EXHIBIT 10.40
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GUARANTEE REIMBURSEMENT AGREEMENT
dated as of January 31, 1990
between
NATIONAL MEDICAL ENTERPRISES, INC.
and
THE HILLHAVEN CORPORATION
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TABLE OF CONTENTS
Page
1. Agreement to Reimburse NME for Payments of the
Obligations....................................... 2
2. Guarantee Fee..................................... 4
3. Notice of Certain Payment Defaults, Prepayments or
Terminations of Assumed Leases.................... 5
4. Affirmative Covenants............................. 5
5. Negative Covenants................................ 11
6. Events of Default................................. 15
7. No Amendments or Waivers, etc. Except in Writing;
Remedies Cumulative............................... 18
8. Indemnification................................... 19
9. Miscellaneous..................................... 19
10. Reinstatement of Agreement; Termination;
Subrogation....................................... 21
11. Dispute Resolution Procedures..................... 22
12. Definitions....................................... 22
Appendix A .............................................. ▇-▇
▇▇▇▇▇▇▇▇ ▇ .............................................. B-1
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GUARANTEE REIMBURSEMENT AGREEMENT dated as of January 31, 1990 between
NATIONAL MEDICAL ENTERPRISES INC., a Nevada corporation ("NME"), and THE
HILLHAVEN CORPORATION, a Nevada corporation ("New Hillhaven").
WHEREAS, NME and New Hillhaven have entered into a Reorganization and
Distribution Agreement providing for a reorganization of certain of the
businesses heretofore conducted by NME's long term care group and a pro rata
distribution to the holders of NME's capital stock, as of the record date
established by NME in connection therewith, of approximately 85% of the
outstanding shares of common stock, par value $0.15 per share, of New Hillhaven
(the "Distribution") on or about the date hereof;
WHEREAS, New Hillhaven or subsidiaries of New Hillhaven are assuming
certain debt or other payment obligations of NME and/or certain subsidiaries of
NME, previously incurred in connection with, or relating to, the business being
transferred to New Hillhaven and/or its subsidiaries, the aggregate amount of
which obligations is set forth in Appendix A hereto (the "Debt Obligations");
WHEREAS, NME and/or certain of its subsidiaries nevertheless remain
obligated to pay the Debt Obligations in the event that New Hillhaven or its
subsidiaries default in the payment thereof;
WHEREAS, NME has guaranteed certain other debt and payment obligations the
aggregate amount of which is set forth in Appendix A (the "Other Obligations"),
and which obligations include (without limitation) obligations of certain
partnerships or other entities with respect to which guarantee fees have
heretofore been paid to NME or The Hillhaven Corporation, a Tennessee
corporation ("Old Hillhaven");
WHEREAS, NME is transferring the Other Obligations or a portion thereof to
New Hillhaven as of the date hereof, but NME nevertheless remains obligated to
pay the Other Obligations in the event of a default in the payment thereof;
WHEREAS, certain New Hillhaven subsidiaries, on the one hand, and NME
and/or certain of its subsidiaries, on the
other hand, are entering into various Assignment and Assumption of Lease
Agreements dated on or prior to the Distribution Date pursuant to which certain
subsidiaries New Hillhaven are assuming all obligations under certain leases
(the "Assumed Leases"), which obligations heretofore have been the obligations
of NME and/or certain subsidiaries of NME and the aggregate amount of which is
set forth in Appendix A hereto (the "Lease Obligations") (the Debt Obligations,
the Other Obligations and the Lease Obligations sometimes hereinafter being
referred to collectively and severally as the "Obligations") and
WHEREAS, NME and/or certain of its subsidiaries nonetheless remain
contingently liable under the Assumed Leases to pay the Lease Obligations in the
event that New Hillhaven defaults in the payment thereof;
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Agreement to Reimburse NME for Payments of the Obligations.
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(a) Reimbursement. New Hillhaven shall reimburse NME, promptly on demand,
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for all Obligations (except the Obligations set forth in Appendix B hereto) paid
by NME or its subsidiaries after the Distribution Date not theretofore
reimbursed by New Hillhaven. Payments and notices shall b made or given, as the
case may be, in accordance with the provisions of Sections 1(c), 3 and 9(b).
(b) Interest on Unpaid Reimbursements. New Hillhaven shall pay to NME
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interest on all payments of the Obligations (except the Obligations set forth in
Appendix B hereto) by NME to the extent that payment of such Obligations is not
reimbursed by New Hillhaven on the same day NME or its subsidiaries me such
payments, such interest to accrue from the date of each payment until
reimbursement thereof has occurred in full, on demand, at the maximum interest
rate permitted by law. Interest payable shall be computed on the basis of a 365
(or 366, as the case may be) day year for the actual days elapsed.
(c) Payments. All payments due to NME her.under shall be made in lawful
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currency of the United States in immediately available funds, by transfer, with
sufficient information to identify the source and application of funds,
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to Account No. ▇▇▇▇-▇-▇▇▇▇▇ at Bank of America, Corporate Service Center, San
Francisco, California; ABA #▇▇▇▇▇▇▇▇▇ or such other account or in such other
manner or at such other address as may be designated by NME in writing. In the
event the date specified for any payment hereunder is not a Business Day, such
payment shall be made on the next following Business Day and interest shall be
paid at the rate provided for herein on any such payment to the Business Day on
which such payment is made.
(d) Duty to Pay Absolute. The duty of New Hillhaven to make any and all
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payments in the manner specified hereunder shall be unconditional, irrevocable
and absolute, and all such payments shall be made strictly in accordance with
the terms hereof under all circumstances, including, without limitation, the
following:
(i) Any lack of validity or enforceability of the agreements
pursuant to which the Obligations were incurred, this Agreement, or any
other document, instrument or agreement relating thereto or hereto
(including, without limitation, any Assumption Agreements or any guarantees
with respect to the Obligations) (sometimes hereinafter being referred to
collectively and severally as the "Related Documents");
(ii) Any change in the time, manner or place of payment of, or
any other term of, any or all of the Obligations;
(iii) Any release, amendment or waiver of, or any consent to or
departure from, any or all provisions of the Related Documents;
(iv) The existence of any claim, set-off, defense or other right
which New Hillhaven may have at any time against NME or any other Person,
whether in connection with a Related Document, a transaction contemplated
by a Related Document or any other transaction; and
(v) Any other circumstance which might otherwise constitute a
defense available to, or a discharge of, New Hillhaven, any Subsidiary or
NNE.
New Hillhaven hereby waives, to the fullest extent permitted by law, any right
to proceed or make a claim against NME arising out of NME's payment of any
amount, whether or not any of the foregoing circumstances shall exist at any
time.
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(e) Identification of Obligations. Concurrent with the execution and
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delivery of this Agreement NME shall deliver to New Hillhaven a schedule
identifying in reasonable detail all of the Obligations. Each of NME and New
Hillhaven shall initial two copies of such schedule and retain one such copy for
its records.
2. Guarantee Fee.
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New Hillhaven shall pay to NME a guarantee fee equal to
(a) for the period beginning on the Distribution Date to and including May
31, 1990, $2,000,000;
(b) for the fiscal year ending May 31, 1991: (i) the principal amount of
Obligations outstanding at the close of business on May 31, 1990 multiplied by
(ii) a fraction the numerator of which is $7,200,000 and the denominator of
which is the principal amount of all Obligations outstanding as of the
Distribution Date; and
(c) for each subsequent fiscal year: (i) the principal amount of
Obligations outstanding at the close of business on May 31 of the preceding
fiscal year multiplied by (ii) a fraction which is equal to the applicable
fraction for the previous fiscal year multiplied by 1.2.
For the period beginning on the Distribution Date to and including May 31, 1990,
such fee is to be paid as follows: $500,000 on February 28, 1990 and $1,500,000
on May 21, 1990. For subsequent fiscal years, such fees are to be paid in equal
quarterly installments at the end of each fiscal quarter of the subsequent year.
In the event that the amount of outstanding Obligations is reduced to zero at
any time, the guarantee fee for the year during which such reduction occurs will
be pro-rated on the basis of a 365 (or, 366 as the case may be) day year for the
number of actual days elapsed until such reduction. Notwithstanding the
foregoing, the annual guarantee fee hereunder shall not exceed at any time 3/100
of the Obligations then outstanding.
NME hereby assigns to New Hillhaven any and all guarantee fees payable to
NME or Old Hillhaven with respect to NME's guarantee of any of the Obligations,
and delegates the collection of such guarantee fees to New Hillhaven.
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3. Notice of Certain Payment Defaults, Prepayments or Terminations of
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Assumed Leases.
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If New Hillhaven or any Subsidiary defaults in the payment of any
Obligation or Prepays any Obligation, whether in whole or in part, or if any of
the Assumed Leases terminates, New Hillhaven shall give NME notice of such
payment default, prepayment or termination on the same day as the occurrence of
such payment default, prepayment or termination by telephonic notice confirmed
on the same day in writing or by telex or telecopy. Any confirmation in writing
provided pursuant to this Section 3 shall be provided in accordance with Section
9(b).
4. Affirmative Covenants.
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So long as NME or any subsidiary of NME remains obligated (either directly
or as guarantor or otherwise) with respect to any outstanding Obligations, or
any amount is owing to NME hereunder, New Hillhaven shall, unless otherwise
consented to in writing by NME:
(a) Financial Statements. Furnish to NME:
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(i) as soon as available, but in any event not later than 120 days
after the close of each fiscal year of New Hillhaven, a copy of the audited
consolidated balance sheet of New Hillhaven and the Consolidated
Subsidiaries as at the end of such fiscal year, and related audited
consolidated statements of income, cash flows and changes in stockholders,
equity of New Hillhaven and the Consolidated Subsidiaries for such fiscal
year, setting forth for each fiscal year beginning with the fiscal year
ending May 31, 1991 with respect to each such consolidated balance sheet
and May 31, 1992 with respect to each of such other financial statements in
comparative form the corresponding figures for the preceding fiscal year,
all in reasonable detail, prepared in accordance with GAAP applied on a
basis is consistently maintained throughout the period involved and with
the prior fiscal year, except as disclosed therein, such consolidated
financial statements to be certified by Independent Certified Public
Accountants (such certification not to be qualified or limited because of
any restricted or limited examination made by such accountants);
(ii) as soon as available, but in any event not later than 60 days
after the end of each of the first
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three quarterly period, of each fiscal year of New Hillhaven, unaudited
consolidated financial statements of New Hillhaven and the Consolidated
Subsidiaries, including a condensed consolidated balance sheet of New
Hillhaven and the Consolidated Subsidiaries as at the end of such fiscal
quarter, and related condensed consolidated statements of income, cash
flows and changes in stockholders' equity of New Hillhaven and the
Consolidated Subsidiaries for the period from the beginning of such fiscal
year to the end of such fiscal quarter, the consolidated financial
statements of New Hillhaven and the Consolidated Subsidiaries setting ▇▇▇▇
for each fiscal quarter beginning with the fiscal quarter ending August 31,
1991 corresponding figures for the like period of the preceding fiscal
year; all (A) in reasonable detail, (B) prepared in accordance with the
instructions of the Securities and Exchange Commission for filings on Form
10-Q and in accordance with GAAP applicable to interim financial statements
on a basis consistently maintained throughout the period involved and with
prior periods except as disclosed therein and (C) certified to be correct
by the Chairman and Chief Executive Officer, the Vice Chairman and Deputy
Chief Executive Officer, the Chief Financial Officer, the President, an
Executive Vice President or a Senior Vice President of New Hillhaven;
(iii) concurrently with the delivery of the financial statements
referred to in clause (i) above, a certificate of such Independent
Certified Public Accountants, stating that in making the examination
necessary for certifying such financial statements no knowledge was
obtained of any Default or Event of Default hereunder, except as
specifically indicated;
(iv) concurrently with the delivery of the financial statements
referred to in clauses (i) and (ii) above, a certificate of the Chairman
and Chief Executive Officer, the Vice Chairman and Deputy Chief Executive
Officer, the Chief Financial Officer, the President, an Executive Vice
President or a Senior Vice President of New Hillhaven (A) stating that, to
the best of his or her knowledge, New Hillhaven and the Subsidiaries,
during such period, have kept, observed, performed and fulfilled each and
every covenant and condition in this Agreement, the Assumption Agreements,
the Leases, the Revolving Credit Agreement, the Note Guarantee Agreement
and the New Hillhaven subsidiary Notes and that he or she has obtained no
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knowledge of any Default or Event of Default hereunder except as
specifically indicated and (B) showing in detail the calculations
supporting such statement in respect of Sections 5(c), 5(f), 5(g) and 5(h)
of this Agreement (provided that the certificate showing in detail
calculations in respect of Section 5(c) need only be furnished concurrently
with the delivery of the financial statements referred to in clause (i)
above) and the delivery of any such certificate shall be deemed to be a
representation and warranty by New Hillhaven to NME as to the accuracy of
the statements contained therein;
(v) promptly after the same are sent, copies of all financial
statements and reports which New Hillhaven sends to its stockholders, and
promptly after the same are filed, copies of all financial statements and
reports which New Hillhaven may make to, or file with, the Securities and
Exchange Commission or any public body succeeding to any or all of the
functions of the Securities and Exchange Commission; and
(vi) promptly, such additional financial and other information as
NME may from time to time reasonably request.
(b) Payment of Obligations and Liabilities. Pay and discharge, and cause
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the Subsidiaries to pay and discharge, at or before maturity, all their
respective obligations and liabilities, except (i) (other than with respect to
tax liabilities. and obligations and liabilities under the Assumption
Agreements, the Leases, the New Hillhaven Subsidiary Notes, the Revolving Credit
Agreement, the Note Guarantee Agreement and this Agreement, each of which shall
be paid and discharged on or before the due date thereof) where the failure to
pay or discharge, or to cause to be paid or discharged, would not in the
aggregate have a material adverse effect on the business, operations, properties
or financial or other condition of New Hillhaven and the Subsidiaries, taken as
a whole or (ii) (other than with respect to obligations and liabilities under
the Assumption Agreements, the Leases, the New Hillhaven Subsidiary Notes, the
Revolving Credit Agreement, the Note Guarantee Agreement and this Agreement,
each of which shall be paid and discharged on or before the due date thereof)
where the same may be contested in good faith, in which case New Hillhaven shall
maintain, and cause the Subsidiaries to maintain, in accordance with GAAP,
appropriate reserves for the accrual of any of the same.
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(C) Maintenance of Properties; Insurance. Keep, and cause the Subsidiaries
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to keep, all properties useful and necessary in the business of New Hillhaven
and the Subsidiaries in good working order and condition; maintain, and cause
the Subsidiaries to maintain, with financially sound and reputable insurance
companies (which insurance companies may be Affiliates of NME other than New
Hillhaven or any Subsidiary or, subject to the proviso below, Part of New
Hillhaven's self-insurance program) insurance on all their properties in at
least such amounts and against at least such risks as are usually insured
against in the same general area and by companies engaged in the same or a
similar business and maintain professional liability and malpractice insurance
against claims usually insured against by skilled nursing and other long term
care facilities and the personnel connected with such facilities, provided that
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for professional liability and malpractice insurance New Hillhaven shall not
increase the deductible (or self-insured retention) to more than $100,000 per
claim, unless it is financially advantageous for New Hillhaven to do so and such
increase is approved in writing by NME, which approval shall not be unreasonably
withheld; and furnish to NME, upon request, full information as to the insurance
carried.
(d) Notices. Promptly give notice to NME (i) of the occurrence of any
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Default or Event of Default hereunder, (ii) of any default or event of default
under any material instrument or other agreement of New Hillhaven or any
Subsidiary (except that with respect to any default in the payment by New
Hillhaven or any Subsidiary of any Obligation, the further provisions of Section
3 shall govern), (iii) of any litigation, proceeding, investigation or dispute
which may exist at any time between New Hillhaven or any Subsidiary and any
governmental authority which might have a material adverse effect upon the
business, operations, assets or condition, financial or otherwise, of New
Hillhaven and the Subsidiaries, taken as a whole, (iv) of all litigation and
proceedings affecting New Hillhaven or any Subsidiary (A) in which the amount
involved is equal to at least 5% of Consolidated Net Worth at the time of the
commencement, or at any time during the continuance, of such litigation or
proceeding and not fully covered by insurance (other than self-insurance, co-
insurance or insurance deductibles) or (3) in which injunctive or similar relief
is sought and which might have a material adverse effect on New Hillhaven and
the Subsidiaries, taken as a whole, (v) as soon as possible and in any event
within 30 days after New Hillhaven knows or has reason to know that (A) any
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Reportable Event has occurred with respect to any Plan, (3) a transaction
prohibited under Section 4975 of the Code or Section 406 of ERISA resulting in a
material liability to New Hillhaven, a Subsidiary or any Person that New
Hillhaven or a Subsidiary has an obligation to indemnify has occurred, (C) a
Plan has incurred an accumulated funding deficiency as described in Section 412
of the Code or Section 302 of ERISA, whether or not waived, (D) there has been a
failure to make contributions to a Plan which may give rise to a lien, (E) there
has been an amendment to a Plan which requires the granting of a security
interest, (F) there has been a termination of a Plan or there are proceedings
which are likely to be or have been instituted to terminate a Plan with unfunded
benefit liabilities as described in Section 4001(a) (18) of ERISA or unfunded
retiree medical benefits, or (G) New Hillhaven or a Subsidiary (or any
respective ERISA Affiliate other than NME or any entity that is a subsidiary of
NME after the date hereof) has incurred liability under Section 515 or Title IV
of ERISA (including withdrawal liability) with respect to a Plan, and deliver to
NME a certificate of the Chairman and Chief Executive Officer, the Vice Chairman
and Deputy Chief Executive Officer, the Chief Financial Officer, the President,
an Executive Vice President or a Senior Vice President of New Hillhaven setting
forth details as to such event and the action that New Hillhaven proposes to
take with respect thereto, together with a copy of any notices that may be
required to be filed with the Internal Revenue Service, the PBGC or any other
authority, or any notice delivered by such authority, and (vi) immediately after
the occurrence of a material adverse change in the business, operations, assets
or condition, financial or otherwise, of New Hillhaven and the Subsidiaries,
taken as a whole, and deliver to NME a certificate of the Chairman and Chief
Executive Officer, the Vice Chairman and Deputy Chief Executive Officer, the
Chief Financial Officer, the President, an Executive Vice President or a Senior
Vice President of New Hillhaven setting forth the details of such change and
what action New Hillhaven proposes to take with respect thereto. For all
purposes of Section 4(d)(v), New Hillhaven shall be deemed to have all knowledge
or knowledge of all facts attributable to the administrator of any such Plan.
(e) Conduct of Business; Maintenance of Existence and Compliance With Law.
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Continue, and cause the Significant Subsidiaries to continue, to engage
primarily in business of the same general type as now contemplated to be
conducted by New Hillhaven and the Significant Subsidiaries, and preserve, renew
and keep in full force and effect their
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corporate existence and take all reasonable action to maintain their rights,
privileges and franchises necessary or desirable in the normal conduct of
business, provided that the foregoing shall not be deemed to prohibit any
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actions expressly Permitted under Section 5(e) hereof; comply, and cause each
Significant Subsidiary to comply, with all material applicable laws, ordinances,
rules, regulations and requirements of governmental authorities (including
without limitation ERISA and the rules and regulations thereunder and Public Law
92-603), and hold and maintain, and at all times cause each Significant
Subsidiary to hold and maintain, in full force and effect all certifications,
favorable governmental reviews, governmental approvals, licenses and permits
necessary or desirable to enable New Hillhaven and the Subsidiaries to conduct
their respective businesses as now contemplated to be conducted except where the
failure to comply therewith or hold and maintain such certifications, favorable
governmental reviews, governmental approvals, licenses or permits would not,
individually or in the aggregate, have a material adverse effect on the
business, operations, properties or financial or other condition of New
Hillhaven and the Subsidiaries, taken as a whole, and except where compliance
with any such laws, ordinances, rules, regulations or requirements would cause
New Hillhaven or a Subsidiary to violate laws of the United States of America to
which New Hillhaven or such Subsidiary is subject; notwithstanding the
foregoing, (i) a Significant Subsidiary may reincorporate in another state or
merge with or into New Hillhaven or another Subsidiary wholly-owned by New
Hillhaven or other Subsidiaries and (ii) New Hillhaven may reincorporate in
another state or merge with or into a Subsidiary wholly-owned by New Hillhaven
or other Subsidiaries, provided that the successor corporation assumes in
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writing all the obligations of New Hillhaven hereunder and said successor
corporation delivers to NM' an opinion of Counsel for New Hillhaven, in form and
substance reasonably satisfactory to NM', to the effect that the assumption by
such successor corporation of such obligations is effective and is fully binding
upon and enforceable against such successor corporation.
(f) Books and Records: Inspection of Property. Keep, and cause each
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Subsidiary to keep, proper books of record and account in which full, true and
correct entries in conformity with generally accepted accounting principles
shall. be made of all dealings and transactions in relation to its business and
activities; and permit, and cause the Subsidiaries to permit, representatives of
NME to visit and inspect any of their respective properties and examine and
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make abstracts (at NME's expense, unless an Event of Default shall have occurred
and be continuing, in which case, at New Hillhaven's expense) from any of the
books and records of New Hillhaven and any Subsidiary upon reasonable notice at
any reasonable time and as often as may reasonably be desired.
(g) Retention of Records. Retain, and cause each Subsidiary to retain, all
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books and records of New Hillhaven and its Subsidiaries in accordance with NME's
Record Retention Program, a copy of which has previously been furnished to New
Hillhaven.
Any statement in any certificate, document, financial statement or other
statement whatsoever furnished by New Hillhaven to NME under or in connection
with this Agreement shall be deemed to be a representation and warranty of New
Hillhaven to NME of the accuracy of the statement or statements contained
therein.
5. Negative Covenants.
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So long as NME or any subsidiary of NME remains obligated (either directly
or as guarantor or otherwise) with respect to any outstanding Obligations, or
any amount is owing to NME hereunder, New Hillhaven shall not, unless otherwise
consented to in writing by NME:
(a) Limitation on Indebtedness. Create, incur, assume or suffer to
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exist, or permit any Subsidiary to create, (Pounds)incur, assume or suffer to
exist, any Indebtedness, except (i) Indebtedness evidenced by, under or in
respect of this Agreement, any New Hillhaven Subsidiary Note, the Note,
Guarantee Agreement, any Lease, any Assumption Agreement or the Revolving Credit
Agreement; (ii) other Indebtedness existing on the date hereof and reflected in
the financial statements included in the Information Statement, (iii) other
unsecured Indebtedness, provided that no Default or Event of Default has
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occurred and is continuing or shall have occurred after giving effect thereto
and in the case of any Subsidiary if the proceeds of such Indebtedness are
applied to the exercise of purchase options under any of the Leases or to the
reduction of the Indebtedness of New Hillhaven or any subsidiary to NME or any
subsidiary of NME; (iv) any nonrecourse debt incurred in connection with any
leveraged lease financing; (v) Indebtedness secured by Liens not prohibited by
Section 5(b), provided that no Default or Event of Default has occurred and is
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continuing or shall have occurred after giving effect thereto; and (vi)
▇▇
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇ or Subsidiaries incurred or be incurred pursuant
to transactions involving MP Funding Corporation and the placement of first
mortgages on certain of the nursing home facilities transferred or to be
transferred to New Hillhaven or Subsidiaries.
(b) Limitations on Liens. Create, incur, assume or suffer to exist, or
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permit any Subsidiary to create, incur, assume or suffer to exist, any Lien upon
any of its properties, assets, income or profits, whether now owned or hereafter
acquired. except (i) the Liens referred to in the financial statements include
in the Information Statement (and any refinancing, extensions or renewals of
such Liens by reason of any refinancing, extension or renewal of the
Indebtedness secured by such Liens), provided that such Liens are not spread to
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cover other or additional Indebtedness of New Hillhaven or any Subsidiary and
provided further that any refinancing permitted by this clause (i) shall be on
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terms no less favorable to New Hillhaven or a Subsidiary than the Indebtedness
of New Hillhaven or such Subsidiary being refinanced and that no additional Lien
or Liens are created to cover such Indebtedness; (ii) Liens securing
Indebtedness of a Subsidiary to New Hillhaven; (iii) preexisting Liens on
property, or on property owned by corporations, acquired by New Hillhaven or any
Subsidiary after the date hereof; (iv) Liens securing all or any part of the
purchase price or the cost of construction of property or equipment acquired by
New Hillhaven or a Subsidiary, provided that the amount of the Indebtedness
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secured thereby does not exceed 100% of the purchase price or the cost of
construction and the Indebtedness so secured and the related Liens are incurred
within 90 days after acquisition, or completion of construction and full
operation, whichever is later; (v) Liens on property owned by New Hillhaven or a
Subsidiary required to secure Indebtedness incurred to construct additions or to
make substantial repairs or alterations or substantial improvements to
such properties, provided that the amount of the Indebtedness secured does not
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exceed 100% of the expense incurred to construct such additions or to make such
substantial repairs or alterations or substantial improvements and provided,
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further that the Indebtedness so secured and the related Liens are incurred
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within one year after the completion of construction or the making of such
repairs, alterations or improvements and full operation; (vi) Liens in favor of
a government or a governmental entity which: (A) secure payments pursuant to a
contract, subcontract, statute or regulation or (B) secure Indebtedness incurred
to finance all or some of the purchase price or cost of
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construction of goods, products or facilities produced under contract or
subcontract for the government or a governmental entity; (vii) Liens on accounts
receivable or notes receivable of New Hillhaven or any Subsidiary which secure
borrowings made under financing facilities provided to New Hillhaven; (viii)
Liens securing Indebtedness incurred solely for the purpose of exercising any
purchase option under any Lease (provided that the proceeds of such Indebtedness
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are applied to the exercise of such purchase option) or to reduce Indebtedness
to NME or any subsidiary of NME; (ix) Liens securing the Indebtedness referred
to in Section 5(a) (vi); and (x) other Liens securing Indebtedness, provided
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that the aggregate amount of Indebtedness of New Hillhaven and the Subsidiaries
secured by Liens pursuant to this Section 5(b) (x) shall not exceed $5,000,000
of Indebtedness at any one time incurred after tee date hereof.
(c) Limitation on Consolidated Contingent Obligations. Permit at any time
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the ratio of Consolidated Contingent Obligations to Consolidated Net Worth to
exceed 0.2 to 1.0.
(d) Limitation on Investments. Make or commit to make, or permit any
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Subsidiary to make or commit to make, any investment (whether by.means of stock
purchase, capital contribution, loan or advance or any other type of investment)
in any Person at any time when a Default or an Event of Default has occurred and
is continuing or would occur after giving effect to such investment.
(e) Limitation on Fundamental Changes. Merge or consolidate with any
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other Person (except as expressly permitted by Section 4(e) hereof) unless New
Hillhaven is the surviving corporation and, after giving effect to such merger
or consolidation, no Default or Event of Default has occurred and is continuing,
or permit any Subsidiary to merge or consolidate with any other Person (except
as expressly permitted by Section 4(e) hereof) unless (i) such Subsidiary is the
surviving corporation or the consideration received by New Hillhaven in
connection therewith is at least equal to the fair market value of such
Subsidiary (as determined by the Board of Directors of New Hillhaven in good
faith) and (ii) after giving effect to such merger or consolidation, no Default
or Event of Default has occurred and is continuing, or liquidate or dissolve
itself (or suffer any liquidation or dissolution), or dispose of or lease or
sell, or permit any Subsidiary to dispose of or lease or sell, all or any
substantial portion of its properties, assets and business to any other Person,
except that New Hillhaven or any Subsidiary may lease, sell or
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otherwise dispose of all or any part of its property, assets or business
(including, without limitation, Stock) to any Person, including, without
limitation, New Hillhaven or a Consolidated Subsidiary for consideration at
least equal to the fair market value of such properties, assets or business (as
determined by the Board of Directors of New Hillhaven in good faith), provided
--------
that notwithstanding any of the foregoing to the contrary, in no event may New
Hillhaven lease, sell or otherwise dispose of or permit any Subsidiary to lease,
sell or otherwise dispose of all or any part of its property, assets or business
(including, without limitation, Stock) encumbered by a Lien in favor of NME or
an Affiliate of NME, or by a Lien securing Indebtedness guaranteed or in effect
guaranteed by NME or an Affiliate of NME, to any Person, including, without
limitation, New Hillhaven or a Consolidated Subsidiary, unless the cash portion
of the proceeds from such sale are sufficient, and are applied directly, to
repay such Indebtedness.
(f) Maintenance of Consolidated Net Worth. Permit at any time
-------------------------------------
Consolidated Net Worth to be less than $100,000,000.
(g) Fixed Charge Coverage. Permit at any time beginning with the fiscal
---------------------
quarter ending May 31, 1993 the ratio of Income from Continuing Operations
Available for Fixed Charges to Fixed Charges to be less than 1.15 to 1.0.
(h) Restrictions on Dividends. Declare or pay or set apart for payment,
-------------------------
whether directly or indirectly, any dividends (other than dividends payable in
capital stock of New Hillhaven) on, or declare or make, whether directly or
indirectly, any other distribution on account of any shares of, any class of its
capital stock now or hereafter outstanding, or set apart any sum for such
purpose, or redeem, retire, purchase or otherwise acquire beneficially any
shares of any class of its capital stock now or hereafter outstanding or set
aside any sum for such purpose, provided that in any fiscal quarter beginning on
--------
or after June 1, 1990 New Hillhaven may pay cash dividends aggregating not more
than the Consolidated Net Earnings of New Hillhaven during the immediately
preceding fiscal quarter if after giving effect thereto Consolidated Net Worth
is not less than $170,000,000, no Default or Event of Default has occurred and
is continuing or shall have occurred after giving effect thereto and beginning
with the fiscal quarter ending February 28, 1991 the ratio of Income from
Continuing Operations Available for Fixed Charges to Fixed Charges is not less
than 1.5 to 1.0.
14
(i) Restriction on Transfer of Assets to Subsidiaries. Transfer any
-------------------------------------------------
assets to a Subsidiary, or permit a Subsidiary to transfer any assets to another
Subsidiary, for the purpose of improving the credit position of such Subsidiary
in order to enable it to borrow money, provided that New Hillhaven or a
--------
Subsidiary may transfer accounts receivable or notes receivable of New Hillhaven
or such Subsidiary to a Subsidiary for the purpose of securing borrowings made
under financing facilities provided to New Hillhaven.
6. Events of Default.
-----------------
Upon the occurrence of any of the following Events of Default:
(a) New Hillhaven shall (i) default in the payment of any amount payable
under this Agreement, when due and payable in respect of a guarantee fee or (ii)
default in the payment of any other amount payable under this Agreement, when
due and payable, and such default shall not have been remedied within 15 days;
or
(b) Any representation or warranty made or deemed made by New Hillhaven
which is contained in any certificate, document, financial statement or other
statement furnished at any time under or in connection with this Agreement shall
prove to have been incorrect in any material respect on or as of the date made
or deemed made; or
(c) New Hillhaven shall default in the observance or performance of any
agreement or covenant contained in Section 5 hereof; or
(d) New Hillhaven shall default in the observance or performance of any
other agreement or covenant contained in this Agreement, and such default shall
not have been remedied within 30 days after notice of the same; or
(e) New Hillhaven or any Subsidiary shall (i) default in any payment of
principal of or interest on any Indebtedness or in the payment of any Contingent
Obligation, beyond the period of grace, if any, provided in the instrument or
agreement under which such Indebtedness or Contingent Obligation was created; or
(ii) default in the observance or performance of any other agreement, ten or
condition contained in any such Indebtedness or Contingent Obligation or in any
instrument or agreement evidencing, securing or relating thereto (or if any
other event of default or
15
default under any such agreement shall occur and be continuing), the effect of
which event of default or default is to cause, or to permit the holder or
holders of such Indebtedness or beneficiary or beneficiaries of such Contingent
Obligation (or a trustee or agent on behalf of a holder or holders or
beneficiary or beneficiaries) to cause, such Indebtedness or Contingent
Obligation to become due prior to its stated maturity, provided that (except as
--------
set forth in Section 6(a)) nothing contained in this Section 6(e) shall
constitute an Event of Default if (i) such default is in respect of any
Indebtedness stated to be In an amount that is less than $1,000,000 or in
respect of any Contingent Obligation that involves an ultimate liability of less
than $1,000,000 and (ii) such default is being contested in good faith; or
(f) New Hillhaven, any Subsidiary or any fiduciary of any Plan engages in
a transaction in connection with which New Hillhaven, any Subsidiary or any
entity that they have an obligation to indemnify could be subject to a civil
penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed pursuant
to Section 4975 of the Code; New Hillhaven or any Subsidiary (or any respective
ERISA Affiliate other than NME or any entity that is a subsidiary of NME after
the date hereof) incurs a lien or grants a security interest with respect to any
Plan; a Reportable Event shall occur with respect to a Plan or a proceeding
shall commence to terminate any Plan; a Plan shall incur an accumulated funding
deficiency as described in Section 412 of the Code or Section 302 of ERISA for
any plan year (whether or not waived); New Hillhaven or any Subsidiary (or any
respective ERISA Affiliate other than NME or any entity that is a subsidiary of
NME after the date hereof) terminates any Plan (including a medical Plan), takes
any action or fails to take any action which could result in liability
(including withdrawal liability) under Title IV of ERISA or Section 515 of ERISA
and such event (alone or taken together with any other event described herein)
in the reasonable opinion of NME will have a material adverse effect on the
business, financial condition, results of operations or prospects of New
Hillhaven and its Subsidiaries, taken as a whole; or
(g) New Hillhaven or any Significant Subsidiary shall commence any case,
proceeding or other action relating to it in bankruptcy or seeking
reorganization, liquidation, dissolution, winding up, arrangement, composition
or readjustment of its debts, or for any other relief, under any bankruptcy,
insolvency, reorganization, liquidation, dissolution,
16
arrangement, composition, readjustment of debt or other similar act or law of
any jurisdiction, domestic or foreign, now or hereafter existing; or New
Hillhaven or any Significant Subsidiary shall apply for a receiver, custodian or
trustee of it or for all or a substantial part of its properties; or New
Hillhaven or any Significant Subsidiary shall make an assignment for the benefit
of creditors; or New Hillhaven or any Significant Subsidiary shall admit in
writing its inability to pay its debts generally as they become due; or a
receiver, custodian or trustee of New Hillhaven or any Significant Subsidiary or
for all or a substantial part of its or their respective properties shall be
appointed, and New Hillhaven or such Significant Subsidiary by any act expressly
indicates its approval thereof, consent thereto, or acquiescence therein; or an'
order, judgment or decree is entered adjudicating New Hillhaven or any
Significant Subsidiary bankrupt or insolvent, or approving the petition in any
such proceedings, and such order, judgment or decree remains unstayed and in
effect for more than 60 days; or
(h) Any case, proceeding or other action against New Hillhaven or any
Significant Subsidiary shall be commenced in bankruptcy or seeking
reorganization, liquidation, dissolution, winding up, arrangement, composition
or readjustment of its debts, or any other relief, under any bankruptcy,
insolvency, reorganization, liquidation, dissolution, arrangement, composition,
readjustment of debt or other similar act or law of any jurisdiction, domestic
or foreign, now or hereafter existing; or a warrant of attachment, execution or
distraint, or similar process, shall be issued against any substantial part of
the property of New Hillhaven or any Significant Subsidiary; and in each such
case such condition shall continue for a period of 60 days undismissed,
undischarged or unbonded; or
(i) Any order, judgment or decree is entered in any proceedings against
New Hillhaven decreeing the dissolution of New Hillhaven and such order,
judgment or decree remains unstayed and in effect for more than 60 days; or any
order, judgment or decree is entered in any proceedings against New Hillhaven or
any Subsidiary decreeing a split-up of New Hillhaven or such Subsidiary which
requires the divestiture of a substantial part, or the divestiture of the stock
of any Subsidiary whose assets constitute a substantial part, of the
consolidated assets of New Hillhaven and the Subsidiaries, or which requires the
divestiture of assets, or the stock of any Subsidiary, which shall have
contributed a substantial part of Consolidated Net earnings for any of
17
the three fiscal years then most recently ended or for the Period from the start
of New Hillhaven's first fiscal year until the completion of the fiscal year
most recently ended, if such period is shorter than the aforementioned three
fiscal years, and such order, judgment or decree remains unstayed and in effect
for more than 60 days; or
(j) There shall occur and be continuing an event of default under any of
the Leases, any New Hillhaven Subsidiary Note, the Note Guarantee Agreement or
the Revolving Credit Agreement which in the reasonable opinion of NME Would have
a material adverse effect on the condition, financial or otherwise, of New
Hillhaven and the Subsidiaries, taken as a whole,
then (i) if an Event of Default specified in paragraph (g), (h) or (i) above
occurs, automatically all amounts accrued through the date of such Event of
Default and payable by New Hillhaven under this Agreement shall immediately be
due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived, anything contained herein to the
contrary notwithstanding or (ii) if an Event of Default other than an Event of
Default specified in paragraph (g), (h) or (i) above occurs, so long as such
Event of Default is continuing, NME, by notice to New Hillhaven, may declare any
or all amounts payable by New Hillhaven under this Agreement, to be due and
payable forthwith, whereupon the ▇▇▇ shall become immediately due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived, anything contained herein to the contrary
notwithstanding, provided that no payment by New Hillhaven pursuant to this
--------
Section 6 shall relieve New Hillhaven from making any and all future payments
pursuant to this Agreement when due and payable under this Agreement.
Notwithstanding the foregoing, none of the forgoing events shall be deemed an
Event of Default hereunder to the extent (and during the time period) NME has
provided a written waiver thereof pursuant hereto.
7. No Amendments or Waivers. etc. Except in Writing: Remedies Cumulative.
---------------------------------------------------------------------
No amendment or waiver of any provision of this Agreement or of any
provision of any debt instrument underlying any Obligation or consent to any
departure by New Hillhaven from any such provision shall in any event be
effective unless the ▇▇▇ shall be in writing and signed by NME, and any such
waiver or consent shall be effective only in the
18
specific instance and for the specific purpose for which given. No remedy herein
conferred or reserved is intended to be exclusive of any other available remedy
or remedies, but each and every such remedy shall be cumulative and shall be in
addition to every other remedy given under this Agreement or now or hereafter
existing at law or in equity or by statute. No course of dealing between New
Hillhaven and NME shall operate as a waiver of any right of NME and no delay in
exercising or failure to exercise any right or power accruing upon any default,
omission or failure of performance hereunder shall impair any such right or
power or shall be construed to be a waiver thereof, but any such right or power
may be exercised from time to time and as often as may be deemed expedient. In
order to exercise any remedy reserved to NME in this Agreement, it shall not be
necessary to give any notice, other than such notice as may be herein expressly
required. In the event any provision contained in this Agreement should be
breached by any party and thereafter duly waived by the other party so empowered
to act, such waiver shall be limited to the particular breach so waived and
shall not be deemed to waive any other breach hereunder.
8. Indemnification.
---------------
In addition to the amounts payable under Sections l and 2, New Hillhaven
hereby agrees to protect, indemnify, pay and save NME harmless from and against
any and all claims, demands, liabilities, damages, losses, costs, charges and
expenses (including reasonable attorneys' fees) which NME incurs or becomes
subject to as a consequence, direct or indirect, of (i) any breach by New
Hillhaven of any covenant, term or condition in, or the occurrence of any
Default or Event of Default under, this Agreement, together with all expenses
resulting from the compromise or defense of any claims or liabilities arising as
a result of any such breach, Default or Event of Default and (ii) defense
against any legal action commenced to challenge this Agreement, all to the
extent not caused or incurred as a result of the gross negligence or willful
misconduct of NME.
The obligations of New Hillhaven under this Section 8 shall survive the
termination of this Agreement.
9. Miscellaneous.
-------------
(a) Binding Effect; Assignment. This Agreement is a continuing obligation
--------------------------
and shall be binding upon and inure to the benefit of and be enforceable by NME
and New Hillhaven and
19
their respective successors, transferees and assigns, provided that New
--------
Hillhaven may not transfer or assign all or any part of this Agreement without
the prior written consent of NME. NME may assign, negotiate, pledge or otherwise
hypothecate grant participations herein.
(b) Notices. All notices, consents, requests, instructions, approvals and
-------
other communications hereunder
Shall be in writing and shall be deemed to have been duly given, if delivered in
person or by courier, telegraphed, telexed or sent by facsimile transmission or
mailed, by certified or registered mail, postage prepaid at the following
address (or at such other address provided by one party to the other in
writing):
If to NME:
National Medical Enterprises, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy no.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Treasurer
with a copy to:
National Medical Enterprises, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy no.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
If to New Hillhaven:
The Hillhaven Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy no.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President
20
with a copy to:
The Hillhaven Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy no.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
(c) Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed an original, but such counterparts shall together
constitute but one and the same instrument.
(d) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California.
(e) Construction. In this Agreement:
------------
(i) unless the context otherwise requires, the terms "herein",
"hereof," "hereto", and "hereunder" refer to this Agreement;
(ii) the headings of the sections and subsections hereof and the
table of-contents hereof are inserted for convenience only and do not constitute
a part of this Agreement; and
(iii) all references to the Assumption Agreements, the Leases, the
New Hillhaven Subsidiary Notes, the Note Guarantee Agreement or the Revolving
Credit Agreement shall mean such agreements as the same may be amended,
supplemented or modified from time to time.
10. Reinstatement of Agreement: Termination: Subrogation.
----------------------------------------------------
This Agreement shall continue to be effective or be reinstated, as the case
may be, if at any time payment of any Obligation is rescinded or must otherwise
be returned by NME upon the insolvency, bankruptcy or reorganization of New
Hillhaven or otherwise, all as though such payment had not been made. Except as
provided in Section 8, this Agreement shall terminate upon the payment in full
of the Obligations and all other amounts hereunder. New Hillhaven shall be
subrogated to and shall stand in the place of NME at the time New Hillhaven has
paid in full all of the Obligations
21
and all other amounts hereunder, and NME shall cooperate with New Hillhaven in a
reasonable manner in Prosecuting any subrogated right or claim.
11. Dispute Resolution Procedures.
-----------------------------
All disputes arising out of or relating to this Agreement shall be
resolved Pursuant to the reference procedure set forth in California Code of
Civil Procedure Sections 638 et seq. The parties hereby agree to submit to the
-- ---
jurisdiction of the Superior Court of the County of Los Angeles, State of
California (the "Superior Court") for such Purpose. Either Party may initiate
the procedure set forth in this Section by providing the other party with notice
setting forth the nature of the dispute (the "Reference Notice"). The parties
shall designate to the Superior Court a referee who is an active attorney or
retired judge living in the County of Los Angeles who shall resolve the dispute.
If the parties are unable to designate a referee within 20 days after the
receipt of the Reference Notice, the Parties shall request that the Superior
Court appoint a referee. In connection with any proceeding pursuant to this
Section, the parties shall have all discovery rights which would have been
available had the matters which are the subject of the dispute been decided by
the Superior Court. Discovery proceedings may be noticed and commenced
immediately after delivery of the Reference Notice. The hearing before the
referee shall begin no later than 60 days after the receipt of the Reference
Notice. All discovery in connection with the reference proceeding shall be
concluded no later than 15 days prior to the commencement of the hearing.
Judgment upon the award rendered by the referee shall be entered in the Superior
Court. Nothing in this Section shall be construed to impair the right of either
party to appeal from such judgment.
12. Definitions.
-----------
The terms defined in this Section (unless the context otherwise requires)
for all purposes of this Agreement shall have the respective meanings specified
in this Section.
"Affiliate": as to any Person, any Person directly or indirectly
---------
controlling, controlled by or under common control with such Person, whether
through the ownership of voting securities, by contract or otherwise.
22
"Agreement": this Guarantee Reimbursement Agreement, as the same may be
---------
amended, supplemented or modified from time to time.
"Assumption Agreements": the various Assignment and Assumption of Lease
---------------------
Agreements dated on or prior to the Distribution Date between NME and/or certain
NME subsidiaries, on the one hand, and certain Subsidiaries, on the other hand,
each together with the related Guaranty of Lease.
"Business Day": a day other than a Saturday, Sunday or other day on
------------
which commercial banks in the City of Los Angeles, the State of California, or
the City of Tacoma, the State of Washington, are authorized or required by law
to close.
"Code" means the United States Internal Revenue Code of 1986, as amended.
----
"Consolidated Contingent Obligations": at a particular date, all
-----------------------------------
Contingent Obligations (excluding Contingent Obligations to NME or Contingent
Obligations assumed from NME) of New Hillhaven and the Consolidated
Subsidiaries, on a consolidated basis, at such date.
"Consolidated Income (Loss) from Continuing Operations before Income
-------------------------------------------------------------------
Taxes": for a particular period, the consolidated income (loss) from continuing
-----
operations, before income taxes, of New Hillhaven and the Consolidated
Subsidiaries as determined in accordance with GAAP for such period.
"Consolidated Net Earnings": for a particular period, the consolidated net
-------------------------
income or loss of New Hillhaven and the Consolidated Subsidiaries as determined
in accordance with GAAP for such period.
"Consolidated Net Worth": at a particular date, all amounts which, in
----------------------
conformity with ow, would be included under shareholders' equity on a
consolidated balance sheet of New Hillhaven and the Consolidated Subsidiaries at
such date.
"Consolidated Subsidiaries": all Subsidiaries, the accounts of which have
-------------------------
been, or which in accordance with GAAP should be, consolidated with the accounts
of New Hillhaven on a consolidated balance sheet of New Hillhaven.
24
"Contingent Obligation": any obligation of New Hillhaven or any of the
---------------------
Consolidated Subsidiaries required by GAAP to be disclosed in the consolidated
financial statements of New Hillhaven and the Consolidated Subsidiaries or the
footnotes thereto guaranteeing or in effect guaranteeing any Indebtedness of any
Person (other than New Hillhaven or any of the Consolidated Subsidiaries),
including, without limitation, in the case of Indebtedness of others secured by
any lien upon property owned by New Hillhaven or any of the Consolidated
Subsidiaries, whether or not assumed, the lesser of the amount of such
Indebtedness and the fair market value of such property securing such
Indebtedness.
"Counsel for New Hillhaven": at any particular date, such counsel, who may
-------------------------
be the General Counsel or Assistant General Counsel of New Hillhaven at such
date, as may be selected by New Hillhaven.
"Default": any of the events specified in Section 6, whether or not any
-------
requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"Distribution Date": January 31, 1990.
-----------------
"S": dollars in lawful currency of the United States of America.
-
"ERISA": the Employee Retirement Income Security Act of 1974, as the same
-----
may be amended, supplemented or modified from time to time.
"ERISA Affiliate": each trade or business (whether or not incorporated)
---------------
which together with New Hillhaven or a Subsidiary would be deemed to be a
"single employer" within the meaning of Section 4001 of ERISA or under
subsection (b), (c), (m) or (o) of Section 414 of the Code.
"Event of Default": any of the events specified in Section 6 hereof,
----------------
provided that any requirement for the giving of notice, lapse of time, or both,
or any other condition, has been satisfied.
"Fixed Charges": at a particular date, the sum of (i) the amount of
-------------
interest (including without limitation any imputed interest) deducted in
computing Consolidated Income (Loss) from Continuing Operations before income
Taxes for the immediately preceding four fiscal quarters of New Hillhaven on all
indebtedness of New Hillhaven and the
24
Consolidated Subsidiaries, plus (ii) an amount (excluding amounts
----
related to discontinued operations) equal to the aggregate amount of all rentals
paid or accrued by New Hillhaven and the Consolidated Subsidiaries during the
immediately preceding four fiscal quarters of New Hillhaven on lease
obligations.
"GAAP": generally accepted accounting principles as in effect from time to
----
time in the United States of America.
"Income from Continuing Operations Available For Fixed Charges": (a) at a
--------------------------------------------------------------
particular date, the sum of (i) Consolidated Income (plus) from Continuing
----
Operations before Income Taxes, plus (ii) Fixed Charges, plus (iii) depreciation
---- ----
and amortization expenses (excluding expenses related to discontinued
operations), minus (plus) (iv) gains (losses) from sales of assets (other than
----- -----
assets included in discontinued operations), in each case for the four most
recent fiscal quarters of New Hillhaven.
"Indebtedness": for any Person:
------------
(i) all obligations for borrowed money and for the deferred
purchase price of property or services, and obligations evidenced by bonds,
debentures, notes or other similar instruments which in accordance with
GAAP would be shown on the balance sheet of such Person as a liability; and
(ii) all rental obligations of such Person under leases required
to be capitalized under GAAP.
"Independent Certified Public Accountants": a firm of independent
-----------------------------------------
accountants which is known as one of the "Big Six" accounting firms, selected by
New Hillhaven.
"Information Statement": the Information Statement dated January 8, 1990,
---------------------
constituting part of New Hillhaven's Registration Statement on Form 10 in the
form declared effective by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended.
"Leases": the approximately 115 leases of nursing home facilities or
------
retirement housing centers dated on or prior to the Distribution Date between
NME or a subsidiary of NME, as Lessor, and First Healthcare Corporation or
another Subsidiary, as Lessee.
25
"Lien": any mortgage, pledge, hypothecation, assignment, security interest,
----
lien, charge or encumbrance, or preference, priority or other security agreement
or arrangement of any kind or nature whatsoever (including, without limitation,
any conditional sale or other title retention agreement, any financing lease
having Substantially the same economic effect as any of the foregoing, and the
filing of, or agreement to give, any financing statement under the Uniform
Commercial Code or comparable law of any Jurisdiction), provided that the term
--------
"Liens" shall not be deemed to include: (a) liens for taxes not yet due or which
are being contested in good faith and by appropriate proceedings if adequate
reserves with respect thereto are maintained on the books of New Hillhaven or
the Subsidiaries, as the case may be, in accordance with GAAP; (b) carriers',
warehousemen's, mechanics', materialmen's, repairmen's or other like liens
arising in the ordinary course of business and deposits made in the ordinary
course of business to obtain the release of any such liens; (c) liens, pledges
or deposits in connection with workmen's compensation, unemployment insurance
and other social security legislation; (d) liens, pledges or deposits to secure
the performance of bids, trade contracts (other than for borrowed money),
leases, public or statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature; (e) leases entered into by New
Hillhaven or any Subsidiary as lessor in the ordinary course of business; (f)
landlord's liens imposed by law; (g) liens and encumbrances consisting of zoning
restrictions, easements, restrictions on the use of real property of New
Hillhaven or any Subsidiary and minor irregularities in title to such real
property, none of which encumbrances materially impairs the use of any property
by New Hillhaven or any Subsidiary or the operation of their respective
businesses; (h) liens created by or resulting from legal proceedings which are
being contested in good faith and by appropriate proceedings and the execution
or enforcement of which is effectively stayed; and (i) liens, pledges or
deposits securing (or in lieu of) surety, stay appeal or customs bonds, and
securing payment of taxes, assessments, customs duties or other similar charges.
"New Hillhaven Subsidiary Notes": the promissory notes of various
-------------------------------
Subsidiaries, in the initial aggregate principal amount of $137.3 million, each
dated the Distribution Date and delivered to certain subsidiaries of NME.
"Note Guarantee Agreement": the Note Guarantee Agreement dated as of the
------------------------
Distribution Date among New Hillhaven, NME and certain NME subsidiaries.
26
"PBGC": the Pension Benefit Guaranty Corporation established pursuant to
----
Subtitle A of Title IV of ERISA.
"Person": an individual, Partnership, corporation, business trust, joint
------
stock company, trust, unincorporated association, joint venture or other entity
or a government or any agency or political subdivision thereof.
"Plan": any employee benefit plan described in Section 3(2) of ERISA
----
established or maintained by New Hillhaven or a Subsidiary in respect of which
New Hillhaven or a commonly controlled entity is an "employer" as defined in
Section 3(5) of ERISA or with respect to which New Hillhaven, a Subsidiary or a
commonly controlled entity has an obligation to contribute.
"Reportable Event": any of the events set forth in Section 4043(b) of
-----------------
ERISA or the regulations thereunder.
"Revolving Credit Agreement": the Revolving Credit and Term Loan Agreement
---------------------------
dated as of the Distribution Date between NME and New Hillhaven.
"Significant Subsidiary": Brim of Massachusetts, Inc., Brim-Olive Grove,
-----------------------
Inc., Fairview Living Centers, Inc., First Healthcare Corporation, Hillhaven of
Central Florida, Inc., Hillhaven Properties, Ltd., Medi-$ave Pharmacies, Inc.,
Northwest Health Care, Inc. and Pasatiempo Development and each other Subsidiary
having a net worth at the relevant time of at least. $150,000.
"Stock": the meaning assigned to the term 'margin stock' in subsection
-----
221.2(h) of Regulation U of the Board of Governors of the Federal Reserve
System, as the same may be amended, supplemented or modified from time to time.
"Subsidiary": any corporation of which more than 50% of the outstanding
-----------
shares of stock having ordinary voting power to elect a majority of the board of
directors (other than stock having such power only by reason of the happening of
a contingency) is at the time owned by New Hillhaven or by one or more of its
subsidiaries or by New Hillhaven and one or more of its subsidiaries.
27
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
NATIONAL MEDICAL ENTERPRISES, INC.
/s/ ▇▇▇▇▇▇ ▇. Poners
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By: ▇▇▇▇▇▇ ▇. Poners
Title: Senior Vice President
THE HILLHAVEN CORPORATION
/s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
By: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
28
APPENDIX A
A. DEBT OBLIGATIONS
----------------
INDUSTRIAL REVENUE BONDS $ 62,970,000
LONG TERM BANK NOTES 5,574,996
LONG TERM BANK NOTES 7,894,292
LONG TERM CONTRACTS 800
FIRST MORTGAGE NOTES 17,815,766
M.P. FUNDING LOANS 95,000,000
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$189,255,854
B. LEASE OBLIGATIONS 415,839,987
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C. OTHER OBLIGATIONS
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DEBTS OF PARTNERSHIPS GUARANTEED 121,678,412
OTHER CONTINGENT LIABILITIES OF NEW
HILLHAVEN 16,194,691
CARDINAL PUT OPTIONS 20,750,000
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TOTAL OBLIGATIONS $763,718,944
============
January 4, 1990
1
APPENDIX 3
1. $9,500,000 aggregate Principal amount of Pasco County Board of County
Commissioners Variable Rate Demand Revenue Bonds (Woodhaven Partners, Ltd.
Project) Series 1985;
2. $8,000,000 aggregate principal amount of Palm Beach County, Florida
Adjustable/Fixed Rate Industrial Development Revenue Bonds (Meridian House
Project) Series 1985; and
3. $6,200,000 aggregate principal amount of The Industrial Development
Authority of the county of Yavapai Industrial Development Revenue Refunding
Bonds (Kachina Pointe Project) Series 1988.
2