
the Indemnifying Party in accordance with the provisions of
<PAGE>
<PAGE>
Section 12.6 hereof, the Indemnified Party shall subsequently be
entitled to assume the defense thereof with counsel chosen by it,
and the Indemnifying Party shall indemnify and hold harmless the
Indemnified Party in accordance with the terms hereof.
(ii) In accordance with the provisions of Section
12.6, the Indemnified Party shall notify the Indemnifying Party,
and the Indemnifying Party shall notify the Indemnified Party, of
any bona fide offer of settlement of a third party claim, and
neither the Indemnifying Party nor the Indemnified Party shall
accept any such offer without the other's prior written consent,
not to be unreasonably withheld, provided that the Indemnifying
Party may effect a settlement of any pending or threatened
proceeding covered by the indemnities contained in this paragraph
if such settlement includes an unconditional release of the
Indemnified Party from any and all liability on claims that are
the subject matter of such proceeding. If a bona fide settlement
offer is accepted by the Indemnifying Party and the Indemnified
Party, the Indemnifying Party shall be liable for any loss or
liability by reason of such settlement.
(e) Indemnity Not to Provide Recourse. The parties intend
that this Section 11.1 not be applied to provide direct or
indirect assurance to any Indemnified Party against loss by
reason of the bankruptcy or insolvency (or other credit
condition) of, or default by, the related Obligor on, or the
collectability of, any Purchased Receivable.
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.1. Transfer Termination Date. The Issuer shall
have no obligation to purchase Receivables on any date subsequent
to the Transfer Termination Date.
Section 12.2. Termination of Agreement; Sale of
Receivables. This Agreement shall terminate on the date on which
all Credits Outstanding and all amounts due hereunder and under
the Related Documents shall have been paid in full.
Notwithstanding any termination, all obligations under Sections
2.2 and 5.4 and under Articles VI, IX and XI shall survive.
Section 12.3. Amendment. This Agreement may be amended
only in a writing signed by the Servicers, the Seller, Northwest,
Pasatiempo, the Master Servicer, the Issuer, the Liquidity Agent
Bank and the Collateral Agent.
Section 12.4. Intention of the Parties. It is the
intention of the parties hereto that the transactions arising
under this Agreement be treated as a present and absolute sale of
the Purchased Receivables. The terms of this Agreement shall be
construed to further this intention of the parties. In the event
that such transactions are held by a court of competent
jurisdiction not to constitute a sale, the parties hereto intend
that such transactions constitute the grant of (and the parties
hereto hereby grant and agree that, in such event, the applicable
parties shall have, by the provisions of this Agreement, granted)
a security interest in all of the Seller's (and Northwest's and
<PAGE>
<PAGE>
Pasatiempo's) right, title and interest in and to the Purchased
Receivables and the Proceeds thereof and that this Agreement
constitute a security agreement under applicable law.
Section 12.5. Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF WASHINGTON, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS. THE PARTIES HERETO EACH IRREVOCABLY SUBMIT TO THE
NON-EXCLUSIVE JURISDICTION OF ANY WASHINGTON STATE OR FEDERAL
COURT SITTING IN THE CITY OF SEATTLE, WASHINGTON, OVER ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF, OR RELATING TO, THIS
AGREEMENT, EACH HEREBY IRREVOCABLY WAIVING ANY OBJECTION TO THE
VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING SO BROUGHT AS WELL
AS ANY CLAIM OF INCONVENIENT FORUM.
Section 12.6. Notices. All demands, notices and
communications under this Agreement not otherwise permitted to be
made by telecopy hereunder shall be in writing and shall be
deemed to have been duly given if personally delivered at or
mailed by registered mail, return receipt requested, In the case
of:
If to the Issuer:
Hillhaven Funding Corporation
1148 Broadway Plaza
Tacoma, WA 98401-2264
Attention: Vice President and Treasurer
Telephone: (206) 756-4807
Telecopy: (206) 756-4890
and a copy to:
The Hillhaven Corporation
1148 Broadway Plaza
Tacoma, WA 98401-2264
Attention: General Counsel
Telephone: (206) 756-4797
Telecopy: (206) 756-4845
If to the Seller:
First Healthcare Corporation
c/o The Hillhaven Corporation
1148 Broadway Plaza
Tacoma, WA 98401-2264
Attention: General Counsel
Telephone: (206) 756-4797
Telecopy: (206) 756-4845
<PAGE>
<PAGE>
If to Northwest:
Northwest Health Care, Inc.
c/o The Hillhaven Corporation
1148 Broadway Plaza
Tacoma, WA 98401-2264
Attention: General Counsel
Telephone: (206) 756-4797
Telecopy: (206) 756-4845
If to Pasatiempo:
Pasatiempo Development Corp.
c/o The Hillhaven Corporation
1148 Broadway Plaza
Tacoma, WA 98401-2264
Attention: General Counsel
Telephone: (206) 756-4797
Telecopy: (206) 756-4845
If to the Master Servicer:
The Hillhaven Corporation
1148 Broadway Plaza
Tacoma, WA 98401-2264
Attention: General Counsel
Telephone: (206) 756-4797
Telecopy: (206) 756-4845
If to the Collateral Agent:
Seattle First National Bank
701 Fifth Avenue, CSC 12
Seattle, WA 98101-1688
Attention: Thomas Rook
Telephone: (206) 358-8004
Telecopy: (206) 358-3113
If to the Agent:
Notice Office:
Bank of America National Trust
and Savings Association
555 South Flower Street
11th Floor, #5618
Los Angeles, CA 90071
Attention: Brad DeSpain
Telephone: (213) 228-3262
Telecopy: (213) 228-2756
<PAGE>
<PAGE>
Payment Office:
Bank of America National Trust
and Savings Association
333 South Beaudry Avenue
Los Angeles, CA 90017
Attention: Betsy Quinio
Telex: BANKAMER SFO 34346
Telephone: (213) 345-6531
Telecopy: (213) 345-6550
Routing/ABA #: 1210-00358
Incoming Wire
Acct. #: 12331-83980
If to a Liquidity Bank:
at its address set forth in Schedule I
to the Liquidity Agreement
or, as to each party, at such other address as shall be
designated by such party in a written notice to each other party.
Section 12.7. Severability of Provisions. If any one or
more of the covenants, agreements, provisions or terms of this
Agreement shall for any reason whatsoever be held invalid, then
such covenants, agreements, provisions or terms shall be deemed
severable from the remaining covenants, agreements, provision or
terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement.
Section 12.8. Assignment. Notwithstanding anything to the
contrary contained herein, except as provided in Sections 8.2 and
9.2, this Agreement may not be assigned by any party without the
prior consent of the Issuer and of the Liquidity Agent Bank.
Section 12.9. Further Assurances. The Seller, Northwest,
Pasatiempo, the Master Servicer and each Servicer agree to do and
perform, from time to time, any and all acts and to execute any
and all further instruments required or reasonably requested by
the Issuer or the Liquidity Agent Bank to more fully effect the
purposes of this Agreement, including, without limitation, the
execution of any financing statements or continuation statements
relating to the Purchased Receivables for filing under the
provisions of the UCC of any applicable jurisdiction
Section 12.10. No Waiver; Cumulative Remedies. No failure
to exercise and no delay in exercising, on the part of the
Issuer, any right, remedy, power or privilege hereunder, shall
operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of
any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative
and not exhaustive of any rights, remedies, powers and privileges
provided by law.
<PAGE>
<PAGE>
Section 12.11. Counterparts. This Agreement may be
executed in two or more counterparts (and by different parties on
separate counterparts), each of which shall be an original, but
all of which together shall constitute one and the same
instrument.
Section 12.12. Binding Effect; Benefit of Agreement.
Subject to Section 12.8, the provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. This Agreement
shall also inure to the benefit of the Liquidity Agent Bank and
the Collateral Agent which are hereby expressly declared to be
third party beneficiaries hereof.
Section 12.13. Nonpetition Covenant. Notwithstanding any
prior termination of this Agreement, Hillhaven, Pasatiempo,
Northwest, the Servicers, the Master Servicer and the Seller
shall not, prior to the date which is one year and one day after
the termination of this Agreement, acquiesce, petition or
otherwise, directly or indirectly, invoke or cause the Issuer to
invoke the process of any court of Governmental Authority for the
purpose of commencing or sustaining a case against the Issuer
under any Federal or state bankruptcy, insolvency or similar law
or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Issuer
or any substantial part of its property, or ordering the winding
up or liquidation of the affairs of the Issuer.
Section 12.14. Headings. The headings herein are for
purpose of reference only and shall not otherwise affect the
meaning or interpretation of any provision hereof.
Section 12.15. General Provision as to Payments. Except as
otherwise expressly provided herein, all payments hereunder
(including without limitation all net settlements occurring in
any Settlement Date) shall be made prior to 12:00 noon (City of
Los Angeles Time) on the date specified therefor and in funds
immediately available in the City of Los Angeles.
Section 12.16. Additional Parties Hereto.
(a) In the event that (x) one or more wholly-owned
subsidiaries of Hillhaven, now owned or hereafter acquired, is
primarily engaged in the same business as is conducted on the
Execution Date by the Seller, Pasatiempo and Northwest or
(y) Hillhaven reorganizes its corporate structure such that
facilities generating Agency Receivables on the Execution Date
(or acquired as contemplated by clause (x)) are owned by one or
more additional wholly-owned subsidiaries of Hillhaven, the
wholly-owned subsidiaries referred to in clauses (x) and (y) may,
following 30-days advance written notice to and with the written
consent of the Liquidity Agent Bank (which consent shall not be
unreasonably withheld or delayed), become parties to this
Agreement upon delivery to the Issuer and the Liquidity Agent
Bank of:
<PAGE>
<PAGE>
(i) a duly executed instrument in writing reasonably
satisfactory to them, agreeing to become a party to this
Agreement with the same effect as if named herein in a
similar capacity (including, without limitation in their
capacities as Servicers) as Northwest and Pasatiempo;
(ii) a duly executed agreement with the Seller in
substantially the form of the Northwest Agreement and the
Pasatiempo Agreement; and
(iii) documents relating to such subsidiary of the kind
delivered by Northwest and Pasatiempo pursuant to clauses
(a) through (d), (i) and (j) of Schedule I hereto.
Upon the addition of any wholly-owned subsidiary of
Hillhaven as a party hereto as contemplated by Subsection (a)
above and without further act or documentation of any kind, the
provisions of this Agreement and the Related Documents shall be
deemed amended such that such subsidiary assumes obligations, and
is entitled to rights, and the other provisions of this Agreement
and the Related Documents (including, without limitation Article
IX hereof) apply to the same extent as the same apply to,
Northwest and Pasatiempo (including without limitation in their
capacities as Servicers) on the Execution Date.
(c) Without limiting the effect of Subsection (b) above,
the parties hereto agree, that following the joinder of any
additional parties hereto pursuant to this Section, upon the
request of any of the parties hereto, to cause this Agreement to
be amended (or, if so requested, amended and restated) to reflect
in full text the effect of Subsection (b) above.
Section 12.17. Arbitration. At the request of the
Liquidity Agent Bank, acting on behalf of the Required Liquidity
Banks, or the Issuer, Hillhaven, the Seller, or any Servicer, any
controversy or claim between the Liquidity Banks, the Issuer,
Hillhaven, the Seller, or any Servicer arising from or relating
to this Agreement or any Related Document executed in connection
with this Agreement or any Related Document or arising from any
alleged tort shall be settled by arbitration in King County,
Washington. The United States Arbitration Act will apply to the
arbitration proceedings which will be administered by the
American Arbitration Association under its commercial rules of
arbitration, except that unless the amount of the claim(s) being
arbitrated exceeds $5,000,000 there shall be only one arbitrator.
Any controversy over whether an issue is arbitrable shall be
determined by the arbitrator(s). Judgement upon the arbitration
award may be entered in any court having jurisdiction. The
institution and maintenance of any action for judicial relief or
pursuit of a provisional or ancillary remedy shall not constitute
a waiver of the right of either party, including plaintiff, to
submit the controversy or claim to arbitration if such action for
judicial relief is contested.
For purposes of the application of the statute of
limitations the filing of an arbitration as provided herein is
the equivalent of filing a lawsuit and the arbitrator(s) will
have the authority to decide whether any claim or controversy is
barred by the statute of limitations, and if so, to dismiss the
<PAGE>
<PAGE>
arbitration on that basis. The parties consent to the joinder in
the arbitration proceedings of any party having an interest
related to the claim or controversy being arbitrated.
No provision of this Section shall limit the right of
the Issuer, Hillhaven, the Seller, or any Servicer or the
Liquidity Banks to exercise self-help remedies such as setoff,
foreclosure or sale of any collateral, or obtaining any ancillary
provisional or interim remedies from a court of competent
jurisdiction before, after or during the pendency of any
arbitration proceeding. The exercise of any such remedy does not
waive the right of any party to request arbitration.
Section 12.18. Replacement of Original Master Sale and
Servicing Agreement. The Original Master Sale and Servicing
Agreement shall be deemed amended and restated and superseded by
this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers as of
the day and year first above written.
HILLHAVEN FUNDING CORPORATION
By: /s/ Robert K. Schneider
Title: Vice President & Treasurer
FIRST HEALTHCARE CORPORATION
By: /s/ Robert K. Schneider
Title: Vice President & Treasurer
NORTHWEST HEALTH CARE, INC.
By: /s/ Robert K. Schneider
Title: Vice President & Treasurer
PASATIEMPO DEVELOPMENT CORP.
By: /s/ Robert K. Schneider
Title: Vice President & Treasurer
THE HILLHAVEN CORPORATION
By: /s/ Robert K. Schneider
Title: Vice President & Treasurer
<PAGE>
<PAGE>
Exhibit 10.55
AMENDED AND RESTATED LIQUIDITY AGREEMENT
among
HILLHAVEN FUNDING CORPORATION,
as the Issuer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
and
SEATTLE-FIRST NATIONAL BANK
as the Banks
and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
as Agent
and
SEATTLE-FIRST NATIONAL BANK
as Collateral Agent
Dated as of April 29, 1994
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS 1
ARTICLE II THE LOANS 6
Section 2.01 The Loans 6
Section 2.02 Notices of Borrowing for Loans 7
Section 2.03 Disbursement of Funds 7
Section 2.04 The Loan Notes 8
Section 2.05 Interest 8
Section 2.06 Interest Periods 9
Section 2.07 Conversions and Continuations 10
Section 2.08 Termination or Reduction of Commitment 10
Section 2.09 Extensions of Expiration Date 11
Section 2.10 Increased Costs; Reduced Return 11
Section 2.11 Taxes 12
Section 2.12 Compensation 14
Section 2.13 Expenses and Indemnification 14
Section 2.14 Market Unavailability 16
Section 2.15 Borrowing in Accordance With Percentage
Interests 18
ARTICLE III OTHER CREDIT TERMS 18
Section 3.01 Fees 18
ARTICLE IV PAYMENTS 18
Section 4.01 Payments on Non-Business Days 18
Section 4.02 Prepayments 18
Section 4.03 Method and Place of Payment, Etc. 19
Section 4.04 Repayment of Loans 20
ARTICLE V CONDITIONS PRECEDENT 20
Section 5.01 Conditions to Effectiveness 20
Section 5.02 Representations and Warranties 24
Section 5.03 Conditions to Execution 24
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE ISSUER 24
Section 6.01 Organization and Good Standing 24
Section 6.02 Power; Authorization; Enforceable 24
Obligation 24
Section 6.03 No Legal Bar 25
Section 6.04 No Litigation 25
Section 6.05 Investment Company Act 25
Section 6.06 No Default 25
Section 6.07 Perfection of Security Interest 26
ARTICLE VII COVENANTS OF THE ISSUER 26
Section 7.01 Information 26
Section 7.02 Activities 27
Section 7.03 Additional Stock 27
Section 7.04 Maintenance of Existence 27
Section 7.05 Maintenance of Properties 27
Section 7.06 Compliance with Laws 27
Section 7.07 Notice of Proceedings 28
Section 7.08 Use of Proceeds 28
Section 7.09 Limitation on Debt 28
<PAGE>
<PAGE>
Section 7.10 Negative Pledge 28
Section 7.11 Consolidations, Mergers, Acquisitions,
and Sales of Assets 28
Section 7.12 Restricted Payments 29
Section 7.13 Corporate Existence 29
Section 7.14 Books and Records 32
Section 7.15 Reduction of Outstanding Debt 32
Section 7.16 Issuer Equity 32
Section 7.17 Borrowing Plan 32
Section 7.18 Post-Closing Legal Opinions 32
ARTICLE VIII EVENTS OF DEFAULT 33
Section 8.01 Events of Defaults 33
(a) Payments 33
(b) Representations 33
(c) Covenants 33
(d) Voluntary Bankruptcy Proceedings
of the Issuer 33
(e) Involuntary Bankruptcy Proceedings
Against the Issuer 34
(f) Judgments 34
(g) Obligations 34
(h) Related Documents 34
(i) Material Adverse Change 34
(j) Change in Laws 34
(k) Ownership 35
Section 8.02 Collection of Medicaid Payments by
Servicers 35
ARTICLE IX MISCELLANEOUS 36
Section 9.01 Computations 36
Section 9.02 Exercise of Rights; Remedies Cumulative 36
Section 9.03 Amendment and Waiver 36
Section 9.04 Successors and Assigns 36
Section 9.05 Adjustments 38
Section 9.06 Notices; Requests; Demands 39
Section 9.07 Survival of Representations and
Warranties 40
Section 9.08 Governing Law 41
Section 9.09 Counterparts 41
Section 9.10 Further Assurances 41
Section 9.11 Appointment of the Agents 41
(a) The Agent 41
(b) Appointment of the Collateral Agent 42
(c) Reliance 43
(d) Defaults 44
(e) Indemnification 44
(f) Rights as Banks 45
(g) No Representations 45
(h) Resignation of the Agent 46
Section 9.12 Descriptive Headings 47
Section 9.13 Notice 47
Section 9.14 Arbitration 47
Section 9.15 Replacement of Original Liquidity
Agreement 48
<PAGE>
<PAGE>
EXHIBITS
A Borrowing Plan
B Borrowing Base Certificate
C Form of Pledge and Security Agreement
D Form of Notice of Borrowing for Revolving Loans
E Form of Revolving Loan Note
F Opinion of Richard P. Adcock (First Healthcare)
G Opinion of Richard P. Adcock (Northwest)
H Opinion of Richard P. Adcock (Pasatiempo)
I Opinion of Richard P. Adcock (Hillhaven)
J Opinion of Richard P. Adcock (Issuer)
K Opinion of Brown and Wood
L Opinion of Reed Smith Shaw & McClay
M Novation Agreement
N Opinion of Richard P. Adcock (Postclosing/First Healthcare)
O Opinion of Richard P. Adcock (Postclosing/Northwest)
P Opinion of Richard P. Adcock (Postclosing/Pasatiempo)
Q Opinion of Richard P. Adcock (Postclosing/Issuer)
R Depositary Agreement
SCHEDULES
I - List of Banks
II - List of 1990 Financing Statements
<PAGE>
<PAGE>
AMENDED AND RESTATED LIQUIDITY AGREEMENT
THIS AMENDED AND RESTATED LIQUIDITY AGREEMENT is dated
as of April 29, 1994 (this "Agreement"), among HILLHAVEN FUNDING
CORPORATION, a Nevada corporation (the "Issuer"), BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION ("BofA") and SEATTLE-FIRST
NATIONAL BANK ("Seafirst") (collectively, the "Banks"), and BofA
as agent for the Banks (in such capacity, the "Agent"). This
Agreement amends and restates that certain Liquidity Agreement
dated as of July 1, 1990 (as amended, the "Original Liquidity
Agreement"), among the Issuer, the Banks listed on Schedule I
thereto (collectively, the "Original Banks"), and Banque
Indosuez, New York Branch, as Agent (the "Original Agent"). The
Original Liquidity Agreement was amended by the First Amendment
to Liquidity Agreement dated as of September 17, 1991, and the
Omnibus Second Amendment to Liquidity Agreement and Second
Amendment to Master Sale and Servicing Agreement, dated as of
November 23, 1992.
RECITALS
A. The parties to the Original Liquidity Agreement desire
that the Original Banks assign all of their right, title and
interest under the Original Liquidity Agreement and certain
related documents to Seafirst and BofA.
B. The Issuer, Seafirst and BofA desire to make certain
modifications to the terms and conditions of the Original
Liquidity Agreement, including without limitation elimination of
the commercial paper facility and addition of borrowing base
requirements with respect to the Revolving Loans.
C. The parties hereto wish to amend and restate the
Original Liquidity Agreement on the terms and conditions set
forth herein.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Unless otherwise specified, capitalized terms used
herein undefined shall have the respective meanings specified in
the Amended and Restated Master Sale and Servicing Agreement
dated as of the date hereof (as from time to time amended,
supplemented or modified, the "Sale and Servicing Agreement"),
among the Issuer, First Healthcare Corporation, a Delaware
corporation, Northwest Health Care, Inc., an Idaho corporation,
Pasatiempo Development Corp., a California corporation, and The
Hillhaven Corporation, a Nevada corporation.
The following terms shall have the following meanings:
"Adjusted LIBOR Rate" shall mean, with respect to any
Interest Period, a rate per annum (rounded upwards, to the
nearest 1/100 of 1%) equal to the quotient obtained by dividing
<PAGE>
<PAGE>
(i) the applicable LIBOR Rate by (ii) a percentage equal to 100%
minus the maximum stated rate of all reserve requirements
(including, without limitation, any marginal, emergency,
supplemental, special or other reserves) that would be applicable
to any member of the Federal Reserve System during such Interest
Period in respect of eurocurrency or eurodollar funding, lending
or liabilities.
"Affiliate" shall mean, with respect to a Person, any
other Person which directly or indirectly controls, is controlled
by or is under common control with such Person. The term
"control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"Agents" shall mean the Agent and the Collateral Agent.
"Authorized Agent Officers" shall mean officers of the
Agent authorized to give notices, requests, instructions, make
demand and take other action on behalf of the Agent.
"Available Commitment" shall mean, at any time, an
amount equal to (i) the Commitment minus (ii) an amount equal to
the aggregate principal amount of all Loans then outstanding.
"Borrowing" shall mean the incurrence of Loans from the
Banks on a given date pursuant to Section 2.01 or 2.02.
"Borrowing Base" means, at any time, an amount equal to
eighty percent (80%) of the Eligible Receivables.
"Borrowing Plan" means the Seattle-First National Bank
Customer Borrowing Plan Assigned Accounts Receivable
substantially in the form of Exhibit A hereto.
"Borrowing Base Certificate" means the Borrowing Base
Certificate substantially in the form of Exhibit B hereto.
"Closing Date" shall have the meaning specified in
Section 5.01.
"Collateral" shall mean the Collateral as defined under
the Pledge Agreement.
"Collateral Agent" shall mean Seafirst or any successor
Collateral Agent under the Pledge Agreement.
"Commitment" shall mean the obligation of the Banks to
make Loans in a maximum aggregate principal amount equal to
$40,000,000 at any time outstanding, as such amount may from time
to time be adjusted pursuant to this Agreement.
"Debt" of any Person means at any date, without
duplication, (i) all obligations of such Person for borrowed
money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all
obligations of such Person to pay the deferred purchase price of
<PAGE>
<PAGE>
property or services, except trade accounts payable arising in
the ordinary course of business, (iv) all obligations of such
Person as lessee under capital leases, (v) all Debt of others
secured by a Lien on any asset of such Person, whether or not
such Debt is assumed by such Person, and (vi) all Debt of others
guaranteed by such Person.
"Default" shall mean any event or condition which, with
the giving of notice or lapse of time or both, would become an
Event of Default.
"Eligible Receivables" means (a) the face amount of
Purchased Receivables which are (i) not outstanding for more than
90 days after the date of any invoice or bill therefor; (ii) not
evidenced by chattel paper; (iii) not Defaulted Receivables or
Ineligible Receivables; (iv) not affected by a breach of any
representation, warranty or covenant under Section 3.1, 3.2, 3.4,
3.5, 4.1, 4.3 or 4.4 of the Sale and Servicing Agreement, which
breach would have a material adverse effect on the interests of
the Issuer or the Liquidity Banks in such Purchased Receivable;
and (v) in compliance with the requirements for Accounts Eligible
for Borrowing specified in the Borrowing Plan; less (b) all
amounts which Obligors are or claim to be entitled to set off
against, or used in reduction of, amounts otherwise due to the
Issuer.
"Eurodollar Business Day" shall mean any Business Day
on which commercial banks in London are open for domestic and
international business (including dealings in dollar deposits).
"Eurodollar Loan" shall mean any Loan bearing interest
at a rate determined by reference to the Adjusted LIBOR Rate in
accordance with Article II.
"Event of Default" shall have the meaning set forth in
Section 8.01 hereof.
"Expiration Date" shall mean March 31, 1997, unless
such date is extended in which case it shall be the last day of
any extension of such date pursuant to Section 2.09 hereof;
provided, that, if the Commitment is earlier terminated pursuant
to the provisions of this Agreement, the Expiration Date shall be
the effective date of such termination.
"Fed Funds Rate" shall mean, for any day, the Agent's
effective borrowing rate to obtain overnight Federal funds for
such day (or, if such day is not a Business Day, for the next
preceding Business Day).
"Hillhaven" shall mean The Hillhaven Corporation, a
Nevada corporation, and its successors.
"Indemnified Party" shall have the meaning specified in
Section 2.13(c).
"Independent Directors" shall mean the members of the
board of directors who are not, and have not at any time been:
(x) a director, officer, employee or shareholder of Hillhaven or
<PAGE>
<PAGE>
any Affiliate thereof, or (y) a director, officer, employee or
shareholder of any other Person or entity that, directly or
indirectly, controls or is under common control with Hillhaven.
"Ineligible Securities" shall mean securities which may
not be underwritten or dealt in by member banks of the Federal
Reserve System under Section 16 of the Banking Act of 1933 (12
U.S.C. Section 24, Seventh), as amended.
"Interest Period" shall have the meaning specified in
Section 2.06.
"LIBOR Rate" shall mean, with respect to any Interest
Period, the offered quotation to first-class banks in the London
interbank eurodollar market by the Agent for Dollar deposits with
maturities comparable to the Interest Period to be applicable to
such Eurodollar Loan, determined as of the date which is two
Eurodollar Business Days prior to the commencement of such
Interest Period.
"Liquidity Facility Commitment Fee" shall have the
meaning specified in Section 3.01.
"Loan Notes" shall mean the Revolving Loan Notes.
"Loans" shall mean the Revolving Loans.
"Notice of Borrowing" shall mean a notice to the Agent
pursuant to Section 2.02.
"Notice of Conversion" shall have the meaning specified
in Section 2.07.
"Notice of Termination" shall have the meaning
specified in Section 8.01.
"Notice Office" shall mean the office of the Agent at
555 South Flower Street, Los Angeles, California 90071, or such
other office as the Agent may designate in writing to the Issuer.
"Novation Agreement" shall have the meaning set forth
in Section 5.01 hereof.
"Payment Office" shall mean the office of the Agent at
333 South Beaudry Avenue, Dept. #5583, Los Angeles, California
90017, or such other office as the Agent may designate in writing
to the Issuer.
"Percentage" shall mean, with respect to each Bank, the
respective percentage set forth opposite its name on Schedule I
hereto.
"Pledge Agreement" means the Amended and Restated
Pledge and Security Agreement substantially in the form of
Exhibit C hereto, as from time to time amended, supplemented or
modified.
<PAGE>
<PAGE>
"Reference Loan" shall mean any Loan bearing interest
at a rate determined by reference to the Reference Rate in
accordance with Article II hereof.
"Reference Rate" shall mean the rate of interest
publicly announced by the Agent in Los Angeles, California, from
time to time in its sole discretion, as its Reference Rate, and
may not be the lowest rate charged to its customers. Loans may
be priced at, above or below the Reference Rate, which is merely
a reference rate with respect to which effective rates of
interest are calculated. In the event the Agent shall abolish or
abandon the practice of establishing its Reference Rate, the
Banks shall designate a comparable reference rate.
"Required Banks" shall mean, at any time, the Banks
holding Loans representing at least 66-2/3% of the Commitment.
"Restricted Payment" shall have the meaning specified
in Section 7.12.
"Revolving Loan" shall mean a loan made by the Banks to
the Issuer on a revolving basis (pursuant to a Notice of
Borrowing delivered by the Issuer under Section 2.02(a)) in
accordance with, and under the circumstances described in,
Article II hereof.
"Revolving Loan Note" shall have the meaning specified
in Section 2.04(a); "Revolving Loan Notes" shall have a
correlative meaning.
"Subordinated Debt" shall mean indebtedness owing from
the Issuer to Hillhaven under the Hillhaven Note, and
indebtedness owing from the Issuer to First Healthcare under the
Purchase Money Note.
"Type" shall mean any type of Revolving Loan, whether a
Reference Loan or a Eurodollar Loan.
ARTICLE II
THE LOANS
Section 2.01 The Loans.
(a) Subject to and upon the terms and conditions
herein set forth, each Bank agrees, severally and not jointly, to
make Revolving Loans to the Issuer at any time on or after the
Closing Date and prior to the Expiration Date. Each Revolving
Loan shall, at the option of the Issuer be either a Reference
Loan or a Eurodollar Loan. All Revolving Loans made pursuant to
a Borrowing shall be of one Type and no more than five Borrowings
comprised of Eurodollar Loans shall be outstanding at any time.
The Issuer may borrow, pay or prepay and reborrow Loans on or
after the Closing Date in accordance with the provisions hereof.
(b) The Banks shall not be obligated on any day to
make any Loans to the Issuer if (after giving effect to the use
of proceeds of such Loans, and all payments to be made in
<PAGE>
<PAGE>
accordance with the Sale and Servicing Agreement on the date of
such Loans) (i) the Available Commitment would not be greater
than or equal to zero, or (ii) the aggregate principal amount of
all Loans then outstanding would exceed the lesser of the
Borrowing Base or the Commitment. No Bank shall be obligated on
any day to make any Loan to the Issuer to the extent that the
aggregate principal amount of such Bank's Loans outstanding at
any time would exceed (after giving effect to such Loan and the
use of proceeds thereof, and all other payments to be made in
accordance with the Sale and Servicing Agreement on the date of
such Loan) an amount equal to such Bank's Percentage multiplied
by the aggregate amount of the Commitment.
(c) The obligation of each Bank to make any Revolving
Loan hereunder is subject at the time of the making thereof to
the conditions that: (i) the conditions specified in
Subsection (b) above being complied with; (ii) the Issuer shall
not have voluntarily commenced any proceeding or filed any
petition under any bankruptcy, insolvency or similar law seeking
the dissolution, liquidation or reorganization of the Issuer and
shall not have taken any action for the purpose of effectuating
any of the foregoing; (iii) no involuntary proceedings or an
involuntary petition shall have been commenced or filed against
the Issuer by any Person under any bankruptcy, insolvency or
similar law seeking the dissolution, liquidation or
reorganization of the Issuer, and, if commenced or filed, such
proceeding or petition shall not have been dismissed within 60
days after commencement or filing, as the case may be;
(iv) immediately prior to and after giving effect to such
Revolving Loan, there shall exist no Default or Event of Default;
and (v) the representations and warranties of the Issuer herein
shall be true and correct in all material respects as if made on
such date.
Section 2.02 Notices of Borrowing for Loans. Whenever
the Issuer desires to borrow a Revolving Loan, the Issuer shall
give the Agent, at the Notice Office, written notice or
telephonic notice (confirmed promptly in writing in substantially
the form of Exhibit D hereto (the "Notice of Borrowing")) of the
Borrowing no later than (i) 9:00 a.m. (City of Los Angeles time)
on the proposed borrowing date in the case of Reference Loans and
(ii) 9:00 a.m. (City of Los Angeles time) on the third Eurodollar
Business Day prior to the proposed borrowing date in the case of
Eurodollar Loans. The Agent shall promptly (and in any event not
later than 10:00 a.m. (City of Los Angeles time) on the date any
Notice of Borrowing is given) give each Bank written notice or
telephonic notice (confirmed promptly in writing) of each Notice
of Borrowing. Each Notice of Borrowing with respect to a
Revolving Loan shall specify: (1) the principal amount the
Issuer desires to borrow hereunder and that such Borrowing is to
be a Revolving Loan, (2) the date of Borrowing (which shall be a
Business Day and, in the case of a Eurodollar Loan, a Eurodollar
Business Day), (3) whether the requested Revolving Loan is to be
initially maintained as a Reference Loan or a Eurodollar Loan and
(4) if such Loan is to be maintained as a Eurodollar Loan, the
initial Interest Period to be applicable thereto. Each Borrowing
of Revolving Loans that are Eurodollar Loans shall be in an
amount of at least $3,000,000 or, if greater, in an integral
multiple of $1,000,000.
<PAGE>
<PAGE>
Section 2.03 Disbursement of Funds. On the date
specified in each Notice of Borrowing, each Bank will make
available to the Agent for the account of the Issuer at the
Payment Office, by 11:00 a.m. (City of Los Angeles time), its
Percentage of the requested Loan in freely transferable Dollars
and in immediately available funds of such Bank. The proceeds of
such Loans will then be made available by the Agent in freely
transferable Dollars and in immediately available funds to the
Issuer by 12:00 noon (City of Los Angeles time).
Section 2.04 The Loan Notes.
(a) The Issuer's obligation to pay the principal of
and interest on all the Revolving Loans made by each Bank shall
be evidenced by a separate note in favor of such Bank (each, as
from time to time amended, supplemented or modified, a "Revolving
Loan Note") which shall (1) be dated the Closing Date (or in case
any such Notes are issued subsequent to the Closing Date, such
Notes shall be dated the date of such issuance); (2) be in the
stated principal amount equal to such Bank's respective
Percentage of the Commitment; (3) mature on the Expiration Date;
(4) bear interest as provided in Section 2.05; (5) be payable to
the order of such Bank; (6) be entitled to the benefits of this
Agreement; and (7) be substantially in the form of Exhibit E to
this Agreement with the blanks therein appropriately completed in
conformity herewith. Each Bank shall note on its internal
records each Revolving Loan made by it and payment thereon and
conversion thereof and, prior to any transfer of its Revolving
Loan Note, such Bank shall endorse the outstanding principal
amount of its Revolving Loan Note on the reverse side thereof;
provided, however, that failure to make such notation or
endorsement shall not adversely affect such Bank's rights with
respect to any Revolving Loan.
(b) Although the Revolving Loan Notes shall be dated
the Closing Date (or in case any such Notes are issued subsequent
to the Closing Date, such Notes shall be dated the date of such
issuance) interest in respect thereof shall be payable only for
the periods during which Revolving Loans are outstanding
thereunder. In addition, although the stated principal amount of
each Bank's Revolving Loan Note shall be equal to such Bank's
respective Percentage of the Commitment, such Bank's Revolving
Loan Note shall be enforceable with respect to the Issuer's
obligation to pay the principal thereof only to the extent of the
unpaid principal amount of such Bank's Revolving Loans
outstanding at the time such enforcement shall be sought.
Section 2.05 Interest.
(a) The Issuer agrees to pay interest in respect of
the unpaid principal amount of each Reference Loan for each day
during the period from the date the proceeds thereof are made
available to the Issuer until maturity at a rate per annum equal
to the Reference Rate for such day.
<PAGE>
<PAGE>
(b) The Issuer agrees to pay interest in respect of
the unpaid principal amount of each Eurodollar Loan for each day
during the period from the date the proceeds thereof are made
available to the Issuer until maturity at a rate per annum equal
to the Adjusted LIBOR Rate for the applicable Interest Period(s)
in effect for such Eurodollar Loan plus 0.75%.
(c) The Issuer agrees to pay interest in respect of
the unpaid principal amount of and interest on (to the extent
permitted by applicable law) each Loan from the due date thereof
until paid in full at a rate per annum equal to the Reference
Rate plus 2%.
(d) Accrued interest on Reference Loans shall be
payable in arrears on the last day of each calendar quarter.
Accrued interest in respect of the Eurodollar Loans shall be
payable in arrears on the last day of each Interest Period
therefor (and, in the case of Eurodollar Loans with an Interest
Period greater than three months, at intervals of three months
after the first day thereof). Accrued interest on any Loan shall
also be payable in arrears on the date of any prepayment or
conversion thereof (on the amount prepaid or converted), and at
maturity and, after such maturity, on demand.
(e) The Agent, upon determining the Adjusted LIBOR
Rate or the Reference Rate for any day, shall promptly notify the
Issuer and the Banks thereof by giving written notice or
telephonic notice (promptly confirmed in writing).
(f) The Agent's determination of the interest rate(s)
from time to time applicable to the Loans shall be conclusive in
the absence of manifest error.
Section 2.06 Interest Periods. At the time the Issuer
gives any Notice of Borrowing or Notice of Conversion with
respect to Revolving Loans which are to be made, converted or
continued as Eurodollar Loans, the Issuer shall have the right to
elect, by giving the Agent written notice or telephonic notice
(promptly confirmed in writing), the Interest Period applicable
to such Eurodollar Loans. The term "Interest Period" shall mean,
as to any Eurodollar Loan, the period commencing on the date of
such Loan and ending on the numerically corresponding day (or, if
there is no numerically corresponding day, on the last day) of
the month that is 1, 2, 3 or 6 months thereafter, as the Issuer
may elect; provided, that: (i) if any Interest Period would
expire on a day which is not a Eurodollar Business Day, such
Interest Period shall be extended to the next succeeding
Eurodollar Business Day unless such next succeeding Eurodollar
Business Day would fall in the next calendar month, in which
case, such Interest Period shall expire on the next preceding
Eurodollar Business Day; and (ii) no Interest Period shall extend
beyond the Expiration Date. If upon the expiration of any
Interest Period for any Eurodollar Loan, the Issuer has failed to
provide a Notice of Conversion or a notice specifying a new
Interest Period to be applicable thereto as provided above, the
Issuer shall be deemed to have elected to convert such Eurodollar
Loan into a Reference Loan effective as of the expiration date of
such current Interest Period.
<PAGE>
<PAGE>
Section 2.07 Conversions and Continuations. Provided
that no Event of Default has occurred and is continuing, the
Issuer shall have the option, subject to the following provisions
of this Section 2.07, (x) to convert on any Business Day (or
Eurodollar Business Day in the case of a Conversion to, or
continuation of, Eurodollar Loans) all or any part of the
outstanding principal amount of Revolving Loans made pursuant to
a single Borrowing from one Type of Revolving Loan into another
Type and (y) to continue Eurodollar Loans for an additional
designated Interest Period; provided, that, the outstanding
principal amount of any Revolving Loan made pursuant to a single
Borrowing being converted to a Eurodollar Loan pursuant to this
Section 2.07 shall be at least $3,000,000. Each such conversion
or continuation shall be made among the Banks in accordance with
the Banks' respective Percentages of the Commitment and shall be
effected by the Issuer giving written notice or telephonic notice
(promptly confirmed in writing) not later than 9:00 a.m. (City of
Los Angeles time) on the third Eurodollar Business Day prior to
conversion or continuation (each a "Notice of Conversion") of
each proposed conversion or continuation to the Agent at its
Notice Office. The Agent shall promptly notify each Bank by
telephone (confirmed promptly in writing) of each Notice of
Conversion. Each Notice of Conversion shall be irrevocable and
shall specify the Revolving Loans to be converted or continued,
the Type of Loans to be converted into or continued and, if any
Revolving Loans are to be converted into or continued as
Eurodollar Loans, the Interest Period(s) to be applicable
thereto.
Section 2.08 Termination or Reduction of Commitment.
The Issuer shall have the right, at any time and from time to
time, to (i) terminate the Commitment in whole or
(ii) permanently reduce in a minimum amount of $5,000,000 (or
integral multiples of $1,000,000 in excess thereof) the
Commitment, by giving at least five (5) Business Days' prior
written notice to the Agent specifying the scheduled date of such
termination or reduction and the amount of any permitted partial
reduction, together with such fees and costs as may be necessary
to compensate the Banks for any reasonably calculated loss,
including any break-funding costs. The termination or reduction
of the Commitment shall be effective on the scheduled date
specified in the Issuer's notice. Notwithstanding the foregoing,
the requested termination or reduction shall not be effective to
the extent that, following such termination or reduction, the
Available Commitment would not be greater than or equal to zero.
Section 2.09 Extensions of Expiration Date.
(a) Subject to subsection 2.09(b), the Commitment shall
terminate on the Expiration Date.
(b) No later than 120 days prior to March 31 of each
year, and each subsequent anniversary thereof, the Issuer may
notify the Agent of the Issuer's desire to extend the Expiration
Date one additional year, whereupon the Agent shall promptly
notify the Banks in writing or by telephone (promptly confirmed
in writing) of such notice from the Issuer. Each Bank shall
notify the Agent in writing of its decision with respect to the
<PAGE>
<PAGE>
Issuer's request not later than 20 days after its receipt of
notice from the Agent. If all Banks consent to the extension,
the Agent shall so notify the Issuer in writing or by telephone
(promptly confirmed in writing) no later than the next succeeding
May 31 following receipt of the Issuer's request for such
extension, whereupon the Expiration Date shall be extended for
one additional year. Unless the Agent shall have so notified the
Issuer by such date, the Issuer's request for such extension
shall be deemed rejected.
Section 2.10 Increased Costs; Reduced Return.
(a) If, after the date hereof, the introduction of, or
any change in, any law, rule or regulation, or in the
interpretation or administration thereof (in any case, applicable
to banks generally notwithstanding the financial condition of any
particular bank) by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by any
Bank with any request or directive applicable to banks generally
notwithstanding the financial condition of any particular bank
(whether or not having the force of law) of any such Governmental
Authority, shall either (i) impose, modify or deem applicable any
reserve, special deposit or similar requirement against the
Commitment or assets held by, or deposits in or for the account
of, any Bank or (ii) impose on any Bank any other condition
regarding this Agreement, the Commitment or its Loan Notes, and
the result of any event referred to in clause (i) or (ii) of this
subsection shall be to increase the cost to such Bank of
maintaining the Commitment or issuing or maintaining its Loans
(which increase in cost may be the result of such Bank's
reasonable allocation of the aggregate of such cost increases
resulting from such events), then, within ten days of demand of
such Bank, the Issuer shall pay to such Bank all additional
amounts which are necessary to compensate such Bank for such
increased cost incurred by such Bank. All payments of increased
cost pursuant to this subsection shall bear interest thereon if
not paid within ten days of such notice until payment in full
thereof at the rate provided in Section 2.05(c). A certificate
as to such increased cost incurred by the Bank as a result of any
event mentioned above and setting forth the additional amount or
amounts to be paid to it hereunder and setting forth in
reasonable detail the basis therefor and the method of
calculation thereof shall be prepared in good faith and submitted
by such Bank to the Issuer and shall be conclusive (absent
manifest error) as to the amount thereof. In determining such
amount, such Bank may use any reasonable averaging and
attribution methods.
(b) If, after the date hereof, the introduction of, or
any change in, any law, rule or regulation, or in the
interpretation or administration thereof (in any case, applicable
to banks generally notwithstanding the financial condition of any
particular bank) by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by any
Bank with any request or directive (applicable to banks generally
notwithstanding the financial condition of any particular bank)
regarding capital adequacy of any such Governmental Authority,
whether or not having the force of law (including, without
<PAGE>
<PAGE>
limitation, any changes mandated by compliance with the
"International Convergence of Capital Measurements and Capital
Standards", dated July, 1988 (also known as the "Basel Accord")),
has or would have the effect of reducing the rate of return on
any Bank's capital as a consequence of its obligations hereunder
to a level below that which such Bank could have achieved but for
such introduction, change or compliance (taking into
consideration such Bank's compliance requirements with respect to
capital adequacy) by an amount deemed by such Bank to be
material, then upon notice from such Bank, the Issuer shall pay,
to such Bank, additional amounts which shall be sufficient to
compensate such Bank for such reduced return. A certificate as
to such reduced return incurred by such Bank as a result of any
event described above and setting forth the additional amount or
amounts to be paid to it hereunder and setting forth in
reasonable detail the basis therefor and the method of
calculation thereof shall be prepared in good faith and submitted
by such Bank to the Issuer and shall be conclusive (absent
manifest error) as to the amount thereof. In determining such
amount, such Bank may use any reasonable averaging and
attribution methods.
Section 2.11 Taxes.
(a) All payments made under this Agreement and the
Loan Notes shall be made without set-off or counterclaim and free
and clear of, and without deduction for or on account of, any
present or future taxes, levies, imposts, duties, charges, fees,
deductions, withholdings or restrictions or conditions of any
nature whatsoever, now or hereafter imposed, levied, collected,
withheld or assessed by any Governmental Authority, excluding
income and franchise taxes (including, without limitation, branch
taxes) (but excluding from such exclusion, in the case of any
Bank not organized under the laws of the United States or any
state thereof, United States withholding tax payable with respect
to any such payments under laws, including, without limitation
any statute, treaty, ruling, determination or regulation in
effect on the date hereof) (all such non-excluded taxes being
called "Taxes"). If any Taxes are required to be withheld from
any amounts payable to any Bank hereunder, the amounts so payable
to such Bank shall be increased to the extent necessary to yield
to such Bank (after payment of all Taxes) interest or any such
other amounts payable hereunder at the rates or in the amounts
specified in this Agreement.
(b) The Issuer agrees to pay and to save each Bank
harmless from all liability for, any present or future stamp,
documentary and analogous taxes (including interest, penalties
and fees), which may be payable in connection with this
Agreement, the Borrowings hereunder, any Related Document or the
issuance of the Loan Notes or any modification of any of the
foregoing ("Other Taxes").
(c) The Issuer will indemnify each Bank for the full
amount of Taxes and Other Taxes (including without limitation any
Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 2.11) paid by each Bank and any
liability (including penalty, interest and expenses) arising
<PAGE>
<PAGE>
therefrom or with respect thereto. This indemnification shall be
made 30 days following written demand. The Issuer's obligations
under this Subsection (c) shall survive termination of this
Agreement and repayment of the Loans.
(d) Whenever any Taxes are required to be remitted to
a taxing authority by the Issuer on behalf of any Bank, as
promptly as possible thereafter the Issuer shall send to the
Agent, for the account of such Bank, a certified copy of the
original official receipt, if any, or other documentary evidence
received by the Issuer showing payment thereof. If the Issuer
fails to remit to the Agent for the account of any Bank the
required receipts or other required documentary evidence, the
Issuer shall indemnify the Agent and such Bank for any
incremental taxes, interest or penalties that may become payable
by the Agent or such Bank as a result of any such failure.
(e) Each Bank, other than a Bank organized under the
laws of the United States or any state thereof, agrees to provide
the Issuer with appropriate executed copies of Internal Revenue
Service Form 4224 (or, alternatively, Internal Revenue Service
Form 1001, but only if the applicable treaty described in such
Form provides for a complete exemption from Federal income tax
withholding), or any successor or other forms or additional
information in connection therewith reasonably requested by the
Issuer, (A) on the Closing Date and (B) upon the occurrence of
any event which would require the amendment or resubmission of
any such form previously provided hereunder. If any Bank makes
an assignment or sells a participation pursuant to Section 9.04
hereof, it shall furnish to the Issuer, with respect to the
assignee or the purchaser of the participation, the applicable
duly executed forms described in this Section 2.11(e).
Section 2.12 Compensation. The Issuer shall
compensate each Bank upon its written request (which request
shall set forth, in reasonable detail, the basis for requesting
such amounts), for all losses, expenses and liabilities
(including, without limitation, any interest paid by such Bank to
lenders of funds borrowed by it to make or carry its Eurodollar
Loans, any fees paid by such Bank to terminate the deposits from
which such funds were obtained and any reasonably calculated loss
sustained by such Bank, including any break-funding costs, which
such Bank may sustain: (i) if for any reason (other than a
default by such Bank) a borrowing of (or conversion to) any
Eurodollar Loan does not occur on a date specified therefor in a
Notice of Borrowing or a Notice of Conversion (whether or not
withdrawn), (ii) if any repayment, prepayment or conversion of
any Eurodollar Loan occurs (pursuant to Article VIII or
otherwise, except pursuant to Section 2.14 (as to which
conversion no payment of compensation hereunder shall be
applicable)) on a date which is not the last day of an Interest
Period applicable thereto, (iii) if any prepayment of any
Eurodollar Loan is not made on any date specified in a notice of
prepayment given by the Issuer or (iv) as a consequence of any
other failure by the Issuer to repay its Eurodollar Loans as and
when required by the terms of this Agreement. These agreements
and covenants made in this Section 2.12 shall survive the
termination of this Agreement and payment of the Loan Notes.
<PAGE>
<PAGE>
Section 2.13 Expenses and Indemnification.
(a) The Issuer shall pay (i) subject to any agreement
between the Issuer and the Agent with respect to the extent
thereof, all reasonable out-of-pocket costs and expenses of the
Agent, including reasonable fees and out-of-pocket expenses of
its outside and in-house counsel, incurred in connection with the
preparation, execution, delivery, amendment, modification and
waiver of this Agreement, (ii) all out-of-pocket costs and
expenses of the Agent, including the reasonable fees and out-of-
pocket expenses of its outside and in-house counsel, incurred in
connection with the enforcement of this Agreement and the other
Related Documents, and (iii) all Receivables audit and monitoring
costs of the Banks, which shall not exceed $10,000 annually.
(b) The Issuer will (i) indemnify and hold harmless
the Agent and each Bank and each director, officer, employee and
affiliate thereof (each, an "Indemnified Party") from and against
all losses, claims, damages, expenses or liabilities to which
such Indemnified Party may become subject, insofar as such
losses, claims, damages, expenses or liabilities (or action,
suits or proceedings including any inquiry or investigation or
claims in respect thereof) arise out of, in any way relate to, or
result from the transactions contemplated by this Agreement or
the Related Documents, including without limitation any failure
of the Issuer to comply with any Medicaid laws or regulations,
and (ii) reimburse each such Indemnified Party upon their demand,
for any reasonable legal or other expenses incurred in connection
with investigating, preparing to defend or defending any such
loss, claim, damage, liability, action or claim; provided,
however, that no Indemnified Party shall have the right to be so
indemnified hereunder for its own (or, in the case of the Agent
or any Bank, its director's, officer's, employee's or
affiliate's) gross negligence, wilful misconduct or bad faith.
(c) Third Party Claims.
(i) Any Indemnified Party shall notify the Issuer
(the "Indemnifying Party"), promptly after such Indemnified
Party's receipt of notice, or such Indemnified Party otherwise
becoming aware, of any third party claims with respect to which
indemnification may be sought under this Section 2.13. Such
notice shall be in writing and shall be delivered in accordance
with the provisions of Section 9.06 hereof. If any such action
is brought against any Indemnified Party and it notifies the
Indemnifying Party of the commencement thereof, the Indemnifying
Party shall promptly assume the defense thereof with counsel
chosen by it and approved by the Indemnified Party (who shall
not, except with the consent of the Indemnified Party, be counsel
to the Indemnifying Party), so long as the Indemnified Party is
reasonably satisfied with the Indemnifying Party's defense
thereof and the Indemnified Party does not reasonably determine
that the Indemnifying Party's participation in or assumption of
the defense would be inappropriate due to actual differing
interests between the Indemnified Party and the Indemnifying
Party. Without limiting the generality of the foregoing, any one
or more of the Indemnified Parties shall have the right to employ
counsel in any such action, and the Indemnifying Party shall
<PAGE>
<PAGE>
indemnify and hold harmless the Indemnified Party from and
against any loss or liability by reason of such third party
claim, including without limitation reasonable attorneys' fees
and costs (including the costs of in-house counsel), except to
the extent that the Indemnifying Party has assumed the defense
thereof in accordance with this Section 2.13 and provided that
the Indemnifying Party's liability for the fees and expenses of
the Indemnified Party's counsel shall not extend to more than one
separate firm of attorneys at any point in time for any
Indemnified Party for any one claim or any one group of
substantially similar or related separate claims arising out of
the same allegations or circumstances. At such time as the
Indemnified Party notifies the Indemnifying Party that (a) the
Indemnified Party is not reasonably satisfied with such defense
or counsel or (b) the Indemnified Party has reasonably determined
that the Indemnifying Party's assumption of the defense has
become inappropriate due to actual differing interests between
the Indemnified Party and the Indemnifying Party, the Indemnified
Party shall deliver notice to the Indemnifying Party in
accordance with the provisions of Section 9.06 hereof, the
Indemnified Party shall subsequently be entitled to assume the
defense thereof with counsel chosen by it, and the Indemnifying
Party shall indemnify and hold harmless the Indemnified Party in
accordance with the terms hereof.
(ii) In accordance with the provisions of
Section 9.06, the Indemnified Party shall notify the Indemnifying
Party, and the Indemnifying Party shall notify the Indemnified
Party, of any bona fide offer of settlement of a third-party
claim, and neither the Indemnifying Party nor the Indemnified
Party shall accept any such offer without the other's prior
written consent, not to be unreasonably withheld, provided that
the Indemnifying Party may effect a settlement of any pending or
threatened proceeding covered by the indemnities contained in
this paragraph if such settlement includes an unconditional
release of the Indemnified Party from any and all liability on
claims that are the subject matter of such proceeding. If a bona
fide settlement offer is accepted by the Indemnifying Party and
the Indemnified Party, the Indemnifying Party shall be liable for
any loss or liability by reason of such settlement.
(d) All agreements and covenants made in this
Section 2.13 shall survive the termination of this Agreement and
the payment of the Loan Notes.
Section 2.14 Market Unavailability. In the event
that:
(i) the Agent shall have determined on any date
for determining the Adjusted LIBOR Rate for any Interest
Period, that by reason of any changes arising after the date
of this Agreement affecting the interbank Eurodollar market,
adequate and fair means do not exist for ascertaining the
applicable interest rate on the basis provided for in the
definition of LIBOR Rate; or
(ii) any Bank shall have determined at any time,
that by reason of the introduction of (except as provided in
<PAGE>
<PAGE>
Section 2.10(a) or (b)), or any change, since the date of
this Agreement, in any law, governmental rule, regulation,
guideline or order or any interpretation or administration
thereof (in any case, applicable to banks generally
notwithstanding the financial condition of any particular
bank) by any Governmental Authority charged with the
interpretation thereof, the Adjusted LIBOR Rate shall not
represent the effective pricing to such Bank for funding or
maintaining its affected Eurodollar Loans or its Commitment;
or
(iii) any Bank shall have determined at any time,
that the making or continuance of any Eurodollar Loan has
become unlawful by compliance by such Bank in good faith
with any law, governmental rule, regulation, guideline or
order or any interpretation or administration thereof by any
Governmental Authority or official charged with the
interpretation or administration thereof, or has become
impracticable as a result of a contingency occurring after
the date of this Agreement which materially and adversely
affects the interbank Eurodollar market;
then, and in any such event, the Agent (in the case of clause (i)
above) or such Bank shall on such date give notice (by telephone
confirmed in writing) to the Issuer and the Agent of such
determination. Thereafter: (x) in the case of clause (ii)
above, the Issuer shall either (A) pay such Bank, upon written
demand therefor, such additional amounts (in the form of an
increased rate of, or a different method of calculating, interest
or otherwise as such Bank in its discretion, reasonably exercised
and in good faith, shall determine) as shall be required to cause
such Bank to receive interest with respect to its affected
Eurodollar Loan at a rate per annum equal to the effective
pricing to such Bank to make or maintain such Eurodollar Loan
plus the applicable rate per annum for such Eurodollar Loan set
forth in Section 2.05(b) (in each case accompanied by a
certificate as to additional amounts owed such Bank, showing the
basis for the calculation thereof, submitted to the Issuer by
such Bank which shall, absent manifest error, be final and
conclusive and binding on all parties) or (B) upon at least one
Business Day's written notice to the Agent, require the affected
Bank to convert its affected Eurodollar Loan to a Reference Loan
and pay the foregoing amounts only up to the date of such
conversion; and (y) in the case of clauses (i) or (iii), the
Issuer shall either (A) if the affected Eurodollar Loan(s) is
proposed to be made pursuant to a Borrowing or a conversion,
cancel said Borrowing or conversion by giving the Agent
telephonic notice (promptly confirmed in writing) thereof on the
same date that the Issuer was notified by the Agent or such Bank
pursuant to this Section 2.14 or (B) if the affected Eurodollar
Loan(s) is then outstanding, upon at least one Business Day's
written notice to the Agent, require (without additional cost to
the Issuer, including without limitation, pursuant to
Section 2.12 hereof) the affected Bank to convert its affected
Eurodollar Loan(s) to Reference Loan(s).
<PAGE>
<PAGE>
Section 2.15 Borrowing in Accordance With Percentage
Interests. All Loans under this Agreement shall be made by the
Banks simultaneously and in such amount as necessary so that
after giving effect thereto, to the extent possible, the
outstanding Loans of each Bank shall bear the same proportion to
all outstanding Loans of all Banks as such Bank's Percentage
bears to 100%. It is understood that neither the Agent nor any
Bank shall be responsible for any default by any other Bank in
its obligations to make Loans hereunder and that each Bank shall
be obligated to make the Loans provided to be made by it
hereunder, regardless of the failure of any other Bank to fulfill
its commitment hereunder.
ARTICLE III
OTHER CREDIT TERMS
Section 3.01 Fees. A transaction fee of $100,000 per
annum (the "Liquidity Facility Fee") shall be payable in advance
to the Agent upon execution of this Agreement and on each
anniversary thereafter. Upon receipt of such payments, the Agent
shall promptly distribute to each Bank its share thereof in
accordance with the Bank's respective Percentages of the
Commitment. Upon any termination or permanent reduction by the
Issuer of the Commitment in accordance with Section 2.08, the
Agent shall refund the applicable pro rata portion of the
Liquidity Facility Fee to the Issuer.
ARTICLE IV
PAYMENTS
Section 4.01 Payments on Non-Business Days. Whenever
any payment to be made hereunder or under any Loan Note shall be
stated to be due on a day which is not a Business Day, the due
date thereof shall be extended to the next succeeding Business
Day and interest shall be payable on the amount owed at the
applicable rate during such extension.
Section 4.02 Prepayments.
(a) Subject to Section 2.12, the Issuer shall have the
right to prepay the Loans in whole or in part, without premium,
on any Business Day (in the case of Reference Loans) or upon the
expiration of the Interest Period (in the case of Eurodollar
Loans) on the following terms and conditions: (i) in the case of
Eurodollar Loans, the Issuer shall give the Agent at least three
Eurodollar Business Days' prior written notice or telephonic
notice (promptly confirmed in writing) of its intent to prepay
Eurodollar Loans and the amount of such prepayment, which notice
shall be irrevocable; (ii) in the case of Reference Loans, the
Issuer shall give the Agent at least one Business Day's prior
written notice or telephonic notice (promptly confirmed in
writing) of its intent to prepay Reference Loans and the amount
of such prepayment; and (iii) each prepayment (other than any
described in subsection (b)) shall be in a principal amount of
not less than $1,000,000 or equal to the then outstanding
principal amount of the Loan or Loans being prepaid. The Agent
<PAGE>
<PAGE>
shall promptly on the date any notice of prepayment is received
by it give each Bank written or telephonic notice (promptly
confirmed in writing) of such prepayment and of such Bank's
proportionate share thereof.
(b) The Issuer, the Agent and the Banks hereby each
agree that whenever the Sale and Servicing Agreement provides for
the application of funds to prepay or repay Loans, such funds
shall be applied, first, to any outstanding Loans that are
Reference Loans, second, to any Eurodollar Loans maturing on the
date of such payment and, third, as a prepayment of other
Eurodollar Loans in such order as the Issuer shall determine.
The Issuer, the Banks and the Agent each agree that under the
circumstances contemplated by the preceding sentence any notice
of prepayment otherwise required hereby in order to apply such
funds to prepay the Loans shall be deemed to have been properly
given by the Issuer.
Section 4.03 Method and Place of Payment, Etc. All
payments by the Issuer under this Agreement and the Loan Notes
owing to the Banks shall be sent to the Agent for the account of
each Bank in accordance with the Bank's respective Percentages of
the Commitment not later than 12:00 noon (City of Los Angeles
time) on the date when due and shall be made in freely
transferable Dollars and in immediately available funds at the
Payment Office. All such payments shall be sent to each Bank not
later than 2:00 p.m. (City of Los Angeles time) on the date of
receipt and shall be made in freely transferable Dollars and in
immediately available funds to the addresses set forth in
Section 9.06 hereto. In the event the Agent does not forward any
payments to the Banks at a time which would call for same day
payment, the payment received by each Bank from the Agent shall
include interest for the day or days such payment is not made
(but excluding the day such amounts are returned by the Agent) at
a rate per annum equal to the Fed Funds Rate, without reduction
for any setoff or counterclaim of any nature whatsoever. In the
event that any Bank does not forward any payment to the Agent at
a time which would call for same day payment, the payment
received by the Agent from such Bank shall include interest for
the day or days such payment is not made (but excluding the day
such amounts are returned by such Bank) at a rate per annum equal
to the Fed Funds Rate, without reduction for any setoff or
counterclaim whatsoever.
Section 4.04 Repayment of Loans. The principal of the
Loans shall mature (subject to earlier acceleration or
prepayment) and the entire principal amount thereof shall become
due and payable on the Expiration Date.
ARTICLE V
CONDITIONS PRECEDENT
Section 5.01 Conditions to Effectiveness. This
Agreement shall become effective on the date (the "Closing Date")
which shall be the first day on which all of the following
conditions have been satisfied or waived:
<PAGE>
<PAGE>
(a) receipt by the Agent of executed and delivered
counterpart copies of all Related Documents, which shall be in
full force and effect;
(b) receipt by the Agent for the account of each Bank
of a duly executed Revolving Loan Note payable to the order of
such Bank in the amount and as otherwise provided for in
Article II;
(c) no Default or no Event of Default shall have
occurred and be continuing;
(d) all representations and warranties of the Issuer
contained in any Related Document or in any document, certificate
or financial or other statement delivered in connection herewith
shall be true and correct in all material respects on and as of
the Closing Date;
(e) receipt by the Agent of a certificate, dated the
Closing Date and executed by an authorized signatory of the
Issuer, stating that all of the conditions specified in
Sections 5.01(c) and (d) are then satisfied;
(f) receipt by the Agent of the following, in each
case fully executed by all of the parties identified therein:
(i) form UCC-1 financing statements covering the
Collateral naming the Issuer as purchaser/secured party and the
Collateral Agent as assignee and First Healthcare as
seller/debtor in form to be filed in the State of Washington;
(ii) form UCC-1 financing statements covering the
Collateral naming First Healthcare as purchaser/secured party and
the Issuer as assignee and Northwest Healthcare as seller/debtor
in form to be filed in the State of Washington;
(iii) form UCC-1 financing statements covering the
Collateral naming First Healthcare as purchaser/secured party and
the Issuer as assignee and Pasatiempo as seller/debtor in form to
be filed in the State of Washington;
(iv) form UCC-1 financing statements covering the
Collateral and naming the Issuer as debtor and the Collateral
Agent as secured party in form to be filed in the States of
Washington and Nevada;
(v) form UCC-3 change statements amending each
UCC financing statement identified on Schedule II hereto amending
each such financing statement to cover the Collateral and
assigning each such financing statement from the secured party
therein and the assignee of the secured party therein, if any, to
the Collateral Agent; and
(vi) form UCC-3 change statements terminating
(A) each of the UCC financing statements identified on Schedule
II hereto as local filings and (B) each of the UCC financing
statements filed in the states identified as "excluded states" on
Schedule II hereto.
<PAGE>
<PAGE>
(g) receipt by the Agent and the Collateral Agent of
certified copies of UCC searches from the State of Washington and
for the Issuer, the State of Nevada, dated as of a recent date
listing for each of Seller, the Issuer, First Healthcare,
Pasatiempo and Northwest, all financing statements on file in
such state that name any of such parties (or any predecessor of
any of them) as debtor or assignor together with copies of all
such listed financing statements;
(h) receipt by the Agent of (x) certified copies of
all corporate action taken by the Issuer to authorize the
execution, delivery and performance of this Agreement and the
Loan Notes, (y) certified charter and bylaws of the Issuer and a
good standing certificate for the Issuer from its jurisdiction of
incorporation and (z) such other corporate documents and
certificates as the Agent may reasonably request;
(i) receipt by the Agent of a certificate, dated the
Closing Date, of a duly authorized officer of the Issuer as to
the incumbency, and setting forth a specimen signature, of each
of the persons (i) who has signed this Agreement on behalf of the
Issuer, (ii) who will sign the Loan Notes on behalf of the
Issuer, and (iii) who will, until replaced by other persons duly
authorized for the purpose, act as the representatives of the
Issuer for the purpose of signing notices, requests or other
communications or documents in connection with this Agreement and
the transactions contemplated hereby;
(j) all fees payable pursuant hereto and due upon the
execution hereof or on the Closing Date shall have been paid;
(k) receipt by the Agents of evidence that the
Collateral Account and the Collection Account shall have been
established;
(l) the fact that Seller's designation of a Closing
Date shall have become effective under the Sale and Servicing
Agreement;
(m) all conditions precedent specified in Schedule I
to the Sale and Servicing Agreement shall have been satisfied and
receipt by the Agent of copies or originals of all documents
described therein, as applicable;
(n) receipt by the Agent of copies of all agreements,
opinions, certificates and other documents referred to in the
Related Documents and such other documents as the Agent may
reasonably request; and
(o) receipt by the Agent of the Borrowing Base
Certificate executed by an Authorized Officer of the Issuer,
calculating the Borrowing Base as of the end of the immediately
preceding month.
(p) receipt by the Agent of each of the following
legal opinions, each addressed to the Agent, the Collateral
Agent, and the Banks and satisfactory to the Agent in form and
substance:
<PAGE>
<PAGE>
(i) the Opinion of Richard P. Adcock, Esq., as
counsel to First Healthcare, in substantially the form of
Exhibit F hereto, and as to such other matters as the Agent may
reasonably request;
(ii) the Opinion of Richard P. Adcock, Esq., as
counsel to Northwest in substantially the form of Exhibit G
hereto, and as to such other matters as the Agent may reasonably
request;
(iii) the Opinion of Richard P. Adcock, Esq., as
counsel to Pasatiempo, in substantially the form of Exhibit H
hereto, and as to such other matters as the Agent may reasonably
request;
(iv) the Opinion of Richard P. Adcock, Esq., as
counsel to Hillhaven, in substantially the form of Exhibit I
hereto, and as to such other matters as the Agent may reasonably
request;
(v) the Opinion of Richard P. Adcock, Esq., as
counsel to the Issuer, in substantially the form of Exhibit J
hereto, and as to such other matters as the Agent may reasonably
request;
(vi) the Opinion of Brown and Wood, as counsel to
Issuer, in substantially the form of Exhibit K hereto; and
(vii) the Opinion of Reed Smith Shaw & McClay, as
counsel to Issuer, in substantially the form of Exhibit L hereto.
(q) receipt by the Agent of a novation agreement
substantially in the form of Exhibit M hereto (the "Novation
Agreement") and all other agreements, assignments, financing
statement assignments, opinions, certificates and other documents
as may be reasonably requested by the Agent to effectuate and
evidence the assignment of all right, title and interest of the
Original Agent and the Original Banks under the Original
Liquidity Agreement and certain related documents to the Agent
and the Collateral Agent;
(r) receipt by the Agent of an audit of the
Receivables, which shall be acceptable to the Banks in their sole
discretion;
(s) the representations and warranties of the Seller,
Northwest, Pasatiempo and of Hillhaven contained in the Sale and
Servicing Agreement shall be true and correct;
(t) receipt by the Agent of a copy of the Seller's,
Northwest's, Pasatiempo's and Hillhaven's corporate charters and
all amendments thereto, certified as of a recent date by the
Secretary of the Seller, Northwest, Pasatiempo and Hillhaven,
respectively;
(u) receipt by the Agent of certificates of recent
date, issued by the Secretary of State of their respective states
of incorporation, as to the legal existence and good standing of
the Seller, Northwest, Pasatiempo and Hillhaven;
<PAGE>
<PAGE>
(v) receipt by the Agent of duly certified copies of:
the Seller's, Northwest's, Pasatiempo's and Hillhaven's bylaws
and board of directors resolutions approving the execution,
delivery and performance of the Related Documents to which each
is, respectively, a party and the transactions contemplated
thereby; and evidence of the authority and incumbency of
specified officers of the Seller, Northwest, Pasatiempo and
Hillhaven to execute the Liquidity Agreement and the Related
Documents to which each is, respectively, a party; and
(w) the Collateral Agent shall have entered into a
depositary agreement in substantially the form of Exhibit R with
Pittsburgh National Bank regarding the establishment and
operation of the Collection and Collateral Accounts.
Section 5.02 Representations and Warranties. At the
date of each Borrowing and after giving effect thereto, all
representations and warranties of the Issuer contained herein or
in any Related Document or in any document, certificate or
financial or other statement delivered in connection therewith
and of the Seller and each Servicer contained in the Sale and
Servicing Agreement or in any document, certificate or financial
or other statement delivered in connection therewith, in each
case shall be true and correct in all material respects with the
same force and effect as though such representations and
warranties had been made as of such date.
Section 5.03 Conditions to Execution. Upon the
execution hereof, the Issuer shall pay the Agent the Liquidity
Facility Fee and the fees and disbursements of the Agent's and
the Collateral Agent's counsel.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE ISSUER
Section 6.01 Organization and Good Standing. The
Issuer is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is
organized, and has, in all material respects, full corporate
power, authority and legal right to own its property as such
property is currently owned and to conduct its business as
contemplated by the Related Documents and as currently conducted,
and to execute, deliver and perform its obligations under the
Related Documents. The Issuer has no subsidiaries.
Section 6.02 Power; Authorization; Enforceable
Obligation. The Issuer has the power, authority and legal right
to execute, deliver and perform the Related Documents to which it
is, or is to be, a party, and to borrow hereunder and has taken
all necessary action to authorize the Borrowings on the terms and
conditions hereof and the execution, delivery and performance of
the Related Documents. No consent, license, permit, approval or
authorization of, exemption by, notice or report to, or
registration, filing or declaration with, any Governmental
Authority or other Person is required for the execution, delivery
and performance by the Issuer of the Related Documents which has
not been obtained, made, given or accomplished. The Related
<PAGE>
<PAGE>
Documents to which it is, or is to be, a party have been duly
executed and delivered by a duly authorized officer of the Issuer
and each constitutes, legal, valid and binding obligations of the
Issuer enforceable against the Issuer in accordance with their
respective terms, except that the enforceability thereof may be
subject to the effects of any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter
in effect relating to creditors' rights and to general principles
of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
Section 6.03 No Legal Bar. The execution, delivery
and performance by the Issuer of the Related Documents to which
it is, or is to be, a party, will not violate any provision of
any Requirement of Law applicable to the Issuer or any of its
Property, nor violate or constitute a default under any
Contractual Obligation applicable to the Issuer or any of its
property, and will not, except as otherwise provided herein or
under any of the other Related Documents, result in, or require,
the creation or imposition of any Lien on any of its property,
assets or revenues pursuant to the provisions of any Contractual
Obligation.
Section 6.04 No Litigation. No litigation,
investigation or administrative proceeding of or before any
court, arbitrator or governmental authority is pending nor, to
the Issuer's knowledge, threatened against the Issuer or any of
its assets (a) with respect to the Related Documents or the
Borrowings hereunder or (b) that would have a material adverse
effect on the business, operations, assets or financial or other
condition of the Issuer.
Section 6.05 Investment Company Act. The Issuer is
not, and will not become, as a result of the transactions
contemplated by any Related Document, an "investment company" or
a company controlled by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
Section 6.06 No Default. Except as would not have a
material adverse effect on the ownership or servicing of the
Purchased Receivables and would not have a material adverse
effect on the business, operations, assets or financial or other
condition of the Issuer or on its ability to perform its
obligations under the Related Documents to which it is, or is to
be, a party, the Issuer is not in default under any Contractual
Obligation or Requirement of Law applicable to it or any of its
property; and no Event of Default or Default has occurred and is
continuing nor will such a Default or Event of Default result
from the entry by it into the Related Documents or the
performance by it of any of its obligations under any or all
thereof.
Section 6.07 Perfection of Security Interest. The
Collateral Agent has a continuing first and prior security
interest in, and general first lien on, the Collateral.
<PAGE>
<PAGE>
ARTICLE VII
COVENANTS OF THE ISSUER
Until all indebtedness hereunder shall have been paid in
full and the Commitment has terminated, the Issuer agrees that:
Section 7.01 Information. The Issuer will furnish to
the Agent and each Bank:
(i) as soon as available and in any event within 90
days after the end of each fiscal year of the Issuer, a copy
of the annual report for such year of the Issuer, containing
financial statements for such year certified without
qualification as to fairness of presentation, generally
accepted accounting principles and consistency by the chief
financial officer of the Master Servicer;
(ii) as soon as available and in any event within 60
days of the end of each fiscal quarter of the Issuer, an
unaudited balance sheet of the Issuer and the related
statement of income (but not cash flows), certified as to
fairness of presentation, generally accepted accounting
principles and consistency by the chief financial officer of
the Master Servicer;
(iii) simultaneously with the delivery of each set of
financial statements under (i) above, a statement from the
firm of independent public accountants which reported on
such statements: (x) stating that nothing has come to their
attention to cause them to believe that an Amortization
Event (or event or condition which, with the giving of
notice or lapse of time or both, would become an
Amortization Event) has occurred and is continuing and
(y) showing the calculations necessary to demonstrate that
Issuer Equity was at least equal to Minimum Issuer Equity on
the date of such financial statements;
(iv) simultaneously with the delivery of each set of
financial statements under (ii) above, a statement from the
chief financial officer of the Master Servicer (x) stating
that no Amortization Event has occurred and is continuing
and (y) showing the calculations necessary to demonstrate
that Issuer Equity was at least equal to or in excess of
zero on the date of such financial statements;
(v) as soon as possible and in any event within 5 days
after the occurrence of an Event of Default or Default, a
statement of an Authorized Officer setting forth the details
thereof and the actions which the Issuer has taken and
proposes to take with respect thereto;
(vi) as soon as possible and in any event within 23
days after the end of each calendar month, the Borrowing
Base Certificate evidencing the calculation of the Borrowing
Base for the preceding month, such other information as may
be required under the Borrowing Plan, and such information
<PAGE>
<PAGE>
related thereto as may be reasonably requested by any Agent;
and
(vii) such other information (including without
limitation copies of all reports and documents received by
the Issuer pursuant to any Related Document) respecting the
condition or operations, financial or otherwise, of the
Issuer or respecting the Purchased Receivables and the
Related Documents.
Section 7.02 Activities. The Issuer will not engage
directly or indirectly in any business or activity (whether or
not pursued for gain or other pecuniary advantage) except as
contemplated under the Related Documents.
Section 7.03 Additional Stock. The Issuer will not
issue any additional shares of capital stock of any class or
issue warrants or grant any options on other similar rights with
respect thereto.
Section 7.04 Maintenance of Existence. Except as
permitted by Section 7.11 hereof, the Issuer will preserve and
maintain its corporate existence and all of its rights,
privileges and franchises necessary or desirable in the normal
conduct of its business, and will conduct its business in a
regular manner.
Section 7.05 Maintenance of Properties. The Issuer
will keep all of its properties necessary, in the judgment of the
Board of Directors of the Issuer, in its business in good working
order and condition, ordinary wear and tear excepted, and will
permit representatives of the Bank to inspect such properties,
and to examine and make extracts from the books and records of
the Issuer during normal business hours.
Section 7.06 Compliance with Laws. The Issuer will
comply in all respects with the requirements of all applicable
Requirements of Law, such compliance to include, without
limitation, paying all taxes, assessments and governmental
charges imposed upon the Issuer or its properties.
Section 7.07 Notice of Proceedings. The Issuer will
promptly give notice in writing to the Agent and each Bank of all
litigation, arbitration proceedings and regulatory proceedings
affecting the Issuer or the property of the Issuer.
Section 7.08 Use of Proceeds. No part of the proceeds
of any Loan hereunder will be used to purchase or carry any
margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock. If requested by the
Agent, the Issuer will furnish to the Agent in connection with
any Loan hereunder a statement in conformity with the
requirements of Federal Reserve Form U-1 referred to in
Regulation U. The Issuer shall not use any Loans to:
(a) knowingly purchase Ineligible Securities from BA
Securities, Inc. (the "Arranger") during any period in which the
Arranger makes a market in such Ineligible Securities; or
<PAGE>
<PAGE>
(b) knowingly purchase during the underwriting or
placement period Ineligible Securities being underwritten or
privately placed by the Arranger; or
(c) make payments of principal or interest on
Ineligible Securities underwritten or privately placed by the
Arranger and issued by or for the benefit of the Issuer or any
Affiliate of the Issuer.
Section 7.09 Limitation on Debt. The Issuer will not
create, assume or suffer to exist any Debt other than
Subordinated Debt.
Section 7.10 Negative Pledge. The Issuer will not
create, assume or suffer to exist any Lien on any asset now owned
or hereafter acquired by it, except for Liens created by the
Related Documents, nor shall the Issuer grant any negative pledge
covenant covering its assets to any Person other than the Banks,
except such negative pledge covenants described under that
certain Credit Agreement dated as of September 1, 1993, among
First Healthcare Corporation, The Hillhaven Corporation, the
Banks referred to therein, the LC Issuing Banks referred to
therein, Morgan Guaranty Trust Company of New York, as Agent,
Chemical Bank, as Administrative Agent, and J.P. Morgan Delaware,
as Collateral Agent.
Section 7.11 Consolidations, Mergers, Acquisitions,
and Sales of Assets. The Issuer will not (i) consolidate or
merge with or into or acquire any other Person or (ii) sell,
lease or otherwise transfer (by investment, assignment,
contribution or otherwise) all or any substantial portion or its
assets to any other Person.
Section 7.12 Restricted Payments. The Issuer will not
declare or make any dividend payment or other distribution of
assets, properties, cash, rights, obligations or securities on
account of any shares of any class of its capital stock, or
return any capital to its shareholders as such, or purchase,
redeem or otherwise acquire for value any shares of any class of
its capital stock or any warrants, rights or options to acquire
any such shares, now or hereafter outstanding (collectively, a
"Restricted Payment"), unless after payment of such Restricted
Payment: (i) Issuer Equity is equal to or in excess of zero;
(ii) no Default or Event of Default has occurred and is
continuing; and (iii) declaration and payment of such Restricted
Payment is permitted under (and complies with) all applicable
Requirements of Law.
Section 7.13 Corporate Existence.
(a) The Issuer will keep in full effect its existence,
rights and franchises as a corporation under the laws of the
state of its incorporation and will obtain and preserve its
qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity
and enforceability of the Related Documents and each other
instrument or agreement necessary or appropriate to the proper
administration thereof and the transactions contemplated thereby.
<PAGE>
<PAGE>
(b) The Issuer shall observe the applicable legal
requirements for the recognition of the Issuer as a legal entity
separate and apart from Hillhaven, and its Affiliates, including,
without limitation, as follows:
(i) the Issuer shall maintain separate corporate
records, books of account and financial statements
(each of which shall be sufficiently full and complete
to permit a determination of the Issuer's assets and
liabilities and to permit a determination of the
obligee's and the time for performance on each of the
Issuer's obligations) from those of Hillhaven and its
Affiliates;
(ii) except as expressly permitted by the Sale and
Servicing Agreement for Collections of Purchased
Receivables prior to transfer thereof to the Collection
Account (which transfer is to occur within two Business
Days of receipt of such Collection by the applicable
Servicer), the Issuer shall not commingle any of its
assets or funds with those of Hillhaven or any of its
Affiliates;
(iii) the Issuer shall maintain records permitting
a determination on a daily basis of the amount and
location of any of its funds which are commingled as
permitted under clause (ii);
(iv) the Board of Directors of the Issuer shall be
elected independently from the Board of Directors of
Hillhaven and its Affiliates and shall at all times
include at least two Independent Directors;
(v) the Board of Directors and stockholders of
the Issuer will hold all regular and special meetings
appropriate to authorize corporate actions. Regular
meetings of directors will be held at least annually.
The Board of Directors may act from time to time
through one or more committees of the Board in
accordance with the Issuer's bylaws. Appropriate
minutes of all meetings of the Issuer's Board of
Directors (and committees thereof) and of the
stockholders meetings will be kept by the Issuer;
(vi) taking into account the services to be
performed on the Issuer's behalf by the Servicers and
the Master Servicer under the Sale and Servicing
Agreement, the Issuer will have sufficient officers and
employees to run its business and operations. At least
one senior officer of the Issuer (who may also be a
member of the Board of Directors of the Issuer) will
not be a director, officer or employee of Hillhaven or
any of its Affiliates;
(vii) decisions with respect to the Issuer's
business and daily operations will be independently
made by the Issuer (although the officer making any
particular decision may also be an officer or director
<PAGE>
<PAGE>
of Hillhaven) and will not be dictated by Hillhaven or
any of its Affiliates. Any permitted transactions
between the Issuer and Hillhaven or any of its
Affiliates (other than the purchase of Receivables
pursuant to the Sale and Servicing Agreement) will
receive prior approval of a majority of the Board of
Directors including at least two Independent Directors
of the Issuer;
(viii) the Issuer will act solely in its own
corporate name and through its own authorized officers
and agents. Neither Hillhaven nor any of its
Affiliates will be appointed agent of the Issuer,
except as expressly contemplated by the Sale and
Servicing Agreement;
(ix) the Issuer will prepare instruments of
assignment naming it as purchaser for all Purchased
Receivables sold to it. In all cases, the data and
records (including computer records) used by the Issuer
or the Servicers in the collection and administration
of Purchased Receivables will reflect the Issuer's
ownership interest therein;
(x) although the Issuer's directors, officers and
employees (other than the Independent Directors) may
also be employees of Hillhaven or any of its
Affiliates and may participate in their employee
benefit plans, such individuals will be required to
account for efforts devoted to the Issuer's business
and affairs and the Issuer will reimburse Hillhaven or
any of its Affiliates for their services;
(xi) the Issuer will be responsible for the
payment of all expenses, indebtedness and other
obligations incurred by it and will reimburse Hillhaven
or any of its Affiliates for its organizational
expenses;
(xii) except as evidenced by the Hillhaven Note
and the Purchase Money Note, neither Hillhaven nor any
of its Affiliates will advance funds to the Issuer and
other than capital contributions from Hillhaven, no
Affiliate of Hillhaven will otherwise supply funds to,
or guarantee debts of, the Issuer;
(xiii) the Issuer will maintain a separate office
which will be physically separate from space occupied
by Hillhaven or any of its Affiliates (but may be
separate space occupied solely by the Issuer at the
offices of Hillhaven or any of its Affiliates) and will
be identified as the Issuer's office so it can be
identified by outsiders;
(xiv) the Issuer shall not guarantee, or otherwise
become liable with respect to, any obligation of
Hillhaven or any of its Affiliates;
<PAGE>
<PAGE>
(xv) the Issuer shall at all times hold itself out
to the public under the Issuer's own name as a legal
entity separate and distinct from Hillhaven and its
Affiliates (the foregoing to include, but not be
limited to, use of materially separate and distinct
letterhead and telephone number(s)); and
(xvi) any financial reports required of the Issuer
(other than the reports required under Section 7.01(ii)
hereof) will comply with generally accepted accounting
principles and shall be issued separately from any
reports prepared for Hillhaven and any of its
Affiliates.
Section 7.14 Books and Records. The Issuer shall keep
proper books of record and account, in which full and correct
entries shall be made of all its financial transactions and its
assets and business in accordance with generally acceptable
accounting principles, consistently applied, and, after
reasonable advance notice shall permit the Agent and its
representatives to inspect the same and make copies or extracts
thereof.
Section 7.15 Reduction of Outstanding Debt. To the
extent practicable and not in violation of any express provisions
of any Related Document, the Issuer will apply amounts on deposit
in the Issuer Accounts to pay Daily Facility Costs and to repay
or prepay Loans prior to borrowing funds hereunder.
Section 7.16 Issuer Equity. The Issuer shall at all
times maintain its Issuer Equity equal to or in excess of zero.
Section 7.17 Borrowing Plan. The Issuer shall at all
times comply with the terms of the Borrowing Plan.
Section 7.18 Post-Closing Legal Opinions. The Issuer
shall deliver to the Agent, within 60 days after Closing, the
following legal opinions, each addressed to the Agent, the
Collateral Agent, and the Banks and satisfactory to the Banks in
form and substance:
(i) the Opinion of Richard P. Adcock, Esq., as
counsel to First Healthcare, in substantially the form of
Exhibit N hereto;
(ii) the Opinion of Richard P. Adcock, Esq., as
counsel to Northwest in substantially the form of Exhibit O
hereto;
(iii) the Opinion of Richard P. Adcock, Esq., as
counsel to Pasatiempo, in substantially the form of Exhibit P
hereto; and
(iv) the Opinion of Richard P. Adcock, Esq., as
counsel to Issuer, in substantially the form of Exhibit Q hereto.
<PAGE>
<PAGE>
ARTICLE VIII
EVENTS OF DEFAULT
Section 8.01 Events of Defaults. Upon the occurrence
of any of the following events (each an "Event of Default"), and
so long as such Event of Default shall continue unremedied:
(a) Payments. Failure by the Issuer (x) to pay the
principal of any Loan when and as due, or (y) to pay any interest
on any Loan or any other amount due hereunder or under the Pledge
Agreement within five Business Days after such amount becomes
due; or
(b) Representations. Any representation, warranty or
statement made or deemed made by the Issuer in this Agreement or
in any other Related Document shall prove to have been incorrect
in any material respect on any date when made or deemed made and
which incorrectness continues for a period of 30 days after the
earlier of (i) receipt by the Issuer of notice thereof from the
Agent or any Bank or (ii) knowledge of such failure by the
Issuer; or
(c) Covenants. Failure by the Issuer (x) to observe
or perform any covenant or agreement contained in Sections 7.02,
7.03, 7.04, 7.08, 7.09, 7.10, 7.11, 7.12, 7.13, and 7.16 hereof
in any material respect, or (y) to observe or perform any other
covenant or agreement contained herein or in any Related Document
in any material respect and the continuance of such failure for
30 days after the earlier of (i) receipt by the Issuer of notice
thereof from the Agent or any Bank or (ii) knowledge of such
failure by the Issuer; or
(d) Voluntary Bankruptcy Proceedings of the Issuer.
The Issuer shall become insolvent or generally fail to pay, or
admit in writing its inability to pay, its debts as they become
due, or shall voluntarily commence any proceeding or file any
petition under any bankruptcy, insolvency or similar law or
seeking dissolution or reorganization or the appointment of a
receiver, trustee, custodian or liquidator for itself or a
substantial portion of its property, assets or business or to
effect a plan or other arrangement with its creditors, or shall
file any answer admitting the jurisdiction of the court and the
material allegations of an involuntary petition filed against it
in any bankruptcy, insolvency or similar proceeding, or shall be
adjudicated bankrupt, or shall make a general assignment for the
benefit of creditors, or shall consent to, or acquiesce in the
appointment of, a receiver, trustee, custodian or liquidator for
itself or a substantial portion of its property, assets or
business or (ii) action shall be taken by the Issuer for the
purpose of effectuating any of the foregoing; or
(e) Involuntary Bankruptcy Proceedings Against the
Issuer. Involuntary proceedings or an involuntary petition shall
be commenced or filed against the Issuer under any bankruptcy,
insolvency or similar law or seeking dissolution or
reorganization of the Issuer or the appointment of a receiver,
<PAGE>
<PAGE>
trustee, custodian or liquidator for the Issuer or a substantial
part of the property, assets or business of the Issuer, or any
writ, order, judgment, warrant of attachment, execution or
similar process shall be issued or levied against a substantial
part of the property, assets or business of the Issuer and such
proceeding or petition shall not be dismissed, or such writ,
order, judgment, warrant of attachment, execution or similar
process shall not be stayed, released, vacated or fully bonded,
within 60 days after commencement, filing or levy, as the case
may be; or
(f) Judgments. Any judgment, writ, warrant of
attachment or execution or similar process shall be issued or
levied in respect of an obligation (alleged or otherwise) of the
Issuer in excess of $10,000 (not covered by insurance) against
any of the property of the Issuer and such judgment, writ or
similar process shall not be released, vacated or stayed or fully
bonded within 30 days after its issue of levy; or
(g) Obligations. Any default shall occur under any
obligation of the Issuer with an outstanding principal of greater
than $10,000 which shall immediately result in the acceleration
of all amounts due and payable under such obligation; or
(h) Related Documents. Any default shall have
occurred and is continuing under any of the Related Documents
(including without limitation the occurrence of any Amortization
Event under the Sale and Servicing Agreement or any event or
condition which, with the giving of notice or lapse of time or
both, would become an Amortization Event); or
(i) Material Adverse Change. Any material adverse
change shall occur with respect to the business, operations,
assets or financial or other condition of the Issuer, as
determined in the reasonable discretion of each Bank as
determined by the Required Banks; or
(j) Change in Laws. There shall be any introduction
of, or any change in, any law, rule or regulation, or in the
interpretation or administration thereof by any Governmental
Authority, charged with the interpretation or administration
thereof that may result in any applicable material adverse change
to the procedures affecting Medicaid or Medicare reimbursements
or the assignment of proceeds thereof, as determined in the
reasonable discretion of each Bank as determined by the Required
Banks; or
(k) Ownership. The present owners of the Issuer (or
such owners, heirs, personal representatives or testamentary
beneficiaries) shall cease to own or control 50% of the voting
stock of the Issuer, or shall cease to control a majority of the
board of directors of the Issuer.
Upon the occurrence of any of the foregoing, and at any time
during the unremedied continuance of any default, then the Agent
(upon the direction of the Required Banks) may by sending to the
Issuer and by delivering (in the manner specified for notices
hereunder a written notice (a "Notice of Termination") signed by
<PAGE>
<PAGE>
an Authorized Agent Officer, (i) declare the principal of and
accrued interest in respect of the Loans to be, whereupon the
same shall become, forthwith due and payable, (ii) declare the
Commitment to make Revolving Loans terminated, whereupon the
Commitment to make Revolving Loans shall terminate and any
accrued fees or premiums with respect thereto shall forthwith
become due and payable without any further notice of any kind, or
(iii) direct the Collateral Agent to pursue remedies under the
Pledge Agreement. Upon the occurrence of an Event of Default
described in clauses (d) or (e) above, the Commitment to make
Revolving Loans shall automatically terminate and the principal
of and accrued interest on all Loans shall automatically become
immediately due and payable without necessity of declaration or
other action by the Agent.
Section 8.02 Collection of Medicaid Payments by
Servicers. Notwithstanding any provision of Article VIII of this
Agreement or of the Related Documents to the contrary, all
Medicaid payments which are made by an Obligor with respect to
any Purchased Receivable shall be collected from such Obligor
only by the Servicer which furnished the services for which such
payments are made, except to the extent that an Obligor may be
required to submit any such payments directly to a Person other
than the Servicer pursuant to a court-ordered assignment which is
valid, binding and enforceable under applicable federal and state
Medicaid laws, rules and regulations; and neither this Agreement
nor the Related Documents shall effect, nor be construed to
effect, any assignment of Medicaid payments in contravention of
applicable federal and state Medicaid laws, rules and
regulations, nor shall this Agreement or the Related Documents be
construed to permit any other Person to collect or receive, or to
be entitled to collect or receive, any such payments prior to the
Servicer's receipt thereof if such collection or receipt would
violate applicable federal and state Medicaid laws, rules and
regulations.
ARTICLE IX
MISCELLANEOUS
Section 9.01 Computations. All computations of
interest and fees hereunder and under the Loan Notes shall be
made on the basis of a 365-day year, except for interest at the
LIBOR Rate which shall be computed on the basis of the actual
number of days elapsed over a year comprised of 360 days.
Section 9.02 Exercise of Rights; Remedies Cumulative.
No failure or delay on the part of the Issuer, the Agent or any
Bank to exercise any right, power or privilege under this
Agreement and no course of dealing between the Issuer, the Agent
and any Bank shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege under
this Agreement preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights
and remedies herein expressly provided are cumulative and not
exclusive of any rights or remedies which the parties hereto
would otherwise have pursuant to law or equity. No notice to or
demand on any party in any case shall entitle such party to any
<PAGE>
<PAGE>
other or further notice or demand in similar or other
circumstances, or constitute a waiver of the right of the other
party to any other or further action in any circumstances without
notice or demand.
Section 9.03 Amendment and Waiver. No provision of
the Related Documents may be amended, waived, modified,
supplemented, restated, discharged or terminated, without the
consent of the Required Banks or all of the Banks, as applicable
under Section 9.10.
Section 9.04 Successors and Assigns.
(a) This Agreement shall bind, and the benefits hereof
shall inure to, the Issuer, the Agent and the Banks and their
respective successors and assigns; provided that the Issuer may
not transfer or assign any or all of its rights and obligations
hereunder without the prior written consent of all Banks.
(b) Each Bank may, subject to compliance with the
further provisions of this subsection, at any time sell, assign
or transfer (an "Assignment") all or any portions of its Loans or
Loan Notes or Percentage of its Commitment in minimum amounts of
$5,000,000 or of its right, title and interest thereon or thereto
or in or to this Agreement to any other Person; provided, that
such Bank, together with its Affiliates, shall continue at all
times to hold beneficial interests in Notes having an aggregate
principal amount of not less than an amount equal to (x) 20% (or
such lesser percentage as may be approved by the Issuer and the
Agents) multiplied by (y) such Bank's Percentage of the
Commitment multiplied by (z) the principal amount of all Notes
outstanding at the time of determination. The Agent shall
maintain a copy of each Assignment delivered to it and a register
(the "Register") for the recordation of the names and addresses
of the Banks and the Commitment of, and principal amount of the
Loans owing to, each Bank from time to time. The entries in the
Register shall be prima facie evidence of the existence and
amounts of the obligations of the Issuer therein recorded, and
the Issuer, the Agent and the Banks may treat each Person whose
name is recorded in the Register as the owner of the Loan
recorded therein for all purposes of this Agreement. The
Register shall be available for inspection and copying by the
Issuer or any Bank at any reasonable time and from time to time
upon reasonable prior notice. If such Assignment is to one or
more financial institutions which assume the obligations of such
Bank hereunder (a "Novation") (x) the assigning Bank shall be
released from, and the assuming institution shall assume and
become obligated in respect of, the assuming Bank's Percentage of
the Commitment and its other obligations hereunder to the extent
of such Novation and (y) the assuming institution shall be a
party hereto (and shall constitute a Bank hereunder). The
assuming institution in any Novation shall contemporaneously
therewith deliver to the Agent the information to be included in
Schedule I with respect to such institution. Following any
Novation, the Issuer will execute and deliver new Loan Notes to
the assigning Bank and the assuming institution in amounts equal
to their respective Percentages (giving effect to the Novation)
of the Commitment, and the Agent will send to the Issuer and each
<PAGE>
<PAGE>
Bank an appropriately revised Schedule I. No Bank may effect any
Assignment (whether or not constituting a Novation) without the
prior written consent of the Issuer and the Agent (which consents
may not be unreasonably withheld). In addition, no Bank may
effect a Novation unless: (i) prior to the effective date of
such Novation, the assuming institution executes and delivers to
the Issuer and the Agent a written agreement satisfactory to the
Issuer and the Agent to the effect that such Person agrees to be
bound by the provisions of this Agreement and (ii) such Novation
will not require the Issuer to register itself or any of its
Securities under any Applicable Securities Law.
(c) Each Bank may, without the consent of the Issuer
or the Agent, grant participations in all or any part of the Loan
Notes only in minimum amounts of $5,000,000 to one or more
commercial banks, insurance companies or other financial
institutions, pension funds or mutual funds; provided, that:
(i) any such disposition shall not require the Issuer to register
itself or any of its Securities under any Applicable Securities
Laws; (ii) such Bank, together with its Affiliates, shall
continue at all times to hold beneficial interests in Notes
having an aggregate principal amount of not less than an amount
equal to (x) 20% (or such lesser percentage as may be approved by
the Issuer and the Agents) multiplied by (y) such Bank's
Percentage of the Commitment multiplied by (z) the principal
amount of all Notes outstanding at the time of determination;
provided, that, in no event shall either the Agent's or the
Collateral Agent's Percentage of the Commitment be less than 10%;
(iii) the consent of the holder of any such participation, other
than an Affiliate of such Bank, shall not be required with
respect to whether such Bank shall take or omit to take any
action hereunder, except action directly affecting the extension
of the maturity of any portion of the principal amount of or
interest on a Loan Note allocated to such participation or a
reduction of the principal amount of or the rate of interest or
fees payable on or with respect to the Loan Notes or an increase
in the Commitment (but only if the amount of the Commitment
allocated to such participant is increased); (iv) the holder of
such participation shall not acquire any rights hereunder or
under any Related Document; (v) such Bank's obligations under
this Agreement to the other parties to this Agreement shall
remain unchanged; (vi) such Bank shall remain solely responsible
for the performance thereof; (vii) such Bank shall remain the
holder of any obligation owing to it hereunder for all purposes
of this Agreement; and (viii) the Issuer and the Agents shall
continue to deal solely and directly with such Bank in connection
with such Bank's rights and obligations under this Agreement.
(d) Each Bank may furnish any information concerning
the Issuer delivered by the Issuer to such Bank from time to time
to assignees and participants (including prospective assignees
and participants).
(e) Nothing herein shall prohibit any Bank from
pledging or assigning all or any portion of its Loans to any
Federal Reserve Bank in accordance with applicable law.
<PAGE>
<PAGE>
Section 9.05 Adjustments. If any Bank (a "Benefitted
Bank") shall at any time receive any payment of all or part of
its Loans, or interest thereon, or receive any collateral in
respect thereof (whether voluntarily or involuntarily, by setoff,
or otherwise), such that it has received aggregate payments or
collateral on account of its Loans in a greater proportion than
any such payment to or collateral received by any other Bank, if
any, in respect of such other Bank's Loans which are then due and
payable, or interest thereon, such Benefitted Bank shall purchase
for cash from the other Banks a participating interest in such
portion of each such other Bank's Loans, or shall provide such
other Banks with the benefits of any such collateral, or the
proceeds thereof, as shall be necessary to cause such Benefitted
Bank to share the excess payment or benefits of such collateral
or proceeds ratably with each of the Banks; provided, however,
that if all or any portion of such excess payment or benefits is
thereafter recovered from such Benefitted Bank, such purchase
shall be rescinded, and the purchase price and benefits returned,
to the extent of such recovery, but without interest, and
provided, further, that nothing in this Section 9.05 shall impair
the right of any Bank to execute any right of set-off or
counterclaim it may have and to apply the amount subject to such
exercise to the payment of the indebtedness of the Issuer, other
than indebtedness under the Notes. The Issuer agrees, to the
fullest extent it may effectively do so under applicable law,
that any holder of a participation in a Note, whether or not
acquired pursuant to the foregoing arrangements, may exercise
rights of set-off or counterclaim and other rights with respect
to such participation as fully as if such holder of a
participation was a direct creditor of the Issuer, in the amount
of the participation.
Section 9.06 Notices; Requests; Demands. Except where
telephonic instructions or notices are authorized herein to be
given, all notices, demands, instructions and other
communications required or permitted to be given to or made upon
any party hereto shall be in writing and shall be personally
delivered or sent by registered, certified or express mail,
postage prepaid, return receipt requested, or by confirmed
telecopy or prepaid telegram (with messenger delivery specified
in the case of a telegram) and shall be deemed to be given for
purposes of this Agreement on the day that such writing is
delivered or sent to the intended recipient thereof in accordance
with the provisions of this Section 9.05. Unless otherwise
specified in a notice sent or delivered in accordance with the
foregoing provisions of this Section, notices, demands,
instructions and other communications in writing shall be given
to or made upon the respective parties hereto at their respective
addresses (or to their respective telecopier numbers) indicated
below, and, in the case of telephonic instructions or notices, by
calling the telephone number or numbers indicated for such party
below:
<PAGE>
<PAGE>
If to the Issuer:
Hillhaven Funding Corporation
1148 Broadway Plaza
Tacoma, Washington 98401-2264
Attention: Vice President and Treasurer
Telephone: (206) 756-4807
Telecopy: (206) 756-4890
with a copy to:
The Hillhaven Corporation
1148 Broadway Plaza
Tacoma, Washington 98401-2264
Attention: General Counsel
Telephone: (206) 756-4797
Telecopy: (206) 756-4845
If to the Agent:
Notice Office:
Bank of America National Trust
and Savings Association
555 South Flower Street
11th Floor, #5618
Los Angeles, CA 90071
Attention: Brad DeSpain
Telex: BANKAMER SFO 34346
Telephone: (213) 228-3262
Telecopy: (213) 228-2756
Payment Office:
Bank of America National Trust
and Savings Association
333 South Beaudry Avenue
Los Angeles, CA 90017
Attention: Betsy Quinio
Telex: BANKAMER SFO 34346
Telephone: (213) 345-6531
Telecopy: (213) 345-6550
Routing/ABA #: 1210-00358
Incoming Wire Acct. #: 12331-83980
If to a Bank:
at its address set forth in Schedule I hereto or,
as to each party, at such other address as shall be designated by
such party in a written notice to each other party.
Section 9.07 Survival of Representations and
Warranties. All representations and warranties contained in
Article VI shall survive the execution and delivery of this
Agreement and shall continue only so long as until such time as
<PAGE>
<PAGE>
all indebtedness hereunder and under the Loan Notes shall have
been paid in full or the Banks have any commitment hereunder.
Section 9.08 Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF WASHINGTON WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICT OF LAWS. THE ISSUER HEREBY IRREVOCABLY CONSENTS TO THE
NON-EXCLUSIVE JURISDICTION OF ANY WASHINGTON STATE OR FEDERAL
COURT SITTING IN THE CITY OF SEATTLE OVER ANY SUIT, ACTING OR
PROCEEDING ARISING OUT OF, OR RELATING TO, THIS AGREEMENT AND THE
LOAN NOTES AND HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO THE
VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING AS WELL AS ANY
OBJECTION WITH RESPECT THERETO OF INCONVENIENT FORUM.
Section 9.09 Counterparts. This Agreement may be
executed in any number of copies, and by the different parties
hereto on the same or separate counterparts, each of which shall
be an original, but all of which shall constitute one and the
same instrument.
Section 9.10 Further Assurances. The Issuer agrees to
do such further acts and things and to execute and deliver to the
Agent such additional assignments, agreements, powers and
instruments as the Agent may reasonably require or deem advisable
to carry into effect the purposes of this Agreement or to better
assure and confirm unto the Agent and the Banks their rights,
powers and remedies hereunder.
Section 9.11 Appointment of the Agents.
(a) The Agent. Each Bank hereby irrevocably appoints
the Agent as its agent hereunder, and, to the extent applicable,
under each other Related Document and hereby authorizes the Agent
to take such action on its behalf and to exercise such rights,
remedies, powers and privileges hereunder or thereunder as are
specifically authorized to be exercised by the Agent by the terms
hereof or thereof, together with such rights, remedies, powers
and privileges as are reasonably incidental thereto. The Agent
may execute any of its duties hereunder and thereunder by or
through agents or employees and, without limiting the foregoing,
the Agent shall appoint and direct the Collateral Agent in
accordance with the terms of this Agreement, the Pledge Agreement
and the Related Documents. The relationship between the Agent
and each Bank is that of agent and principal only, and nothing
herein shall be deemed to constitute the Agent a trustee for any
Bank or impose on the Agent any obligations other than those for
which express provision is made herein or therein.
Except as required by the specific terms of this Agreement
or the other Related Documents, the Agent shall not have any duty
to exercise any right, power, remedy or privilege granted to it
hereby or thereby, or to take any affirmative action or exercise
any discretion hereunder or thereunder, unless directed to do so
by the Required Banks (or to the extent that this Agreement
expressly requires, all of the Banks), and shall be fully
protected in acting or refraining from acting pursuant to such
directions which shall be binding upon the Banks, and no implied
covenants, functions, responsibilities, duties, obligations or
<PAGE>
<PAGE>
liabilities shall be read into this Agreement or otherwise exist
against the Agent. The Agent shall not, without the prior
approval of all of the Banks, increase the amount of the
Commitment, reduce the principal amount of or interest on or fees
payable with respect to a Loan Note or the rate of interest on a
Loan Note, extend any date for payment of obligations hereunder
or under any Related Document, extend the Expiration Date, amend
or waive any Default or Event of Default hereunder or under any
Related Document, or amend this Section 9.11. The Agent shall
not, without the prior approval of the Required Banks, consent to
any material departure by the Issuer from the terms hereof or of
the Related Documents or amend, modify, supplement or terminate,
or agree to any surrender of, any such agreement or instrument;
provided, that the foregoing limitation on the authority of the
Agent is for the benefit of the Banks and shall not impose any
obligations on the Issuer to investigate or inquire into the
authority of the Agent in any circumstances, and the Issuer shall
be fully protected in carrying out any request, direction or
instruction made or given to the Issuer by the Agent in the
exercise of any right, power, remedy or privilege granted to the
Agent hereby or by the terms of the other Related Documents,
receiving or acting upon any consent or waiver granted to the
Issuer hereunder or thereunder by the Agent, or entering into any
amendment or modification of, or supplement to, this Agreement,
or the other Related Documents, and the Issuer shall not be
subject to the claims of any Bank by reason of the lack of
authority of the Agent to take any such action nor shall the lack
of authority on the part of the Agent in any circumstance give
rise to any claim on the part of the Issuer against any Bank; and
provided, however, that the Agent shall not be required to take
any action which exposes the Agent to personal liability or which
is contrary to this Agreement, or the other Related Documents or
any applicable Requirement of Law. The Agent shall be fully
justified in failing or refusing to take any action under this
Agreement unless it shall first receive such advice or
concurrence of the Required Banks (or all of the Banks, as
applicable) or it shall first be indemnified to its satisfaction
by the Banks against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any
such action.
(b) Appointment of the Collateral Agent. The Agent
and the Issuer hereby irrevocably appoint Seafirst as the
Collateral Agent hereunder and under the Pledge Agreement, and
hereby authorize the Collateral Agent to take such action on the
Agent's behalf and to exercise such rights, remedies, powers and
privileges hereunder or thereunder as are specifically authorized
to be exercised by the Collateral Agent by the terms hereof or
thereof, together with such rights, remedies, powers and
privileges as are reasonably incidental thereto. The Collateral
Agent may execute any of its duties hereunder and thereunder by
or through agents or employees. The relationship between the
Agent and the Collateral Agent is that of principal and agent
only, and nothing herein shall be deemed to constitute the
Collateral Agent a trustee for any Person or impose on the
Collateral Agent any obligations other than those for which
express provision is made herein or therein.
<PAGE>
<PAGE>
Except as required by the specific terms of this Agreement
or the Pledge Agreement, the Collateral Agent shall not have any
duty to exercise any right, power, remedy or privilege granted to
it hereby or thereby, or to take any affirmative action or
exercise any discretion hereunder or thereunder, unless directed
to do so by the Agent in accordance with Section 11 of the Pledge
Agreement (and shall be fully protected in acting or refraining
from acting pursuant to such directions which shall be binding
upon the Agent), and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be
read into this Agreement or otherwise exist against the
Collateral Agent. The Collateral Agent shall not be required to
take any action which exposes the Collateral Agent to personal
liability or which is contrary to this Agreement, or the other
Related Documents or any applicable Requirement of Law. The
Collateral Agent shall be fully justified in failing or refusing
to take any action under this Agreement unless it shall first
receive such advice or concurrence of the Agent or it shall first
be indemnified to its satisfaction by the Agent or the Banks
against any and all liability and expense which may be incurred
by it by reason of taking or continuing to take any such action.
The Agent, the Banks and the Issuer hereby acknowledge and agree
to the additional provisions respecting the Collateral Agent set
forth in the Pledge Agreement.
(c) Reliance. Neither the Agents nor any Bank, or any
of its or their respective directors, officers, agents or
employees, shall be liable to any Agent, any other Bank, or the
Issuer, as the case may be, for any action taken or omitted to be
taken by it or them hereunder, under the other Related Documents,
or in connection herewith or therewith, except for its or their
own gross negligence, wilful misconduct or bad faith; nor shall
the Agents or any Bank be responsible to any Agent or any other
Bank, as the case may be, for the validity, effectiveness, value,
sufficiency or enforceability against the Issuer, or other
parties thereto, of the Purchased Receivables, this Agreement,
the Loan Notes, the Related Documents or any other document
furnished pursuant hereto or thereto or in connection herewith or
therewith. Without limiting the generality of the foregoing, the
Agents: (i) may each consult with legal counsel (including
counsel for the Issuer), independent public accountants and other
experts selected by it and shall not be liable for any action
taken or omitted to be taken in good faith by it in accordance
with the advice of such counsel, accountants or experts;
(ii) make no warranty or representation to any Bank and shall not
be responsible to any Bank for any statements, warranties or
representations made in or in connection with this Agreement, any
other document furnished pursuant hereto or thereto or in
connection herewith or therewith; (iii) shall not have any duty
to ascertain or to inquire as to the performance or observance of
any of the terms, covenants or conditions of this Agreement, the
Loan Notes, or any Related Document on the part of any party
hereto or thereto or to inspect the property (including the books
and records) of the Issuer; (iv) shall not be responsible to any
Bank for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement, the Loan
Notes, any Related Document or any other instrument or document
furnished pursuant hereto or thereto; and (v) shall incur no
<PAGE>
<PAGE>
liability under or in respect of this Agreement, any Related
Document, or the Loan Notes by acting upon any notice, consent,
certificate or other instrument or writing (which may be by
telegram, telecopy or telex) or telephonic instruction (promptly
confirmed in writing), or notices to the extent authorized herein
or therein believed by it to be genuine and signed or sent by the
proper party or parties.
(d) Defaults. Neither the Agent nor the Collateral
Agent shall be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default hereunder unless
such Agent has received written notice from a Bank or the Issuer
referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "Notice of Default."
In the event that the Agent receives such a notice, the Agent
shall promptly notify the Issuer (unless the Issuer shall have
delivered such notice to the Agent) and then give notice thereof
to the Banks (provided that the failure to notify the Issuer
shall not impair any of the rights of the Agent and the Banks
with respect to the events and circumstances specified in such
notice). In the event that the Collateral Agent receives a
notice, the Collateral Agent shall promptly notify the Agent.
The Agent shall take such action with respect to such Default or
Event of Default and shall be reasonably directed by the Required
Banks; provided that unless and until the Agent shall have
received such directions, the Agent and the Collateral Agent may
(but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of
Default as such Agent shall deem advisable in the best interests
of the Banks.
(e) Indemnification. Each Bank hereby agrees, in the
ratio that such Bank's Percentage of the Commitment hereunder
bears to the Commitment, to indemnify and hold harmless the Agent
and the Collateral Agent, from and against any and all losses,
liabilities (including liabilities or penalties), actions, suits,
judgments, demands, damages, costs and expenses of any kind
whatsoever (including, without limitation, fees and expenses of
attorneys, accountants and experts) incurred or suffered by the
Agent in its capacity as Agent or the Collateral Agent in its
capacity as Collateral Agent as a result of any action taken or
omitted to be taken by the Agent or the Collateral Agent in such
capacity or otherwise incurred or suffered by, made upon, or
assessed against the Agent or the Collateral Agent in such
capacity; provided, that, no Bank shall be liable for any portion
of any such losses, liabilities (including liabilities for
penalties), actions, suits, judgments, demands, damages, costs or
expenses resulting from or attributable to the gross negligence,
wilful misconduct or bad faith on the part of the Agent or the
Collateral Agent, as the case may be, or their respective
officers, employees or agents. Without limiting the generality
of the foregoing, each Bank hereby agrees, in the ratio
aforesaid, to reimburse the Agent and the Collateral Agent
promptly following its demand for any out-of-pocket expenses
(including, without limitation, attorneys' fees and expenses)
incurred on the Pledge Agreement by the Agent or the Collateral
Agent hereunder and not promptly reimbursed to the Agent by the
Issuer. Each Bank's obligations under this subsection shall
<PAGE>
<PAGE>
survive the termination of this Agreement and the discharge of
the Issuer's obligations hereunder.
(f) Rights as Banks. Each Bank agrees that with
respect to its obligation to lend under this Agreement, the Loans
made by it and the Loan Notes issued to such Bank, the Agent and
the Collateral Agent shall each have the same rights and powers
hereunder as any other Bank or holder of a Loan Note and may
exercise the same as though it were not performing the duties of
Agent or Collateral Agent specified herein; and the terms
"Banks," "Required Banks," "holders of Loan Notes," or any
similar terms shall, unless the context clearly otherwise
indicates, include the Agent and the Collateral Agent, and the
Agent and the Collateral Agent may accept deposits from, lend
money to, and generally engage in any kind of banking, trust or
other business with the Issuer, Hillhaven, the Seller,
Pasatiempo, Northwest or any of their Affiliates as if it were
not performing the duties specified herein, and may accept fees
and other considerations from the Issuer or any of their
Affiliates for services in connection with this Agreement and
otherwise without having to account for the same to any Bank.
(g) No Representations. Each Bank expressly
acknowledges that neither the Agent nor the Collateral Agent nor
any of its or their officers, directors, employees, agents,
attorneys in fact, or affiliates has made any representations or
warranties to it and that no act by the Agent or the Collateral
Agent hereinafter taken, including any review of the affairs of
the Issuer, shall be deemed to constitute any representation or
warranty by the Agent or the Collateral Agent to any Bank. Each
Bank represents to the Agent and the Collateral Agent that it
has, independently and without reliance upon the Agent, the
Collateral Agent or any other Bank, and based on such documents
and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations,
property, financial and other condition and creditworthiness of
the Issuer, and made its own decision to make its Loans hereunder
and enter into this Agreement. Each Bank also represents that it
will, independently and without reliance upon the Agent, the
Collateral Agent 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 analysis, appraisals and
decisions in taking or not taking action under this Agreement,
and to make such investigation as it deems necessary to inform
itself as to the business, operations, property, financial and
other condition and creditworthiness of the Issuer. Except for
notices, reports and other documents expressly required to be
furnished to the Banks by the Agent hereunder, the Agent and the
Collateral Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning
the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Issuer which may
come into the possession of the Agent, the Collateral Agent or
any of its officers, directors, employees, agents, attorneys in
fact, or affiliates. The Agent and the Collateral Agent shall in
no event be liable to any Bank on account of any materials
prepared or provided by it.
<PAGE>
<PAGE>
(h) Resignation of the Agent. The Agent may resign as
Agent upon thirty (30) days' notice to the Banks and the Issuer
and following the appointment of a successor agent in accordance
with the provisions of this Section 9.11. If the Agent shall
resign as Agent under this Agreement, then the Required Banks
shall appoint from among the Banks willing to serve as Agent a
successor agent for the Banks, which successor agent shall be
approved by the Issuer (which approval shall not be unreasonably
withheld), whereupon such successor agent shall succeed to the
rights, powers and duties of the Agent, and the term "Agent"
shall mean such successor agent effective upon such appointment
and approval, and the former Agent's rights, powers and duties as
Agent shall be terminated, without any other or further act or
deed on the part of such former Agent or any of the parties to
this Agreement, or any holders of the obligations owing
hereunder. After any retiring Agent's resignation as Agent, the
provisions of this Section 9.11 shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was Agent
under this Agreement.
Section 9.12 Descriptive Headings. The descriptive
headings of the various provisions of this Agreement are inserted
for convenience of reference only and shall not be deemed to
affect the meaning or construction of any of the provisions
hereof.
Section 9.13 Notice. ORAL AGREEMENTS OR ORAL
COMMITMENTS TO LOAN MONEY, TO EXTEND CREDIT, OR TO FORBEAR FROM
ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
Section 9.14 Arbitration. At the request of the
Agent, acting on behalf of the Required Banks, or the Issuer, any
controversy or claim between the Banks and the Issuer, arising
from or relating to this Agreement or any Related Document
executed in connection with this Agreement or any Related
Document or arising from any alleged tort shall be settled by
arbitration in King County, Washington. The United States
Arbitration Act will apply to the arbitration proceedings which
will be administered by the American Arbitration Association
under its commercial rules of arbitration, except that unless the
amount of the claim(s) being arbitrated exceeds $5,000,000 there
shall be only one arbitrator. Any controversy over whether an
issue is arbitrable shall be determined by the arbitrator(s).
Judgement upon the arbitration award may be entered in any court
having jurisdiction. The institution and maintenance of any
action for judicial relief or pursuit of a provisional or
ancillary remedy shall not constitute a waiver of the right of
either party, including plaintiff, to submit the controversy or
claim to arbitration if such action for judicial relief is
contested.
For purposes of the application of the statute of
limitations the filing of an arbitration as provided herein is
the equivalent of filing a lawsuit and the arbitrator(s) will
have the authority to decide whether any claim or controversy is
barred by the statute of limitations, and if so, to dismiss the
arbitration on that basis. The parties consent to the joinder in
<PAGE>
<PAGE>
the arbitration proceedings of any party having an interest
related to the claim or controversy being arbitrated.
No provision of this Section shall limit the right of
the Issuer or the Banks to exercise self-help remedies such as
setoff, foreclosure or sale of any collateral, or obtaining any
ancillary provisional or interim remedies from a court of
competent jurisdiction before, after or during the pendency of
any arbitration proceeding. The exercise of any such remedy does
not waive the right of either party to request arbitration.
Section 9.15 Replacement of Original Liquidity
Agreement. The Original Liquidity Agreement shall be deemed
amended and restated in full and superseded by this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused
this Agreement to be duly executed and delivered as of the date
first above written.
HILLHAVEN FUNDING CORPORATION
By: /s/ Robert K. Schneider
Title: Vice President & Treasurer
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ Brad DeSpain
Title: Vice President
SEATTLE-FIRST NATIONAL BANK
By: /s/ Thomas P. Rook
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By: /s/ Brad DeSpain
Title: Vice President
SEATTLE-FIRST NATIONAL BANK, as
Collateral Agent
By: /s/ Thomas P. Rook
Title: Vice President
<PAGE>
<PAGE>
SCHEDULE 1
Bank Bank's Percentage
Bank of America National Trust and 50%
Savings Association
555 S. Flower Street
Los Angeles, California 90071
Attention: Brad DeSpain
Telephone: (213) 228-3262
Telecopy: (213) 228-2756
Seattle-First National Bank 50%
701 Fifth Avenue, INNATE 12
Seattle, Washington 98104
Attention: Thomas Rook
Telephone: (206) 358-8004
Telecopy: (206) 358-3113
<PAGE>
<PAGE>
<TABLE>
Exhibit 11.01
THE HILLHAVEN CORPORATION
Statement Re: Computation of Per Share Earnings
(in thousands, except per share amounts)
<CAPTION>
Year Ended May 31,
1994 1993 1992
<S> <C> <C> <C>
FOR PRIMARY EARNINGS PER SHARE
Shares outstanding at beginning
of period (1) <F1> 20,979 20,883 20,787
Shares issued upon exercise of
stock options 49 27 24
Restricted share awards, net (4) 29 ---
Shares issued upon conversion
of debentures 29 --- ---
Dilutive effect of outstanding
stock options and contingent
shares 209 191 ---
Dilutive effect of warrants
held by NME 3,428 2,002 ---
Weighted average number of shares
and share equivalents
outstanding (2) <F2> 24,690 23,132 20,811
Income (loss) before extraordinary
charge and cumulative effect
of accounting change $ 58,525 $ 40,747 $(78,792)
Adjustments related to proceeds
from exercise of options and
warrants under the "modified
treasury stock" method --- 591 ---
Preferred stock dividends (7,654) (2,888) (1,444)
Adjusted income (loss) 50,871 38,450 (80,236)
Extraordinary charge, net of
income taxes (1,062) (565) ---
Cumulative effect of change in
accounting for income taxes --- (1,103) ---
Net income (loss) as adjusted $ 49,809 $ 36,782 $(80,236)
Primary earnings per share:
Income (loss) before extraordinary
charge and cumulative effect
of accounting change $ 2.06 $ 1.66 $ (3.86)
Extraordinary charge (.04) (.02) ---
Cumulative effect of change in
accounting for income taxes --- (.05) ---
Income (loss) per share $ 2.02 $ 1.59 $ (3.86)
</TABLE>
(Continued on next page)
<PAGE>
<PAGE>
<TABLE>
THE HILLHAVEN CORPORATION
Statement Re: Computation of Per Share Earnings
(in thousands, except per share amounts)
<CAPTION>
Year Ended May 31,
1994 1993 1992
<S> <C> <C> <C>
FOR FULLY DILUTED EARNINGS PER SHARE
Weighted average number of shares
used in primary calculation 24,690 23,132 20,811
Additional dilutive effect of
stock options and warrants
(3) <F3> (4) <F4> 116 38 2,112
Assumed conversion of convertible
debentures 8,258 6,470 32
Fully diluted weighted average
number of shares (2) <F2> 33,064 29,640 22,955
Income (loss) before extraordinary
charge and cumulative effect
of accounting change, adjusted
per primary calculation $ 50,871 $ 38,450 $(80,236)
Adjustments for interest expense
and related income taxes 6,816 7,056 1,132
Adjusted income (loss) used in
fully diluted calculation 57,687 45,506 (79,104)
Extraordinary charge, net of
income taxes (1,062) (565) ---
Cumulative effect of change in
accounting for income taxes --- (1,103) ---
Adjusted income used in fully
diluted calculation $ 56,625 $ 43,838 $(79,104)
Fully diluted earnings per share:
Income (loss) before extraordinary
charge and cumulative effect of
accounting change $ 1.74 $ 1.54 $ (3.45)
Extraordinary charge (.03) (.02) ---
Cumulative effect of change in
accounting for income taxes --- (.04) ---
Income (loss) per share (5) <F5> $ 1.71 $ 1.48 $ (3.45)
</TABLE>
<PAGE>
<PAGE>
[FN]
(1)<F1> Share amounts have been adjusted for the effect of a
one-for-five reverse stock split effective November 1,
1993.
(2)<F2> All shares in these tables are weighted on the basis of
the number of days the shares were outstanding or
assumed to be outstanding during each period.
(3)<F3> This calculation is submitted for 1992 in accordance
with Regulation S-K item 601(b)(11) although not
required by footnote 2 to paragraph 14 of APB Opinion
No. 15 because it results in dilution of less than 3%.
(4)<F4> This calculation is submitted for 1992 in accordance
with Regulation S-K item 601(b)(11) although it is
contrary to paragraph 40 of APB Opinion No. 15 because
it produces an anti-dilutive result.
(5)<F5> This calculation is submitted for 1992 and 1993 in
accordance with Regulation S-K item 601(b)(11) although
it is contrary to paragraph 37 of APB Opinion No. 15.
<PAGE>
<PAGE>
Exhibit 21.01
REGISTRANT'S SUBSIDIARIES
The Hillhaven Corporation, a Nevada corporation
First Healthcare Corporation, a Delaware corporation
Hillhaven of Central Florida, Inc., a Delaware
corporation
Northwest Health Care, Inc., an Idaho corporation
Pasatiempo Development Corp., a California corporation
Professional Medical Enterprises, Inc., a Massachusetts
corporation
Hillhaven Home Care, Inc., a Delaware corporation
CIC Risk Management Corporation, a Delaware corporation
Hillhaven Properties, Ltd., an Oregon corporation
Hillhaven Health Services Malaysia, Inc.
Brim-Olive Grove, Inc., an Oregon corporation
Fairview Living Centers, Inc., an Oregon
corporation
Twenty-Nine Hundred Corporation, a Florida
corporation
Ledgewood Health Care Corporation, a Massachusetts
corporation*
Cornerstone Insurance Company, a Cayman Islands corporation
Brim of Massachusetts, Inc., a Massachusetts corporation
Hillhaven Funding Corporation, a Nevada corporation
Medisave Pharmacies, Inc., a Delaware corporation
Medi-Save of Florida, Inc., a Delaware corporation
Ricketts Drug, Incorporated, a Virginia corporation
American X-Rays, Inc., a Louisiana corporation*
Hillhaven PIP Funding I, Inc., a Delaware corporation
<PAGE>
<PAGE>
Hillhaven Community Health Partnership, a Florida general
partnership*
Windsor Woods Nursing Home Partnership, a Washington general
partnership
St. George Nursing Home Limited Partnership, an Oregon limited
partnership
Bartlesville Nursing Home Partnership, an Oregon general
partnership*
Carrollwood Care Center, a Tennessee general partnership
Foothill Nursing Company Partnership, a California general
partnership*
San Marcos Nursing Home Partnership, a California general
partnership*
Fox Hill Village Partnership, a Massachusetts general
partnership*
Starr Farm Partnership, a Vermont general partnership*
New Pond Village Associates, a Massachusetts general partnership
Tucson Retirement Center Limited Partnership, an Oregon limited
partnership
Castle Garden Retirement Center Limited Partnership, an Oregon
limited partnership
Lantana Partners, Ltd., a Florida limited partnership
Woodhaven Partners, Ltd., a Florida limited partnership*
Hillcrest Retirement Center, Ltd., an Oregon limited partnership
Topeka Retirement Center, Ltd., a Kansas limited partnership
Sandy Retirement Center Limited Partnership, an Oregon limited
partnership
Hillhaven - MSC Partnership, a California general partnership*
Twenty-Nine Hundred Associates, a Florida limited partnership
Medisave Pharmacies Partnership
Medisave - CSSI Partnership
* - Only fifty percent (50%) is owned by one of the Registrant's
subsidiaries
<PAGE>
<PAGE>
<PAGE>
Exhibit 23.01
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The Hillhaven Corporation:
We consent to incorporation by reference in the Registration
Statement (No. 33-35034) on Form S-8 of The Hillhaven Corporation
of our report dated July 8, 1994 relating to the consolidated
balance sheets of The Hillhaven Corporation and subsidiaries as
of May 31, 1994 and 1993, and the related consolidated statements
of operations, cash flows and changes in stockholders' equity for
each of the years in the three-year period ended May 31, 1994,
and all related schedules, which report appears in the May 31,
1994 Annual Report on Form 10-K of The Hillhaven Corporation.
Our report refers to a change in the method of accounting for
income taxes effective June 1, 1992.
KPMG PEAT MARWICK LLP
Seattle, Washington
August 17, 1994
<PAGE>
<PAGE>
