10-12B/A

As filed with the Securities and Exchange Commission on August 19, 2019

File No. 001-38900

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2

to

FORM 10

 

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

PURSUANT TO SECTION 12(b) OR 12(g) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

 

THE PENNANT GROUP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   83-3349931

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

1675 East Riverside Drive

Suite 150

Eagle, Idaho

 

83616

(Zip Code)

(Address of Principal Executive Offices)  

(208) 506-6100

(Registrant’s telephone number, including area code) 

 

 

Securities to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

to be so registered

 

Name of each exchange on which

each class is to be registered

Common stock, $0.001 par value per share   The NASDAQ Global Select Market 

Securities to be registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Smaller reporting company

 

    

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☒

 

 

 


INFORMATION REQUIRED IN REGISTRATION STATEMENT

CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10

Item 1. Business

The information required by this item is contained under the sections “Summary,” “Risk Factors,” “Special Note About Forward-Looking Statements,” “Unaudited Pro Forma Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Our Business,” “Management,” “Executive and Director Compensation,” “Certain Relationships and Related Party Transactions” and “Index to Financial Statements” of the information statement filed as Exhibit 99.1 to this Form 10 (the “information statement”). Those sections are incorporated herein by reference.

Item 1A. Risk Factors

The information required by this item is contained under the sections “Risk Factors” and “Special Note About Forward-Looking Statements” of the information statement. Those sections are incorporated herein by reference.

Item 2. Financial Information

The information required by this item is contained under the sections “Summary—Summary Historical and Unaudited Pro Forma Combined Financial Data,” “Capitalization,” “Selected Historical Combined Financial Data,” “Unaudited Pro Forma Combined Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the information statement. Those sections are incorporated herein by reference.

Item 3. Properties

The information required by this item is contained under the section “Our Business—Properties” of the information statement. That section is incorporated herein by reference.

Item 4. Security Ownership of Certain Beneficial Owners and Management

The information required by this item is contained under the section “Security Ownership of Certain Beneficial Owners and Management” of the information statement. That section is incorporated herein by reference.

Item 5. Directors and Executive Officers

The information required by this item is contained under the section “Management” of the information statement. That section is incorporated herein by reference.

Item 6. Executive Compensation

The information required by this item is contained under the sections “Security Ownership of Certain Beneficial Owners and Management,” “Management” and “Executive and Director Compensation” of the information statement. Those sections are incorporated herein by reference.

Item 7. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is contained under the sections “Management,” “Executive and Director Compensation” and “Certain Relationships and Related Party Transactions” of the information statement. Those sections are incorporated herein by reference.


Item 8. Legal Proceedings

The information required by this item is contained under the section “Our Business—Legal Proceedings” of the information statement. That section is incorporated herein by reference.

Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters

The information required by this item is contained under the sections “Risk Factors,” “The Spin-Off,” “Trading Market,” “Dividend Policy,” “Executive and Director Compensation” and “Description of Capital Stock” of the information statement. Those sections are incorporated herein by reference.

Item 10. Recent Sales of Unregistered Securities

Not applicable.

Item 11. Description of Registrant’s Securities to be Registered

The information required by this item is contained under the sections “Risk Factors—Risks Related to Ownership of Our Common Stock,” “Dividend Policy” and “Description of Capital Stock” of the information statement. Those sections are incorporated herein by reference.

Item 12. Indemnification of Directors and Officers

The information required by this item is contained under the sections “Certain Relationships and Related Party Transactions—Indemnification Agreements” and “Description of Capital Stock—Limitations on Liability of Directors and Indemnification of Directors and Officers” of the information statement. Those sections are incorporated herein by reference.

Item 13. Financial Statements and Supplementary Data

The information required by this item is contained under the sections “Selected Historical Combined Financial Data,” “Unaudited Pro Forma Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Index to Financial Statements” and the financial statements referenced therein of the information statement. Those sections are incorporated herein by reference.

Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 15. Financial Statements and Exhibits

(a)    Financial Statements

The information required by this item is contained under the sections “Unaudited Pro Forma Combined Financial Statements” and “Index to Financial Statements” beginning on page F-1 of the information statement and the financial statements referenced therein. Those sections are incorporated herein by reference.


(b)    Exhibits

The following documents are filed as exhibits hereto:

 

Exhibit
No.

  

Description

  2.1    Form of Master Separation Agreement by and between The Ensign Group, Inc. and The Pennant Group, Inc.
  3.1    Form of Amended and Restated Certificate of Incorporation of The Pennant Group, Inc.
  3.2    Form of Amended and Restated Bylaws of The Pennant Group, Inc.
10.1    Form of Transition Services Agreement by and between The Ensign Group, Inc. and The Pennant Group, Inc.
10.2    Form of Tax Matters Agreement by and between The Ensign Group, Inc. and The Pennant Group, Inc.
10.3    Form of Employee Matters Agreement by and between The Ensign Group, Inc. and The Pennant Group, Inc.
10.4    Form of Lease Agreement by and among subsidiaries of The Ensign Group, Inc. and subsidiaries of The Pennant Group, Inc.
10.5    Form of The Pennant Group, Inc. 2019 Omnibus Incentive Plan
10.6    Form of Options Granted Under The Pennant Group, Inc. 2019 Omnibus Incentive Plan
10.7    Form of RSUs Granted Under The Pennant Group, Inc. 2019 Omnibus Incentive Plan
10.8    Form of RS Granted Under The Pennant Group, Inc. 2019 Omnibus Incentive Plan
10.9    Form of The Pennant Group, Inc. 2019 Long Term Incentive Plan
10.10    Form of LTIP RS Granted Under The Pennant Group, Inc. 2019 Long Term Incentive Plan
10.11    Form of Indemnification Agreement to be entered into between The Pennant Group, Inc. and each of its directors and executive officers
10.12    Form of Credit Agreement by and among The Pennant Group, Inc., as borrower, SunTrust Bank, as administrative agent, and the lenders from time to time party thereto
21.1    Subsidiaries of The Pennant Group, Inc.
99.1    Preliminary Information Statement, dated August 19, 2019


SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

THE PENNANT GROUP, INC.

BY:    

 

/s/ Daniel H Walker

 

Name: Daniel H Walker

 

Title: Chairman, Chief Executive Officer and President

Date: August 19, 2019

EX-2.1

Exhibit 2.1

MASTER SEPARATION AGREEMENT

by and between

THE ENSIGN GROUP, INC.

and

THE PENNANT GROUP, INC.

dated as of

[____], 2019

 


TABLE OF CONTENTS

 

         Page  

ARTICLE I DEFINITIONS

     2  

Section 1.1

  Definitions      2  

Section 1.2

  Interpretation      9  

ARTICLE II THE REORGANIZATION

     10  

Section 2.1

  Transfers of Assets and Assumptions of Liabilities      10  

Section 2.2

  Pennant Assets and Ensign Assets      13  

Section 2.3

  Pennant Liabilities and Ensign Liabilities      14  

Section 2.4

  Termination of Intercompany Agreements      14  

Section 2.5

  Settlement of Intercompany Accounts      14  

Section 2.6

  Replacement of Guarantees      15  

ARTICLE III CERTAIN ACTIONS PRIOR TO THE DISTRIBUTION

     15  

Section 3.1

  SEC and Other Securities Filings      15  

Section 3.2

  NASDAQ Listing Application      16  

Section 3.3

  Distribution Agent      16  

Section 3.4

  Governmental Approvals and Consents      16  

Section 3.5

  Ancillary Agreements      16  

Section 3.6

  Governance Matters      16  

ARTICLE IV THE DISTRIBUTION

     17  

Section 4.1

  Distribution      17  

ARTICLE V CONDITIONS

     17  

Section 5.1

  Conditions Precedent to Consummation of the Distribution      17  

Section 5.2

  Right Not to Close      19  

ARTICLE VI NO REPRESENTATIONS OR WARRANTIES

     19  

Section 6.1

  Disclaimer of Representations and Warranties      19  

Section 6.2

  As Is, Where Is      20  

ARTICLE VII CERTAIN COVENANTS AND ADDITIONAL AGREEMENTS

     20  

Section 7.1

  Insurance Matters      20  

ARTICLE VIII ACCESS TO INFORMATION; CONFIDENTIALITY; PRIVILEGE

     20  

Section 8.1

  Agreement for Exchange of Information      20  

Section 8.2

  Ownership of Information      21  

Section 8.3

  Compensation for Providing Information      21  

Section 8.4

  Retention of Records      21  

Section 8.5

  Limitation of Liability      21  

Section 8.6

  Production of Witnesses      22  

Section 8.7

  Confidentiality      22  

Section 8.8

  Privileged Matters      23  

Section 8.9

  Financial Information Certifications      25  

 

i


ARTICLE IX MUTUAL RELEASES; INDEMNIFICATION

     25  

Section 9.1

  Release of Pre-Distribution Claims      25  

Section 9.2

  Indemnification by Pennant      27  

Section 9.3

  Indemnification by Ensign      27  

Section 9.4

  Procedures for Indemnification      28  

Section 9.5

  Indemnification Obligations Net of Insurance Proceeds      30  

Section 9.6

  Indemnification Obligations Net of Taxes      31  

Section 9.7

  Contribution      31  

Section 9.8

  Remedies Cumulative      31  

Section 9.9

  Survival of Indemnities      32  

Section 9.10

  Limitation of Liability      32  

ARTICLE X DISPUTE RESOLUTION

     32  

Section 10.1

  Appointed Representative      32  

Section 10.2

  Negotiation and Dispute Resolution      32  

ARTICLE XI TERMINATION

     34  

Section 11.1

  Termination      34  

Section 11.2

  Effect of Termination      34  

ARTICLE XII MISCELLANEOUS

     34  

Section 12.1

  Further Assurances      34  

Section 12.2

  Payment of Expenses      35  

Section 12.3

  Amendments and Waivers      35  

Section 12.4

  Entire Agreement      35  

Section 12.5

  Survival of Agreements      35  

Section 12.6

  Third-Party Beneficiaries      35  

Section 12.7

  Coordination with Tax Matters Agreement      35  

Section 12.8

  Notices      36  

Section 12.9

  Counterparts; Electronic Delivery      36  

Section 12.10

  Severability      36  

Section 12.11

  Assignability; Binding Effect      36  

Section 12.12

  Governing Law      37  

Section 12.13

  Construction      37  

Section 12.14

  Performance      37  

Section 12.15

  Title and Headings      37  

Section 12.16

  Exhibits and Schedules      37  

 

ii


Exhibit A – Pennant Subsidiaries

Schedules

 

Schedule 2.2(a)    Certain Pennant Assets
Schedule 2.3(a)    Certain Pennant Liabilities

 

 

iii


MASTER SEPARATION AGREEMENT

This MASTER SEPARATION AGREEMENT (this “Agreement”) is entered into as of [______], 2019, by and between THE ENSIGN GROUP, INC., a Delaware corporation (“Ensign”) and THE PENNANT GROUP, INC., a Delaware corporation and a direct, wholly-owned subsidiary of Ensign (“Pennant”). Ensign and Pennant are sometimes referred to herein individually as a “Party,” and collectively as the “Parties.” Capitalized terms used but not otherwise defined herein shall have the respective meanings set forth in Section 1.1.

RECITALS

WHEREAS, the board of directors of Ensign has determined that it is advisable and in the best interests of Ensign and its stockholders to reorganize the assets and liabilities of Ensign into two companies: (i) Ensign which, following consummation of the transactions contemplated herein, will own and conduct the Ensign Business; and (ii) Pennant which, following consummation of the transactions contemplated herein, will own and conduct the Pennant Business;

WHEREAS, in furtherance thereof, the board of directors of Ensign and the board of directors of Pennant have approved the transfer by Ensign and its Subsidiaries of the Pennant Assets to Pennant and its Subsidiaries in actual or constructive exchange for (i) the assumption or incurrence, as applicable, by Pennant and certain of its Subsidiaries of the Pennant Liabilities, (ii) the issuance by Pennant to Ensign of shares of Pennant Common Stock and (iii) the transfer by Pennant, directly or indirectly, to Ensign of the Pennant Cash Payment, all as more fully described in this Agreement and the Ancillary Agreements (the “Reorganization”);

WHEREAS, the board of directors of Ensign has also determined that it is advisable and in the best interests of Ensign and its stockholders to effect a distribution (the “Distribution”) to the holders of the outstanding shares of Ensign Common Stock, on a pro rata basis, of all of the outstanding shares of Pennant Common Stock held by Ensign so that, following the Distribution, Ensign and Pennant will be two independent, publicly traded companies;

WHEREAS, the Reorganization and the Distribution will, among other items, (i) amplify the results of Ensign’s unique operating model in the home health, hospice and senior living industries; (ii) create additional opportunities for key leaders within Pennant and Ensign; (iii) create an enhanced ability to continue both Pennant’s and Ensign’s growth strategy; (iv) create an increased ability to raise funds through capital market offerings; (v) improve opportunities for partnership outside of Ensign; (vi) highlight Pennant’s uniquely diversified payor mix; (vii) provide for equity compensation awards more closely tied to value created by Pennant’s leaders and employees; and (viii) improved investor understanding about the Pennant Business and Ensign Business;

WHEREAS, Pennant has been incorporated for these purposes and has not engaged in activities except in preparation for the Reorganization and the Distribution;

WHEREAS, this Agreement is intended to be, and is hereby adopted as, a “plan of reorganization” within the meaning of Treas. Reg. 1.368-2(g); and


WHEREAS, it is appropriate and desirable to set forth the principal corporate transactions required to effect the Reorganization and the Distribution and to set forth certain other agreements that will, following the Distribution, govern certain matters relating to the Reorganization and the Distribution and the relationship between Ensign and/or its Subsidiaries, on the one hand, and, Pennant and/or its Subsidiaries, on the other hand.

NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Parties hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Definitions. As used in this Agreement, the following terms shall have the meanings set forth in this Section 1.1:

AAA” and “AAA Rules” have the respective meanings set forth in Section 10.2(b).

Action” means any demand, claim, action, suit, countersuit, arbitration, litigation, inquiry, proceeding or investigation by or before any Governmental Authority or any arbitration or mediation tribunal or authority.

Affiliate” means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the specified Person. For this purpose, “control” of a Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through ownership of voting securities, by contract or otherwise.

Agreement” has the meaning set forth in the preamble to this Agreement and includes all Exhibits and Schedules attached hereto or delivered pursuant hereto.

Ancillary Agreements” has the meaning set forth in Section 3.5.

Appointed Representative” has the meaning set forth in Section 10.1.

Appropriate Member of the Ensign Group” has the meaning set forth in Section 9.3.

Appropriate Member of the Pennant Group” has the meaning set forth in Section 9.2.

Asset” means all rights, properties or other assets, whether real, personal or mixed, tangible or intangible, of any kind, nature and description, whether accrued, contingent or otherwise, and wherever situated and whether or not carried or reflected, or required to be carried or reflected, on the books of any Person.

Business Day” means a day other than a Saturday, a Sunday or a day on which banking institutions located in the State of California are authorized or obligated by applicable Law or executive order to close.

 

2


California Courts” has the meaning set forth in Section 10.2(b)(iv).

Code” means the Internal Revenue Code of 1986, as amended.

Confidential Information” means any and all information:

(a) that is required to be maintained in confidence by any Law or under any Contract;

(b) concerning market studies, business plans, computer hardware, computer software (including all versions, source and object codes and all related files and data), software and database technologies, systems, structures and architectures, and other similar technical or business information;

(c) concerning any business and its affairs, which includes earnings reports and forecasts, macro-economic reports and forecasts, business and strategic plans, general market evaluations and surveys, litigation presentations and risk assessments, financing and credit-related information, financial projections, tax returns and accountants’ materials, business plans, strategic plans, Contracts, however documented, and other similar financial or business information;

(d) constituting communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), communications and materials otherwise related to or made or prepared in connection with or in preparation for any dispute or legal proceeding; or

(e) constituting notes, analyses, compilations, studies, summaries and other material that contain or are based, in whole or in part, upon any information included in the foregoing clauses (a) through (d).

Consent” means any consent, waiver or approval from, or notification requirement to, any Person other than a member of either Group.

Contract” means any written, oral, implied or other contract, agreement, covenant, lease, license, guaranty, indemnity, representation, warranty, assignment, sales order, purchase order, power of attorney, instrument or other commitment, assurance, undertaking or arrangement that is binding on any Person or entity or any part of its property under applicable Law.

Contribution Agreements” means the (i) Distribution and Contribution Agreement to be entered into by Bridgestone Living LLC, Pinnacle Senior Living LLC and Ensign, (ii) the Contribution Agreement to be entered into by Turnberry Health Holdings LLC and Ensign prior to the Effective Time and (iii) the Contribution and Exchange Agreement to be entered into by Ensign and Pennant prior to the Effective Time.

Deferred Asset,” “Deferred Liability” and “Deferred Asset or Liability” have the respective meanings set forth in Section 2.1(b)(ii).

Dispute” has the meaning set forth in Section 10.2.

Dispute Notice” has the meaning set forth in Section 10.2(a).

 

3


Distribution” has the meaning set forth in the recitals to this Agreement.

Distribution Agent” means Broadridge Corporate Issuer Solutions, Inc.

Distribution Date” means the date on which the Distribution occurs, such date to be determined by, or under the authority of, the board of directors of Ensign, in its sole and absolute discretion.

Effective Time” means 12:01 a.m. (Eastern time) on [______], 2019, or such other time agreed to by the Parties from time to time.

Employee Matters Agreement” means the Employee Matters Agreement, substantially in the form of Exhibit 10.3 to the Registration Statement, to be entered into by Ensign and Pennant prior to the Effective Time.

Ensign” has the meaning set forth in the preamble to this Agreement.

Ensign Assets” has the meaning set forth in Section 2.2(b).

Ensign Business” means any business now or formerly conducted by Ensign and its present and former Affiliates, other than the Pennant Business, including the skilled nursing, senior living and other ancillary operations of the post-acute businesses conducted by the Ensign Group.

Ensign Common Stock” means the common stock, par value $0.001 per share, of Ensign.

Ensign D&O Policies” has the meaning set forth in Section 7.1.

Ensign Group” means collectively, Ensign and the Subsidiaries of Ensign other than Pennant and the Pennant Subsidiaries.

Ensign Guarantee” means any Guarantee issued, entered into or otherwise put in place by any member of the Ensign Group to support or facilitate, or otherwise in respect of, (a) the obligations of any member of the Pennant Group or any of the Pennant Business or (b) Contracts, commitments, Liabilities or permits of any member of the Pennant Group or any of the Pennant Business.

Ensign Indemnitees” means each member of the Ensign Group and its Affiliates (other than Pennant and the Pennant Subsidiaries) and each of their respective current or former stockholders, directors, officers, agents and employees (in each case, in such Person’s respective capacity as such) and their respective heirs, executors, administrators, successors and assigns.

Ensign Leases” means the lease or sublease agreements, as applicable, each in substantially the form of Exhibit 10.4 of the Registration Statement, to be entered into prior to the Effective Time, by and between a member of the Pennant Group and a member of the Ensign Group to amend and restate the individual “triple-net” lease agreements of [__] senior living properties.

Ensign Liabilities” has the meaning set forth in Section 2.3(b).

 

4


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

Governmental Approval” means any notice, report or other filing to be given to or made with, or any release, consent, substitution, approval, amendment, registration, permit or authorization from, any Governmental Authority.

Governmental Authority” means any U.S. federal, state, local or non-U.S. court, government, department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority.

Group” means the Ensign Group and/or the Pennant Group, as the context requires.

Guarantee” means any guarantee (including guarantees of performance or payment under Contracts, commitments, Liabilities and permits), letter of credit or other credit or credit support arrangement or similar assurance, including surety bonds, bid bonds, advance payment bonds, performance bonds, payment bonds, retention and/or warranty bonds or other bonds or similar instruments.

Indebtedness” of any specified Person means (a) all obligations of such specified Person for borrowed money or arising out of any extension of credit to or for the account of such specified Person (including reimbursement or payment obligations with respect to surety bonds, letters of credit, bankers’ acceptances and similar instruments), (b) all obligations of such specified Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such specified Person upon which interest charges are customarily paid, (d) all obligations of such specified Person under conditional sale or other title retention agreements relating to Assets purchased by such specified Person, (e) all obligations of such specified Person issued or assumed as the deferred purchase price of property or services including all earn-out obligations, (f) all Liabilities secured by (or for which any Person to which any such Liability is owed has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge or other encumbrance on property owned or acquired by such specified Person (or upon any revenues, income or profits of such specified Person therefrom), whether or not the obligations secured thereby have been assumed by the specified Person or otherwise become Liabilities of the specified Person, (g) all obligations of such specified Person that are or are required by GAAP to be treated as a capital lease, (h) all securities or other similar instruments convertible or exchangeable into any of the foregoing, (i) any Liability of others of a type described in any of the preceding clauses (a) through (h) in respect of which the specified Person has incurred, assumed or acquired a Liability by means of a Guarantee, and (j) any prepayment penalties, premiums, consent or other fees or breakage costs that would be payable in order to fully discharge and terminate all obligations under clauses (a) through (i) above.

Indemnifiable Loss” has the meaning set forth in Section 9.5.

Indemnifying Party” has the meaning set forth in Section 9.4(a).

Indemnitee” means any Ensign Indemnitee or any Pennant Indemnitee.

Indemnity Payment” has the meaning set forth in Section 9.5.

 

5


Information Statement” means the information statement, a preliminary version of which is filed as Exhibit 99.1 to the Registration Statement, and any related documentation to be provided to holders of Ensign Common Stock in connection with the Distribution, including any amendments or supplements thereto.

Insurance Policy” means any insurance policies and insurance Contracts, including, without limitation, general liability, property and casualty, workers’ compensation, automobile, directors and officers liability, errors and omissions, employee dishonesty and fiduciary liability policies, whether, in each case, in the nature of primary, excess, umbrella or self-insurance coverage, together with all rights, benefits and privileges thereunder.

Insurance Proceeds” means those monies (in each case, net of any out-of-pocket costs or expenses incurred in the collection thereof):

(a) received by an insured Person from any insurer, insurance underwriter, mutual protection and indemnity club or other risk collective, excluding any proceeds received directly or indirectly (such as through reinsurance arrangements) from any captive insurance Subsidiary of the insured Person; or

(b) paid on behalf of an insured Person by any insurer, insurance underwriter, mutual protection and indemnity club or other risk collective, excluding any such payment made directly or indirectly (such as through reinsurance arrangements) from any captive insurance Subsidiary of the insured Person, on behalf of the insured.

Intercompany Account” means any receivable, payable or loan between any member of the Ensign Group, on the one hand, and any member of the Pennant Group, on the other hand, that exists prior to the Effective Time and is reflected in the records of the relevant members of the Ensign Group and the Pennant Group, except for any such receivable, payable or loan that arises pursuant to this Agreement or any Ancillary Agreement.

Intercompany Agreement” means any Contract between or among any member of the Ensign Group, on the one hand, and any member of the Pennant Group, on the other hand, entered into prior to the Effective Time, but excluding any Contract to which a Person other than any member of the Ensign Group or the Pennant Group is also a party.

IRS” means the United States Internal Revenue Service.

IRS Ruling” has the meaning set forth in the recitals to this Agreement.

Law” means any law, statute, ordinance, code, rule, regulation, order, writ, proclamation, judgment, injunction or decree of any Governmental Authority.

Liabilities” means any and all Indebtedness, liabilities and obligations, whether accrued, fixed or contingent, mature or inchoate, known or unknown, whether or not reflected on a balance sheet, including those arising under any Law, Action or any judgment of any Governmental Authority or any award of any arbitrator of any kind, and those arising under any Contract.

 

6


Losses” means any and all damages, losses, deficiencies, Liabilities, obligations, penalties, judgments, settlements, claims, payments, interest costs, Taxes, fines and expenses (including the costs and expenses of any and all Actions and demands, assessments, judgments, settlements and compromises relating thereto and attorneys’, accountants’, consultants’ and other professionals’ fees and expenses incurred in the investigation or defense thereof or the enforcement of rights hereunder).

Merger Agreement” means the Agreement and Plan of Merger to be entered into by Pennant, [Cornerstone Merger Sub Inc.] and Cornerstone Healthcare, Inc. prior to the Effective Time.

NASDAQ” means the The NASDAQ Global Select Market.

NASDAQ Listing Application” has the meaning set forth in Section 3.2(a).

Party” or “Parties” has the meaning set forth in the preamble to this Agreement.

Pennant” has the meaning set forth in the preamble to this Agreement.

Pennant Assets” has the meaning set forth in Section 2.2(a).

Pennant Business” means all business and operations conducted by any member of the Pennant Group, as described in the Information Statement, including (i) the home health and hospice agencies business conducted by the Pennant Group, (ii) the senior living service businesses conducted by the Pennant Group, and (iii) any other business directly conducted by any member of the Pennant Group as of or prior to the date of this Agreement.

Pennant Cash Payment” has the meaning set forth in Section 2.1(a)(iii).

Pennant Common Stock” means the common stock, par value $0.01 per share, of Pennant.

Pennant Contracts” means any contract, agreement, arrangement, commitment or understanding listed or described in Schedule 2.2(a) (or any applicable licenses, leases, addenda and similar arrangements thereunder as described in Schedule 2.2(a)) and any other contract, agreement, arrangement, commitment or understanding, whether or not in writing, that relates primarily to the Pennant Business.

Pennant Credit Facility” means the revolving credit facility to be entered into by Pennant prior to the Effective Time.

Pennant Group” means collectively, Pennant and the Pennant Subsidiaries.

Pennant Indemnitees” means each member of the Pennant Group and their Affiliates and each of their respective current or former stockholders, directors, officers, agents and employees (in each case, in such Person’s respective capacity as such) and their respective heirs, executors, administrators, successors and assigns.

Pennant Liabilities” has the meaning set forth in Section 2.3(a).

 

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Pennant Subsidiaries” means the Subsidiaries of Pennant as of the date of this Agreement, the entities listed on Exhibit A hereto, any Subsidiary of any such entities and any direct or indirect Subsidiary of Pennant formed after the date of this Agreement and prior to the Distribution Date.

Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, a union, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof.

Record Date” means the close of business on the date determined by the board of directors of Ensign as the record date for determining holders of Ensign Common Stock entitled to receive shares of Pennant Common Stock in the Distribution.

Record Holders” has the meaning set forth in Section 4.1(a)(i).

Registration Statement” means the registration statement on Form 10 of Pennant with respect to the registration under the Exchange Act of the Pennant Common Stock to be distributed in the Distribution, including any amendments or supplements thereto.

Reorganization” has the meaning set forth in the recitals to this Agreement.

SEC” means the United States Securities and Exchange Commission.

Security Interest” means any mortgage, security interest, pledge, lien, charge, claim, option, indenture, right to acquire, right of first refusal, deed of trust, licenses to third parties, leases to third parties, security agreements, voting or other restriction, covenant, condition, encroachment, restriction on transfer, restriction or limitation on use of real or personal property or any other encumbrance of any nature whatsoever, imperfections in or failure of title or defect of title.

Subsidiary” means, with respect to any specified Person, any corporation, partnership, limited liability company, joint venture or other organization, whether incorporated or unincorporated, of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such specified Person or by any one or more of its subsidiaries, or by such specified Person and one or more of its Subsidiaries.

Tax Matters Agreement” means the Tax Matters Agreement, substantially in the form of Exhibit 10.2 to the Registration Statement, to be entered into by Ensign and Pennant prior to the Effective Time.

Taxes” means all taxes, charges, fees, duties, levies, imposts or other assessments imposed by any federal, state, local or foreign Taxing Authority, including, but not limited to, income, gross receipts, excise, property, sales, use, license, capital stock, transfer, franchise, payroll, withholding, social security, value added and other taxes, and any interest, penalties or additions attributable thereto.

 

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Taxing Authority” means any Governmental Authority or any subdivision, agency, commission or authority thereof or any quasi-governmental or private body having jurisdiction over the assessment, determination, collection or imposition of any Tax (including the IRS).

Third-Party Claim” has the meaning set forth in Section 9.4(b).

Transactions” means the Reorganization, the Distribution and any other transactions contemplated by this Agreement or any Ancillary Agreement.

Transition Services Agreement” means the Transition Services Agreement, substantially in the form of Exhibit 10.1 to the Registration Statement, to be entered into by Ensign and Pennant prior to the Effective Time.

Section 1.2 Interpretation. In this Agreement and the Ancillary Agreements, unless the context clearly indicates otherwise:

(a) words used in the singular include the plural and words used in the plural include the singular;

(b) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”;

(c) the word “or” shall have the inclusive meaning represented by the phrase “and/or”;

(d) relative to the determination of any period of time, “from” means “from and including,” “to” means “to but excluding” and “through” means “through and including”;

(e) accounting terms used herein shall have the meanings historically ascribed to them by Ensign and its Subsidiaries in their internal accounting and financial policies and procedures in effect immediately prior to the date of this Agreement;

(f) reference to any agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and by this Agreement;

(g) reference to any Law means such Law (including any and all rules and regulations promulgated thereunder) as amended, modified, codified or reenacted, in whole or in part, and in effect at the time of determining compliance or applicability;

(h) references to any Person include such Person’s successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement; a reference to such Person’s “Affiliates” shall be deemed to mean such Person’s Affiliates following the Distribution and any reference to a third party shall be deemed to mean a Person who is not a Party or an Affiliate of a Party;

(i) if there is any conflict between the provisions of the main body of this Agreement or an Ancillary Agreement and the Exhibits and Schedules hereto or thereto, the provisions of the main body of this Agreement or the Ancillary Agreement, as applicable, shall control unless explicitly stated otherwise in such Exhibit or Schedule;

 

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(j) if there is any conflict between the provisions of this Agreement and any Ancillary Agreement, the provisions of such Ancillary Agreement shall control (but only with respect to the subject matter thereof) unless explicitly stated otherwise therein; and

(k) any portion of this Agreement or any Ancillary Agreement obligating a Party to take any action or refrain from taking any action, as the case may be, shall mean that such Party shall also be obligated to cause its relevant Subsidiaries to take such action or refrain from taking such action, as the case may be.

ARTICLE II

THE REORGANIZATION

Section 2.1 Transfers of Assets and Assumptions of Liabilities.

(a) Transfers Prior to Effective Time. Subject to Section 2.1(b), Ensign and Pennant agree to take all actions necessary so that, immediately prior to the Effective Time:

(i) Ensign shall, and shall cause its applicable Subsidiaries to, assign, transfer, convey and deliver to Pennant or certain Persons designated by Pennant who are or will become members of the Pennant Group, and Pennant or such Persons shall accept from Ensign and its applicable Subsidiaries, to the extent not already owned by the Pennant Group, all of Ensign’s and such Subsidiaries’ respective direct or indirect right, title and interest in and to all Pennant Assets;

(ii) Pennant and certain Persons designated by Pennant who are or will become members of the Pennant Group shall accept and assume, to the extent the Pennant Group is not already liable therefor, all the Pennant Liabilities in accordance with their respective terms, regardless of when or where such Pennant Liabilities arose or arise, or whether the facts on which they are based occurred prior to or subsequent to the Effective Time, regardless of where or against whom such Pennant Liabilities are asserted or determined (including any Pennant Liabilities arising out of claims made by Ensign’s or Pennant’s respective directors, officers, employees, agents, Subsidiaries or Affiliates against any member of the Ensign Group or the Pennant Group) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the Ensign Group or the Pennant Group, or any of their respective directors, officers, employees, agents, Subsidiaries or Affiliates;

(iii) Pennant shall transfer directly or indirectly, to the applicable member of the Ensign Group, a portion of the loan proceeds from the Pennant Credit Facility in an amount anticipated to equal approximately $11,000,000 (the “Pennant Cash Payment”); and

(iv) Pennant shall issue to Ensign shares of Pennant Common Stock, which shares shall be fully paid and non-assessable under the Laws of the State of Delaware, of a sufficient number to effectuate the Distribution.

 

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(b) Deferred Transfers and Assumptions.

(i) Nothing in this Agreement or in any Ancillary Agreement will be deemed to require the transfer of any Assets or the assumption of any Liabilities that by their terms or by operation of Law cannot be transferred or assumed.

(ii) To the extent that any transfer of Assets or assumption of Liabilities contemplated by this Agreement or any Ancillary Agreement is not consummated prior to the Effective Time as a result of an absence or non-satisfaction of any required Consent, Governmental Approval and/or other condition (such Assets or Liabilities, a “Deferred Asset” or a “Deferred Liability,” as applicable, and, collectively, a “Deferred Asset or Liability”), the Parties will use commercially reasonable efforts to effect such transfers or assumptions as promptly following the Effective Time as practicable. If and when the Consents, Governmental Approvals and/or other conditions, the absence or non-satisfaction of which gave rise to a Deferred Asset or Liability, are obtained or satisfied, the transfer or assumption of such Deferred Asset or Liability will be effected in accordance with and subject to the terms of this Agreement or the applicable Ancillary Agreement.

(iii) From and after the Effective Time until such time as a Deferred Asset or Liability is transferred or assumed, as applicable, (A) the Party retaining such Deferred Asset will thereafter hold such Deferred Asset for the use and benefit of the Party entitled thereto (at the sole expense of the Party entitled thereto) and (B) the Party intended to assume such Deferred Liability will pay or reimburse the Party retaining such Deferred Liability for all amounts paid or incurred in connection with the retention of such Deferred Liability; it being agreed that the Party retaining such Deferred Asset or Liability will not be obligated, in connection with the foregoing clause (A) and clause (B), to expend any money unless the necessary funds are advanced or agreed in writing to be reimbursed by the Party entitled to such Deferred Asset or intended to assume such Deferred Liability. The Party retaining such Deferred Asset or Liability will use its commercially reasonable efforts to notify in writing the Party entitled to or intended to assume, as applicable, such Deferred Asset or Liability of the need for such expenditure and provide additional supporting details on such expenditure as reasonably requested by the Party entitled to or intended to assume, as applicable, such Deferred Asset or Liability. In addition, the Party retaining such Deferred Asset or Liability will, insofar as reasonably practicable and to the extent permitted by applicable Law, (A) treat such Deferred Asset or Liability in the ordinary course of business consistent with past practice, (B) promptly take such other actions as may be requested by the Party entitled to such Deferred Asset or by the Party intended to assume such Deferred Liability in order to place such Party in the same position as if the Deferred Asset or Liability had been transferred or assumed, as applicable, as contemplated hereby, and so that all the benefits and burdens relating to such Deferred Asset or Liability, including possession, use, risk of loss, potential for gain, and control over such Deferred Asset or Liability, are to inure from and after the Effective Time to such Party entitled to such Deferred Asset or intended to assume such Deferred Liability, and (C) hold itself out to third parties as agent or nominee on behalf of the Party entitled to such Deferred Asset or intended to assume such Deferred Liability.

 

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(iv) In furtherance of the foregoing, the Parties agree that, as of the Effective Time, each Party will be deemed to have acquired beneficial ownership of all of the Assets, together with all rights and privileges incident thereto, and will be deemed to have assumed all of the Liabilities, and all duties, obligations and responsibilities incident thereto, that such Party is entitled to acquire or intended to assume pursuant to the terms of this Agreement or the applicable Ancillary Agreement.

(v) The Parties agree to treat, for all tax purposes, any Asset or Liability that is not transferred or assumed prior to the Effective Time and which is subject to the provisions of this Section 2.1(b), as (A) owned by the Party to which such Asset was intended to be transferred or by the Party which was intended to assume such Liability, as the case may be, from and after the Effective Time, (B) having not been owned by the Party retaining such Asset or Liability, as the case may be, at any time from and after the Effective Time, and (C) having been held by the Party retaining such Asset or Liability, as the case may be, only as agent or nominee on behalf of the other Party from and after the Effective Time until the date such Asset or Liability, as the case may be, is transferred to or assumed by such other Party. The Parties will not take any position inconsistent with the foregoing unless otherwise required by applicable Law (in which case, the Parties will provide indemnification for any Taxes attributable to the Asset or Liability during the period beginning at the Effective Time and ending on the date of the actual transfer).

(c) Misallocated Assets and Liabilities.

(i) In the event that, at any time from and after the Effective Time, either Party discovers that it or another member of its Group is the owner of, receives or otherwise comes to possess or benefit from any Asset (including the receipt of payments made pursuant to Contracts and proceeds from accounts receivable with respect to such Asset) that should have been allocated to a member of the other Group pursuant to this Agreement or any Ancillary Agreement (except in the case of any deliberate acquisition of Assets from a member of the other Group for value subsequent to the Effective Time), such Party shall promptly transfer, or cause to be transferred, such Asset to such member of the other Group, and such member of the other Group shall accept such Asset for no further consideration other than that set forth in this Agreement or such Ancillary Agreement, as applicable. Prior to any such transfer, such Asset shall be held in accordance with Section 2.1(b).

(ii) In the event that, at any time from and after the Effective Time, either Party discovers that it or another member of its Group is liable for any Liability that should have been allocated to a member of the other Group pursuant to this Agreement or any Ancillary Agreement (except in the case of any deliberate assumption of Liabilities from a member of the other Group for value subsequent to the Effective Time), such Party shall promptly transfer, or cause to be transferred, such Liability to such member of the other Group and such member of the other Group shall assume such Liability for no further consideration other than that set forth in this Agreement or such Ancillary Agreement, as applicable. Prior to any such assumption, such Liabilities shall be held in accordance with Section 2.1(b).

 

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(d) Instruments of Transfer and Assumption. The Parties agree that (i) transfers of Assets that may be required by this Agreement or any Ancillary Agreement shall be effected by delivery by the transferor to the transferee of (A) with respect to those Assets that constitute stock or other equity interests that are certificated, certificates endorsed in blank or evidenced and/or accompanied by stock powers or other instruments of transfer endorsed in blank, against receipt and (B) with respect to all other Assets, such good and sufficient instruments of contribution, conveyance, assignment and transfer, in form and substance reasonably satisfactory to the Parties, as shall be necessary, in each case, to vest in the designated transferee all of the title and ownership interest of the transferor in and to any such Asset, and (ii) the assumptions of Liabilities required by this Agreement or any Ancillary Agreement shall be effected by delivery by the transferee to the transferor of such good and sufficient instruments of assumption, in form and substance reasonably satisfactory to the Parties, as shall be necessary, in each case, for the assumption by the transferee of such Liabilities.

(e) Plan of Reorganization. The Parties agree that this Agreement constitutes a “plan of reorganization” within the meaning of Treasury Regulation Section 1.368-2(g).

Section 2.2 Pennant Assets and Ensign Assets.

(a) For purposes of this Agreement, “Pennant Assets” shall mean, except as otherwise expressly provided in this Agreement or any Ancillary Agreement (including the Tax Matters Agreement):

(i) all of the equity interests in the Pennant Subsidiaries;

(ii) all Assets of the Pennant Subsidiaries;

(iii) all Pennant Contracts;

(iv) the Assets listed or described in Schedule 2.2(a); and

(v) any and all Assets owned or held immediately prior to the Effective Time by Ensign or any of its Subsidiaries that are used primarily in, or that primarily relate to, the Pennant Business other than any such Assets that are subject to a lease agreement between Ensign or any of its Subsidiaries and Pennant.

For the avoidance of doubt, the Pennant Assets shall include, but not be limited to, all Assets recorded on the consolidated balance sheet of Pennant as of the date of this Agreement, excluding capitalized leases.

(b) For the purposes of this Agreement, “Ensign Assets” shall mean (without duplication), (i) any and all Assets owned, directly or indirectly, by Ensign or any of its Subsidiaries as of the Effective Time, other than the Pennant Assets.

 

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Section 2.3 Pennant Liabilities and Ensign Liabilities.

(a) For the purposes of this Agreement, “Pennant Liabilities” shall mean, except as otherwise expressly provided in this Agreement or any Ancillary Agreement (including the Tax Matters Agreement):

(i) all Liabilities to the extent relating to, arising out of or resulting from the Pennant Assets or the Pennant Business, whether arising before, at or after the Effective Time, including without limitation those expressly or implicitly assumed by Pennant Group under the Pennant Contracts;

(ii) all Liabilities to be assumed by Pennant pursuant to this Agreement or any Ancillary Agreement;

(iii) all Liabilities related to the Pennant Credit Facility; and

(iv) those Liabilities set forth in Section 2.3(a) of the Schedules.

(b) For the purposes of this Agreement, “Ensign Liabilities” shall mean (without duplication) any and all Liabilities of Ensign and its Subsidiaries as of the Effective Time other than Pennant Liabilities.

Section 2.4 Termination of Intercompany Agreements.

(a) Except as set forth in Section 2.4(b), Ensign, on behalf of itself and each of the other members of the Ensign Group, and Pennant, on behalf of itself and each of the other members of the Pennant Group, hereby terminate, effective as of the Effective Time, any and all Intercompany Agreements. No such terminated Intercompany Agreement will be of any further force or effect from and after the Effective Time and all Parties shall be released from all Liabilities thereunder other than the Liability to settle any Intercompany Accounts as provided in Section 2.5. Each Party shall take, or cause to be taken, any and all actions as may be reasonably necessary to effect the foregoing.

(b) The provisions of Section 2.4 shall not apply to any of the following agreements (which agreements shall continue to be outstanding after the Effective Time and thereafter shall be deemed to be, for each relevant Party (or the member of such Party’s Group), an obligation to a third party and shall no longer be an Intercompany Agreement):

(i) this Agreement and the Ancillary Agreements (and each other agreement or instrument expressly contemplated by this Agreement or any Ancillary Agreement);

(ii) any agreements entered into by Ensign or an Affiliate thereof and Pennant or an Affiliate thereof in the ordinary course of business related to business operations of Subsidiaries thereof; and

(iii) any confidentiality or non-disclosure agreements among any members of either Group.

Section 2.5 Settlement of Intercompany Accounts. Each Intercompany Account outstanding immediately prior to the Effective Time, will be satisfied and/or settled in full in cash or otherwise cancelled and terminated or extinguished by the relevant members of the Ensign Group and the Pennant Group prior to the Effective Time, in each case, in the manner agreed to by the Parties.

 

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Section 2.6 Replacement of Guarantees.

(a) The Parties shall cooperate and use their reasonable best efforts to arrange, effective at or prior to the Effective Time, at Pennant’s cost and expense, the replacement of all Ensign Guarantees with alternate arrangements that do not require any credit support from any member of the Ensign Group, and shall use their reasonable best efforts to obtain from the beneficiaries of such Ensign Guarantees written releases indicating that each applicable member of the Ensign Group will, effective as of the Effective Time, have no further Liability with respect to such Ensign Guarantees. Pennant shall indemnify, defend and hold harmless each member of the Ensign Group against, and reimburse each member of the Ensign Group for, any Losses incurred following the Distribution with respect to such Ensign Guarantee, including without limitation auditor fees associated with such Ensign Guarantees and the cost of procuring any applicable third party valuations.

(b) If, following the Effective Time, the Parties are unable to replace any Ensign Guarantee, (i) the Parties shall cooperate and continue to use their reasonable best efforts to replace such Ensign Guarantee with alternate arrangements that do not require any credit support from any member of the Ensign Group and (ii) Pennant shall indemnify, defend and hold harmless each member of the Ensign Group against, and reimburse each member of the Ensign Group for, any Losses incurred following the Distribution with respect to such Ensign Guarantee, including without limitation auditor fees associated with such Ensign Guarantees and the cost of procuring any applicable third party valuations.

ARTICLE III

CERTAIN ACTIONS PRIOR TO THE DISTRIBUTION

Section 3.1 SEC and Other Securities Filings.

(a) Prior to the date of this Agreement, the Parties caused the Registration Statement to be prepared and filed with the SEC.

(b) The Parties caused the Registration Statement to become effective on [●], 2019.

(c) As soon as practicable after the date hereof, Ensign shall cause the Information Statement to be mailed to the Record Holders (or notice of internet availability thereof).

(d) The Parties shall cooperate in preparing, filing with the SEC and causing to become effective any other registration statements or amendments or supplements thereto that are necessary or appropriate in order to effect the Transactions, or to reflect the establishment of, or amendments to, any employee benefit plans contemplated hereby.

(e) The Parties shall take all such action as may be necessary or appropriate under state and foreign securities or “blue sky” Laws in connection with the Transactions.

 

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Section 3.2 NASDAQ Listing Application.

(a) Prior to the date of this Agreement, the Parties caused an application for the listing on NASDAQ of Pennant Common Stock to be issued to the Record Holders in the Distribution (the “NASDAQ Listing Application”) to be prepared and filed.

(b) Prior to the date of this Agreement, the Parties have caused the NASDAQ Listing Application to be approved, subject to official notice of distribution.

(c) Ensign has given NASDAQ notice of the Record Date in compliance with Rule 10b-17 under the Exchange Act.

Section 3.3 Distribution Agent. At or prior to the Effective Time, Ensign shall, if requested by the Distribution Agent, enter into a distribution agent agreement and/or a paying agent agreement with the Distribution Agent.

Section 3.4 Governmental Approvals and Consents. To the extent that any of the Transactions require any Governmental Approval or Consent which has not been obtained prior to the date of this Agreement, the Parties will use commercially reasonable efforts to obtain, or cause to be obtained, such Governmental Approval or Consent prior to the Effective Time.

Section 3.5 Ancillary Agreements. Prior to the Effective Time, each Party shall execute and deliver, and shall cause each applicable member of its Group to execute and deliver, as applicable, the following agreements (collectively, the “Ancillary Agreements”):

(a) the Tax Matters Agreement, (b) the Transition Services Agreement, (c) the Employee Matters Agreement, (d) the Contribution Agreements, (e) the Merger Agreement, (f) the Ensign Leases and (f) such other written agreements, documents or instruments as the Parties may agree are reasonably necessary or desirable and which specifically state that they are Ancillary Agreements within the meaning of this Agreement.

Section 3.6 Governance Matters.

(a) Certificate of Incorporation and Bylaws. Pennant has adopted the amended and restated certificate of incorporation and the amended and restated bylaws of Pennant, each substantially in the form filed by Pennant with the SEC as an exhibit to the Registration Statement, and Pennant shall not take any action to modify its charter or bylaws prior to the Effective Time.

(b) Officers and Directors. On or prior to the Distribution Date, the Parties shall take all necessary action so that, as of the Distribution Date, the officers and directors of Pennant will be as set forth in the Information Statement.

 

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ARTICLE IV

THE DISTRIBUTION

Section 4.1 Distribution.

(a) Subject to the terms and conditions set forth in this Agreement, including Section 4.1(b):

(i) on or prior to the Distribution Date, Ensign shall deliver or otherwise make available to the Distribution Agent, for the benefit of holders of record of Ensign Common Stock at the close of business on the Record Date (the “Record Holders”), such number of issued and outstanding shares of Pennant Common Stock as is necessary to effect the Distribution; and

(ii) on the Distribution Date, Ensign will direct the Distribution Agent to distribute, effective as of the Effective Time, to each Record Holder, (A) one share of Pennant Common Stock for every two (2) shares of Ensign Common Stock held by such Record Holder on the Record Date and (B) cash, if applicable, in lieu of fractional shares, in an amount determined in accordance with Section 4.1(c) hereof. All such shares of Pennant Common Stock to be so distributed shall be distributed as uncertificated shares registered in book-entry form through the direct registration system. No certificates therefor shall be distributed. Following the Distribution, Ensign shall cause the Distribution Agent to deliver an account statement to each holder of Pennant Common Stock reflecting such holder’s ownership thereof. All of the shares of Pennant Common Stock distributed in the Distribution will be validly issued, fully paid and non-assessable.

(b) Notwithstanding any other provision of this Agreement, Ensign, the Distribution Agent, or any Person that is a withholding agent under applicable Law shall be entitled to deduct and withhold from any consideration distributable or payable hereunder the amounts required to be deducted and withheld under the Code, or any provision of any U.S. federal, state, local or foreign Tax Law, and any such withholding agent is hereby authorized to sell any portion of the consideration otherwise distributable or payable in kind as is necessary to provide sufficient funds to enable the withholding agent to comply with such deduction and withholding requirements. Any amounts so withheld shall be paid over to the appropriate Taxing Authority in the manner prescribed by Law. To the extent that amounts are so deducted and withheld, such deducted and withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Persons in respect of which such deduction and withholding was made.

(c) Notwithstanding anything herein to the contrary, no fractional shares of Pennant Common Stock shall be issued in connection with the Distribution, and any such fractional share interests to which a Record Holder would otherwise be entitled shall not entitle such Record Holder to vote or to any other rights as a stockholder of Pennant. In lieu of any such fractional shares, each Record Holder who, but for the provisions of this section, would be entitled to receive a fractional share interest of Pennant Common Stock pursuant to the Distribution, shall be paid cash, without any interest thereon, as hereinafter provided. Ensign will direct the Distribution Agent to determine the number of whole shares and fractional shares of Pennant Common Stock allocable to each Record Holder, to aggregate all such fractional shares into whole shares, to sell the whole shares obtained thereby in the open market at the then-prevailing prices on behalf of each Record Holder who otherwise would be entitled to receive fractional share interests and to distribute to each such Record Holder his, her or its ratable share of the total proceeds of such sale, after making appropriate deductions of the amounts required for U.S. federal income tax withholding purposes and after deducting any applicable transfer Taxes and the costs and expenses of such sale and

 

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distribution, including brokers fees and commissions. The sales of fractional shares shall occur as soon after the Effective Time as practicable and as determined by the Distribution Agent, but in no case more than three (3) business days after the Effective Time. None of Ensign, Pennant or the Distribution Agent shall guarantee any minimum sale price for the fractional shares of Ensign Common Stock. Neither Ensign nor Pennant shall pay any interest on the proceeds from the sale of fractional shares. The Distribution Agent shall have the sole discretion to select the broker-dealers through which to sell the aggregated fractional shares and to determine when, how and at what price to sell such shares. Neither the Distribution Agent nor the broker-dealers through which the aggregated fractional shares are sold shall be Affiliates of Ensign or Pennant.

ARTICLE V

CONDITIONS

Section 5.1 Conditions Precedent to Consummation of the Distribution. The Distribution shall not be effected unless and until the following conditions have been satisfied or waived by Ensign, in its sole and absolute discretion, at or before the Effective Time:

(a) the board of directors of Ensign shall have declared the Distribution, which declaration may be made or withheld in its absolute and sole discretion;

(b) the Registration Statement shall have been declared effective by the SEC, with no stop order in effect with respect thereto, and no proceedings for such purpose shall be pending before, or threatened by, the SEC and a notice of internet availability of the Information Statement shall have been mailed to Ensign stockholders;

(c) Ensign shall have mailed the Information Statement (or notice of internet availability thereof) to the Record Holders;

(d) Ensign shall have obtained an opinion from Kirkland & Ellis LLP, in form and substance satisfactory to Ensign, to the effect that, subject to the assumptions and limitations described therein, the distribution of Pennant Common Stock and certain related transactions will qualify as a reorganization under Sections 368(a)(1)(D) and 355 of the Code, in which no gain or loss is recognized by Ensign or its stockholders, except in the case of the Ensign stockholders, for cash received in lieu of fractional shares;

(e) the NASDAQ Listing Application shall have been approved, subject to official notice of distribution;

(f) no order, injunction or decree issued by any Governmental Authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of all or any portion of the Distribution shall be in effect, and no other event shall have occurred or failed to occur that prevents the consummation of all or any portion of the Distribution;

(g) the Reorganization shall have been completed, except for such steps as Ensign in its sole discretion shall have determined may be completed after the Distribution Date;

 

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(h) Pennant shall have completed the financing transactions described in the Information Statement and contemplated to occur on or prior to the Distribution Date, including the entry into the Pennant Credit Facility;

(i) Ensign shall have completed its own financing transactions contemplated to occur on or prior to the Distribution Date, including amending and restating its existing credit facility;

(j) no events or developments shall have occurred prior to the Distribution that, in the judgment of the Ensign board of directors, would result in the Distribution having a material adverse effect on Ensign or its stockholders;

(k) Pennant shall have adopted the amended and restated certificate of incorporation and amended and restated bylaws, as provided in Section 3.6(a);

(l) each of the Ancillary Agreements shall have been executed and delivered by each party thereto and be in full force and effect; and

(m) any required material Governmental Approvals and other Consents necessary to consummate the Distribution or any portion thereof shall have been obtained and be in full force and effect.

Section 5.2 Right Not to Close. Each of the conditions set forth in Section 5.1 is for the benefit of Ensign, and the board of directors of Ensign may, in its sole and absolute discretion, determine whether to waive any condition, in whole or in part. Any determination made by the board of directors of Ensign concerning the satisfaction or waiver of any or all of the conditions set forth in Section 5.1 will be conclusive and binding on the Parties. The satisfaction of the conditions set forth in Section 5.1 will not create any obligation on the part of Ensign to any other Person to effect any of the Transactions or in any way limit Ensign’s right to terminate this Agreement and the Ancillary Agreements as set forth in Section 11.1 or alter the consequences of any termination from those specified in Section 11.2.

ARTICLE VI

NO REPRESENTATIONS OR WARRANTIES

Section 6.1 Disclaimer of Representations and Warranties. EACH PARTY (ON BEHALF OF ITSELF AND EACH OTHER MEMBER OF ITS GROUP) UNDERSTANDS AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH HEREIN, IN ANY ANCILLARY AGREEMENT OR IN ANY OTHER AGREEMENT OR DOCUMENT CONTEMPLATED BY THIS AGREEMENT OR ANY ANCILLARY AGREEMENT, NO PARTY IS REPRESENTING OR WARRANTING IN ANY WAY AS TO (A) THE ASSETS, BUSINESSES OR LIABILITIES CONTRIBUTED, TRANSFERRED, DISTRIBUTED OR ASSUMED AS CONTEMPLATED HEREBY OR THEREBY, (B) ANY CONSENTS OR GOVERNMENTAL APPROVALS REQUIRED IN CONNECTION HEREWITH OR THEREWITH, (C) THE VALUE OR FREEDOM FROM ANY SECURITY INTERESTS OF, OR ANY OTHER MATTER CONCERNING, ANY ASSETS OF ANY PARTY, (D) THE ABSENCE OF ANY DEFENSES OR RIGHT OF SETOFF OR FREEDOM FROM COUNTERCLAIM WITH RESPECT TO ANY ACTION OR OTHER ASSET, INCLUDING ACCOUNTS RECEIVABLE, OF ANY PARTY, OR (E) THE LEGAL SUFFICIENCY OF ANY CONTRIBUTION, DISTRIBUTION, ASSIGNMENT, DOCUMENT, CERTIFICATE OR INSTRUMENT DELIVERED HEREUNDER OR THEREUNDER TO CONVEY TITLE TO ANY ASSET UPON THE EXECUTION, DELIVERY AND FILING HEREOF OR THEREOF.

 

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Section 6.2 As Is, Where Is. EACH PARTY (ON BEHALF OF ITSELF AND EACH OTHER MEMBER OF ITS GROUP) UNDERSTANDS AND AGREES THAT, EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT AND ANY ANCILLARY AGREEMENT, ALL ASSETS TRANSFERRED PURSUANT TO THIS AGREEMENT OR ANY ANCILLARY AGREEMENT ARE BEING TRANSFERRED “AS IS, WHERE IS.”

ARTICLE VII

CERTAIN COVENANTS AND ADDITIONAL AGREEMENTS

Section 7.1 Insurance Matters. Following the Effective Time, Ensign shall maintain its currently existing Insurance Policies related to director and officer liability (the “Ensign D&O Policies”). Prior to the Effective Time, Ensign and Pennant shall use commercially reasonable efforts to obtain separate Insurance Policies for Pennant on substantially similar terms as the Ensign D&O Policies (it being understood that Pennant shall be responsible for all premiums, costs and fees associated with any new insurance policies placed for the benefit of Pennant pursuant to this Section 7.1, which, for the avoidance of doubt, shall exclude any premiums, costs and fees associated with any run-off Insurance Policy obtained by Ensign in connection with the Distribution).

ARTICLE VIII

ACCESS TO INFORMATION; CONFIDENTIALITY; PRIVILEGE

Section 8.1 Agreement for Exchange of Information.

(a) Subject to Section 8.1(b) and Section 8.8(f), and except as set forth in any Ancillary Agreement, for a period of three (3) years following the Distribution Date (the “Access Period”), as soon as reasonably practicable after written request: (i) Ensign shall afford to any member of the Pennant Group and their authorized accountants, counsel and other designated representatives reasonable access during normal business hours to, or, at the Pennant Group’s expense, provide copies of, all books, records, Contracts, instruments, data, documents and other information in the possession or under the control of any member of the Ensign Group immediately following the Distribution Date that relates to any member of the Pennant Group or the Pennant Business, and (ii) Pennant shall afford to any member of the Ensign Group and their authorized accountants, counsel and other designated representatives reasonable access during normal business hours to, or, at the Ensign Group’s expense, provide copies of, all books, records, Contracts, instruments, data, documents and other information in the possession or under the control of any member of the Pennant Group immediately following the Distribution Date that relates to any member of the Ensign Group or the Ensign Business; provided, however, that in the event that Pennant or Ensign, as applicable, determine that any such provision of or access to any information in response to a request under this Section 8.1(a) would be commercially detrimental in any material respect, violate any Law or agreement or waive any attorney-client privilege, the work product doctrine or other applicable privilege, the Parties shall take all reasonable measures to permit compliance with such request in a manner that avoids any such harm or consequence; provided, further, that to the

 

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extent specific information-sharing or knowledge-sharing provisions are contained in any of the Ancillary Agreements, such other provisions (and not this Section 8.1(a)) shall govern; provided, further, that the Access Period shall be extended with respect to requests related to any tax audit or proceeding or other third-party litigation or other dispute filed prior to the end of the Access Period until such litigation or dispute is finally resolved.

(b) A request for information under Section 8.1(a) may be made: (i) to comply with reporting, disclosure, filing or other requirements imposed on the requesting party (including under applicable securities Laws) by a Governmental Authority having jurisdiction over such requesting party, (ii) for use in any other judicial, regulatory, administrative or other proceeding or in order to satisfy audit, accounting, claims defense, regulatory filings, litigation or other similar requirements (other than in connection with any action, suit or proceeding in which any member of a Group is adverse to any member of the other Group), (iii) for use in compensation, benefit or welfare plan administration or other bona fide business purposes, or (iv) to comply with any obligations under this Agreement or any Ancillary Agreement.

(c) Without limiting the generality of Section 8.1(a), until the end of the first full fiscal year following the Distribution Date (and for a reasonable period of time thereafter as required for any party to prepare consolidated financial statements or complete a financial statement audit for the fiscal year during which the Distribution Date occurs), Pennant shall use its commercially reasonable efforts to cooperate with any requests from any member of the Ensign Group pursuant to Section 8.1(a) and Ensign shall use its commercially reasonable efforts to cooperate with any requests from any member of the Pennant Group pursuant to Section 8.1(a), in each case, to enable the requesting party to meet its timetable for dissemination of its earnings releases and financial statements and to enable such requesting party’s auditors to timely complete their audit of the annual financial statements and review of the quarterly financial statements.

Section 8.2 Ownership of Information. Any information owned by any Person that is provided pursuant to Section 8.1(a) shall be deemed to remain the property of the providing Person. Unless specifically set forth herein, nothing contained in this Agreement shall be construed to grant or confer rights of license or otherwise to the requesting Person with respect to any such information.

Section 8.3 Compensation for Providing Information. A Person requesting information pursuant to Section 8.1(a) agrees to reimburse the providing Person for the reasonable and documented expenses out-of-pocket, if any, of gathering and copying such information, to the extent that such expenses are incurred for the benefit of the requesting Person.

Section 8.4 Retention of Records. To facilitate the exchange of information pursuant to this Article VIII after the Distribution Date, for a period of three (3) years following the Distribution Date, except as otherwise required or agreed in writing, the Parties agree to use commercially reasonable efforts to retain, or cause to be retained, all information in the possession or control of them or any member of their Group on the Distribution Date in accordance with the policies and procedures of Ensign as in effect on the Distribution Date.

Section 8.5 Limitation of Liability. No Person required to provide information under this Article VIII shall have any Liability (a) if any historical information provided pursuant to this Article VIII is found to be inaccurate, in the absence of gross negligence or willful misconduct by such Person, or (b) if any information is lost or destroyed despite using commercially reasonable efforts to comply with the provisions of Section 8.4.

 

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Section 8.6 Production of Witnesses. At all times from and after the Distribution Date, upon reasonable request:

(a) Pennant shall use commercially reasonable efforts to make available, or cause to be made available, to any member of the Ensign Group, the directors, officers, employees and agents of any member of the Pennant Group as witnesses to the extent that the same may reasonably be required by the requesting party (giving consideration to business demands of such directors, officers, employees and agents) in connection with any legal, administrative or other proceeding in which the requesting party may from time to time be involved, except in the case of any Action, suit or proceeding in which any member of the Pennant Group is or may become adverse to any member of the Ensign Group; and

(b) Ensign shall use commercially reasonable efforts to make available, or cause to be made available, to any member of the Pennant Group, the directors, officers, employees and agents of any member of the Ensign Group as witnesses to the extent that the same may reasonably be required by the requesting party (giving consideration to business demands of such directors, officers, employees and agents) in connection with any legal, administrative or other proceeding in which the requesting party may from time to time be involved, except in the case of any Action, suit or proceeding in which any member of the Ensign Group is or may become adverse to any member of the Pennant Group.

Section 8.7 Confidentiality.

(a) Pennant (on behalf of itself and each other member of its Group) and Ensign (on behalf of itself and each other member of its Group) shall hold, and shall cause each of their respective Affiliates to hold, and each of the foregoing shall cause their respective directors, officers, employees, agents, consultants and advisors to hold, in strict confidence, and not disclose or release or use, without the prior written consent of such member of the other Group, for any purpose other than as expressly permitted pursuant to this Agreement or the Ancillary Agreements, any and all Confidential Information concerning any member of the other Group; provided, that each Party and the members of its Group may disclose, or may permit disclosure of, such Confidential Information (i) to other members of their Group and their respective auditors, attorneys, financial advisors, bankers and other appropriate consultants and advisors who have a need to know such information for purposes of performing services for a member of such Group and who are informed of their obligation to hold such information confidential to the same extent as is applicable to the Parties and in respect of whose failure to comply with such obligations, such Party will be responsible, (ii) if it or any of its Affiliates are required or compelled to disclose any such Confidential Information by judicial or administrative process or by other requirements of Law or stock exchange rule, or (iii) as necessary in order to permit such Party to prepare and disclose its financial statements, or other disclosures required by Law or such applicable stock exchange. Notwithstanding the foregoing, in the event that any demand or request for disclosure of Confidential Information is made pursuant to the foregoing clause (ii) above, the Party requested to disclose Confidential Information concerning a member of the other Group, shall, to the extent

 

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reasonably practicable and not prohibited by law, promptly notify such member of the other Group of the existence of such request or demand and, to the extent commercially practicable, shall provide such member of the other Group thirty (30) days (or such lesser period as is commercially practicable) to, at such member of the other Group’s own expense, seek an appropriate protective order or other remedy, which the Parties will reasonably cooperate in obtaining. In the event that such appropriate protective order or other remedy is not obtained within a reasonable period of time, the Party that is required to disclose Confidential Information about a member of the other Group shall furnish, or cause to be furnished, only that portion of the Confidential Information that is legally required to be disclosed and shall use commercially reasonable efforts to ensure that confidential treatment is accorded such information.

(b) Notwithstanding anything to the contrary set forth herein, the Parties shall be deemed to have satisfied their obligations hereunder with respect to Confidential Information of any member of the other Group if they exercise the same degree of care (but no less than a reasonable degree of care) as they exercise to preserve confidentiality for their own similar Confidential Information.

(c) Upon the written request of a Party or a member of its Group, the other Party shall take, and shall cause the applicable members of such other Party’s Group to take, reasonable steps to promptly (i) deliver to the requesting Person all original copies of Confidential Information (whether written or electronic) concerning the requesting Person or any member of such requesting Person’s Group that is in the possession of such other Party or any member of such other Party’s Group and (ii) if specifically requested by the requesting Person, destroy any copies of such Confidential Information (including any extracts therefrom), unless (A) such delivery or destruction would violate any Law or regulatory requirement, (B) such Confidential Information constitutes attorney work product created for such Party, or (C) such Confidential Information, including emails, are contained in an archived computer system backup in accordance with bonafide document retention policies or security and disaster recovery procedures; provided, that the other Party shall not be obligated to destroy Confidential Information that is required by or relates to such other Party’s business or the business of any member of such other Party’s Group. Upon the written request of the requesting Person, the other Party shall, or shall cause another member of its Group to cause, its duly authorized officers to certify in writing to the requesting party that the requirements of the preceding sentence have been satisfied in full.

Section 8.8 Privileged Matters.

(a) Pre-Distribution Services. The Parties recognize that legal and other professional services that have been and will be provided prior to the Effective Time have been and will be rendered for the collective benefit of the Parties and their Affiliates, and that each of the Parties should be deemed to be the client with respect to such pre-Distribution services for the purposes of asserting all privileges that may be asserted under applicable Law.

 

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(b) Post-Distribution Services. The Parties recognize that legal and other professional services will be provided following the Effective Time that will be rendered solely for the benefit of Pennant and its Affiliates or Ensign and its Affiliates, as the case may be. With respect to such post-Distribution services, the Parties agree as follows:

(i) Ensign shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information that relates solely to the Ensign Business, whether or not the privileged information is in the possession of or under the control of Ensign or Pennant. Ensign shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information that relates solely to the subject matter of any claims constituting Ensign Liabilities, now pending or which may be asserted in the future, in any lawsuits or other proceedings initiated by or against any member of the Ensign Group, whether or not the privileged information is in the possession of or under the control of Ensign or Pennant; and

(ii) Pennant shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information that relates solely to the Pennant Business, whether or not the privileged information is in the possession of or under the control of Ensign or Pennant. Pennant shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information that relates solely to the subject matter of any claims constituting Pennant Liabilities, now pending or which may be asserted in the future, in any lawsuits or other proceedings initiated by or against any member of the Pennant Group, whether or not the privileged information is in the possession of or under the control of Ensign or Pennant.

(c) The Parties agree that they shall have a shared privilege, with equal right to assert or waive, subject to the restrictions in this Section 8.8, with respect to all privileges not allocated pursuant to the terms of Section 8.8(b). Except as provided in Section 8.8(d), Pennant may not waive, and shall cause each other member of the Pennant Group not to waive, any privilege that could be asserted by a member of the Ensign Group under any applicable Law, and in which a member of the Ensign Group has a shared privilege, without the written consent of Ensign, which consent shall not be unreasonably withheld, conditioned or delayed. Except as provided in Section 8.8(d), Ensign may not waive, and shall cause each other member of the Ensign Group not to waive, any privilege that could be asserted by a member of the Pennant Group under any applicable Law, and in which a member of the Pennant Group has a shared privilege, without the written consent of Pennant, which consent shall not be unreasonably withheld, conditioned or delayed. If a dispute arises between or among Pennant and Ensign, or any members of their respective Groups, regarding whether a privilege should be waived to protect or advance the interest of a Party, each Party agrees that it shall endeavor to minimize any prejudice to the rights of such other Party and shall not unreasonably withhold consent to any request for waiver by such Party. Each Party agrees that it will not withhold consent to waiver for any purpose except to protect its own legitimate interests or the legitimate interests of any other member of its Group.

(d) Notwithstanding any of the other provisions of this Section 8.8, to the fullest extent permitted by Law, in the event of any litigation or dispute between or among the Parties and/or any members of their respective Groups, any Party or any members of the Party’s respective Group may waive a privilege which it shares with another Party or any member of the other Group, without obtaining the written consent from the other Party or the other member(s) of a Party’s Group which shares the privilege; provided, that such waiver of a shared privilege shall be effective only as to the use of information by the relevant Parties and/or the applicable members of their respective Groups in such litigation or dispute, and shall not operate as a waiver of the shared privilege with respect to any proceedings, disputes, or other matters involving third parties or with

 

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respect to any other Actions. In the event of any such waiver, the Parties and the members of their respective Groups shall take all reasonable measures to ensure the confidentiality of the privileged information that is the subject of such waiver, including, as necessary, making any applications to an arbitral tribunal or court of law, as applicable, to preserve the confidentiality of such information; and any such privileged information shall otherwise be held confidential by the Parties and the members of their respective Groups and shall not be publicly disclosed. For the avoidance of doubt, this Section 8.8(d) provides the only circumstances, and the only conditions, under which a Party or a member of its respective Group may unilaterally waive any shared applicable legal privilege.

(e) Upon receipt by either Party, or by any member of its Group, of any subpoena, discovery or other request which requires the production or disclosure of information which such Party knows is subject to a shared privilege or as to which a member of the other Group has the sole right hereunder to assert or waive a privilege, or if either Party obtains knowledge that any of its or any other member of its Group’s current or former directors, officers, agents or employees have received any subpoena, discovery or other requests which requires the production or disclosure of such privileged information, such Party shall promptly notify the other Party in writing of the existence of the request and shall provide the other Party a reasonable opportunity to review the information and to assert any rights it or they may have under this Section 8.8 or otherwise to prevent the production or disclosure of such privileged information.

(f) The access to information being granted pursuant to Section 8.1, the agreement to provide witnesses and individuals pursuant to Section 8.6 hereof, and the transfer of privileged information between and among the Parties and the members of their respective Groups pursuant to this Agreement shall not be deemed a waiver of any privilege that has been or may be asserted under this Agreement, any of the Ancillary Agreements or otherwise.

Section 8.9 Financial Information Certifications. The Parties agree to cooperate with each other in such manner as is reasonably necessary to enable the principal executive officer or officers, principal financial officer or officers and controller or controllers of each of the Parties to make the certifications required of them under Sections 302, 404 and 906 of the Sarbanes-Oxley Act of 2002.

ARTICLE IX

MUTUAL RELEASES; INDEMNIFICATION

Section 9.1 Release of Pre-Distribution Claims.

(a) Except as provided in Section 9.1(d), effective as of the Effective Time, Pennant does hereby, for itself and each other member of the Pennant Group, release and forever discharge each Ensign Indemnitee, from any and all Liabilities whatsoever to any member of the Pennant Group, whether at law or in equity (including any right of contribution), whether arising under any Contract, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed at or before the Effective Time, including in connection with the Transactions.

 

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(b) Except as provided in Section 9.1(d), effective as of the Effective Time, Ensign does hereby, for itself and each other member of the Ensign Group, release and forever discharge each Pennant Indemnitee from any and all Liabilities whatsoever to any member of the Ensign Group, whether at law or in equity (including any right of contribution), whether arising under any Contract, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed at or before the Effective Time, including in connection with the Transactions.

(c) The Parties expressly understand and acknowledge that it is possible that unknown Losses or Claims exist or might come to exist or that present Losses may have been underestimated in amount, severity, or both. Accordingly, the Parties are deemed expressly to understand provisions and principles of law such as Section 1542 of the Civil Code of the State of California (as well as any and all provisions, rights and benefits conferred by any Law of any state or territory of the United States, or principle of common law, which is similar or comparable to Section 1542), which Section provides: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY. The Parties are hereby deemed to agree that the provisions of Section 1542 and all similar federal or state Laws, rights, rules or legal principles of California or any other jurisdiction that may be applicable herein, are hereby knowingly and voluntarily waived and relinquished with respect to the releases in Section 9.1(a) and Section 9.1(b).

(d) Nothing contained in Section 9.1(a) or Section 9.1(b) shall impair any right of any Person to enforce this Agreement, any Ancillary Agreement or any agreements, arrangements, commitments or understandings that are specified in, or contemplated to continue pursuant to, this Agreement or any Ancillary Agreement. Without limiting the foregoing, nothing contained in Section 9.1(a) or Section 9.1(b) shall release any Person from:

(i) any Liability, contingent or otherwise, assumed by, or allocated to, such Person in accordance with this Agreement or any Ancillary Agreement;

(ii) any Liability that such Person may have with respect to indemnification or contribution pursuant to this Agreement or any Ancillary Agreement for claims brought by third Persons, which Liability shall be governed by the provisions of this Article IX and, if applicable, the appropriate provisions of the Ancillary Agreements;

(iii) any unpaid accounts payable or receivable arising from or relating to the sale, provision, or receipt of goods, payment for goods, property or services purchased, obtained or used in the ordinary course of business by any member of the Ensign Group from any member of the Pennant Group, or by any member of the Pennant Group from any member of the Ensign Group from and after the Effective Time; or

(iv) any Liability the release of which would result in the release of any Person other than an Indemnitee; provided, that the Parties agree not to bring suit, or permit any other member of their respective Group to bring suit, against any Indemnitee with respect to such Liability.

 

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(e) Pennant shall not make, and shall not permit any other member of the Pennant Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or indemnification, against any Ensign Indemnitee with respect to any Liabilities released pursuant to Section 9.1(a). Ensign shall not make, and shall not permit any member of the Ensign Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against any Pennant Indemnitee with respect to any Liabilities released pursuant to Section 9.1(b).

Section 9.2 Indemnification by Pennant. Except as provided in Section 9.4 and Section 9.5, Pennant shall, and, in the case of Section 9.2(a) or Section 9.2(b), shall in addition cause each Appropriate Member of the Pennant Group to, indemnify, defend and hold harmless, the Ensign Indemnitees from and against any and all Losses of the Ensign Indemnitees relating to, arising out of or resulting from any of the following (without duplication):

(a) any Pennant Liability, including the failure of any member of the Pennant Group or any other Person to pay, perform or otherwise promptly discharge any Pennant Liabilities in accordance with their respective terms, whether prior to, at or after the Effective Time;

(b) any breach by any member of the Pennant Group of any provision of this Agreement or of any of the Ancillary Agreements, subject to any limitations of liability provisions and other provisions applicable to any such breach set forth therein; and

(c) any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information contained or incorporated by reference in the Registration Statement or the Information Statement other than information that relates solely to the Pennant Business;

in each case, without regard to when or where the Loss, claim, accident, occurrence, event or happening giving rise to the Loss took place, or whether any such Loss, claim, accident, occurrence, event or happening is known or unknown, or reported or unreported and regardless of whether such Loss, claim, accident, occurrence, event or happening giving rise to the Loss existed prior to, on or after the Effective Time or relates to, arises out of or results from actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to, on or after the Effective Time. As used in this Section 9.2, “Appropriate Member of the Pennant Group” means the member or members of the Pennant Group, if any, whose acts, conduct or omissions or failures to act caused, gave rise to or resulted in the Loss from and against which indemnity is provided.

Section 9.3 Indemnification by Ensign. Except as provided in Section 9.4 and Section 9.5, Ensign shall, and, in the case of Section 9.3(a) or Section 9.3(b), shall in addition cause each Appropriate Member of the Ensign Group to, indemnify, defend and hold harmless the Pennant Indemnitees from and against any and all Losses of the Pennant Indemnitees relating to, arising out of or resulting from any of the following (without duplication):

(a) any Ensign Liability, including the failure of any member of the Ensign Group or any other Person to pay, perform or otherwise promptly discharge any Ensign Liabilities in accordance with their respective terms, whether prior to, at or after the Effective Time;

 

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(b) any breach by any member of the Ensign Group of any provision of this Agreement or of any of the Ancillary Agreements, subject to any limitations of liability provisions and other provisions applicable to any such breach set forth therein; and

(c) any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to information contained or incorporated by reference in the Registration Statement or the Information Statement that relates solely to the Ensign Business;

in each case, without regard to when or where the Loss, claim, accident, occurrence, event or happening giving rise to the Loss took place, or whether any such Loss, claim, accident, occurrence, event or happening is known or unknown, or reported or unreported and regardless of whether such Loss, claim, accident, occurrence, event or happening giving rise to the Loss existed prior to, on or after the Effective Time or relates to, arises out of or results from actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to, on or after the Effective Time. As used in this Section 9.3, “Appropriate Member of the Ensign Group” means the member or members of the Ensign Group, if any, whose acts, conduct or omissions or failures to act caused, gave rise to or resulted in the Loss from and against which indemnity is provided.

Section 9.4 Procedures for Indemnification.

(a) An Indemnitee shall give written notice of any matter that such Indemnitee has determined has given or would reasonably be expected to give rise to a right of indemnification under this Agreement or any Ancillary Agreement (other than a Third-Party Claim which shall be governed by Section 9.4(b)) to any Party that is or may be required pursuant to this Agreement or any Ancillary Agreement to make such indemnification (the “Indemnifying Party”) promptly (and in any event within fifteen (15) days) after making such a determination. Such notice shall state the amount of the Loss claimed, if known, and method of computation thereof, and containing a reference to the provisions of this Agreement or the applicable Ancillary Agreement in respect of which such right of indemnification is claimed by such Indemnitee; provided, however, that the failure to provide such notice shall not release the Indemnifying Party from any of its obligations except and solely to the extent the Indemnifying Party shall have been materially prejudiced as a result of such failure.

(b) If a claim or demand is made against an Indemnitee by any Person who is not a Party to this Agreement or an Affiliate of a Party (a “Third-Party Claim”) as to which such Indemnitee is or reasonably expects to be entitled to indemnification pursuant to this Agreement, such Indemnitee shall notify the Indemnifying Party in writing, and in reasonable detail, of the Third-Party Claim promptly (and in any event within thirty (30) days) after receipt by such Indemnitee of written notice of the Third-Party Claim; provided, however, that the failure to provide notice of any such Third-Party Claim pursuant to this sentence shall not release the Indemnifying Party from any of its obligations except and solely to the extent the Indemnifying

 

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Party shall have been materially prejudiced as a result of such failure (except that the Indemnifying Party or Parties shall not be liable for any expenses incurred by the Indemnitee in defending such Third-Party Claim during the period in which the Indemnitee failed to give such notice). Thereafter, the Indemnitee shall deliver to the Indemnifying Party, promptly (and in any event within ten (10) days) after the Indemnitee’s receipt thereof, copies of all notices and documents (including court papers) received by the Indemnitee relating to the Third-Party Claim.

(c) An Indemnifying Party shall be entitled (but shall not be required) to assume, control the defense of, and settle any Third-Party Claim, at such Indemnifying Party’s own cost and expense and by such Indemnifying Party’s own counsel, which counsel must be reasonably acceptable to the Indemnitee, if it gives written notice of its intention to do so (including a statement that the Indemnitee is entitled to indemnification under this Article IX) to the applicable Indemnitees within thirty (30) days of the receipt of notice from such Indemnitees of the Third-Party Claim (failure of the Indemnifying Party to respond within such thirty (30) day period shall be deemed to be an election by the Indemnifying Party not to assume the defense for such Third-Party Claim). After a notice from an Indemnifying Party to an Indemnitee of its election to assume the defense of a Third-Party Claim, such Indemnitee shall have the right to employ separate counsel and to participate in (but not control) the defense, compromise or settlement thereof, at its own expense and, in any event, shall reasonably cooperate with the Indemnifying Party in such defense and make available to the Indemnifying Party all witnesses and information in such Indemnitee’s possession or under such Indemnitee’s control relating thereto as are reasonably required by the Indemnifying Party; provided, however, that such access shall not require the Indemnitee to disclose any information the disclosure of which would, in the good faith judgment of the Indemnitee, result in the loss of any existing privilege with respect to such information or violate any applicable Law or to take any actions that would unreasonably interfere with the operation of the Indemnitee’s business.

(d) Notwithstanding anything to the contrary in this Section 9.4, in the event that (i) an Indemnifying Party elects not to assume the defense of a Third-Party Claim, (ii) there exists a conflict of interest or potential conflict of interest between the Indemnifying Party and the Indemnitee, (iii) any Third-Party Claim seeks an order, injunction or other equitable relief or relief for other than money damages against the Indemnitee, (iv) the Indemnitee’s exposure to Liability in connection with such Third-Party Claim is reasonably expected to exceed the Indemnifying Party’s exposure in respect of such Third-Party Claim taking into account the indemnification obligations hereunder, or (v) the Person making such Third-Party Claim is a Governmental Authority with regulatory authority over the Indemnitee or any of its material Assets, such Indemnitee shall be entitled to control the defense of such Third-Party Claim, at the Indemnifying Party’s expense, with counsel of such Indemnitee’s choosing (such counsel to be reasonably acceptable to the Indemnifying Party). If the Indemnitee is conducting the defense against any such Third-Party Claim, the Indemnifying Party shall reasonably cooperate with the Indemnitee in such defense and make available to the Indemnitee all witnesses and information in such Indemnifying Party’s possession or under such Indemnifying Party’s control relating thereto as are reasonably required by the Indemnitee; provided, however, that such access shall not require the Indemnifying Party to disclose any information the disclosure of which would, in the good faith judgment of the Indemnifying Party, result in the loss of any existing privilege with respect to such information or violate any applicable Law or to take any actions that would unreasonably interfere with the operation of the Indemnitee’s business.

 

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(e) Unless the Indemnifying Party has failed to assume the defense of the Third-Party Claim in accordance with the terms of this Agreement, no Indemnitee may settle or compromise any Third-Party Claim without the prior written consent of the Indemnifying Party (not to be unreasonably withheld, conditioned or delayed). If an Indemnifying Party has failed to assume the defense of the Third-Party Claim, it shall not be a defense to any obligation to pay any amount in respect of such Third-Party Claim that the Indemnifying Party was not consulted in the defense thereof, that such Indemnifying Party’s views or opinions as to the conduct of such defense were not accepted or adopted, that such Indemnifying Party does not approve of the quality or manner of the defense thereof or that such Third-Party Claim was incurred by reason of a settlement rather than by a judgment or other determination of liability.

(f) In the case of a Third-Party Claim, no Indemnifying Party shall consent to entry of any judgment or enter into any settlement of the Third-Party Claim without the prior written consent (not to be unreasonably withheld, conditioned or delayed) of the Indemnitee if the effect thereof is to permit any injunction, declaratory judgment, other order or other non-monetary relief to be entered, directly or indirectly, against any Indemnitee, does not release the Indemnitee from all liabilities and obligations with respect to such Third-Party Claim or includes an admission of guilt or liability on behalf of the Indemnitee.

(g) Absent fraud or intentional misconduct by an Indemnifying Party, the indemnification provisions of this Article IX shall be the sole and exclusive remedy of an Indemnitee for any monetary or compensatory damages or Losses resulting from any breach of this Agreement or any Ancillary Agreement, and each Indemnitee expressly waives and relinquishes any and all rights, claims or remedies such Person may have with respect to the foregoing other than under this Article IX against any Indemnifying Party.

Section 9.5 Indemnification Obligations Net of Insurance Proceeds. The Parties intend that any Loss subject to indemnification or reimbursement pursuant to this Article IX (an “Indemnifiable Loss”) will be net of Insurance Proceeds actually received that actually reduce the amount of the Loss. Accordingly, the amount which an Indemnifying Party is required to pay to any Indemnitee will be reduced by any Insurance Proceeds actually recovered by or on behalf of the Indemnitee in reduction of the related Loss. If an Indemnitee receives a payment (an “Indemnity Payment”) required by this Agreement from an Indemnifying Party in respect of any Loss and subsequently receives Insurance Proceeds, the Indemnitee will promptly pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payments received over the amount of the Indemnity Payments that would have been due if the Insurance Proceeds recovery had been received, realized or recovered before the Indemnity Payments were made. The Indemnitee shall use and cause its Affiliates to use commercially reasonable efforts to recover any Insurance Proceeds to which the Indemnitee is entitled with respect to any Indemnifiable Loss. The existence of a claim by an Indemnitee for insurance or against a third party in respect of any Indemnifiable Loss shall not, however, delay any payment pursuant to the indemnification provisions contained in this Article IX and otherwise determined to be due and owing by an Indemnifying Party; rather, the Indemnifying Party shall make payment in full of such amount so determined to be due and owing by it against a concurrent written assignment by the Indemnitee to the Indemnifying Party of the portion of the claim of the Indemnitee for such insurance or against such third party equal to the amount of such payment. The Indemnitee shall use and cause its Affiliates to use commercially reasonable efforts to assist the Indemnifying Party in recovering

 

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or to recover on behalf of the Indemnifying Party, any Insurance Proceeds to which the Indemnifying Party is entitled with respect to any Indemnifiable Loss as a result of such assignment. The Indemnitee shall make available to the Indemnifying Party and its counsel all employees, books and records, communications, documents, items or matters within its knowledge, possession or control that are necessary, appropriate or reasonably deemed relevant by the Indemnifying Party with respect to the recovery of such Insurance Proceeds; provided, however, that nothing in this sentence shall be deemed to require a Party to make available books and records, communications, documents or items which (i) in such Party’s good faith judgment could result in a waiver of any privilege even if the Parties cooperated to protect such privilege as contemplated by this Agreement or (ii) such Party is not permitted to make available because of any Law or any confidentiality obligation to a third party, in which case such Party shall use commercially reasonable efforts to seek a waiver of or other relief from such confidentiality restriction. Unless the Indemnifying Party has made payment in full of any Indemnifiable Loss, such Indemnifying Party shall use and cause its Affiliates to use commercially reasonable efforts to recover any Insurance Proceeds to which it or such Affiliate is entitled with respect to any Indemnifiable Loss.

Section 9.6 Indemnification Obligations Net of Taxes. The Parties intend that any Indemnifiable Loss will be net of Taxes. Accordingly, the amount which an Indemnifying Party is required to pay to an Indemnitee will be adjusted to reflect any Tax benefit to the Indemnitee from the underlying Loss and to reflect any Taxes imposed upon the Indemnitee as a result of the receipt of such payment. Such an adjustment will first be made at the time that the Indemnity Payment is made and will further be made, as appropriate, to take into account any change in the liability of the Indemnitee for Taxes that occurs in connection with the final resolution of an audit by a Taxing Authority. For purposes of this Section 9.6, the value of any Tax benefit to the Indemnitee from the underlying Loss shall be an amount equal to the product of (a) the amount of any present or future deduction allowed or allowable to the Indemnitee by the Code, or other applicable Law, as a result of such Loss and (b) the highest statutory rate applicable under Section 11 of the Code, or other applicable Law. For all Tax purposes other than for purposes of Section 355(g) of the Code, Ensign and Pennant agree to treat (i) any payment required by this Agreement (other than payments with respect to interest accruing after the Effective Time) as either a contribution by Ensign to Pennant or a distribution by Pennant to Ensign, as the case may be, occurring immediately prior to the Effective Time or as a payment of an assumed or retained Liability, and (ii) any payment of interest as taxable or deductible, as the case may be, to the party entitled under this Agreement to retain such payment or required under this Agreement to make such payment, in either case except as otherwise required by applicable Law.

Section 9.7 Contribution. If the indemnification provided for in this Article IX is unavailable to an Indemnitee in respect of any Indemnifiable Loss, then the Indemnifying Party, in lieu of indemnifying such Indemnitee, shall contribute to the Losses paid or payable by such Indemnitee as a result of such Indemnifiable Loss in such proportion as is appropriate to reflect the relative fault of Pennant and each other member of the Pennant Group, on the one hand, and Ensign and each other member of the Ensign Group, on the other hand, in connection with the circumstances which resulted in such Indemnifiable Loss.

Section 9.8 Remedies Cumulative. The remedies provided in this Article IX shall be cumulative and, subject to the provisions of Article X, shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party.

 

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Section 9.9 Survival of Indemnities. The rights and obligations of each of the Parties and their respective Indemnitees under this Article IX shall survive the Effective Time for a period of twenty (20) years thereafter and shall survive the sale or other transfer by any Party or any of its Subsidiaries of any Assets or businesses or the assignment by it of any Liabilities.

Section 9.10 Limitation of Liability. EXCEPT TO THE EXTENT SPECIFICALLY PROVIDED IN THIS AGREEMENT AND ANY ANCILLARY AGREEMENT, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY, WHETHER IN CONTRACT, IN TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR OTHERWISE, FOR ANY EXEMPLARY, PUNITIVE, INDIRECT, REMOTE OR SPECULATIVE DAMAGES AS A RESULT OF ANY BREACH, PERFORMANCE OR NON-PERFORMANCE BY SUCH PARTY UNDER THIS AGREEMENT OR SUCH ANCILLARY AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

ARTICLE X

DISPUTE RESOLUTION

Section 10.1 Appointed Representative. Each Party shall appoint a representative who shall be responsible for administering the dispute resolution provisions in Section 10.2 (each, an “Appointed Representative”). Each Appointed Representative shall have the authority to resolve any Disputes on behalf of the Party appointing such representative.

Section 10.2 Negotiation and Dispute Resolution.

(a) Any dispute, controversy or claim arising out of, in connection with, or in relation to the interpretation, performance, nonperformance, enforceability, validity, termination or breach of this Agreement or any Ancillary Agreement or any of the transactions contemplated hereby or thereby between or among the Parties or any members of their respective Groups (each, a “Dispute” and, collectively, “Disputes”) shall first be referred by either Party or any of the members of their respective Groups for amicable negotiations by the Appointed Representatives by providing written notice of such Dispute in the manner provided by Section 12.7 below (“Dispute Notice”). All documents, communications and information disclosed in the course of such negotiations that are not otherwise independently discoverable shall not be offered or received as evidence or used for impeachment or for any other purpose, but shall be considered as to have been disclosed for settlement purposes.

(b) If, for any reason, a satisfactory resolution of any Dispute is not achieved by the Appointed Representatives within thirty (30) days of the date of delivery of the Dispute Notice, such Dispute shall be referred for final and binding resolution by arbitration administered by the American Arbitration Association (“AAA”) under its Commercial Arbitration Rules then in effect (the “AAA Rules”), except as modified herein:

(i) The arbitration shall be held in Orange County, California. There shall be three arbitrators. Each Party shall appoint one arbitrator in the manner provided by the AAA Rules. The two Party-appointed arbitrators shall jointly appoint the third arbitrator, who shall chair the arbitral tribunal. Upon the written request of any party to the Dispute, any arbitrator not timely shall be appointed by the AAA in the manner provided in the AAA Rules.

 

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(ii) By electing to proceed under the AAA Rules, the parties to the Dispute confirm that any dispute, Claim or controversy concerning the arbitrability of a Dispute, including whether arbitration has been waived, whether an assignee of this Agreement is bound to arbitrate, or as to the interpretation or enforceability of this Section 10.2, shall be determined by the arbitrators.

(iii) The parties to the Dispute intend that the arbitrators shall apply the substantive Laws of the State of Delaware to any Dispute hereunder, without regard to any choice of law principles thereof that would mandate the application of the Laws of another jurisdiction. The parties further intend that this agreement to arbitrate shall be valid, enforceable and irrevocable, and any award rendered by the arbitrators shall be final and binding on all the parties to the Dispute. The parties to the Dispute agree to comply with any award made in any such arbitration proceedings and agree to enforcement of or entry of judgment upon such award, in any California state or federal court, or in any other court of competent jurisdiction.

(iv) By agreeing to arbitration, the parties to the Dispute do not intend to deprive any court of its jurisdiction to issue a pre-arbitral injunction, pre-arbitral attachment, or other order in aid of arbitration proceedings and the enforcement of any award. Without prejudice to such provisional remedies as may be available under the jurisdiction of a court, the arbitral tribunal shall have full authority to grant provisional remedies and to direct the parties to request that any court modify or vacate any temporary or preliminary relief issued by such court, and to award damages for the failure of any party to respect the arbitral tribunal’s orders to that effect. In any such action each of the parties to the Dispute irrevocably and unconditionally (i) consents and submits to the jurisdiction and venue of the Courts of the State of California and the Federal Courts of the United States of America located within the State of California (the “California Courts”); (ii) waives, to the fullest extent it may effectively do so, any objection, including any objection to the laying of venue or based on the grounds of forum non conveniens or any right of objection to jurisdiction on account of its place of incorporation or domicile, which it may now or hereafter have to the bringing of any such action or proceeding in any California Court; (iii) consents to service of process in the manner provided by Section 12.8 below or in any other manner permitted by law; and (iv) WAIVES ANY RIGHT TO TRIAL BY JURY.

(v) This arbitration, and all prior, subsequent or concurrent judicial proceedings related thereto and permitted herein, shall be conducted pursuant to the Federal Arbitration Act, found at Title 9 of the U.S. Code.

(vi) In order to facilitate the comprehensive resolution of related disputes, all claims between any of the parties to the Dispute that arise under or in connection with this Agreement and the Ancillary Agreements may be brought in a single arbitration. Upon the request of any party to an arbitration proceeding constituted under this Agreement or the

 

33


Ancillary Agreement(s), the arbitral tribunal shall consolidate such arbitration proceeding with any other arbitration proceeding relating to this Agreement and/or the Ancillary Agreement(s), if the arbitral tribunal determines that (i) there are issues of fact or law common to the proceedings so that a consolidated proceeding would be more efficient than separate proceedings, and (ii) no party to the Dispute would be unduly prejudiced as a result of such consolidation through undue delay or otherwise. In the event of different rulings on this question by the arbitral tribunal constituted hereunder and another arbitral tribunal constituted under this Agreement or the Ancillary Agreement(s), the ruling of the arbitral tribunal constituted first in time shall control, and such arbitral tribunal shall serve as the tribunal for any consolidated arbitration.

(vii) In the event of a Dispute, each party to the Dispute shall continue to perform its obligations under this Agreement or any Ancillary Agreement in good faith during the resolution of such Dispute as if such Dispute had not arisen, unless and until this Agreement or such Ancillary Agreement is terminated in accordance with the provisions hereof.

(c) The Parties agree that the provisions of this Section 10.2 bind themselves and any of the members of their respective Groups, and further agree to take all measures to lawfully cause the members of their respective Groups to abide and be bound by the terms of this Section 10.2.

ARTICLE XI

TERMINATION

Section 11.1 Termination. Upon written notice, this Agreement and each of the Ancillary Agreements may be terminated at any time prior to the Effective Time by and in the sole discretion of Ensign without the approval of Pennant or any other party thereto.

Section 11.2 Effect of Termination. In the event of termination pursuant to Section 11.1, neither Party shall have any Liability of any kind to the other Party as a result of such termination.

ARTICLE XII

MISCELLANEOUS

Section 12.1 Further Assurances. Subject to the limitations or other provisions of this Agreement, (a) each Party shall, and shall cause the other members of its Group to, use commercially reasonable efforts (subject to, and in accordance with applicable Law) to take promptly, or cause to be taken promptly, all actions, and to do promptly, or cause to be done promptly, and to assist and cooperate with the other Party in doing, all things reasonably necessary, proper or advisable to consummate and make effective the Transactions and to carry out the intent and purposes of this Agreement, including using commercially reasonable efforts to obtain satisfaction of the conditions precedent in Article V within its reasonable control and to perform all covenants and agreements herein applicable to such Party or any member of its Group and (b) neither Party will, nor will either Party allow any other member of its Group to, without the prior written consent of the other Party, take any action which would reasonably be expected to prevent or materially impede, interfere with or delay any of the Transactions. Without limiting the generality of the foregoing, where the cooperation of third parties, such as insurers or trustees, would be necessary in order for a Party to completely fulfill its obligations under this Agreement, such Party shall use commercially reasonable efforts to cause such third parties to provide such cooperation.

 

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Section 12.2 Payment of Expenses. All costs and expenses incurred and directly related to the Transactions shall be paid by the Party to which such cost or expense is properly allocable.

Section 12.3 Amendments and Waivers.

(a) Subject to Section 11.1, this Agreement may not be amended except by an agreement in writing signed by both Parties.

(b) Any term or provision of this Agreement may be waived, or the time for its performance may be extended, by the Party entitled to the benefit thereof and any such waiver shall be validly and sufficiently given for the purposes of this Agreement if it is in writing signed by an authorized representative of such Party. No delay or failure in exercising any right, power or remedy hereunder shall affect or operate as a waiver thereof; nor shall any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power or remedy preclude any further exercise thereof or of any other right, power or remedy. The rights and remedies hereunder are cumulative and not exclusive of any rights or remedies that either Party would otherwise have.

Section 12.4 Entire Agreement. This Agreement, the Ancillary Agreements and the Exhibits and Schedules referenced herein and therein and attached hereto or thereto, constitute the entire agreement and understanding between the Parties with respect to the subject matter hereof and supersede all prior negotiations, agreements, commitments, writings, courses of dealing and understandings with respect to the subject matter hereof.

Section 12.5 Survival of Agreements. Except as otherwise expressly contemplated by this Agreement, all covenants and agreements of the Parties contained in this Agreement shall survive the Effective Time and remain in full force and effect in accordance with their applicable terms.

Section 12.6 Third-Party Beneficiaries. Except (a) as provided in Article IX relating to Indemnitees and for the release of any Person provided under Section 9.1, (b) as provided in Section 7.1 relating to insured persons and (c) as provided in Section 8.1(a), this Agreement is solely for the benefit of the Parties and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to this Agreement.

Section 12.7 Coordination with Tax Matters Agreement. Except as specifically provided herein, this Agreement shall not apply to Taxes (which are covered by the Tax Matters Agreement). In the case of any conflict between this Agreement and the Tax Matters Agreement in relation to any matter addressed in the Tax Matters Agreement, the Tax Matters Agreement shall prevail.

 

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Section 12.8 Notices. All notices, requests, permissions, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly given (a) five (5) Business Days following sending by registered or certified mail, postage prepaid, (b) when sent, if sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient, (c) when delivered, if delivered personally to the intended recipient, and (d) one (1) Business Day following sending by overnight delivery via a national courier service and, in each case, addressed to a Party at the following address for such Party (as updated from time to time by notice in writing to the other Party):

 

  (a)

If to Ensign:

The Ensign Group, Inc.

29222 Rancho Viejo Rd., Suite 127

San Juan Capistrano, CA 92675

Attention: General Counsel

Email: legal@ensignservices.net

 

  (b)

If to Pennant:

The Pennant Group, Inc.

1675 E. Riverside Dr., Ste. 150

Eagle, ID 83616

Attention: General Counsel

Email: legal@pennantservices.com

Section 12.9 Counterparts; Electronic Delivery. This Agreement may be executed in multiple counterparts, each of which when executed shall be deemed to be an original, but all of which together shall constitute one and the same agreement. Execution and delivery of this Agreement or any other documents pursuant to this Agreement by facsimile or other electronic means shall be deemed to be, and shall have the same legal effect as, execution by an original signature and delivery in person.

Section 12.10 Severability. If any term or other provision of this Agreement or the Exhibits and Schedules attached hereto is determined by a nonappealable decision by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the Transactions is not affected in any manner materially adverse to either Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the court, administrative agency or arbitrator shall interpret this Agreement so as to affect the original intent of the Parties as closely as possible in an acceptable manner to the end that the Transactions are fulfilled to the fullest extent possible. If any sentence in this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only as broad as is enforceable.

Section 12.11 Assignability; Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Parties and their successors and permitted assigns; provided, however, that the rights and obligations of each Party under this Agreement shall not be assignable, in whole or in part, directly or indirectly, whether by operation of law or otherwise, by such Party without

 

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the prior written consent of the other Party (such consent not to be unreasonably withheld, conditioned or delayed) and any attempt to assign any rights or obligations under this Agreement without such consent shall be null and void. Notwithstanding the foregoing, either Party may assign its rights and obligations under this Agreement to any of their respective Affiliates provided that no such assignment shall release such assigning Party from any liability or obligation under this Agreement.

Section 12.12 Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the substantive Laws of the State of Delaware, without regard to any conflicts of law provisions thereof that would result in the application of the Laws of any other jurisdiction.

Section 12.13 Construction. This Agreement shall be construed as if jointly drafted by the Parties and no rule of construction or strict interpretation shall be applied against either Party. The Parties represent that this Agreement is entered into with full consideration of any and all rights which the Parties may have. The Parties have relied upon their own knowledge and judgment. The Parties have had access to independent legal advice, have conducted such investigations they thought appropriate, and have consulted with such other independent advisors as they deemed appropriate regarding this Agreement and their rights and asserted rights in connection therewith. The Parties are not relying upon any representations or statements made by the other Party, or such other Party’s employees, agents, representatives or attorneys, regarding this Agreement, except to the extent such representations are expressly set forth or incorporated in this Agreement. The Parties are not relying upon a legal duty, if one exists, on the part of the other Party (or such other Party’s employees, agents, representatives or attorneys) to disclose any information in connection with the execution of this Agreement or their preparation, it being expressly understood that neither Party shall ever assert any failure to disclose information on the part of the other Party as a ground for challenging this Agreement.

Section 12.14 Performance. Each Party shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary or Affiliate of such Party.

Section 12.15 Title and Headings. Titles and headings to Sections and Articles are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

Section 12.16 Exhibits and Schedules. The Exhibits and Schedules attached hereto are incorporated herein by reference and shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective officers as of the date first set forth above.

 

THE ENSIGN GROUP, INC.
By:  

 

  Name:
  Title:
THE PENNANT GROUP, INC.
By:  

 

  Name:
  Title:


Exhibit A

Pennant Subsidiaries

 

1.

Cornerstone Healthcare, Inc.

 

2.

Pinnacle Senior Living LLC

 

3.

Eagle Pass Senior Living LLC

 

4.

Mission Inn Senior Living LLC

 

5.

Brookhollow Senior Living LLC

 

6.

Beach City Senior Living LLC

 

7.

Mesa Springs Senior Living LLC


Schedule 2.2(a)

Certain Pennant Assets

None.


Schedule 2.3(a)

Certain Pennant Liabilities

None.

EX-3.1

Exhibit 3.1

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION OF

THE PENNANT GROUP, INC.

The Pennant Group, Inc. (the “Corporation”), a corporation organized and existing under the General Corporation Law of the State of Delaware (the “DGCL”), hereby certifies that:

FIRST: The Certificate of Incorporation of the Corporation (the “Original Certificate of Incorporation”) was originally filed in the Office of the Secretary of the State of Delaware on January 24, 2019.

SECOND: This Amended and Restated Certificate of Incorporation of the Corporation (this “Amended and Restated Certificate of Incorporation”) has been duly approved by the board of directors of the Corporation in accordance with the provisions of Sections 242 and 245 of the DGCL, and was approved by the written consent of the sole stockholder of the Corporation in accordance with the provisions of Section 228 of the DGCL.

THIRD: This Amended and Restated Certificate of Incorporation amends, restates and integrates the Original Certificate of Incorporation.

FOURTH: The Original Certificate of Incorporation is hereby amended and restated to read in its entirety as follows:

ARTICLE I

The name of the Corporation is The Pennant Group, Inc.

ARTICLE II

The address of the Corporation’s registered office in the State of Delaware is 1209 Orange Street, City of Wilmington, New Castle County, Delaware 19801. The name of the Corporation’s registered agent at that address is The Corporation Trust Company.

ARTICLE III

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the DGCL, as amended from time to time.

ARTICLE IV

The total number of shares of capital stock the Corporation is authorized to issue is One Hundred and One Million (101,000,000) shares, consisting of One Hundred Million (100,000,000) shares of common stock, par value $0.001 per share (the “Common Stock”), and One Million (1,000,000) shares of preferred stock, par value $0.001 per share (“Preferred Stock”).

A. The holders of shares of the Common Stock shall be entitled to vote on all matters to be voted on by the stockholders of the Corporation and shall be entitled to one vote for each share thereof held of record.

 

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B. The Preferred Stock may be issued from time to time by the board of directors as shares of one or more classes or series, without further stockholder approval. Subject to the provisions hereof and the limitations prescribed by law, the board of directors is expressly authorized, by adopting resolutions providing for the issuance of shares of any particular class or series and, if and to the extent from time to time required by law, by filing with the Delaware Secretary of State a certificate setting forth the resolutions so adopted pursuant to the DGCL, to establish the number of shares to be included in each such class or series and to fix the designation and relative powers, including voting powers (which may be full, limited or non-voting powers), preferences, rights, qualifications and limitations and restrictions thereof, relating to the shares of each such class or series. The rights, privileges, preferences and restrictions of any such additional class or series may be subordinated to, pari passu with (including, without limitation, inclusion in provisions with respect to liquidation and acquisition preferences, redemption and/or approval of matters by vote), or senior to any of those of any present or future class or series of Preferred Stock or Common Stock. The board of directors is also authorized to increase or decrease the number of authorized shares of any class or series of Preferred Stock prior or subsequent to the issue of that class or series, but not below the number of shares of such class or series then outstanding. In case the number of shares of any class or series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such class or series.

The authority of the board of directors with respect to each class or series shall include, but not be limited to, determination of the following:

(i) the distinctive class or serial designation of such class or series and the number of shares constituting such class or series;

(ii) the annual dividend rate on shares of such class or series, if any, whether dividends shall be cumulative and, if so, from which date or dates;

(iii) whether the shares of such class or series shall be redeemable and, if so, the terms and conditions of such redemption, including the date or dates upon and after which such shares shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;

(iv) the obligation, if any, of the Corporation to retire shares of such class or series pursuant to a sinking fund;

(v) whether shares of such class or series shall be convertible into, or exchangeable for, shares of stock of any other class or classes and, if so, the terms and conditions of such conversion or exchange, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any;

(vi) whether the shares of such class or series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights;

(vii) the rights of the shares of such class or series in the event of voluntary or involuntary liquidation, dissolution or winding-up of the Corporation; and

 

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(viii) any other relative rights, powers, preferences, qualifications, limitations or restrictions thereof relating to such class or series.

ARTICLE V

The number of directors to constitute the whole board of directors shall be such number (not less than four nor more than seven) as shall be fixed from time to time by resolution of the board of directors adopted by such vote as may be required in the bylaws. The board of directors shall be divided into three classes as nearly equal in number as may be feasible, hereby designated as Class I, Class II and Class III, with the term of office of one class expiring each year. For the purposes hereof, the initial Class I, Class II and Class III directors shall be so designated by a resolution of the board of directors. Each director shall serve for a term ending on the third annual meeting of stockholders following the annual meeting of stockholders at which such director was elected, or until his or her earlier death, resignation or removal; provided, however, that the directors first elected to Class I shall serve for a term ending on the Corporation’s first annual meeting of stockholders following the effectiveness of this Amended and Restated Certificate of Incorporation, the directors first elected to Class II shall serve for a term ending on the Corporation’s second annual meeting of stockholders following the effectiveness of this Amended and Restated Certificate of Incorporation, and the directors first elected to Class III shall serve for a term ending on the Corporation’s third annual meeting of stockholders following the effectiveness of this Amended and Restated Certificate of Incorporation. Subject to the rights, if any, of the holders of any Preferred Stock then outstanding, any vacancy in the board of directors, whether because of death, resignation, disqualification, an increase in the authorized number of directors, removal, or any other cause, may be filled by a vote of the majority of the remaining directors, although less than a quorum, or by a sole remaining director. When the board of directors fills a vacancy, the director chosen to fill that vacancy shall complete the term of the director he or she succeeds (or shall complete the term of the class of directors in which the new directorship was created) and shall hold office until such director’s successor shall have been elected and qualified or until such director’s earlier death, resignation or removal. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office. Directors shall continue in office until others are elected and qualified in their stead, or until their earlier death, resignation or removal. When the number of directors is changed, each director then serving as such shall nevertheless continue as a director of the class of which he or she is a member until the expiration of his or her current term, and any newly created directorships or any decrease in directorships shall be so assigned among the classes by a majority of the directors then in office, though less than a quorum, as to make all classes as nearly equal in number as may be feasible. Subject to the rights of the holders of any series of Preferred Stock then outstanding and notwithstanding any other provision of this Amended and Restated Certificate of Incorporation, directors may be removed only for cause and only upon the affirmative vote of stockholders representing at least sixty-six and two-thirds percent (662/3%) of the voting power of all of the shares of the Common Stock outstanding entitled to vote thereon, at a meeting of the Corporation’s stockholders called for that purpose. Any director may resign at any time upon written notice to the Corporation.

 

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Advance notice of stockholder nominations for the election of members of the board of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the bylaws of the Corporation. Elections of directors need not be by written ballot unless the bylaws of the Corporation shall so provide.

ARTICLE VI

To the extent permitted by law, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if: (i) a consent in writing, setting forth the action so taken shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present, and (ii) such action has been earlier approved by the board of directors. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Special meetings of stockholders may be called only by the Chairman of the Board or the Chief Executive Officer or by the board of directors acting pursuant to a resolution adopted by a majority of the board of directors.

ARTICLE VII

In furtherance and not in limitation of the power conferred upon the board of directors by law, the board of directors shall have power to adopt, amend, alter and repeal from time to time the bylaws of the Corporation by majority vote of all directors except that any provision of the bylaws requiring, for board action, a vote of greater than a majority of the board shall not be amended, altered or repealed except by such supermajority vote. The stockholders of the Corporation may only adopt, amend or repeal bylaws with the affirmative vote of the holders of at least a majority of the voting power of all of the shares of the Common Stock outstanding and entitled to vote thereon.

ARTICLE VIII

The Corporation reserves the right to amend this Amended and Restated Certificate of Incorporation in any manner provided herein or permitted by the DGCL, and all rights and powers, if any, conferred herein on stockholders, directors and officers are subject to the reserved power. Notwithstanding the foregoing, without the affirmative vote of the holders of record of a majority of the voting power of all of the shares of the Common Stock outstanding entitled to vote thereon, the Corporation shall not alter, amend or repeal Article V, Article VI or Article VIII, of this Amended and Restated Certificate of Incorporation or the provisions of Article IV providing for undesignated Preferred Stock.

ARTICLE IX

A. To the fullest extent permitted by the DGCL, as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.

 

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B. The Corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he or she, his or her testator or intestate is or was a director or officer of the Corporation or any predecessor of the Corporation, or serves or served at any other enterprise as a director or officer at the request of the Corporation, or any predecessor to the Corporation.

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

ARTICLE X

A. Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for any (1) derivative action or proceeding brought on behalf of the Corporation, (2) action asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or agent of the Corporation to the Corporation or its stockholders, or any claim for aiding and abetting any such alleged breach, (3) action asserting a claim against the Corporation or any director or officer of the Corporation arising pursuant to any provision of the DGCL or this Amended and Restated Certificate of Incorporation or the bylaws of the Corporation, or (4) action asserting a claim against the Corporation or any director or officer of the Corporation governed by the internal affairs doctrine except for, as to each of (1) through (4) above, any claim (a) as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), (b) which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or (c) arising under the federal securities laws, including the Securities Act of 1933, as amended, as to which the Court of Chancery and the federal district court for the District of Delaware shall concurrently be the sole and exclusive forums. Notwithstanding the foregoing, the provisions of this paragraph A of this Article X will not apply to suits brought to enforce any liability or duty created by the Exchange Act of 1934, as amended, or any other claim for which the federal district courts of the United States of America shall be the sole and exclusive forum.

B. If any action the subject matter of which is within the scope of this Article X is filed in a court other than a court located within the State of Delaware (a “foreign action”) in the name of any stockholder, such stockholder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located within the State of Delaware in connection with any action brought in any such court to enforce this Article X above (an “enforcement action”), and (y) having service of process made upon such stockholder in any such enforcement action by service upon such stockholder’s counsel in the foreign action as agent for such stockholder.

C. If any provision or provisions of this Article X shall be held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Article X (including, without limitation, each portion of any sentence of this Article X containing any such provision held to be

 

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invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities and circumstances shall not in any way be affected or impaired thereby. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article X.

*                     *                     *

 

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IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be executed on its behalf by its duly authorized officer on this [•] day of [•], 2019.

 

THE PENNANT GROUP, INC.
By:  

 

Name: [•]
Title: [•]

[Signature Page to the Amended and Restated Certificate of Incorporation of The Pennant Group, Inc.]

EX-3.2

Exhibit 3.2

AMENDED AND RESTATED BYLAWS

OF

THE PENNANT GROUP, INC.

(Effective as of                , 2019)

ARTICLE I

OFFICES

Section 1.01 Registered Office. The registered office of The Pennant Group, Inc. (the “corporation”) in the State of Delaware shall be at 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801. The name of the corporation’s registered agent at that address shall be The Corporation Trust Company.

Section 1.02 Other Offices. The corporation also may have an office or offices at such other place or places either within or without the State of Delaware as the board of directors of the corporation (the “board” or the “board of directors”) may from time to time determine or the business of the corporation may from time to time require.

Section 1.03 Books and Records. The books and records of the corporation may be kept at the corporation’s headquarters in Eagle, Idaho or at such other locations within or without the State of Delaware as may from time to time be designated by the board of directors.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 2.01 Place of Meetings. Each meeting of the stockholders of the corporation shall be held at such place either within or without the State of Delaware as shall be fixed by resolution of the board of directors and specified in the notice of said meeting. If no designation is made by the board of directors, the place of meeting shall be the principal office of the corporation.

Section 2.02 Annual Meetings. The annual meeting of the stockholders for the transaction of such business as may properly come before the meeting shall be held at such place, date and time as shall be determined by the board of directors.

Section 2.03 Special Meetings. A special meeting of the stockholders for any purpose or purposes may be called at any time only by the chairman of the board, the chief executive officer or by a majority of the board of directors.

Section 2.04 Notice of Annual and Special Meetings. Except as otherwise required by law, written, printed or electronic notice stating the place, date and hour of each meeting of stockholders, whether annual or special, and the purposes for which the meeting is called shall be given not less than ten (10) days nor more than sixty (60) days before the date of the meeting, either personally, by mail or, to the extent permitted by law, by a form of electronic transmission (as such term is defined in the Delaware General Corporation Law), to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the U.S. mail with postage thereon prepaid, addressed to the stockholder at his address as it appears on the stock transfer books of the corporation. Notice given by a form of electronic transmission that satisfies the requirements of the Delaware General Corporation Law


and has been consented to by the stockholder to whom notice is given shall be deemed given at the times specified with respect to the giving of notice by electronic transmission in the Delaware General Corporation Law. An affidavit of the corporation’s secretary, an assistant secretary or an agent of the corporation that notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated in the affidavit. Any previously scheduled meeting of stockholders (whether an annual meeting or a special meeting) may be cancelled, rescheduled or postponed by resolution of the board of directors upon public notice given prior to the time previously scheduled for such meeting of stockholders.

Section 2.05 Business at Annual and Special Meetings. The business, including the nomination of directors, to be transacted at any annual or special meeting of stockholders shall be limited to business that is properly brought before the meeting. For the purposes of these bylaws, “properly brought before the meeting” shall mean the business that is (i) specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the board of directors, (ii) otherwise brought before an annual meeting by or at the direction of the board of directors, or (iii) a proper matter for stockholder action under the Delaware General Corporation Law that has been otherwise properly brought before an annual meeting by a stockholder who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.05 and on the record date for the determination of stockholders entitled to notice of and to vote at such annual meeting, who is entitled to vote at such annual meeting and who complies with the notice procedures set forth in this Section 2.05. In order for business to be properly brought before an annual meeting by a stockholder, the stockholder must, in addition to any other applicable requirements, give written notice in proper form of such stockholder’s intent to bring a matter before the annual meeting, which notice must be received by the secretary of the corporation at the corporation’s principal executive offices no later than the close of business on the sixtieth (60th) day, nor earlier than the close of business on the ninetieth (90th) day, prior to the anniversary date of the immediately preceding annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder to be timely must be so received not earlier than the close of business on the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting, or not later than the close of business on the 10th day following the day on which public disclosure of the date of the meeting was made by the corporation, whichever occurs first; provided, further, that for the purpose of calculating the timeliness of stockholder notices for the first annual meeting of stockholders following the effectiveness of these bylaws, the date of the immediately preceding annual meeting shall be deemed to be June 1, 2019. In no event shall the public announcement of a postponement or adjournment of an annual meeting to a later date or time commence a new time period for the giving of a stockholder’s notice as described above. Except with respect to nominations for the election of directors, which shall be governed by Section 3.02 hereof, to be in proper form, each such notice shall set forth: (a) the name and address of the stockholder who intends to bring such matter before a meeting; (b) the class or series and number of shares of capital stock of the corporation entitled to vote at such meeting which are owned beneficially or of record by such stockholder; (c) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to bring such matter before the meeting; (d) a description of the business desired to be brought before the meeting and the reasons therefor; (e) such other information

 

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regarding the stockholder and the business proposed by such stockholder as would be required to be included in the proxy statement pursuant to the rules and regulations of the Securities and Exchange Commission; and (f) a representation as to the stockholder’s material interest in the business being proposed. In addition, the stockholder making such proposal shall promptly provide any other information reasonably requested by the corporation. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder’s meeting, stockholders must provide notice as required by, and otherwise comply with the requirements of, the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder. The presiding officer of the meeting shall refuse to acknowledge any business proposed to be brought before an annual or special meeting not made in compliance with the foregoing procedures.

Section 2.06 Quorum and Adjourned Meetings. The holders of a majority of the voting power of the stock entitled to vote at a meeting of the stockholders, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by statute or by the certificate of incorporation. Where a separate vote by a class or series or classes or series of stock is required at a meeting, the presence, in person or by proxy, of the holders of a majority of the voting power of each such class or series shall also be required to constitute a quorum. If, however, such quorum shall not be present or represented at any meeting of the stockholders, either the chairperson of the meeting or the holders of a majority of the voting power of the stock entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting, at which the quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. Notice of an adjourned meeting need not be given if the time and place, if any, are announced at the meeting so adjourned, except that if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. A quorum, once established at a meeting, shall not be broken by the withdrawal of the holders of enough voting power to leave less than a quorum. If a quorum is present at an original meeting, a quorum need not be present at an adjourned session of that meeting.

Section 2.07 Required Vote. When a quorum is present at any meeting, the vote of the holders of a majority of the voting power of the stock entitled to vote thereat, present in person or represented by proxy, shall decide any question brought before such meeting, unless the question is one upon which, by express provision of statute or by the certificate of incorporation or these bylaws, a different level of vote is required, in which case such express provisions shall govern and control the decision of such question. Notwithstanding the preceding sentence, elections of directors at all meetings of the stockholders at which directors are to be elected shall be by written ballot, and, except with respect to the right, if any, of the holders of any series of preferred stock or any other series or class of stock to elect additional directors under specified circumstances, a plurality of the voting power of the stock, present in person or represented by proxy, at the meeting and entitled to vote on the matter shall elect directors.

 

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Section 2.08 Conduct of Meetings of Stockholders. The chairman of the board of directors, or if there shall be none or in his or her absence, the chief executive officer or if there shall be none or in his or her absence, the president, who is present at the meeting, or in all of their absences an individual designated by the board of directors, shall call to order and act as the chair of any meeting of the stockholders of the corporation. The stockholders shall not have the right to elect a different person as chairman of the meeting. The secretary of the corporation shall serve as the secretary of the meeting or, if there shall be none or in his or her absence, the secretary of the meeting shall be such person as the chair of the meeting appoints. The board of directors may, to the extent not prohibited by law, adopt by resolution such rules, regulations and procedures for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules, regulations and procedures as adopted by the board of directors, the chair of the meeting shall have the right and authority to convene and adjourn or recess (for any or no reason) the meeting (whether or not a quorum is present), prescribe such rules, regulations and procedures and to take or refrain from taking such actions as, in the sole judgment of the chair of the meeting, are necessary, appropriate or convenient for the conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules, regulations and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in the meeting to stockholders of record of the corporation, their duly authorized proxies and such other persons as the chair of the meeting shall permit, restrictions on the use of audio and/or visual recording devices, restrictions on entry to the meeting after the time fixed for commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting and matters which are to be voted on by ballot. Unless and to the extent otherwise determined by the board of directors or the chair of the meeting, it shall not be necessary to follow Roberts’ Rules of Order or any other rules of parliamentary procedure at the meeting of stockholders. Following completion of the business of the meeting as determined by the chair of the meeting, the chair of the meeting shall have the exclusive authority to adjourn the meeting.

Section 2.09 Conduct of Business. No business shall be conducted at an annual or special meeting of stockholders of the corporation except business brought before the meeting in accordance with the procedures set forth in these bylaws. If the introduction of any business at an annual or special meeting of stockholders does not comply with the procedures specified in this Article, the chair of the meeting shall declare that such business is not properly before the meeting and shall not be considered at the meeting.

Section 2.10 Stockholder List. The secretary of the corporation shall prepare and make available, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, at the corporation’s principal place of business. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

 

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Section 2.11 Inspectors of Elections. The board of directors by resolution shall appoint one or more inspectors of election, which inspector or inspectors may include individuals who serve the corporation in other capacities, including, without limitation, as officers, employees, agents or representatives of the corporation, to act at the meeting (or any adjournment thereof) and make a written report thereof. Such inspector shall decide upon the qualification of the voters and shall certify and report the number of shares represented at the meeting and entitled to vote on any question, determine the number of votes entitled to be cast by each share, shall conduct the vote and, when the voting is completed, accept the votes and ascertain and report the number of shares voted respectively for and against each question, and determine, and retain for a reasonable period a record of the disposition of, any challenge made to any determination made by such inspector. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act, or if all inspectors or alternates who have been appointed are unable to act, at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by the General Corporation Law of the State of Delaware.

Section 2.12 Fixing Record Date. If the corporation proposes to take any action for which the Delaware General Corporation Law would permit it to fix a record date, the board of directors may fix such a record date as provided under the Delaware General Corporation Law.

Section 2.13 Action Without a Meeting. To the extent permitted by law, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken only with regards to an action that has been earlier approved by the board, without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken and earlier approved by the board, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.

ARTICLE III

BOARD OF DIRECTORS

Section 3.01 General Powers. The business, property and affairs of the corporation shall be managed under the direction of the board of directors.

Section 3.02 Nomination of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors, except as may be otherwise provided in the certificate of incorporation with respect to the right, if any, of holders of a class of preferred stock of the corporation to nominate and elect a specified number of directors. To be properly brought before an annual meeting of the stockholders, or any special meeting of the stockholders called for the purpose of electing directors, nominations for the election of a director must be (i) made by or at the direction of the board of directors (or any duly authorized committee thereof) and specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (ii) made by or at the direction of the board

 

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of directors (or any duly authorized committee thereof) to be brought before an annual meeting, or (iii) made by any stockholder of the corporation who is a stockholder of record on the date of the giving of the notice provided for in this Section 3.02 and on the record date for the determination of stockholders entitled to notice of and to vote at such meeting, who is entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 3.02. In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the secretary of the corporation. To be timely, such stockholder’s notice must be received by the secretary of the corporation at the corporation’s principal executive offices, (i) in the case of an annual meeting, in accordance with the time provisions set forth in Section 2.05, and, (ii) in the case of a special meeting of the stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made by the corporation, whichever first occurs. To be in proper written form, each such stockholder’s notice shall set forth: (a) the name, age, business address, residence address and principal occupation or employment of each nominee (present and for the past five years), and the name and address of the stockholder making the nomination, (b) the class or series and number of shares of capital stock of the corporation entitled to vote at such meeting which are owned beneficially or of record by each nominee and by the stockholder making the nomination, (c) a representation that the nominating stockholder is a stockholder of record of the corporation’s stock entitled to vote at the meeting and intends to appear in person or by proxy at such meeting to nominate the person specified in the notice, (d) each nominee’s qualifications for membership on the board of directors, (e) a description of all direct and indirect compensation and other monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between the nominating stockholder, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K if the nominating stockholder were the “registrant” for purposes of such rule and the nominee were a director or executive officer of such registrant, (f) all information relating to the person that would be required by this Section 3.02 to be set forth in a stockholder’s notice with respect to a director nomination if such nominee were a stockholder providing notice of a director nomination to be made at the meeting, (g) a notarized letter stating the person’s written consent to being named in any proxy statement as a nominee and to serve as a director if elected, (h) all of the information relating to each nominee and the stockholder making the nomination that would be required in a proxy statement soliciting proxies for the election of the nominee as a director, or would otherwise be required, in each case pursuant to the rules and regulations of the Securities and Exchange Commission, (i) a complete and accurate description of all direct or indirect arrangements or understandings between the nominating stockholder and each nominee, any other person or persons (naming such person or persons) pursuant to whose request the nomination is being made by the stockholder, any person controlling, directly or indirectly, or acting in concert with, such nominating stockholder or such beneficial owner and any person controlling, controlled by or under common control with such nominating stockholder or such beneficial owner in connection with the nomination of any nominee to serve as a member of the board of directors or the proposal of any other business at any meeting of the stockholders of the corporation, (j) all other companies to which each nominee is being recommended as a nominee for director, (k) a signed

 

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written consent of the nominee to cooperate with reasonable background checks and personal interviews, to be named in the proxy statement and to serve as a director of the corporation, if elected, (l) a completed and signed (A) questionnaire (as defined below) and (B) representation and agreement (as defined below), and (m) such additional information as the board of directors or a nomination or similar committee appointed by the board of directors may require pursuant to resolutions of the board of directors or such committee’s charter. In addition, the stockholder making such nomination shall promptly provide any other information reasonably requested by the corporation, including, without limitation, such other information as may be reasonably required to determine (x) the eligibility of a nominee to serve as a director of the corporation, and (y) whether such nominee qualifies as an “independent director” or “audit committee financial expert” under applicable law, securities exchange rule or regulation or any publicly disclosed corporate governance guideline or committee charter of the corporation. Notwithstanding the foregoing, in order to include information with respect to a stockholder nomination in the proxy statement and form of proxy for a stockholder’s meeting, stockholders must provide notice as required by, and otherwise comply with the requirements of, the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder. The presiding officer of the meeting shall refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure.

To be eligible to be a nominee for election or reelection as a director of the corporation, a nominee must deliver (in the case of nominee nominated by a stockholder pursuant to this Section 3.02, in accordance with the time periods prescribed for delivery of notice under these bylaws and applicable law) to the secretary of the corporation at the principal executive offices of the corporation (i) a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (in the form provided by the secretary of the corporation upon written request) (a “questionnaire”) and (ii) a written representation and agreement (in the form provided by the secretary of the corporation upon written request) that such person (A) is not and will not become a party to (1) any agreement, arrangement or understanding (whether written or oral) with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the corporation, will act or vote in such capacity on any issue or question (a “voting commitment”) that has not been disclosed to the corporation or (2) any voting commitment that could limit or interfere with such person’s ability to comply, if elected as a director of the corporation, with such person’s fiduciary duties under applicable law; (B) is not and will not become a party to any agreement, arrangement or understanding (whether written or oral) with any person or entity other than the corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director of the corporation that has not been disclosed to the corporation and (C) in such person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a director of the corporation, and will comply with all applicable law and all applicable rules of the U.S. stock exchanges upon which shares of capital stock of the corporation are listed and all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and other guidelines of the corporation duly adopted by the board of directors (a “representation and agreement”).

 

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A stockholder providing notice of any nomination or other business proposed to be brought before a meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 3.02 shall be true and correct (i) as of the record date for the meeting and (ii) as of the date that is ten (10) business days prior to the meeting or any adjournment, recess, rescheduling or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the secretary of the corporation at the principal executive offices of the corporation not later than five (5) business days after the record date for the meeting (in the case of the update and supplement required to be made as of the record date) and not later than seven (7) business days prior to the meeting or, if practicable, any adjournment, recess, rescheduling or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned, recessed, rescheduled or postponed) (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment, recess, rescheduling or postponement thereof).

Notwithstanding anything in these bylaws to the contrary, unless otherwise required by law, if a stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the corporation and present his or her proposed business or nomination, such proposed business will not be transacted and the nomination will be disregarded, notwithstanding that proxies in respect of such vote may have been received by the corporation. For purposes of this Section 3.02, to be considered a qualified representative of a stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder (or a reliable reproduction or electronic transmission of the writing) stating that such person is authorized to act for such stockholder as a proxy at the meeting of stockholders, and such person must produce proof that he or she is a duly authorized officer, manager or partner of such stockholder or such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, as well as valid government-issued photo identification, at the meeting of stockholders.

Section 3.03 Number of Directors. The number of directors to constitute the whole board of directors shall be such number (not less than four nor more than seven) as shall be fixed from time to time by resolution adopted by a majority of the entire board of directors. Directors need not be stockholders.

Section 3.04 Quorum and Manner of Acting. A majority of the number of the directors in office at the time shall constitute a quorum for the transaction of business at any meeting. Thereafter, a quorum shall be deemed present for purposes of conducting business and determining the vote required to take action for so long as at least a third of the total number of directors is present. Except as otherwise required by the certificate of incorporation or these bylaws, the affirmative vote of a majority of the directors present at any meeting at which a quorum is present shall be required for the taking of any action by the board of directors. In the absence of a quorum at any meeting of the board, such meeting need not be held, or a majority of the directors present thereat or, if no director is present, the secretary, may adjourn such meeting from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given.

Section 3.05 Offices; Place of Meetings. The board of directors may hold meetings and have an office or offices at such place or places within or without the State of Delaware, as the board of directors may from time to time determine.

 

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Section 3.06 Annual Meeting. A regular meeting of the board of directors shall be held without notice immediately after and at the same place as the annual meeting of the stockholders.

Section 3.07 Regular Meeting. Regular meetings of the board of directors shall be held at such places and at such times as the board of directors shall from time to time determine. Notice of regular meetings of the board of directors need not be given.

Section 3.08 Special Meetings and Notice. Special meetings of the board of directors shall be held whenever called by the chairman of the board, the chief executive officer or any two of the directors. Except as otherwise provided by law or by these bylaws, notice of each such special meeting shall be given by the secretary (i) in person or by telephone to the director at least 24 hours in advance of the meeting, (ii) by personally delivering written notice to the director’s last known business or home address at least 48 hours in advance of the meeting, (iii) by delivering an electronic transmission (including, without limitation, via telefacsimile or electronic mail) to the director’s last known number or address for receiving electronic transmissions of that type at least 48 hours in advance of the meeting, (iv) by depositing written notice with a reputable delivery service or overnight carrier addressed to the director’s last known business or home address for delivery to that address no later than the business day preceding the date of the meeting or (v) by depositing written notice in the U.S. mail, postage prepaid, addressed to the director’s last known business or home address no later than the third business day preceding the date of the meeting. Each such notice shall state the time and place of the meeting but need not state the purposes thereof except as otherwise herein expressly provided. Notice of any such meeting need not be given to any director, however, if waived by him or her in writing or by facsimile, electronic transmission or similar means, or by mail, whether before or after such meeting shall be held, or if he or she shall be present at such meeting; and any meeting of the board shall be a legal meeting without any notice thereof having been given if all of the directors shall be present thereat.

Section 3.09 Organization. At each meeting of the board of directors, the chairman of the board, or in the absence of the chairman of the board, if they be directors, the chief executive officer, or in the absence of the chief executive officer, the president, or in the absence of the president, any director chosen by a majority of the directors present thereat, shall preside. The secretary, or in his or her absence an assistant secretary of the corporation, or in the absence of the secretary and all assistant secretaries, a person whom the chairman of such meeting shall appoint, shall act as secretary of such meeting and keep the minutes thereof.

Section 3.10 Order of Business. At all meetings of the board of directors, business shall be transacted in the order determined by the board of directors.

Section 3.11 Action by Unanimous Consent. Any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting if all members of the board or of such committee, as the case may be, consent to the action in writing or by electronic transmission. The writing or writings or electronic transmission or transmissions shall be filed with the minutes of the proceedings of the board of directors or of the relevant committee.

 

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Section 3.12 Telephone, etc. Meetings. Members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute the presence of such person at such meeting.

Section 3.13 Resignation. Any director of the corporation may resign, as a director or as a committee member or both, at any time by giving notice in writing or by electronic transmission of his or her resignation to the chairman of the board, the chief executive officer or the secretary of the corporation. Such resignation shall take effect at the time specified therein (if the remaining directors agree to such time), or, if the time when it shall become effective shall not be specified therein, then it shall take effect when received. Except as aforesaid, the acceptance of such resignation shall not be necessary to make it effective.

Section 3.14 Compensation. Each director, in consideration of his or her serving as such, shall be entitled to receive from the corporation such amount per annum, or such fees for attendance at board and committee meetings, or both, or such other compensation, including options to acquire capital stock of the corporation, as the board of directors shall from time to time determine by resolution. The board of directors likewise may provide by resolution that the corporation shall reimburse each director or member of a committee for any expenses incurred by him or her on account of his or her attendance at any such meeting. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving proper compensation therefor.

Section 3.15 Removal. Unless otherwise specified by law or the certificate of incorporation, any director or the entire board of directors may be removed at any time by the affirmative vote of the holders of at least sixty-six and two-thirds percent (662/3%) of the shares then entitled to vote at an election of directors, but only for cause.

Section 3.16 Vacancies. Except as otherwise provided in the certificate of incorporation and subject to the rights, if any, of the holders of any preferred stock then outstanding, any vacancy in the board, whether because of death, resignation, disqualification, an increase in the authorized number of directors, removal, or any other cause, may be filled by a vote of the majority of the remaining directors, although less than a quorum, or by a sole remaining director. When the board fills a vacancy, the director chosen to fill that vacancy shall complete the term of the director he or she succeeds (or shall complete the term of the class of directors in which the new directorship was created) and shall hold office until such director’s successor shall have been elected and qualified or until such director’s earlier death, resignation or removal. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office.

Section 3.17 Chairman and Vice-Chairman of the Board. The board of directors may elect from its members a chairman of the board and a vice chairman. If a chairman has been elected and is present, the chairman shall preside at all meetings of the board of directors and the stockholders. The chairman shall have such other powers and perform such other duties as the board of directors may designate. If the board of directors elects a vice chairman, the vice chairman shall, in the absence or disability of the chairman, perform the duties and exercise the powers of the chairman and have such other powers and perform such other duties as the board of directors may designate.

 

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ARTICLE IV

COMMITTEES

The board of directors may, by resolution or resolutions passed by a majority of the full board of directors, designate one or more committees, each such committee to consist of one or more directors of the corporation, which, to the extent provided in said resolution or resolutions and the committee’s charter and subject to the limitations contained in the Delaware General Corporation Law, shall have and may exercise all the powers of the board of directors in the management of the business and affairs of the corporation. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. The board of directors may make, alter and repeal a committee’s charter or other rules for the conduct of such committee’s business. Any such committee shall keep written minutes of its meetings and report the same to the board at the next regular meeting of the board. Unless the board or these bylaws shall otherwise prescribe the manner of proceedings of any such committee, meetings of such committee may be regularly scheduled in advance and may be called at any time by the chairman of the committee or by any two (2) members thereof; otherwise, the provisions of these bylaws with respect to notice and conduct of meetings of the board shall govern. The board of directors shall have power to change the members of any such committee at any time, to fill vacancies and to discharge any such committee, either with or without cause, at any time, unless otherwise provided in such committee’s charter, or other rules for the conduct of its business, adopted by the board of directors.

ARTICLE V

OFFICERS

Section 5.01 Number. The principal officers of the corporation shall be chosen by the board of directors and shall be a chief executive officer, a chief financial officer, a president, one or more vice presidents as the board of directors from time to time may appoint (the number thereof and their respective titles to be determined by the board of directors and one or more of whom may be designated as executive or senior vice presidents), a secretary and a treasurer. In addition, there may be such subordinate officers, agents and employees as may be appointed in accordance with the provisions of Section 5.03. Any two or more offices may be held by the same person. Any officer may be, but need not be, a director or stockholder. The offices of the corporation for which officers may be elected shall be set forth from time to time by resolution of the board of directors.

Section 5.02 Election, Qualification and Term of Office. Each officer of the corporation shall be elected by the board of directors from time to time and shall hold office until his or her successor shall have been duly elected and qualified, unless a different term is specified in the resolution electing the officer, or until his or her death, or until he or she shall have resigned or shall have been removed in the manner herein provided.

 

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Section 5.03 Other Officers. The corporation may have such other subordinate officers, agents and employees as the board of directors may deem necessary, including one or more assistant secretaries, one or more assistant treasurers, a controller and one or more assistant controllers, each of whom shall have such authority and perform such duties as the board of directors may from time to time determine.

Section 5.04 Removal. Any officer may be removed, either with or without cause, by resolution of the board of directors. Such removal from office shall not affect any rights that such removed officer may have under any employment or stockholder agreement.

Section 5.05 Resignation. Any officer may resign at any time by giving notice in writing or by electronic transmission to the board of directors, the chairman of the board or the chief executive officer. Any such resignation shall take effect at the time specified therein (if the board agrees to such time) or, if the time when it shall become effective shall not be specified therein, then it shall take effect when accepted by action of the board of directors. Except as aforesaid, the acceptance of such resignation shall not be necessary to make it effective.

Section 5.06 Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled for the unexpired portion of the term in the manner prescribed in these bylaws for regular election or appointment to such office.

Section 5.07 Powers. Unless otherwise specified by the board of directors, each officer shall have those powers and shall perform those duties that are (i) set forth in these bylaws (if any are so set forth), (ii) set forth in the resolution of the board of directors electing that officer or any subsequent resolution of the board of directors with respect to that officer’s duties or (iii) commonly incident to the office held.

Section 5.08 Chief Executive Officer. The chief executive officer shall have general supervisory management over the business, affairs and policies of the corporation and over its officers, shall report to the board of directors and shall see that all orders and resolutions of the board of directors are carried into effect, all subject to the general direction and control of the board of directors. The chief executive officer shall have the authority to sign all certificates, contracts and other instruments on behalf of the corporation and take such actions required in connection therewith. In the absence of the chairman of the board for any reason, including the failure of the board of directors to elect the chairman of the board, or in the event of the chairman’s inability or refusal to act, the chief executive officer shall have all the powers of, and be subject to all the restrictions upon, the chairman of the board.

Section 5.09 President. The president shall be subject to the direction and control of the chief executive officer and the board of directors and shall be responsible for the general active management of the business, affairs and policies of the corporation, shall perform such other duties as may be prescribed by the board of directors or the chief executive officer and shall have authority to sign all certificates, contracts and other instruments on behalf of the corporation and take such actions required in connection therewith. In the absence of the chief executive officer for any reason, including the failure of the board of directors to elect a chief executive officer, or in the event of the chief executive officer’s inability or refusal to act, the president shall have all the powers of, and be subject to all the restrictions upon, the chief executive officer.

 

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Section 5.10 Chief Financial Officer. The chief financial officer shall be subject to the direction and control of the board of directors and the chief executive officer, shall have primary responsibility for the financial affairs of the corporation and shall (i) keep accurate financial records for the corporation; (ii) deposit all moneys, drafts and checks in the name of, and to the credit of, the corporation in such banks and depositories as the board of directors shall, from time to time, designate or otherwise authorize; (iii) have the power to endorse, for deposit, all notes, checks and drafts received by the corporation; (iv) disburse the funds of the corporation in accordance with the corporation’s policies and procedures as adopted by resolution of the board of directors, making or causing to be made proper vouchers therefor; (v) render to the chief executive officer and the board of directors, whenever requested, an account of all of his or her transactions as chief financial officer and of the financial condition of the corporation, and (vi) perform such other duties as may, from time to time, be prescribed by the board of directors or by the chief executive officer. The powers and duties specified herein may be modified or limited at any time by the board of directors.

Section 5.11 Vice President. The vice president or, if there be more than one, the vice presidents, in the order determined by the board of directors (or if there is no such determination, then in the order of their election), shall be subject to the direction and control of the board of directors and the chief executive officer, shall have such powers and duties as the board of directors or the chief executive officer may assign to them, and shall, in the absence of the president for any reason, including the failure of the board of directors to elect a president or in the event of the president’s inability or refusal to act, perform the duties of the president, and, when so acting, have all the powers of, and be subject to all of the restrictions upon, the president. If the board of directors elects more than one vice president, then it shall determine their respective titles, seniority and duties. The vice president or vice presidents shall perform such other duties and have such other powers as the board of directors or the chief executive officer may from time to time prescribe.

Section 5.12 Secretary. The secretary shall, to the extent practicable, attend all meetings of the stockholders and the board of directors. The secretary shall record or cause to be recorded in books kept for such purpose the minutes of the meetings (and the actions by written consent) of the stockholders, the board of directors and all committees of which a secretary shall not have been appointed; shall see that all notices are duly given in accordance with the provisions of these bylaws and as required by law; shall be custodian of all corporate records (other than financial); shall see that the books, reports, statements, certificates and all other documents and records required by law are properly kept and filed; and, in general, shall perform all duties as may from time to time be assigned to him or her by the board of directors or the chief executive officer.

Section 5.13 Assistant Secretary. The assistant secretary, or if there be more than one, the assistant secretaries, in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall have such powers and duties as the board of directors or the chief executive officer may assign to them and shall, in the absence of the secretary for any reason, including the failure of the board of directors to elect a secretary or in the event of the secretary’s inability or refusal to act, perform the duties and exercise the powers of the secretary and perform such other duties and have such other powers as the board of directors or chief executive officer may from time to time prescribe. Any assistant secretary shall have authority to attest by his or her signature to the same extent as the secretary.

 

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Section 5.14 Treasurer. The treasurer shall have charge and custody of, and be responsible for, all funds and securities of the corporation, and shall deposit all such funds to the credit of the corporation in such banks, trust companies or other depositories as shall be selected by the board of directors or any officer or officers authorized by board of directors to make such determinations; shall disburse the funds of the corporation as may be ordered by the board of directors or any officer or officers authorized by the board of directors to make such determinations, making proper vouchers for such disbursements; shall keep full and accurate accounts of all funds received and paid on account of the corporation and shall render to the board of directors or the chief executive officer, whenever the board or the chief executive officer may require him or her so to do, a statement of all his or her transactions as treasurer; and, in general, shall perform all the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him or her by the board of directors or the chief executive officer. In the absence of the chief financial officer for any reason, including the failure of the board of directors to elect a chief financial officer or in the event of the chief financial officer’s inability or refusal to act, the treasurer shall perform the duties of the chief financial officer, and, when so acting, have all the powers of, and be subject to all of the restrictions upon, the chief financial officer.

Section 5.15 Assistant Treasurer. The assistant treasurer, or if there be more than one, the assistant treasurers, in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the treasurer, for any reason, including the failure of the board of directors to elect a treasurer, or the treasurer’s inability or refusal to act, perform the duties and exercise the powers of the treasurer, and perform such other duties and have such other powers as the board of directors and chief executive officer may from time to time prescribe.

Section 5.16 Compensation. The compensation of the officers shall be fixed from time to time by or in the manner prescribed by the board of directors, and none of such officers shall be prevented from receiving compensation by reason of the fact that he or she is also a director of the corporation. The application of this Section 5.16 shall not affect the right any officer may have regarding compensation under an employment agreement.

ARTICLE VI

STOCK CERTIFICATES AND TRANSFERS

Section 6.01 Stock Certificates. The shares of stock of the corporation shall be uncertificated, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be represented by certificates. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Every holder of stock represented by certificates shall be entitled to have a certificate signed by, or in the name of the corporation by, (i) the chairman of the board, or the president or vice president and (ii) the treasurer or an assistant treasurer, or the secretary or an assistant secretary. Any or all signatures on any such certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed, whose

 

14


facsimile signature has been used on or who has duly affixed a facsimile signature or signatures to any such certificate or certificates shall cease to be such officer, transfer agent or registrar of the corporation whether because of death, resignation or otherwise before such certificate or certificates have been issued by the corporation, such certificate or certificates may nevertheless be issued as though the person or persons who signed such certificate or certificates, whose facsimile signature or signatures have been used thereon or who duly affixed a facsimile signature or signatures thereon had not ceased to be such officer, transfer agent or registrar of the corporation.

Section 6.02 Lost, Stolen or Destroyed Certificates. The board of directors may direct a new certificate or certificates or uncertificated shares to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates or uncertificated shares, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his/her legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of such new certificate or certificates or uncertificated shares.

Section 6.03 Stock Transfers. The shares of the stock of the corporation shall be transferred on the books of the corporation by the holder thereof in person or by his attorney, (i) with regard to certificated shares, upon surrender for cancellation of certificates for the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, and with such proof of the authenticity of the signature as the corporation or its agents may reasonably require, and (ii) with regard to uncertificated shares, upon delivery of an instruction duly executed, and with such proof of the authenticity of the signature as the corporation or its agents may reasonably require. Whenever any transfer of shares shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of transfer if, when the certificates are presented to the corporation for transfer or uncertificated shares are requested to be transferred, both the transferor and transferee request the corporation to do so.

Section 6.04 Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock of the corporation to receive dividends, to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner of such shares. The corporation shall not be bound to recognize any equitable or other claim to or interest in any such shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware.

 

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ARTICLE VII

GENERAL PROVISIONS

Section 7.01 Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purposes as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.

Section 7.02 Contracts and Checks. Except as otherwise required by law or the certificate of incorporation, any bonds, contracts, deeds, leases, checks, drafts or other orders for payment of money, demands for money, notes or other evidence of indebtedness, or other instruments may be executed and delivered in the name and on the behalf of the corporation by such officer or officers of the corporation as provided in these bylaws or as the board of directors may from time to time direct. Such authority may be general or confined to specific instances as the board of directors may determine, and unless so authorized by the board or by these bylaws, no officer, agent, or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount. The chairman of the board, the chief executive officer, the chief financial officer, the president or any vice president may execute bonds, contracts, deeds, leases, checks, drafts or other orders for payment of money, demands for money, notes or other evidence of indebtedness, and other instruments to be made or executed for or on behalf of the corporation. Subject to any restrictions imposed by the board of directors or the chairman of the board, the chief executive officer, the chief financial officer or the president of the corporation may delegate contractual powers to others under his jurisdiction, it being understood, however, that any such delegation of power shall not relieve such officer of responsibility with respect to the exercise of such delegated power.

Section 7.03 Fiscal Year and Audits. The fiscal year of the corporation shall begin on the first day of January and end on the thirty-first day of December of each year, unless otherwise fixed by resolution of the board of directors. The accounts, books and records of the corporation shall be audited upon the conclusion of each fiscal year by an independent certified public accountant selected by the board of directors, and it shall be the duty of the board of directors to cause such audit to be made annually.

Section 7.04 Seal. The Board of Directors may adopt a corporate seal having inscribed thereon the name of the corporation, the year of its organization and the words “Corporate Seal, Delaware.” The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

Section 7.05 Waiver of Notices. Whenever notice is required to be given by these bylaws or the certificate of incorporation or by law, the person entitled to said notice may waive such notice in writing, either before or after the time stated therein, and such waiver shall be deemed equivalent to notice.

 

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Section 7.06 Electronic Transmission. For purposes of these bylaws, “electronic transmission” shall mean a form of communication not directly involving the physical transmission of paper that satisfies the requirements with respect to such communications contained in the Delaware General Corporation Law.

Section 7.07 Voting Stock of Other Organizations. Except as the board of directors may otherwise designate, each of the chief executive officer and the chief financial officer may waive notice of, and act as, or appoint any person or persons to act as, proxy or attorney-in-fact for the corporation (with power of substitution) at any meeting of the stockholders, members or other owners of any other corporation or organization the securities or ownership interests of which are owned by the corporation.

ARTICLE VIII

INDEMNIFICATION

Section 8.01 Indemnification. The corporation shall, to the fullest extent permitted by law, indemnify every person who is or was a party or is or was threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative (an “Action”), by reason of the fact that such person 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, trustee, plan administrator or plan fiduciary of another corporation, partnership, limited liability company, trust, employee benefit plan or other enterprise (an “Indemnified Person”), against all expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement or other disposition that the Indemnified Person actually and reasonably incurs in connection with the Action and shall reimburse each such person for all legal fees and expenses reasonably incurred by such person in seeking to enforce its rights to indemnification under this Article (by means of legal action or otherwise).

Section 8.02 Advancement of Expenses. Upon written request from an Indemnified Person, the corporation shall pay the expenses (including attorneys’ fees) incurred by such Indemnified Person in connection with any Action in advance of the final disposition of such Action. The corporation’s obligation to pay expenses pursuant to this Section shall be contingent upon the Indemnified Person providing the undertaking required by the Delaware General Corporation Law.

Section 8.03 Non-Exclusivity. The rights of indemnification and advancement of expenses contained in this Article shall not be exclusive of any other rights to indemnification or similar protection to which any Indemnified Person may be entitled under any agreement, vote of stockholders or disinterested directors, insurance policy or otherwise.

Section 8.04 Heirs and Beneficiaries. The rights created by this Article shall inure to the benefit of each Indemnified Person and each heir, executor and administrator of such Indemnified Person.

Section 8.05 Effect of Amendment. Neither the amendment, modification or repeal of this Article nor the adoption of any provision in these bylaws inconsistent with this Article shall adversely affect any right or protection of an Indemnified Person with respect to any act or omission that occurred prior to the time of such amendment, modification, repeal or adoption.

 

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ARTICLE IX

AMENDMENTS

Except as otherwise set forth in these bylaws, the certificate of incorporation or the Delaware General Corporation Law, these bylaws may be altered, amended or repealed, or new bylaws may be adopted, by the board of directors or a majority of the voting power of all of the shares of common stock outstanding and entitled to vote thereon. If the power to adopt, amend or repeal bylaws is conferred upon the board of directors by the certificate of incorporation, it shall not divest or limit the power of the stockholders to adopt, amend or repeal bylaws.

 

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CERTIFICATE OF SECRETARY

OF THE PENNANT GROUP, INC.

The undersigned, Derek J. Bunker, hereby certifies that he is the duly elected and acting Secretary of The Pennant Group, Inc., a Delaware corporation, and that the bylaws attached hereto constitute the bylaws of said corporation as duly adopted by the board of directors on                    , 2019 to be effective as of                    , 2019.

IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name this day of                    , 2019.

 

By:  

 

Name: Derek Bunker
Title: Secretary

 

19

EX-10.1

Exhibit 10.1

TRANSITION SERVICES AGREEMENT

by and between

THE ENSIGN GROUP, INC.

and

THE PENNANT GROUP, INC.

dated as of

[            ], 2019

 

1


TABLE OF CONTENTS

Page

 

ARTICLE I DEFINITIONS

     4  

Section 1.1

   Certain Definitions      4  

Section 1.2

   Interpretation      6  

ARTICLE II SERVICES

     7  

Section 2.1

   Services      7  

Section 2.2

   Additional Services      8  

Section 2.3

   No Violations      9  

Section 2.4

   Third-Party Providers      9  

Section 2.5

   Independent Contractor      10  

Section 2.6

   Employees and Representatives      10  

Section 2.7

   Access      10  

Section 2.8

   Service Coordinators; Disputes      11  

ARTICLE III PAYMENT

     11  

Section 3.1

   Pricing      11  

Section 3.2

   Taxes      11  

Section 3.3

   Billing and Payment      12  

Section 3.4

   Budgeting and Accounting      13  

ARTICLE IV DISCLAIMER OF REPRESENTATIONS AND WARRANTIES

     13  

Section 4.1

   Disclaimer      13  

Section 4.2

   As Is; Where Is      13  

ARTICLE V INDEMNIFICATION; LIMITATION OF LIABILITY

     13  

Section 5.1

   Indemnification by the Service-Providing Party      13  

Section 5.2

   Limitation of Liability      14  

Section 5.3

   Indemnification Procedure; Other Rights      14  

ARTICLE VI FORCE MAJEURE

     14  

Section 6.1

   General      14  

Section 6.2

   Notice      15  

Section 6.3

   Subcontractors; Fees      15  

Section 6.4

   Limitations      15  

ARTICLE VII TERM AND TERMINATION

     15  

Section 7.1

   Term and Termination of Services      15  

Section 7.2

   Effect of Termination      16  

ARTICLE VIII CONFIDENTIALITY

     16  

Section 8.1

   Confidentiality      16  

Section 8.2

   System Security      17  

ARTICLE IX MISCELLANEOUS

     17  

 

2


Section 9.1

   Further Assurances      17  

Section 9.2

   Amendments and Waivers      18  

Section 9.3

   Entire Agreement      18  

Section 9.4

   Third-Party Beneficiaries      18  

Section 9.5

   Notices      18  

Section 9.6

   Counterparts; Electronic Delivery      18  

Section 9.7

   Severability      18  

Section 9.8

   Assignability; Binding Effect      19  

Section 9.9

   Governing Law      19  

Section 9.10

   Construction      19  

Section 9.11

   Performance      19  

Section 9.12

   Title and Headings      19  

Section 9.13

   Exhibits      20  

Section 9.14

   Effective Time      20  

 

Exhibit A – Ensign Transitional Services    A-1

Exhibit B – Pennant Transitional Services

   B-1

Exhibit C – Adjusted Hourly Rates

   C-1

Exhibit D – Business Associate Addendum

   D-1

 

3


TRANSITION SERVICES AGREEMENT

THIS TRANSITION SERVICES AGREEMENT (as the same may be amended or supplemented from time to time, this “Agreement”) is entered into as of [            ], 2019, by and between The Ensign Group, Inc., a Delaware corporation (“Ensign”), and The Pennant Group, Inc., a Delaware corporation (“Pennant”). Ensign and Pennant are sometimes referred to herein individually as a “Party,” and collectively as the “Parties.” Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to such terms in the Separation Agreement.

RECITALS

WHEREAS, Ensign, through its direct and indirect Subsidiaries, owns the Ensign Business and the Pennant Business;

WHEREAS, Ensign and Pennant have entered into a Master Separation Agreement, dated as of the date hereof (the “Separation Agreement”), pursuant to which Ensign will be separated into two independent publicly-traded companies: (a) Pennant, which, following consummation of the transactions contemplated by the Separation Agreement, will own and conduct the Pennant Business, and (b) Ensign, which, following the consummation of the transactions contemplated by the Separation Agreement, will own and conduct the Ensign Business;

WHEREAS, in connection with the transactions contemplated by the Separation Agreement, (a) Pennant desires to procure certain services from Ensign, and Ensign is willing to provide such services to Pennant and (b) Ensign desires to procure certain services from Pennant, and Pennant is willing to provide such services to Ensign, in each case during a transition period and on the terms and subject to the conditions set forth in this Agreement;

WHEREAS, each Party desires to set forth in this Agreement the principal terms and conditions pursuant to which it will, as applicable, provide or receive such services; and

WHEREAS, the execution of this Agreement by the Parties is a condition precedent to the consummation of the transactions contemplated by the Separation Agreement.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Certain Definitions. As used in this Agreement (including in Exhibit A), the following capitalized terms shall have the following meanings, applicable both to the singular and the plural forms of the terms described:

Additional Interest” has the meaning set forth in Section 3.3(b).

Additional Services” has the meaning set forth in Section 2.2.

 

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Additional Ensign Third-Party Providers” has the meaning set forth in Section 2.4(b).

Additional Pennant Third-Party Providers” has the meaning set forth in Section 2.4(c).

Additional Third-Party Providers” means the Additional Ensign Third-Party Providers and the Additional Pennant Third-Party Providers collectively.

Adjusted Hourly Rate” for an employee means such employee’s hourly rate as set forth on Exhibit C.

Agreement” has the meaning set forth in the preamble to this Agreement.

Bankruptcy Code” means 11 U.S.C. §§ 101 et seq., as amended.

Effective Time” means 12:01 a.m. (Eastern time) on [            ], 2019.

Ensign” has the meaning set forth in the preamble to this Agreement.

Ensign Known Third-Party Providers” has the meaning set forth in Section 2.4(b).

Ensign Service Costs” means the amounts to be paid by Pennant to Ensign for the Ensign Services provided pursuant to this Agreement.

Ensign Services” means the services identified in Exhibit A to be provided by Ensign.

Known Third-Party Providers” means the Ensign Known Third-Party Providers and the Pennant Known Third-Party Providers collectively.

Parties” has the meaning set forth in the preamble to this Agreement.

Party” has the meaning set forth in the preamble to this Agreement.

Payment Date” has the meaning set forth in Section 3.3(b).

Pennant” has the meaning set forth in the preamble to this Agreement.

Pennant Known Third-Party Providers” has the meaning set forth in Section 2.4(c).

Pennant Service Costs” means the amounts to be paid by Ensign to Pennant for Pennant Services provided pursuant to this Agreement.

Pennant Services” means the services identified in Exhibit A to be provided by Pennant.

Sales Taxes” has the meaning set forth in Section 3.2.

Security Regulations” has the meaning set forth in Section 8.2(a).

Separation Agreement” has the meaning set forth in the Recitals to this Agreement.

 

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Service Coordinator” has the meaning set forth in Section 2.8.

Service-Providing Party” means either Ensign or Pennant, as applicable, providing the applicable Services to the Service-Receiving Party.

Service-Providing Party Group” means the Service-Providing Party and the Subsidiaries of the Service-Providing Party, other than the other Party and the other Party’s Subsidiaries.

Service-Receiving Party” means either Ensign or Pennant, as applicable, receiving the applicable Services from the Service-Providing Party.

Service-Receiving Party Group” means the Service-Receiving Party and the Subsidiaries of the Service-Receiving Party, other than the other Party and the other Party’s Subsidiaries.

Service-Receiving Party’s Indemnitee” means if the Service-Receiving Party is Ensign, the Ensign Indemnitee or if the Service-Receiving Party is Pennant, the Pennant Indemnitee.

Services” means the Ensign Services and Pennant Services collectively.

Systems” has the meaning set forth in Section 8.2(a).

Term” means the period from the Effective Time to the date of termination of Services under this Agreement pursuant to Section 7.1(b) or (c).

Third-Party Products and Services” has the meaning set forth in Section 2.4(a).

Third-Party Providers” has the meaning set forth in Section 2.4(a).

Section 1.2 Interpretation. In this Agreement, unless the context clearly indicates otherwise:

(a) words used in the singular include the plural and words used in the plural include the singular;

(b) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”;

(c) the word “or” shall have the inclusive meaning represented by the phrase “and/or”;

(d) relative to the determination of any period of time, “from” means “from and including,” “to” means “to but excluding” and “through” means “through and including”;

(e) accounting terms used herein shall have the meanings historically ascribed to them by Ensign and its Subsidiaries in its and their internal accounting and financial policies and procedures in effect immediately prior to the date of this Agreement;

(f) reference to any agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and by this Agreement;

 

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(g) reference to any Law means such Law (including any and all rules and regulations promulgated thereunder) as amended, modified, codified or reenacted, in whole or in part, and in effect at the time of determining compliance or applicability;

(h) references to any Person include such Person’s successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement; a reference to such Person’s “Affiliates” shall be deemed to mean such Person’s Affiliates following the Distribution under the Separation Agreement and any reference to a third party shall be deemed to mean a Person who is not a Party or an Affiliate of a Party;

(i) if there is any conflict between the provisions of the main body of this Agreement and Exhibit A or Exhibit B, as applicable, the provisions of the main body of this Agreement shall control unless explicitly stated otherwise in Exhibit A or Exhibit B, as applicable;

(j) if there is any conflict between the provisions of this Agreement and the Separation Agreement, the provisions of this Agreement shall control (but only with respect to the subject matter hereof) unless explicitly stated otherwise herein; and

(k) any portion of this Agreement obligating a Party to take any action or to refrain from taking any action, as the case may be, shall mean that such Party shall also be obligated to cause its relevant Subsidiaries to take such action or to refrain from taking such action, as the case may be.

ARTICLE II

SERVICES

Section 2.1 Services.

(a) Ensign Services

(i) Except as set forth in Exhibit A, Ensign shall use commercially reasonable efforts to provide (or to cause another applicable member of the Ensign Group to provide) to Pennant (or another applicable member of the Pennant Group) the Ensign Services in a manner, scope, nature, timeliness and quality consistent with the manner, scope, nature, timeliness and quality in which such Ensign Services (i) were provided to Pennant (or such other applicable member of the Pennant Group) prior to the Effective Time by Ensign (or such other applicable member of the Ensign Group) and (ii) are provided after the Effective Time by Ensign (or such other applicable member of the Ensign Group) for its own business.

(ii) For those Ensign Services provided to Pennant prior to the Effective Time, Pennant shall use the Ensign Services for substantially the same purposes and in substantially the same manner (including as to volume, amount, level or frequency, as applicable) as such Ensign Services have been used immediately prior to the Effective Time; provided that Exhibit A shall control the scope of and any limitation on the Ensign Services to be provided (to the extent set forth therein) including any Ensign Services that were not previously provided to Pennant prior to the Effective Time, unless otherwise agreed in writing.

 

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(b) Pennant Services

(i) Except as set forth in Exhibit B, Pennant shall use commercially reasonable efforts to provide (or to cause another applicable member of the Pennant Group to provide) to Ensign (or another applicable member of the Ensign Group) the Pennant Services in a manner, scope, nature, timeliness and quality consistent with the manner, scope, nature, timeliness and quality in which such Pennant Services (i) were provided to Ensign (or such other applicable member of the Ensign Group) prior to the Effective Time by Pennant (or such other applicable member of the Pennant Group) and (ii) are provided after the Effective Time by Pennant (or such other applicable member of the Pennant Group) for its own business.

(ii) For those Pennant Services provided to Ensign prior to the Effective Time, Ensign shall use the Pennant Services for substantially the same purposes and in substantially the same manner (including as to volume, amount, level or frequency, as applicable) as such Pennant Services have been used immediately prior to the Effective Time; provided that Exhibit B shall control the scope of and any limitation on the Pennant Services to be provided (to the extent set forth therein) including any Pennant Services that were not previously provided to Ensign prior to the Effective Time, unless otherwise agreed in writing.

(c) The Parties acknowledge the transitional nature of the Services and agree to cooperate in good faith and to use commercially reasonable efforts to effectuate a smooth transition of the Services from the Service-Providing Party to the Service-Receiving Party (or its designee). In addition, the Service-Providing Party shall consider requests for service in good faith and shall use commercially reasonable efforts to provide any such service under this Section 2.1; provided that no member of the Service-Providing Party Group shall be obligated to perform any services if such member, in its reasonable judgment, does not have adequate resources to perform such services or if the provision of such services would interfere with the operation of the Ensign Business or Pennant Business, as applicable.

Section 2.2 Additional Services. If the Service-Receiving Party reasonably determines that additional transition services not listed in Exhibit A or Exhibit B, as applicable, are necessary after the Effective Time, the Service-Receiving Party shall provide written notice to the Service-Providing Party requesting the Service-Providing Party (i) to provide additional (including as to volume, amount, level or frequency, as applicable) or different services that the Service-Providing Party is not expressly obligated to provide under this Agreement, if such services are of the type and scope provided by any member of the Service-Providing Party Group (including any employee of any member of the Service-Providing Party Group) for the Service-Receiving Party prior to the Effective Time, or (ii) expand the scope of any applicable Service (such additional, different or expanded services, the “Additional Services”). The Service-Providing Party shall consider such request in good faith and shall use commercially reasonable efforts to provide any such Additional Service; provided that no member of the Service-Providing Party Group shall be obligated to perform any Additional Services if such member, in its reasonable judgment, does not have adequate resources to perform such Additional Services or if the provision of such Additional Services would interfere with the operation of the Ensign Business or Pennant Business, as

 

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applicable. The Service-Providing Party shall notify the Service-Receiving Party within ten (10) calendar days of receipt of such request as to whether it will or will not provide the Additional Services. If the Service-Providing Party agrees to provide Additional Services pursuant to this Section 2.2, then the Parties shall in good faith negotiate the terms of a supplement to Exhibit A or Exhibit B, as applicable, which will describe in reasonable detail the Additional Services, project scope, term, price and payment terms to be charged for such Additional Services. Once agreed to in writing, the supplement to Exhibit A or Exhibit B, as applicable, shall be deemed part of this Agreement as of such date, and the Additional Services shall be deemed the applicable “Services” provided hereunder, in each case, subject to the terms and conditions of this Agreement.

Section 2.3 No Violations. Notwithstanding anything to the contrary in this Agreement, no Service-Providing Party (nor any member of its respective Group) shall be required to perform the applicable Services hereunder or to take any actions relating thereto that conflict with or violate any applicable Law or any material Contract, sublicense, authorization, certification or permit.

Section 2.4 Third-Party Providers.

(a) The Service-Providing Party shall use commercially reasonable efforts to obtain any required consents, licenses or approvals of the providers (“Third-Party Providers”) of any products or services required to be used in providing any applicable Services pursuant to this Agreement (“Third-Party Products and Services”). The Parties understand and agree that provision of any applicable Services requiring the use of any Third-Party Products and Services shall be subject to receipt of any required consents, licenses or approvals of the applicable Third-Party Providers; provided that if any third-party consents, licenses or approvals are not obtained pursuant to the foregoing, the Service-Providing Party will, to the extent reasonably practicable, continue to use commercially reasonable efforts to provide (or to cause another applicable member of the Ensign Group or Pennant Group, as applicable, to provide) services that are substantially similar to the applicable Services for which such consent, license or approval was sought but not obtained; provided, however, that nothing in this Section 2.4(a) shall obligate any Service-Providing Party (or another applicable member of the Ensign Group or Pennant Group, as applicable) to violate any applicable Law or breach any of its contractual obligations to third parties in order to provide the applicable Services hereunder.

(b) With respect to the Ensign Services, (i) Pennant hereby consents to Ensign’s use of any Third-Party Provider(s) named in Exhibit A with respect to such Ensign Services (“Ensign Known Third-Party Providers”) and (ii) if, after the date of this Agreement, Ensign reasonably determines that it requires the use of Third-Party Providers in addition to the Ensign Known Third-Party Providers (“Additional Ensign Third-Party Providers”) in providing such Ensign Services, the use of such Additional Ensign Third-Party Providers shall require the written consent of Pennant’s Service Coordinator and, subject to Section 2.4(d), such consent will not be unreasonably withheld, conditioned or delayed.

(c) With respect to the Pennant Services, (i) Ensign hereby consents to Pennant’s use of any Third-Party Provider(s) named in Exhibit B with respect to such Pennant Services (“Pennant Known Third-Party Providers”) and (ii) if, after the date of this Agreement, Pennant reasonably determines that it requires the use of Third-Party Providers in addition to the Pennant Known Third-Party Providers (“Additional Pennant Third-Party Providers”) in providing such Pennant Services, the use of such Additional Pennant Third-Party Providers shall require the written consent of Ensign’s Service Coordinator and, subject to Section 2.4(d), such consent will not be unreasonably withheld, conditioned or delayed.

 

 

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(d) Notwithstanding the foregoing, in those instances in which the use of Third-Party Products and Services will require payment of additional consideration by a Service-Receiving Party and the payment of such additional consideration is not contemplated by this Agreement (including Exhibit A or Exhibit B, as applicable) or has not been previously agreed by the Parties, then (i) the Service-Providing Party will provide the Service-Receiving Party with thirty (30) calendar days’ prior written notice detailing the amount of such additional consideration and (ii) the Service-Receiving Party will then have the option to (A) procure its own Third-Party Products and Services at its own expense or (B) authorize the Service-Providing Party to incur the required additional consideration on its behalf and at the Service-Receiving Party’s expense and such additional consideration will be deemed an applicable Service Cost under this Agreement.

Section 2.5 Independent Contractor. Each Service-Providing Party hereto (and each applicable member of the Service-Providing Party Group) shall act under this Agreement solely as an independent contractor, and not as an agent, of the other Party (and each applicable member of the Service-Providing Party Group).

Section 2.6 Employees and Representatives. Unless otherwise agreed in writing, each employee and representative of the Service-Providing Party (or a member of the Service-Providing Party Group) that provides Services to the Service-Receiving Party (or a member of the Service-Receiving Group) pursuant to this Agreement (a) shall be deemed for all purposes to be an employee or representative of Service-Providing Party (or a member of the Service-Providing Party Group) and not an employee or representative of Service-Receiving Party (or a member of the Service-Receiving Group) and (b) shall be under the direction, control and supervision of the Service-Providing Party (or such member of the Service-Providing Party Group), and Service-Providing Party (or a member of the Service-Providing Party Group) shall have the sole right to exercise all authority with respect to the employment (including termination of employment) and assignment of such employee or representative and shall have the sole responsibility to pay for all personnel and other related expenses, including salary or wages, of such employee or representative.

Section 2.7 Access. The Service-Receiving Party shall provide (or cause any applicable member of the Service-Providing Party to provide) the Service Providing Party (or any applicable member of the Service-Providing Party Group) such reasonable access to the employees, representatives, facilities and books and records of the Service-Receiving Party (or such member of the Service-Receiving Party Group) as the Service-Providing Party (or such member of the Service-Providing Party Group) shall reasonably request in order to enable the Service-Providing Party (or such member of the Service-Receiving Party Group) to provide any applicable Services required under this Agreement. Any member of the Service-Providing Party Group, receiving access pursuant to this Section 2.7 must conform with and abide by the confidentiality and security provisions in Article VIII, as applicable.

 

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Section 2.8 Service Coordinators; Disputes. Each Party shall appoint a representative to act as the primary contact with respect to the provision of the Services (each such person, a “Service Coordinator”). The initial Service Coordinator for Pennant shall be Derek Bunker, and the initial Service Coordinator for Ensign shall be Pat Ikerd. The Service Coordinators shall meet as expeditiously as possible to resolve any dispute under this Agreement (including, but not limited to, any disputes relating to payments under Article III), and any dispute that is not resolved by the Service Coordinators within thirty (30) calendar days shall be deemed a Dispute under the Separation Agreement and shall be resolved in accordance with the dispute resolution procedures set forth in Article X of the Separation Agreement. When a disputed amount has been resolved, either by mutual agreement of the Parties or by a final decision by a court of competent jurisdiction, the Party owing any amount to another Party shall pay such amount owed to such other Party within five (5) Business Days following such resolution. Each Party may treat an act of the other Party’s Service Coordinator as being authorized by such other Party without inquiring whether such Service Coordinator had authority to so act; provided that no Service Coordinator shall have authority to amend this Agreement. Each Party shall advise the other Party promptly in writing of any change in its respective Service Coordinator, setting forth the name of the replacement Service Coordinator, and stating that the replacement Service Coordinator is authorized to act for such Party in accordance with this Section 2.8.

ARTICLE III

PAYMENT

Section 3.1 Pricing.

(a) All Ensign Services provided by Ensign (or another applicable member of the Ensign Group) shall be charged to Pennant at the fees for such Ensign Services determined in accordance with Exhibit A, and the Ensign Service Costs shall be payable by Pennant in the manner set forth in Section 3.3.

(b) All Pennant Services provided by Ensign (or another applicable member of the Ensign Group) shall be charged to Ensign at the fees for such Pennant Services determined in accordance with Exhibit B, and the Pennant Service Costs shall be payable by Ensign in the manner set forth in Section 3.3.

Section 3.2 Taxes. The Parties acknowledge that fees charged for Services may be subject to goods and service taxes, value added taxes, sales taxes or similar taxes (collectively, “Sales Taxes”). With respect to all Services provided under this Agreement, (a) the Service-Providing Party shall be liable for reporting and paying the Sales Taxes or any other applicable taxes imposed on fees received for providing such Services and shall provide the Service-Receiving Party evidence of any such payment for taxes paid on fees received for providing such Services reasonably promptly following payment thereof and (b) the Service-Receiving Party shall reasonably promptly reimburse the Service-Providing Party for the amount of such taxes paid on fees received for providing such Services. The Service-Receiving Party shall be liable for any applicable use taxes imposed on the applicable Services received.

 

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Section 3.3 Billing and Payment.

(a) With respect to Pennant as the Service-Providing Party, within twenty (20) calendar days and with respect to Ensign as the Service-Providing Party, within twenty-five (25) calendar days after the end of each month, the Service-Providing Party will invoice the Service-Receiving Party for the applicable Service Costs on a monthly basis, in arrears, for the prior month just ended. The invoice shall set forth in reasonable detail for the period covered by such invoice (i) the Services rendered, (ii) the Service Costs for each type of Service provided, (iii) the amount of such Service Costs that have been offset by Service Costs due to the other Party pursuant to Section 3.3(d) and (iv) such additional information as may be reasonably requested by the Service-Receiving Party.

(b) The Service-Receiving Party agrees to pay all of the applicable Service Costs that are not settled pursuant to an offset again amounts owed pursuant to Section 3.3(d) on or before thirty (30) calendar days after the date on which an invoice for Service Costs is delivered to the Service-Receiving Party (the “Payment Date”) by check or wire transfer of immediately available funds to an account designated in writing from time to time by the Service-Providing Party. If the Service-Receiving Party fails to pay any monthly payment on or before the Payment Date, the Service-Providing Party shall provide written notice to the Service-Receiving Party of such failure promptly following the Payment Date and if the Service-Receiving Party fails to pay any monthly payment within fifteen (15) calendar days of delivery of such written notice, the Service-Receiving Party shall be obligated to pay, in addition to the amount due pursuant to such invoice, interest on such amount at a rate per annum equal to 5% calculated from the Payment Date (“Additional Interest”). Unless otherwise agreed in writing between the Parties, all payments made pursuant to this Agreement shall be made in U.S. dollars.

(c) Notwithstanding the foregoing, if the Service-Receiving Party in good faith disputes any invoiced charge, payment of such disputed charge shall be made only after mutual resolution of such dispute pursuant to Section 2.8. The Service-Receiving Party agrees to notify the Service-Providing Party promptly, and in no event later than the relevant Payment Date, of any disputed charge. Additional Interest shall not accrue on any amount in dispute, and no default shall be alleged until after the relevant Payment Date.

(d) Prior to the Service-Receiving Party making a payment of any amounts due pursuant to this Section 3.3, the Service-Receiving Party may offset against such payment any amounts owed by the Service-Providing Party to the Service-Receiving Party that has not been disputed pursuant to Section 3.3(c) pursuant to this Section 3.3.

(e) In addition to the offset right provided in Section 3.3(d) for amounts owed to each other, the Service-Receiving Party may offset against any amount owed to the Service-Providing Party as a result of amounts paid to third parties for goods or services that the Service-Receiving Party determines in its reasonable discretion were provided to the Service-Providing Party. Prior to any such payment to third parties, the Service-Receiving Party intending to make such payment shall notify the Service-Providing Party promptly and with sufficient detail to ascertain the appropriate party responsible for such payment. If the Service-Receiving Party does not provide such notice, it shall be liable for any losses incurred as a result of any incorrect payment made to third parties.

 

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(f) During the term of this Agreement, each Party shall keep such books, records and accounts as are reasonably necessary to verify the calculation of the fees and related expense for Services provided hereunder. The Service-Providing Party shall provide documentation supporting any amounts invoiced pursuant to this Section 3.3 as the Service-Receiving Party may from time to time reasonably request. The Service-Receiving Party shall have the right to review such books, records and accounts at any time during normal business hours upon reasonable written notice, and the Service-Receiving Party agrees to conduct any such review in a manner so as not to unreasonably interfere with the Service-Providing Party’s normal business operations.

Section 3.4 Budgeting and Accounting. Upon reasonable request, each Party will cooperate with the other Party with respect to budgeting and accounting matters relating to the Services.

ARTICLE IV

DISCLAIMER OF REPRESENTATIONS AND WARRANTIES

Section 4.1 Disclaimer.

(a) EXCEPT AS EXPRESSLY PROVIDED IN SECTION 2.1, PENNANT ACKNOWLEDGES AND AGREES THAT ENSIGN (AND EACH MEMBER OF THE ENSIGN GROUP) MAKES NO REPRESENTATIONS OR WARRANTIES (INCLUDING WARRANTIES OF MERCHANTABILITY, ADEQUACY OR FITNESS FOR A PARTICULAR PURPOSE) OR GUARANTIES OF ANY KIND, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO ANY SERVICES PROVIDED HEREUNDER.

(b) EXCEPT AS EXPRESSLY PROVIDED IN SECTION 2.1, ENSIGN ACKNOWLEDGES AND AGREES THAT PENNANT (AND EACH MEMBER OF THE PENNANT GROUP) MAKES NO REPRESENTATIONS OR WARRANTIES (INCLUDING WARRANTIES OF MERCHANTABILITY, ADEQUACY OR FITNESS FOR A PARTICULAR PURPOSE) OR GUARANTIES OF ANY KIND, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO ANY SERVICES PROVIDED HEREUNDER.

Section 4.2 As Is; Where Is. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE SERVICES (AND ANY RELATED PRODUCTS) TO BE PROVIDED UNDER THIS AGREEMENT ARE FURNISHED AS IS, WHERE IS, WITH ALL FAULTS.

ARTICLE V

INDEMNIFICATION; LIMITATION OF LIABILITY

Section 5.1 Indemnification by the Service-Providing Party. The Service-Providing Party hereby agrees to indemnify, defend and hold harmless the Service-Receiving Party Indemnitees from and against any and all Losses relating to, arising out of or resulting from the Service-Providing Party’s gross negligence or willful misconduct in the performance of its obligations hereunder, or material breach of this Agreement, other than to the extent such Losses are attributable to the gross negligence, willful misconduct or material breach of this Agreement by any member of the Service-Receiving Party’s Group.

 

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Section 5.2 Limitation of Liability.

(a) IN NO EVENT SHALL ANY MEMBER OF THE SERVICE PROVIDING PARTY’S GROUP, NOR ANY DIRECTOR, OFFICER, MANAGER, EMPLOYEE OR AGENT THEREOF, BE LIABLE, WHETHER IN CONTRACT, IN TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR OTHERWISE TO THE SERVICE-RECEIVING PARTY (OR ANY SERVICE-RECEIVING PARTY’S INDEMNITEES) FOR ANY EXEMPLARY, PUNITIVE, INDIRECT, REMOTE OR SPECULATIVE DAMAGES AS A RESULT OF ANY BREACH, PERFORMANCE OR NON-PERFORMANCE BY SUCH PERSON UNDER THIS AGREEMENT, WHETHER OR NOT SUCH PERSON HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, EXCEPT TO THE EXTENT ANY SUCH AMOUNT IS PAID TO A THIRD PARTY BY THE SERVICE-RECEIVING PARTY OR ANY OF ITS AFFILIATES.

(b) THE SERVICE-PROVIDING PARTY’S TOTAL LIABILITY TO THE SERVICE-RECEIVING PARTY UNDER THIS AGREEMENT FOR ANY CLAIM SHALL NOT EXCEED, IN THE AGGREGATE, AN AMOUNT EQUAL TO THE TOTAL AMOUNT PAID BY THE SERVICE-RECEIVING PARTY FOR THE APPLICABLE SERVICES UNDER THIS AGREEMENT.

Section 5.3 Indemnification Procedure; Other Rights. All claims for indemnification pursuant to Section 5.1 shall be made in accordance with the procedures set forth in Section 9.4 of the Separation Agreement and shall be subject to Sections 9.2 through 9.10 of the Separation Agreement.

ARTICLE VI

FORCE MAJEURE

Section 6.1 General. If the Service-Providing Party (or any member of the Service-Providing Party Group) is prevented from or delayed in complying, in whole or in part, with any of the terms or provisions of this Agreement by reason of fire, flood, storm, earthquake, strike, walkout, lockout or other labor trouble or shortage, delays by unaffiliated suppliers or carriers, shortages of fuel or energy sources, power, raw materials or components, equipment failure, any law, order, proclamation, regulation, ordinance, demand, seizure or requirement of any Governmental Authority, riot, civil commotion, acts of war (declared or undeclared), rebellion, act of terrorism, nuclear or other accident, explosion, casualty, pandemic, act of God, or act, omission or delay in acting by any Governmental Authority or by the Service-Receiving Party (or any member of the Service-Receiving Party Group) or any other cause, whether or not of a class or kind listed in this sentence, which is beyond the reasonable control of Service-Providing Party (or any other applicable member of the Service-Providing Party Group), then upon notice to Service-Receiving Party pursuant to Section 6.2, the affected provisions and/or other requirements of this Agreement shall be suspended during the period of such disability and, unless otherwise set forth herein to the contrary, Service-Providing Party (and any applicable member of the Service-Providing Party Group) shall have no liability to Pennant (or any member of the Service-Receiving Party Group) in connection therewith. The Service-Receiving Party shall not be required to pay any fees applicable to any period during which the Service-Providing Party’s performance is excused pursuant to this Section 6.1 and the applicable Services contemplated to be provided hereunder are not actually performed.

 

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Section 6.2 Notice. Upon becoming aware of a disability causing a delay in the performance or preventing performance of any Services to be provided by Service-Providing Party (or another member of the Service-Providing Party Group) under this Agreement, Service-Providing Party shall promptly notify Service-Receiving Party in writing of the existence of such disability and the anticipated duration of the disability, if then known.

Section 6.3 Subcontractors; Fees. The Service-Receiving Party shall have the right, but not the obligation, to hire or engage one or more subcontractors to perform the applicable Services affected by the disability for the duration of the period during which such disability delays or prevents the performance of such Services by the Service-Providing Party, it being agreed that the fees paid or payable under this Agreement with respect to the applicable Services affected by the disability shall be reduced (or refunded, if applicable) on a dollar-for-dollar basis for all amounts paid by the Service-Receiving Party to such subcontractors; provided that the Service-Providing Party shall not be responsible for the amount of fees charged by any such subcontractors to perform such Services to the extent they exceed the fees payable under this Agreement for such Services.

Section 6.4 Limitations. Each Party shall use its commercially reasonable efforts to promptly remove any disability under Section 6.1 as soon as possible; provided that nothing in this Article VI will be construed to require the settlement of any lawsuit or other legal proceeding, strike, walkout, lockout or other labor dispute on terms which, in the reasonable judgment of the affected Party, are contrary to its interest. It is understood that the settlement of a lawsuit or other legal proceeding, strike, walkout, lockout or other labor dispute will be entirely within the discretion of the affected Party.

ARTICLE VII

TERM AND TERMINATION

Section 7.1 Term and Termination of Services.

(a) Subject to Section 7.1(c), Section 6.1 and except as otherwise set forth in Exhibit A or Exhibit B, as applicable, each of the Services shall be provided for the term specified in Section 7.1(b); provided that the Service-Receiving Party shall have the right to terminate one or more of the applicable Services that it receives under this Agreement at the end of a designated month by giving the Service-Providing Party the longer of (a) at least thirty (30) calendar days’ prior written notice of such termination or (b) in the case of any Service that the Service-Providing Party incurs an expense from an unrelated third-party, the period of time required to terminate such third-party expense, but in no event longer than ninety (90) days unless the Service-Providing Party, in its reasonable judgment, determines that a longer period of time is commercially reasonable. The Parties shall cooperate with each other in good faith in their efforts to reasonably effect early termination of such Services, including, where applicable, partial termination, and to agree in good faith upon appropriate reduction of the charges hereunder in connection with such early termination.

(b) Except as set otherwise forth in Exhibit A or Exhibit B, as applicable, the provision of Services under this Agreement shall terminate upon the earlier of (a) the cessation of all Services pursuant to Section 7.1(a), or (b) the 24 month anniversary of the Effective Time, plus the total period of any extensions made by the Service-Providing Party pursuant to the following proviso;

 

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provided that the Service-Receiving Party may, at its option, extend the period for any Service (i) for up to an additional two (2) months, on the same terms and conditions (including with respect to fees) as such Service was provided during the initial term for such Service, and (ii) thereafter, for up to an additional three (3) months, on the same terms and conditions as previously provided, except the Fees for such Service provided during such extension period shall be increased by twenty percent (20%). Thereafter, any extension to term of Service for any Service shall be at the Service-Providing Party’s sole discretion. This Agreement, except for Section 2.1 and Section 2.2, shall survive the termination of Services, and any such termination shall not affect any payment obligation for Services rendered prior to termination.

(c) Notwithstanding the foregoing: (i) the Parties may terminate the provision of the applicable Services under this Agreement by mutual written consent and (ii) the Parties each reserve the right to immediately terminate the provision of the applicable Services under this Agreement by written notice to the other Party in the event that such other Party shall have (A) applied for or consented to the appointment of a receiver, trustee or liquidator; (B) admitted in writing an inability to pay debts as they mature; (C) made a general assignment for the benefit of creditors; or (D) filed a voluntary petition, or have filed against it a petition, for an order of relief under the Bankruptcy Code.

Section 7.2 Effect of Termination.

(a) Termination or expiration of the applicable Services under this Agreement shall not release a Party from any liability or obligation which already has accrued as of the effective date of such termination or expiration, and shall not constitute a waiver or release of, or otherwise be deemed to adversely affect, any rights, remedies or claims, which a Party may have hereunder at law, equity or otherwise or which may arise out of or in connection with such termination or expiration.

(b) As promptly as practicable following termination of any Service, and the payment by the Service-Receiving Party of all amounts owing hereunder, the Service-Providing Party shall return all reasonably available material, inventory and other property of the Service-Receiving Party Group held by the Service-Providing Party Group and shall deliver copies of all of the Service-Receiving Party Group’s records maintained by the Service-Providing Party Group with regard to such Service in the Service-Providing Party’s standard format and media. The Service-Providing Party shall deliver such property and records to such location or locations as reasonably requested by the Service-Receiving Party. Arrangements for shipping, including the cost of freight and insurance, and the reasonable cost of packing incurred by the Service-Providing Party shall be borne by the Service-Receiving Party.

ARTICLE VIII

CONFIDENTIALITY

Section 8.1 Confidentiality. Each Party agrees that the specific terms and conditions of this Agreement and any information conveyed or otherwise received by or on behalf of a Party in conjunction herewith shall be Confidential Information subject to the confidentiality provisions (and exceptions thereto) set forth in Section 8.7 of the Separation Agreement.

 

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Section 8.2 System Security.

(a) If the Service-Providing Party (or a member of the Service-Providing Party Group) is given access to the computer systems or software (collectively, “Systems”) of the Service-Receiving Party (or a member of the Service-Receiving Party Group) in connection with the provision of any Services, The Service-Providing Party shall comply (or cause such member of the Service-Providing Party Group to comply) with all of the system security policies, procedures and requirements (collectively, “Security Regulations”) of the Service-Receiving Party (or such member of the Service-Receiving Party Group), and shall not (or shall cause such member the Service-Providing Party Group not to) tamper with, compromise or circumvent any security or audit measures employed by the Service-Receiving Party (or such member of the Service-Receiving Party Group). The Service-Providing Party shall (or shall cause such member of the Service-Providing Party Group to) access and use only those Systems of the Service-Receiving Party (or such member of the Service-Receiving Party Group) for which it has been granted the right to access and use.

(b) The Service-Providing Party shall use commercially reasonable efforts to ensure that only those of its personnel (or the personnel of such member of the Service-Providing Party Group) who are specifically authorized to have access to the Systems of the Service-Receiving Party (or such member of the Service-Receiving Party Group) gain such access, and use commercially reasonable efforts to prevent unauthorized access, use, destruction, alteration or loss of information contained therein, including notifying its personnel (or the personnel of such member of its Group) of the restrictions set forth in this Agreement and of the Security Regulations.

(c) The Parties acknowledge that the Service-Providing Party may receive or otherwise have access to information of the Service-Receiving Party that is considered “protected health information” under the Health Insurance Portability and Accountability Act of 1996, as amended and implemented through regulation (“HIPAA”). The Parties further acknowledge and agree that this may cause the Service-Providing Party to satisfy the definition of a “business associate” under HIPAA. To address the requirements of HIPAA, the Parties agree to comply with the Business Associate Addendum attached hereto as Exhibit D and incorporated herein by reference.

ARTICLE IX

MISCELLANEOUS

Section 9.1 Further Assurances. Subject to the limitations or other provisions of this Agreement, (a) each Party shall, and shall cause the other members of its Group to, use commercially reasonable efforts (subject to, and in accordance with applicable Law) to take promptly, or cause to be taken promptly, all actions, and to do promptly, or cause to be done promptly, and to assist and cooperate with the other Party in doing, all things reasonably necessary, proper or advisable to carry out the intent and purposes of this Agreement, including using commercially reasonable efforts to perform all covenants and agreements herein applicable to such Party or any member of its Group and (b) neither Party will, nor will either Party allow any other member of its Group to, without the prior written consent of the other Party, take any action which would reasonably be expected to prevent or materially impede, interfere with or delay the provision of any Services hereunder during the Term. Without limiting the generality of the foregoing, where the cooperation of third parties would be necessary in order for a Party to completely fulfill its obligations under this Agreement, such Party shall use commercially reasonable efforts to cause such third parties to provide such cooperation.

 

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Section 9.2 Amendments and Waivers.

(a) Subject to Section 11.1 of the Separation Agreement and Section 2.2 of this Agreement, this Agreement may not be amended except by an agreement in writing signed by both Parties.

(b) Any term or provision of this Agreement may be waived, or the time for its performance may be extended, by the Party entitled to the benefit thereof and any such waiver shall be validly and sufficiently given for the purposes of this Agreement if it is in writing signed by an authorized representative of such Party. No delay or failure in exercising any right, power or remedy hereunder shall affect or operate as a waiver thereof; nor shall any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power or remedy preclude any further exercise thereof or of any other right, power or remedy. The rights and remedies hereunder are cumulative and not exclusive of any rights or remedies that either Party would otherwise have.

Section 9.3 Entire Agreement. This Agreement, the Separation Agreement, the other Ancillary Agreements, and the Exhibits and Schedules referenced herein and therein and attached hereto or thereto, constitute the entire agreement and understanding between the Parties with respect to the subject matter hereof and supersede all prior negotiations, agreements, commitments, writings, courses of dealing and understandings with respect to the subject matter hereof.

Section 9.4 Third-Party Beneficiaries. Except as provided in Article V relating to Pennant Indemnitees, this Agreement is solely for the benefit of the Parties and shall not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to this Agreement.

Section 9.5 Notices. All notices, requests, permissions, waivers and other communications hereunder shall be provided in accordance with the provisions of Section 12.8 of the Separation Agreement.

Section 9.6 Counterparts; Electronic Delivery. This Agreement may be executed in multiple counterparts, each of which when executed shall be deemed to be an original, but all of which together shall constitute one and the same agreement. Execution and delivery of this Agreement or any other documents pursuant to this Agreement by facsimile or other electronic means shall be deemed to be, and shall have the same legal effect as, execution by an original signature and delivery in person.

Section 9.7 Severability. If any term or other provision of this Agreement or the Exhibits attached hereto is determined by a nonappealable decision by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either Party. Upon such determination

 

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that any term or other provision is invalid, illegal or incapable of being enforced, the court, administrative agency or arbitrator shall interpret this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible. If any sentence in this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable.

Section 9.8 Assignability; Binding Effect. The rights and obligations of each Party under this Agreement shall not be assignable, in whole or in part, directly or indirectly, whether by operation of law or otherwise, by such Party without the prior written consent of the other Party (such consent not to be unreasonably withheld, conditioned or delayed) and any attempt to assign any rights or obligations under this Agreement without such consent shall be null and void. Notwithstanding the foregoing, either Party may assign its rights and obligations under this Agreement to any of their respective Affiliates provided that no such assignment shall release such assigning Party from any liability or obligation under this Agreement. This Agreement shall be binding upon and inure to the benefit of the Parties and their successors and permitted assigns.

Section 9.9 Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the substantive laws of the State of Delaware, without regard to any conflicts of law provisions thereof that would result in the application of the laws of any other jurisdiction.

Section 9.10 Construction. This Agreement shall be construed as if jointly drafted by the Parties and no rule of construction or strict interpretation shall be applied against either Party. The Parties represent that this Agreement is entered into with full consideration of any and all rights which the Parties may have. The Parties have relied upon their own knowledge and judgment. The Parties have had access to independent legal advice, have conducted such investigations they thought appropriate, and have consulted with such other independent advisors as they deemed appropriate regarding this Agreement and their rights and asserted rights in connection therewith. The Parties are not relying upon any representations or statements made by the other Party, or such other Party’s employees, agents, representatives or attorneys, regarding this Agreement, except to the extent such representations are expressly set forth or incorporated in this Agreement. The Parties are not relying upon a legal duty, if one exists, on the part of the other Party (or such other Party’s employees, agents, representatives or attorneys) to disclose any information in connection with the execution of this Agreement or its preparation, it being expressly understood that neither Party shall ever assert any failure to disclose information on the part of the other Party as a ground for challenging this Agreement.

Section 9.11 Performance. Each Party shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary or Affiliate of such Party.

Section 9.12 Title and Headings. Titles and headings to Sections and Articles are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

 

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Section 9.13 Exhibits. Exhibit A attached hereto is incorporated herein by reference and shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein.

Section 9.14 Effective Time. This Agreement shall be effective as of the Effective Time.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective officers as of the date first set forth above.

 

THE ENSIGN GROUP, INC.
By:  

 

  Name:
  Title:
THE PENNANT GROUP, INC.
By:  

 

  Name:
  Title:
EX-10.2

Exhibit 10.2

TAX MATTERS AGREEMENT

THIS TAX MATTERS AGREEMENT is dated as of [                    ], 2019, by and among The Ensign Group, Inc. (“Ensign”), a Delaware corporation, by and on behalf of itself and each Affiliate of Ensign (as determined after the Distribution), and The Pennant Group, Inc., a Delaware corporation, and currently a direct, subsidiary of Ensign (“SpinCo”), by and on behalf of itself and each Affiliate of SpinCo (as determined after the Distribution). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Master Separation Agreement, dated as of [                    ], 2019 (the “Separation Agreement”).

RECITALS

WHEREAS, Ensign is the common parent of an affiliated group whose includible corporations join in the filing of a consolidated U.S. federal income Tax Return (the “Ensign Consolidated Group”);

WHEREAS, as of the date of this Agreement, SpinCo is a subsidiary of Ensign and a member of the Ensign Consolidated Group;

WHEREAS, the board of directors of Ensign has determined that it is advisable and in the best interests of Ensign and its stockholders to reorganize the assets and liabilities of Ensign into two separate, publicly traded companies: (i) Ensign which, following consummation of the transactions contemplated herein and in the Separation Agreement, will own and conduct, directly or indirectly, post-acute services businesses, including skilled nursing, senior living, and other ancillary operations (the “Distributing Business”); and (ii) SpinCo which, following consummation of the transactions contemplated herein and in the Separation Agreement, will own and conduct, directly or indirectly, the home health and hospice agencies business, the senior living business and any other business directly conducted by any member of the Pennant Group (as defined in the Separation Agreement) as of or prior to the date of the Separation Agreement (the “Controlled Business”);

WHEREAS, on the Distribution Date and immediately prior to the Distribution, SpinCo will distribute the Pennant Cash Payment to Ensign pursuant to Section 2.1(a)(iii) of the Separation Agreement;

WHEREAS, on the Distribution Date, Ensign will distribute all of its outstanding shares of SpinCo to the holders of Ensign common stock pursuant to the Distribution;

WHEREAS, it is the intention of the Parties that the Contribution and the Distribution together qualify as a reorganization within the meaning of Sections 368(a)(1)(D) and 355 of the Code, and that the Pennant Cash Payment satisfies the requirements of Section 361(b) of the Code such that no gain is recognized upon receipt of the Pennant Cash Payment by Ensign in connection with any Contribution;

WHEREAS, in contemplation of the Reorganization and the Distribution, Ensign and SpinCo desire to set forth their agreement as to the rights and obligations of Ensign, SpinCo, and their respective Affiliates with respect to the responsibility, handling and allocation of federal, state and local Taxes, and various other Tax matters.


NOW, THEREFORE, in consideration of the foregoing and the terms, conditions, covenants, and provisions of this Agreement, Ensign, SpinCo, and their respective Affiliates (as determined after the Distribution) mutually covenant and agree as follows:

ARTICLE I

DEFINITIONS

Active Business” means each of the Distributing Business and the Controlled Business, in each case taken as a whole.

Adjustment” means an adjustment of any item of income, gain, loss, deduction, credit or any other item affecting Taxes of a taxpayer pursuant to a Final Determination.

Affiliate” has the meaning set forth in the Separation Agreement.

After Tax Amount” means any additional amount necessary to reflect (through a gross-up mechanism) the hypothetical Tax consequences of the receipt or accrual of any payment required to be made under this Agreement (including payment of an additional amount or amounts hereunder and the effect of the deductions available for interest paid or accrued and for Taxes such as state and local income Taxes), determined by using the highest marginal corporate Tax rate (or rates, in the case of an item that affects more than one Tax) for the relevant taxable period (or portion thereof).

Agreement” means this Tax Matters Agreement, including any schedules, exhibits, and appendices attached hereto.

ASC 740-10” means Financial Accounting Standard Board Accounting Standard Codification Subtopic 740-10, Income Taxes, including any amended or successor version.

Benefited Party” has the meaning prescribed in Section 2.05(c).

Code” means the Internal Revenue Code of 1986, as amended.

Contribution” means the contribution by Ensign of the assets described in Article II of the Separation Agreement to SpinCo in exchange for (i) the assumption or incurrence, as applicable, by SpinCo and certain of its Subsidiaries of the Pennant Liabilities, and (ii) the issuance by SpinCo to Ensign of shares of SpinCo Common Stock, all as more fully described in the Separation Agreement and the Ancillary Agreements.

Controlled Business” has the meaning set forth in the recitals.

Deferred Tax Assets” means, as of a given date, the amount of deferred Tax benefits that would be recognized as assets on a business enterprise’s balance sheet computed in accordance with GAAP.

Deferred Tax Liabilities” means, as of a given date, the amount of deferred Tax liabilities that would be recognized as liabilities on a business enterprise’s balance sheet computed in accordance with GAAP.

 

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Deferred Taxes” means, as of a given date, the amount of Deferred Tax Assets, less the amount of Deferred Tax Liabilities.

Distributing Business” has the meaning set forth in the recitals.

Distribution” has the meaning set forth in the Separation Agreement.

Employee Matters Agreement” means that certain Employee Matters Agreement between the Parties, entered into as of the date hereof.

Ensign Consolidated Group” has the meaning set forth in the recitals.

Ensign Employee SpinCo Award” has the meaning set forth in Section 2.04(a).

Ensign Group” means all entities that are Affiliates of Ensign immediately after the Distribution, and entities that become Affiliates thereafter.

Ensign Representation Letter” means an officer’s certificate in which certain representations, warranties and covenants are made on behalf of Ensign and its Affiliates in connection with the issuance of the Tax Opinion.

Equity Award” means employee restricted stock, employee stock options, or deferred compensation granted, awarded or otherwise paid to a service provider by Ensign or a member of the SpinCo Group, as the case may be.

Final Determination” shall mean the final resolution of liability for any Tax for a taxable period, including any related interest, penalties or other additions to tax, (i) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable; (ii) by a final settlement with the IRS, closing agreement or accepted offer in compromise under Section 7121 or Section 7122 of the Code, or comparable agreement under the Law of other jurisdictions; (iii) by any allowance of a Refund in respect of an overpayment of Tax, but only after the expiration of all periods during which such Refund may be recovered (including by way of offset) by the jurisdiction imposing such Tax; or (iv) by any other final resolution, including by reason of the expiration of the applicable statute of limitations or the execution of a pre-filing agreement with the IRS or other Taxing Authority.

GAAP” means United States generally accepted accounting principles as in effect on the Distribution Date.

Income Taxes” means any Taxes based upon, measured by, or calculated with respect to: (i) net income or profits or net receipts (including, but not limited to, any capital gains, minimum Tax or any Tax on items of Tax preference, but not including sales, use, real or personal property, or transfer or similar Taxes) or (ii) multiple bases (including corporate or franchise, doing business and occupation taxes) if one or more bases upon which such Tax may be based, measured by, or calculated with respect to, is described in clause (i).

Indemnified Party” has the meaning prescribed in Section 6.02.

 

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Indemnifying Party” has the meaning prescribed in Section 6.02.

IRS” means the United States Internal Revenue Service.

Liability Issue” has the meaning prescribed in Section 5.03(b).

Non-Income Taxes” means any Taxes other than Income Taxes.

Notified Action” has the meaning prescribed in Section 4.03(a).

Party” means each of Ensign and SpinCo.

Person” has the meaning set forth in the Separation Agreement.

Post-Distribution Period” means any tax year or other taxable period beginning after the Distribution Date and, in the case of any Straddle Period, that part of the tax year or other taxable period that begins at the beginning of the day after the Distribution Date.

Pre-Distribution Period” means any tax year or other taxable period that ends on or before the Distribution Date and, in the case of any Straddle Period, that part of the tax year or other taxable period through the end of the day on the Distribution Date.

Pre-Distribution Period Adjustment” means any Adjustment after the Distribution Date with respect to a Pre-Distribution Period (a “Pre-Distribution Period Adjustment”).

Proposed Acquisition Transaction” means a transaction or series of transactions (i) as a result of which any of the Parties would merge or consolidate with any other Person, or (ii) as a result of which any Person or any group of Persons would (directly or indirectly) acquire, or have the right to acquire (through an option or otherwise), from any of the Parties or any of their Affiliates and/or one or more holders of their stock, respectively, any amount of stock of any of the Parties that would, when combined with any other changes in ownership of the stock of such Party, result in a shift of more than 35% of (a) the value of all outstanding shares of stock of such Party as of the Distribution Date, or (b) the total combined voting power of all outstanding shares of voting stock of such Party as of the Distribution Date. Notwithstanding the foregoing, a Proposed Acquisition Transaction shall not include (i) the adoption by a Party of, or the issuance of stock pursuant to, a stockholder rights plan or (ii) transactions that satisfy Safe Harbor VIII (relating to acquisitions in connection with a person’s performance of services, which shall include, for the avoidance of doubt, Equity Awards granted to employees of members of the Ensign Group and the SpinCo Group) or Safe Harbor IX (relating to acquisitions by a retirement plan of an employer) of Treasury Regulations Section 1.355-7(d). For purposes of determining whether and to what extent a transaction constitutes an indirect acquisition for purposes of the first sentence of this definition, any recapitalization or other action resulting in a shift of voting power or any redemption or repurchase of shares of stock shall be treated as an indirect acquisition of shares of stock by the benefitted or non-exchanging stockholders. Notwithstanding the previous sentence, the effect of any such recapitalization, other action, or redemption or repurchase (directly or indirectly) of shares shall take into account any applicable IRS private letter ruling received by one or more of the Parties with respect thereto. This definition and the application thereof is intended to monitor compliance with Section 355(e) of the Code and the Treasury Regulations promulgated thereunder and shall be interpreted accordingly by the Parties in good faith.

 

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Refunds” has the meaning prescribed in Section 2.05(a).

Representation Letters” means the Ensign Representation Letter (or Letters) and the SpinCo Representation Letter (or Letters).

Restricted Period” means the period beginning at the Effective Time and ending on the two-year anniversary of the day after the Distribution Date.

Separation Agreement” has the meaning set forth in the recitals.

Separation Taxes” means any federal, state, and local Income Tax imposed on or assessed against Ensign or the Ensign Consolidated Group in connection with the Contribution and Distribution that would not have occurred had the Contribution and Distribution not occurred.

SpinCo Consolidated Group” an affiliated group whose common parent is SpinCo, the includible corporations of which join with SpinCo in the filing of a consolidated U.S. federal income Tax Return.

SpinCo Group” means SpinCo and Affiliates of SpinCo immediately after the Distribution, and entities that become Affiliates thereafter.

SpinCo Representation Letter” means an officer’s certificate in which certain representations, warranties, and covenants are made on behalf of SpinCo and its Affiliates in connection with the issuance of the Tax Opinion.

SpinCo Separate Tax Return” means any Tax Return that is (i) required under applicable Law to be filed by any member of the SpinCo Group, and that does not include any member of the Ensign Group, for a Pre-Distribution Period or a Straddle Period or (ii) identified on Schedule A, in each case, whether or not such Tax Return is timely filed.

Straddle Period” means any taxable period beginning on or before the Distribution Date and ending after the Distribution Date.

Tax” and “Taxes” means any income, gross income, gross receipts, profits, capital stock, franchise, withholding, payroll, social security, workers’ compensation, unemployment, disability, property, ad valorem, value added, stamp, excise, severance, occupation, service, sales, use, license, lease, transfer, import, export, alternative minimum, estimated or other tax (including any fee, assessment, or other charge in the nature of or in lieu of any tax), imposed by any governmental entity or political subdivision thereof, and any interest, penalty, additions to tax, or additional amounts in respect of the foregoing.

Tax Attributes” means net operating losses, capital losses, investment tax credit carryovers, earnings and profits, foreign tax credit carryovers, overall foreign losses, previously taxed income, separate limitation losses, deductions, credits or other comparable items, and assets basis, that could affect a Tax liability for a past or future taxable period.

 

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Taxing Authority” means any national, municipal, governmental, state, federal or other body, or any quasi-governmental or private body, having jurisdiction over the assessment, determination, collection or imposition of any Tax (including the IRS).

Tax Controversy” has the meaning prescribed in Section 5.01(a).

Tax Detriment” means, without double counting, the sum of (i) the amount of the increase in the Tax liability of an entity (or of the consolidated or combined group of which it is a member), whether temporary or permanent, for any taxable period that arises, or may arise in the future, as a result of any adjustment to, or addition or deletion of, a Tax Item in the computation of the Tax liability of the entity (or the consolidated or combined group of which it is a member), and (ii) the amount by which the entity’s (or consolidated or combined group of which it is a member) Deferred Taxes are increased as a result of such adjustment, addition, or deletion.

Tax-Free Status of the Transactions” means the tax-free treatment accorded to certain of the Transactions as set forth in the Tax Opinion.

Tax Item” means any item of income, gain, loss, deduction, credit, recapture of credit, or any other item (including the basis or adjusted basis of property) which increases or decreases Income Taxes paid or payable in any taxable period.

Tax Opinion” means the opinion rendered by Kirkland & Ellis LLP, with respect to certain Tax aspects of the Contribution and Distribution.

Tax Proceeding” means any audit, assessment of Taxes, pre-filing agreement, other examination by any Taxing Authority, proceeding, appeal of a proceeding or litigation relating to Taxes, whether administrative or judicial, including proceedings relating to competent authority determinations.

Tax Return” means any return, report, certificate, form, filing, questionnaire or other document required to be filed, including requests for extensions of time, filings made with estimated Tax payments, claims for Refund or amended returns, any related or supporting information or schedule attached thereto that may be filed for any taxable period with any Taxing Authority in connection with any Tax or Taxes (whether or not a payment is required to be made with respect to such filing).

Treasury Regulations” means the final and temporary (but not proposed) income tax regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

Unqualified Tax Opinion” means a “will” opinion, without substantive qualifications, of a nationally recognized law or accounting firm, which firm is reasonably acceptable to Ensign, to the effect that a transaction will not affect the Tax-Free Status of the Transactions.

 

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ARTICLE II

RESPONSIBILITY FOR TAXES

2.01 Responsibility and Indemnification for Taxes.

(a) From and after the Distribution Date, without duplication, each of Ensign and SpinCo shall be responsible for, and shall pay its respective share of the liability for Taxes of Ensign, SpinCo, and their respective Affiliates, as provided in this Agreement. Ensign and its Affiliates shall indemnify and hold harmless SpinCo and its Affiliates from and against any Taxes for which Ensign is responsible pursuant to this Agreement, and SpinCo and its Affiliates shall indemnify and hold harmless Ensign and its Affiliates from and against any Taxes for which SpinCo is responsible pursuant to this Agreement.

(b) For the avoidance of doubt, all references to Taxes or Tax liabilities in this Agreement refer to the actual amounts of Taxes paid or due and do not apply to (i) the utilization, elimination, or adjustment of any Tax Attribute, or (ii) items or adjustments to items shown solely on a Party’s balance sheet or other financial statement. There shall be no adjustments, payments, or obligations among the Parties made pursuant to this agreement for any gains or losses with respect to amounts shown on a Party’s balance sheet or other financial statements and not specifically allocated herein, including but not limited to ASC 740-10 reserves, Deferred Tax Assets, Deferred Tax Liabilities, and other Tax accounting entries.

(c) Payments to Taxing Authorities and between the Parties, as the case may be, shall be made in accordance with the provisions of this Agreement.

2.02 Responsibility for Taxes.

(a) Generally

(i) Ensign.

Except as set forth in Sections 2.02(a)(ii) and 2.02(b), Ensign shall be responsible for:

(A) all Tax liability imposed on members of the Ensign Group or the SpinCo Group for all Pre-Distribution Periods;

(B) all Tax liability imposed on members of the Ensign Group for all Post-Distribution Periods; and

(C) 85% of any Pre-Distribution Period Adjustment.

(ii) SpinCo.

Except as set forth in Section 2.02(b), SpinCo shall be responsible for:

(A) all Tax liability imposed with respect to any SpinCo Separate Tax Return;

 

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(B) all Tax liability imposed on members of the SpinCo Group for all Post-Distribution Periods; and

(C) 15% of any Pre-Distribution Period Adjustment.

(iii) Straddle Period Taxes.

Subject to Section 2.03, the responsibility for any Tax incurred in a Straddle Period shall be allocated between the Pre-Distribution Period and the Post-Distribution Period as if the relevant Person or Persons closed its financial accounting records as of the Distribution Date and determined the Tax attributable to the Pre-Distribution Period by applying the method of tax accounting that has historically been used for the business of such Person or Persons.

(b) Separation Taxes

(i) Ensign.

Ensign shall be responsible for:

(A) 50% of all Separation Taxes not due to any act, failure to act, or omission identified in this subsection (b) on the part of any member of the SpinCo Group or the Ensign Group, or any Separation Tax liability arising out of or in connection with the accuracy of any description of events, facts, or circumstances on or prior to the Distribution Date as contained in or made in connection with the Tax Opinion or other Ancillary Agreements, including any misrepresentation or omission by Ensign or SpinCo contained in any such document with respect to any period prior to the Distribution, but excluding in each case for this purpose any statement concerning a Party’s plan or intention with respect to actions or operations after the Distribution Date,

(B) 100% of all Separation Taxes arising out of, based upon, or relating or attributable to any breach by Ensign of any representation, warranty, covenant, or obligation contained in this Agreement, any other Ancillary Agreement, the Tax Opinion, any Ensign Representation Letter, or otherwise made by Ensign in connection with the Distribution, but excluding for this purpose the breach of any representations (including those described in Section 4.01(b)(i)) not concerning a Party’s plan or intention with respect to actions or operations after the Distribution Date, and

(C) 100% of all Separation Taxes arising from any event following the Distribution involving the stock or assets of Ensign or any of its Affiliates which causes the Distribution to be a Taxable event to Ensign as a result of the application of Section 355(e) of the Code or a similar provision of state or local Tax Law.

(ii) SpinCo.

SpinCo shall be responsible for:

 

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(A) 50% of any Separation Taxes that are not due to any act, failure to act, or omission identified in this subsection (b) on the part of any member of the SpinCo Group or the Ensign Group, or any Separation Tax liability arising out of or in connection with the accuracy of any description of events, facts, or circumstances on or prior to the Distribution Date as contained in or made in connection with the Tax Opinion or other Ancillary Agreements, including any misrepresentation or omission by Ensign or SpinCo contained in any such document with respect to any period prior to the Distribution, but excluding in each case for this purpose any statement concerning a Party’s plan or intention with respect to actions or operations after the Distribution Date,

(B) 100% of all Separation Taxes arising out of, based upon, or relating or attributable to any breach by SpinCo of any representation, warranty, covenant, or obligation contained in this Agreement, any other Ancillary Agreement, the Tax Opinions, any SpinCo Representation Letter, or otherwise made by SpinCo in connection with the Distribution, but excluding for this purpose the breach of any representations (including those described in Section 4.01(a)(i)) not concerning a Party’s plan or intention with respect to actions or operations after the Distribution Date, and

(C) 100% of all Separation Taxes arising from any event post-Distribution involving the stock or assets of SpinCo or any of its Affiliates which causes the Distribution to be a Taxable event to Ensign as a result of the application of Section 355(e) of the Code or a similar provision of state or local Tax Law.

(c) Transfer Taxes. Notwithstanding anything to the contrary herein, all transfer, documentary, sales, use, stamp, registration and other such similar Taxes, and all conveyance fees, recording charges and other fees and charges (including any penalties and interest) incurred in connection with consummation of the transactions contemplated by this Agreement, the Separation Agreement or the Ancillary Agreements (“Transfer Taxes”) shall be paid by SpinCo, and the Party required under applicable Law to file Tax Returns with respect to Transfer Taxes will file all necessary Tax Returns, and, if required by applicable Law, the non-preparing Party will, and will cause its Affiliates to, join in the execution of any such Tax Returns and other documentation; provided, however, that if the non-preparing Party fails to join in the execution of any such Tax Returns and other documentation then the Party obligated to file such Tax Returns shall be authorized to execute such Tax Returns and other documentation on behalf of the non-preparing Party.

2.03 Allocation of Certain Income Taxes and Income Tax Items.

(a) If Ensign, SpinCo, or any of their respective Affiliates is permitted but not required under applicable federal, state, or local Tax Laws to treat the Distribution Date as the last day of a taxable period, then, in accordance with Section 2.02(a)(iii), the parties shall treat such day as the last day of a taxable period under such applicable Tax Law, and shall file any elections necessary or appropriate to such treatment; provided that this Section 2.03(a) shall not be construed to require Ensign or SpinCo to change its taxable year.

 

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(b) If applicable Law does not require or permit Ensign, SpinCo, or any of their respective Affiliates, as the case may be, to close its taxable year on the Distribution Date, then the allocation of income or deductions required to determine any Taxes or other amounts attributable to the portion of the Straddle Period ending on, or beginning after, the Distribution Date shall be made by means of a closing of the books and records of the SpinCo Group as of the close of the Distribution Date; provided that (i) exemptions, allowances, or deductions that are calculated on an annual or periodic basis shall be allocated between such portions in proportion to the number of days in each such portion, and (ii) property Taxes or other Non-Income Taxes that are calculated on an annual or periodic basis and not assessed with respect to a transaction or series of transactions shall be allocated to the portion of the Straddle Period ending on the Distribution Date and the portion of the Straddle Period beginning after the Distribution Date in proportion to the number of days in each such portion; provided, however, notwithstanding anything herein to the contrary, each Party and its Affiliates will remain solely responsible for any and all Taxes for which they are responsible under any lease of property from the other Party or any of its Affiliates.

(c) Tax Attributes arising in a Pre-Distribution Period shall be allocated to the Ensign Group and SpinCo Group in accordance with the Code and Treasury Regulations (and any applicable state, local, and non-U.S. Laws). Ensign and SpinCo shall jointly determine the allocation of such Tax Attributes arising in Pre-Distribution Periods as soon as reasonably practicable following the Distribution Date, and hereby agree to compute all Taxes for Post-Distribution Periods consistently with that determination unless otherwise required by a Final Determination.

(d) The Parties agree that, in connection with the Distribution, Ensign’s current and accumulated earnings and profits will be allocated between Ensign and SpinCo based on their relative fair market values at the time of the Distribution in accordance with Treasury Regulation § 1.312-10.

2.04 Treatment of Equity Awards.

(a) To the extent permitted by law (and subject to Section 2.04(g)), Ensign (or the appropriate Ensign Affiliate) shall be entitled to and shall claim all federal income Tax deductions or other Tax benefits resulting from the grant of any Equity Awards prior to the Distribution to an employee of Ensign (or the appropriate Ensign Affiliate), including with respect to any SpinCo Restricted Stock (as defined in the Employee Matters Agreement) issued to employees of Ensign pursuant to the SpinCo Equity and Incentive Plan (as defined in the Employee Matters Agreement) (such Equity Awards, the “Ensign Employee SpinCo Awards”).

(b) To the extent permitted by law (and subject to Section 2.04(g)), SpinCo (or the appropriate SpinCo Affiliate) shall be entitled to and shall claim all federal income Tax deductions or other Tax benefits resulting from the grant of any Equity Awards prior to the Distribution to an employee of SpinCo (or the appropriate SpinCo Affiliate).

(c) To the extent permitted by law, with respect to Equity Awards granted after the Distribution Date, the Party that grants the award shall be entitled to claim any Tax deduction or other benefit resulting from the grant and/or vesting of the award (including any dividends accrued or paid with respect to such award).

 

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(d) If, pursuant to a Final Determination, all or any part of a Tax deduction claimed by Ensign pursuant to Section 2.04(a) is disallowed, then, to the extent permitted by law, SpinCo (or the appropriate SpinCo Affiliate) shall claim such Tax deduction. If SpinCo (or its Affiliate) realizes a Tax benefit from the claiming of such Tax deduction, SpinCo shall pay the amount of such Tax benefit to Ensign net of any Tax Detriment suffered by SpinCo or its Affiliate in connection therewith. If, pursuant to a Final Determination, all or any part of a Tax deduction claimed by SpinCo pursuant to Section 2.04(b) is disallowed, then, to the extent permitted by law, Ensign (or the appropriate Ensign Affiliate) shall claim such Tax deduction. Except in the case of an Ensign Employee SpinCo Award, if Ensign (or its Affiliate) realizes a Tax benefit from the claiming of such Tax deduction, Ensign shall pay the amount of such Tax benefit to SpinCo net of any Tax Detriment suffered by Ensign or its Affiliate in connection therewith.

(e) Upon the vesting and settlement of an Ensign Equity Award settled in Ensign common stock or paid by Ensign (including any dividends accrued or paid with respect thereto) the holder of which is an employee of SpinCo or a member of the SpinCo Group, Ensign shall timely transfer such Ensign common stock or such amounts to the employing entity of such holder; and the employing entity shall be solely responsible for ensuring (i) the settlement of such Ensign Equity Awards (including the payment of any dividends accrued or paid or other amounts with respect thereto, as applicable), and (ii) the withholding of all applicable Taxes and the prompt remittance of such withheld amounts, along with the employer’s portion of any applicable payroll Taxes due with respect to the exercise or vesting and settlement of such Equity Award (including any dividends accrued or paid with respect thereto), to the appropriate Taxing Authority.

(f) Upon the vesting and settlement of a SpinCo Equity Award settled in SpinCo common stock or paid by SpinCo (including any dividends accrued or paid with respect thereto) the holder of which is an employee of Ensign or a member of the Ensign Group (including, for the avoidance of doubt, any Ensign Employee SpinCo Awards), SpinCo shall timely transfer such Spinco common stock or such amounts to the employing entity of such holder; and the employing entity shall be solely responsible for ensuring (i) the settlement of such Spinco Equity Awards (including the payment of any dividends accrued or paid or other amounts with respect thereto, as applicable), and (ii) the withholding of all applicable Taxes and prompt remittance of such withheld amounts, along with the employer’s portion of any applicable payroll Taxes due with respect to the exercise or vesting and settlement of such Equity Award (including any dividends accrued or paid with respect thereto), to the appropriate Taxing Authority.

(g) The Parties hereto acknowledge and agree that, except to the extent otherwise required by applicable Law and subject to Section 83 of the Code, (A) SpinCo shall be treated for U.S. federal (and applicable state and local) income Tax purposes as issuing the Ensign Employee SpinCo Awards to Ensign (or its applicable Affiliate) in respect of services provided by Ensign (or such Affiliate), and (B) Ensign (or such Affiliate) shall in turn be treated for U.S. federal (and applicable state and local) income Tax purposes as delivering such Ensign Employee SpinCo Awards to such employee as compensation in respect of services provided to Ensign. Notwithstanding the foregoing or anything herein to the contrary, to the extent SpinCo (or its Affiliate) realizes a Tax benefit from the claiming of a Tax deduction with respect to an Ensign Employee SpinCo Award, SpinCo shall pay the amount of such Tax benefit to Ensign net of any Tax Detriment suffered by SpinCo or its Affiliate in connection therewith.

 

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2.05 Tax Refunds.

(a) Except as otherwise provided herein, the benefit of any Tax credits, Tax Attributes, and any refund or credit of any overpayment of Taxes or estimated Tax liabilities (“Refunds”), including any corresponding benefit arising out of or related to any Tax liability that is the subject of this Agreement, will remain with the party entitled to the benefit under applicable Tax Law, as modified by any applicable audit agreements or past practice of Ensign and its Affiliates. No payments shall be made between the Parties to account for such adjustment.

(b) Except as provided in Section 2.06, Ensign shall be entitled to all Refunds for Taxes for which Ensign is responsible pursuant to Article II, and SpinCo shall be entitled to all Refunds for Taxes for which SpinCo is responsible pursuant to Article II (including, for the avoidance of doubt, Ensign and SpinCo’s respective share of any Refund with respect to a Pre-Distribution Period Adjustment). A Party receiving a Refund to which the other Party is entitled pursuant to this Agreement shall pay the amount to which such other Party is entitled within ten twenty (20) days after the receipt of the Refund.

(c) In the event of an Adjustment relating to Taxes for which one Party is responsible pursuant to Article II which would have given rise to a Refund but for an offset against the Taxes for which the other Party is or may be responsible pursuant to Article II (the “Benefited Party”), then the Benefited Party shall pay to the other Party, within twenty (20) days of the Final Determination of such Adjustment an amount equal to the lesser of (i) the amount of such hypothetical Refund or (ii) the amount of such reduction in the Taxes of the Benefited Party, in each case, plus interest at the rate set forth in Section 6621(a)(1) of the Code on such amount for the period from the filing date of the Tax Return that would have given rise to such Refund to the payment date.

(d) Notwithstanding Section 2.05(a), to the extent that a Party applies or causes to be applied an overpayment of Taxes as a credit toward or a reduction in Taxes otherwise payable (or a Taxing Authority requires such application in lieu of a Refund) and such overpayment of Taxes, if received as a Refund, would have been payable by such Party to the other Party pursuant to this Section 2.05, such Party shall pay such amount to the other Party no later than the due date of the Tax Return for which such overpayment is applied to reduce Taxes otherwise payable.

(e) To the extent that the amount of any Refund under this Section 2.05 or Section 2.06(b), as applicable, is later reduced by a Taxing Authority or in a Tax Proceeding, such reduction shall be allocated to the Party to which such Refund was allocated pursuant to this Section 2.05 or Section 2.06(b), as applicable, and an appropriate adjusting payment shall be made.

2.06 Carrybacks.

(a) The carryback of any loss, credit, or other Tax Attribute from any Post-Distribution Period shall be in accordance with the provisions of the Code and Treasury Regulations (and any applicable state, local, or non-U.S. Law).

 

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(b) (i) Subject to Section 2.06(c) and (d), in the event that any member of the SpinCo Group realizes any loss, credit, or other Tax Attribute in a Post-Distribution Period of such member, such member may elect to carry back such loss, credit, or other Tax Attribute to a Pre-Distribution Period or Straddle Period of Ensign. Ensign shall cooperate with SpinCo and such member in seeking from the appropriate Taxing Authority any Refund that reasonably would result from such carryback (including by filing an amended Tax Return) at SpinCo’s cost and expense; provided, that Ensign shall not be required to seek such Refund, and SpinCo and such member shall not be permitted to seek such Refund, in each case to the extent that such Refund would reasonably be expected to materially adversely impact Ensign (including through an increase in Taxes or a loss or reduction of a Tax Attribute regardless of whether or when such Tax Attribute otherwise would have been used), in each case without the prior written consent of Ensign, which consent shall not be unreasonably withheld or delayed. SpinCo (or such member) shall be entitled to any Refund realized by any member of the Ensign Group or the SpinCo Group resulting from such carryback.

(ii) Subject to Section 2.06(c) and (d), in the event that any member of the Ensign Group realizes any loss, credit or other Tax Attribute in a Post-Distribution Period of such member, such member may elect to carry back such loss, credit or other Tax Attribute to a Pre-Distribution Period or Straddle Period of such member. SpinCo shall cooperate with Ensign and such member in seeking from the appropriate Taxing Authority any Refund that reasonably would result from such carryback (including by filing an amended Tax Return) at Ensign’s cost and expense; provided, that SpinCo shall not be required to seek such Refund and Ensign and such member shall not be permitted to seek such Refund, in each case to the extent that such Refund would reasonably be expected to materially adversely impact SpinCo (including through an increase in Taxes or a loss or reduction of a Tax Attribute regardless of whether or when such Tax Attribute otherwise would have been used), in each case without the prior written consent of SpinCo, which consent shall not be unreasonably withheld or delayed. Ensign (or such member) shall be entitled to any Refund realized by any member of the SpinCo Group or the Ensign Group resulting from such carryback.

(c) Except as otherwise provided by applicable Law, if any loss, credit or other Tax Attribute of the Ensign Business and the SpinCo Business both would be eligible to be carried back or carried forward to the same Pre-Distribution Period (had such carryback been the only carryback to such taxable period), any Refund resulting therefrom shall be allocated between Ensign and SpinCo proportionately based on the relative amounts of the Refunds to which the Ensign Business and the SpinCo Business, respectively, would have been entitled had such carryback been the only carryback to such taxable period.

(d) To the extent the amount of any Refund under this Section 2.06 is later reduced by a Taxing Authority or a Tax Proceeding, such reduction shall be allocated to the Party to which such Refund was allocated pursuant to this Section 2.06.

2.07 Protective Section 336(e) Elections.

(a) Ensign and SpinCo shall make a protective election with respect to SpinCo under Section 336(e) of the Code (and any similar election under state or local Law) with respect to the Distribution in accordance with Treasury Regulations Section 1.336-2(h) and (j) (and any applicable provisions under state and local Law) and shall fully cooperate in the timely completion

 

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and/or filings of such elections and any related filings or procedures (including filing or amending any Tax Returns to implement an election that becomes effective). This Section 2.07(a) is intended to constitute a binding, written agreement to make an election under Section 336(e) of the Code with respect to the Distribution.

(b) Notwithstanding anything to the contrary herein, in the event that the election contemplated in Section 2.07(a) is made and becomes effective, then the Parties shall share in any Tax benefit derived as a result of such election in accordance with the Parties’ relative responsibility for such Taxes under this Article II, and payments shall be made between the Parties, if necessary.

(c) Ensign and SpinCo shall cooperate in good faith in order to determine whether to make a protective election under Section 336(e) of the Code (and any similar election under state or local Law) with respect to any subsidiary of SpinCo in accordance with Treasury Regulations Section 1.336-2(h) and (j) (and any applicable provisions under state and local Law).

ARTICLE III

TAX RETURNS AND INFORMATION EXCHANGE

3.01 Tax Return Preparation Responsibility; Payment of Taxes Shown Thereon.

(a) Except as provided in Section 3.01(c), Ensign shall prepare and timely file all Tax Returns for Pre-Distribution Periods for Ensign and its Affiliates, including SpinCo and its Affiliates, and all Tax Returns for Straddle Periods for all members of the Ensign Group. In connection with each federal, state, and local Tax Return that is required under this Agreement to be filed by Ensign for Pre-Distribution Periods or Straddle Periods, SpinCo shall timely furnish to Ensign such Tax information and documents as Ensign may reasonably request.

(b) To the extent that there are separate state or local Tax Returns attributable to a member of the Ensign Group required to be filed by members of the SpinCo Group with respect to Pre-Distribution Periods, SpinCo and Ensign shall cooperate in good faith to ensure that such returns are correctly filed by the party required to file such Tax Returns under applicable Law.

(c) SpinCo and its Affiliates shall prepare and timely file all Tax Returns for Straddle Periods for all members of the SpinCo Group, including any such Tax Return with respect to a Post-Distribution Period. If Ensign or any of its Affiliates is responsible under Section 2.02(a) for a portion of any Tax reported on a Straddle Period Tax Return for any member of the SpinCo Group, SpinCo shall provide Ensign with a copy of such Tax Return at least thirty (30) days prior to its due date. Ensign shall notify SpinCo of any disagreement within 20 days of Ensign’s receipt of such Tax Return. Any dispute shall be resolved pursuant to the procedures provided by this Agreement.

(d) Except at the written direction of Ensign or to the extent permitted pursuant to Section 2.06, after the date of the Distribution, SpinCo shall not file (or allow any SpinCo Affiliate to file) any amended Tax Return or refund claim for any Pre-Distribution Periods.

 

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(e) Ensign (and its Affiliates) shall be responsible for remitting payment of any Taxes shown on a Tax Return which Ensign (or any of its Affiliates) is responsible for filing. SpinCo (and its Affiliates) shall be responsible for remitting payment of any Taxes shown on a Tax Return which SpinCo (or any of its Affiliates) is responsible for filing.

(f) If Ensign (or any of its Affiliates) remits a Tax payment, but SpinCo (or any of its Affiliates) is responsible pursuant to Article II for all or a portion of the Tax shown on the applicable Tax Return, then SpinCo shall timely pay to Ensign that portion of the Tax for which SpinCo (or any of its Affiliates) is responsible. If SpinCo (or any of its Affiliates) remits a Tax payment, but Ensign (or any of its Affiliates) is responsible pursuant to Article II for all or a portion of the Tax shown on the applicable Tax Return, then Ensign shall timely pay to SpinCo that portion of the Tax for which Ensign (or any of its Affiliates) is responsible. Such payments shall be requested and made in accordance with the notice and payment provisions contained in Article VI. Nothing in this Section 3.01 shall affect the allocation of responsibility for Taxes as set forth in Article II.

3.02 Certain Items Related to Tax Return Preparation.

(a) All Tax Returns relating to a Pre-Distribution Tax Period shall be prepared and filed by the specified party in a manner consistent with past Tax reporting practices of the Ensign Group or the SpinCo Group, as applicable.

(b) Unless otherwise required by a Taxing Authority, the Parties hereby agree to prepare and file all Tax Returns, and to take all other actions, in a manner consistent with this Agreement, the Separation Agreement, the Ancillary Agreements, applicable Law, the Tax Opinion, and any Representation Letter. All Tax Returns shall be filed on a timely basis (taking into account applicable extensions) by the party responsible for filing such Tax Returns under this Agreement; provided, that if a Tax Return is to be signed by an officer of an entity different from the party responsible for filing such Tax Return, the appropriate Party shall have (or cause its Affiliate to have) the appropriate officer sign such Tax Return promptly after presentation thereof for signature.

(c) Except as otherwise specifically provided for in this Agreement, each Party shall have the exclusive right, in its reasonable discretion, with respect to any Tax Return for which it is responsible for the filing thereof pursuant to this Agreement, to determine (i) the manner in which such Tax Return shall be prepared and filed, including the accounting methods, positions, conventions and principles of taxation to be used and the manner in which any Tax Item shall be reported; (ii) whether any extensions may be requested; (iii) the election(s) that will be made by Ensign, SpinCo, or any of their Affiliates on such Tax Return; (iv) whether any amended Tax Return shall be filed; (v) whether any claim for Refund shall be made; (vi) whether any Refund shall be paid by way of refund or credited against any liability for the related Tax; and (vii) whether to retain outside firms to prepare or review such Tax Returns; provided, that Ensign shall prepare all Tax Returns for which it has filing responsibility, to the extent such Tax Returns reflect activities of the SpinCo Group, in a manner consistent with past Tax reporting practices with respect to such activities of the SpinCo Group, except as required by Law or regulation.

 

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(d) As soon as reasonably practicable following the Distribution Date, and in any event within 90 calendar days after filing the federal income Tax Return for the Ensign Consolidated Group for the tax year that includes the Distribution Date, Ensign shall notify SpinCo of the Tax Attributes associated with SpinCo and each of its Affiliates, and the Tax bases of the assets and liabilities transferred to SpinCo in connection with the Distribution. Ensign shall advise SpinCo with respect to any Final Determination of Tax Adjustments relating to the Ensign Consolidated Group if such Final Determination of Tax Adjustments may affect any Tax Attribute of any member of the SpinCo Group after the Distribution Date within 90 calendar days after such change is made or there is a Final Determination of such change.

(e) Nothing in this Agreement shall be construed as a guarantee or representation of the existence or amount of any loss, credit, carryforward, basis, or other Tax Item or Tax Attribute, whether past, present, or future, of Ensign, SpinCo, or their respective Affiliates.

ARTICLE IV

TAX TREATMENT OF THE DISTRIBUTION

4.01 Representations.

(a) SpinCo.

(i) Tax-Free Status. SpinCo hereby represents and warrants that it has no plan or intention of taking any action, or failing or omitting to take any action, or knows of any circumstance, that could reasonably be expected to (i) cause the Contribution and the Distribution to fail to qualify as a reorganization within the meaning of Sections 368(a)(1)(D) and 355 of the Code or (ii) cause any representation or factual statement made in this Agreement, the Separation Agreement, the Ancillary Agreements, the Tax Opinion, or any SpinCo Representation Letter, as applicable, to be untrue in a manner that would have an adverse effect on the qualification of the Contribution and the Distribution as a reorganization within the meaning of Sections 368(a)(1)(D) and 355 of the Code or the tax treatment described in the Tax Opinion of certain aspects of the Reorganization and the Distribution.

(ii) Plan or Series of Related Transactions.

(A) SpinCo hereby represents and warrants that, to the knowledge of SpinCo and the management of SpinCo, neither the Distribution nor any related transactions are part of a plan (or series of related transactions) pursuant to which a Person will acquire directly or indirectly stock representing a fifty-percent or greater interest (within the meaning of Sections 355(d) and (e) of the Code) in SpinCo or any successor to SpinCo.

(B) SpinCo has no plan or intention to participate in, facilitate, undertake, or otherwise permit any acquisition of SpinCo after the Distribution pursuant to which a direct or indirect acquisition of stock of SpinCo would occur, which would result in a direct or indirect acquisition of stock representing a 50 percent or greater interest (within the meaning of Sections 355(d) and 355(e) of the Code) in SpinCo or any successor to SpinCo.

 

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(C) SpinCo and its Affiliates have no plan or intention to redeem, purchase, or otherwise reacquire more than 20% of the capital stock of SpinCo in one or more transactions following the Distribution Date.

(D) SpinCo and its Affiliates have no plan or intention to (i) sell, exchange, distribute, or otherwise dispose of, directly or indirectly, other than in the ordinary course of business, all or a substantial part of the assets of any of the trades or businesses relied upon, including in the Tax Opinion, to satisfy Section 355(b) of the Code; (ii) discontinue or cause to be discontinued the active conduct of any of the trades or businesses relied upon, including in the Tax Opinion, to satisfy Section 355(b) of the Code; or (iii) cause the occurrence of any restructuring pursuant to which SpinCo ceases to be treated as conducting the trade or businesses relied upon, including in the Tax Opinion, to satisfy Section 355(b) of the Code.

(b) Ensign.

(i) Tax-Free Status. Ensign hereby represents and warrants that it has no plan or intention of taking any action, or failing or omitting to take any action, or knows of any circumstance, that could reasonably be expected to (i) cause the Contribution and the Distribution to fail to qualify as a reorganization within the meaning of Sections 368(a)(1)(D) and 355 of the Code, or (ii) cause any representation or factual statement made in the Separation Agreement, this Agreement, the other Ancillary Agreements, the Tax Opinion, or any Ensign Representation Letter, as applicable, to be untrue in a manner that would have an adverse effect on the qualification of the Contribution and the Distribution as a reorganization within the meaning of Sections 368(a) (1)(D) and 355 of the Code or the tax treatment described in the Tax Opinion of certain aspects of the Reorganization and the Distribution.

(ii) Plan or Series of Related Transactions.

(A) Ensign hereby represents and warrants that, to the knowledge of Ensign and the management of Ensign, neither the Distribution nor any related transactions are part of a plan (or series of related transactions) pursuant to which a Person will acquire directly or indirectly stock representing a fifty-percent or greater interest (within the meaning of Sections 355(d) and (e) of the Code) in Ensign or any successor to Ensign.

(B) Ensign has no plan or intention to participate in, facilitate, undertake or otherwise permit any acquisition of Ensign after the Distribution pursuant to which a direct or indirect acquisition of stock of Ensign would occur, which would result in a direct or indirect acquisition of stock representing a 50 percent or greater interest (within the meaning of Sections 355(d) and 355(e) of the Code) in Ensign or any successor to Ensign.

(C) Ensign and its Affiliates have no plan or intention to redeem, purchase or otherwise acquire more than 20% of Ensign’s capital stock in one or more transactions following the Distribution Date.

 

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(D) Ensign and its Affiliates have no plan or intention to (i) sell, exchange, distribute or otherwise dispose of, directly or indirectly, other than in the ordinary course of business, all or a substantial part of the assets of any of the trades or businesses relied upon, including in the Tax Opinion, to satisfy Section 355(b) of the Code; (ii) discontinue or cause to be discontinued the active conduct of any of the trades or businesses relied upon, including in the Tax Opinion, to satisfy Section 355(b) of the Code, or (iii) cause the occurrence of any restructuring pursuant to which Ensign ceases to be treated as conducting the trade or businesses relied upon, including in the Tax Opinion, to satisfy Section 355(b) of the Code.

4.02 Covenants.

(a) The Parties shall not, and shall cause their Affiliates not to, take any action or fail to take any action, where such action or failure would be inconsistent with or have an adverse effect on the qualification of the Contribution and the Distribution as a reorganization within the meaning of Sections 368(a)(1)(D) and 355 of the Code or the tax treatment described in the Tax Opinion of certain aspects of the Distribution.

(b) Unless otherwise required by a Taxing Authority or applicable Law, the Parties hereby agree to prepare and file all Tax Returns, and to take all other actions, in a manner consistent with past practice.

(c) Unless otherwise required by a Taxing Authority or applicable Law, the Parties hereby agree to prepare and file all Tax Returns, and to take all other actions, in a manner consistent with the characterization of the Reorganization and the Distribution as described in the Tax Opinion and the Ancillary Agreements.

(d) Actions Consistent with Representations and Covenants.

(i) SpinCo shall not, and shall not permit any of its Affiliates to, take any action or fail to take any action, where such action or failure to act would be inconsistent with or cause to be materially untrue any material, information, covenant, or representation in the Separation Agreement, this Agreement, the other Ancillary Agreements, the Tax Opinion, or any SpinCo Representation Letter.

(ii) Ensign shall not, and shall not permit any of its Affiliates to, take any action or fail to take any action, where such action or failure to act would be inconsistent with or cause to be materially untrue any material, information, covenant, or representation in the Separation Agreement, this Agreement, the other Ancillary Agreements, the Tax Opinion, or any Ensign Representation Letter.

(e) Notwithstanding anything herein to the contrary, during the Restricted Period, SpinCo shall not (and shall not allow any of its subsidiaries or Affiliates to):

(i) allow any Proposed Acquisition Transaction to occur;

 

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(ii) merge or consolidate with any other Person or dissolve, liquidate or partially liquidate (other than a wholly owned subsidiary of SpinCo merging or consolidating with SpinCo or another wholly owned subsidiary of SpinCo);

(iii) approve or allow the discontinuance, cessation, or sale or other transfer (to an Affiliate or otherwise) of any Active Business by SpinCo or its Affiliates, as applicable, for purposes of Section 355 of the Code;

(iv) sell or otherwise dispose of more than 35% of its consolidated gross or net assets or allow the sale or other disposition (to an Affiliate or otherwise) of more than 35% of the consolidated gross or net assets of SpinCo (in each case, excluding sales in the ordinary course of business, sales the net cash proceeds (taking into account any Taxes payable) of which are reinvested in other assets (including pursuant to an exchange under Section 1031 of the Code) and sales the net cash proceeds (taking into account any Taxes payable) of which are used to repay indebtedness, and measured based on fair market values as of the date of the Distribution or other transaction);

(v) amend its certificate of incorporation or take any similar action that affects the rights of stockholders under the certificate of incorporation;

(vi) purchase, directly or through any Affiliate, any of its outstanding stock after the Distribution, other than through stock purchases meeting the requirements of Section 4.05(1)(b) of Revenue Procedure 96-30 (as in effect prior to the amendment of such Revenue Procedure by Revenue Procedure 2003-48);

(vii) take any action or fail to take any action, or permit any of its Affiliates to take any action or fail to take any action, that is inconsistent with the representations and covenants made in the Representation Letters, or that is inconsistent with the Tax Opinion; nor

(f) enter into an arrangement or agreement to do any of the foregoing.

4.03 Procedures Regarding Opinions.

(a) If SpinCo notifies Ensign that it desires to take one of the actions described in Section 4.02 (a “Notified Action”), Ensign shall cooperate with SpinCo and use its reasonable best efforts to seek to obtain, as expeditiously as possible, a ruling from the IRS or an Unqualified Tax Opinion for the purpose of permitting SpinCo to take the Notified Action unless Ensign shall have waived the requirement to obtain such opinion. If such a ruling is to be sought, Ensign shall apply for such ruling and Ensign and SpinCo shall jointly control the process of obtaining such ruling. In no event shall Ensign be required to file any ruling request under this Section 4.03(a) unless SpinCo represents that (i) it has read such ruling request, and (ii) all information and representations, if any, relating to any member of the SpinCo Group, contained in such ruling request documents are (subject to any qualifications therein) true, correct, and complete. SpinCo shall reimburse Ensign for all reasonable costs and expenses incurred by the Ensign Group in obtaining a ruling or an Unqualified Tax Opinion requested by SpinCo within twenty (20) days after receiving an invoice from Ensign therefor.

 

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(b) If Ensign requests a ruling or other guidance pursuant to Section 4.03(a): (A) Ensign shall keep SpinCo informed in a timely manner of all material actions taken or proposed to be taken by Ensign in connection therewith; (B) Ensign shall (i) reasonably in advance of the submission of any documents relating to the ruling provide SpinCo with a draft thereof, (ii) reasonably consider SpinCo’s comments to such draft, (iii) provide SpinCo with a final copy of any documents relating to the ruling, (iv) provide SpinCo with notice reasonably in advance of, and SpinCo shall have the right to attend, any meetings with the Taxing Authority (subject to the approval of the Taxing Authority) that relate to such ruling, and (v) provide SpinCo with a copy of such ruling.

4.04 Enforcement. The Parties acknowledge that irreparable harm would occur in the event that any of the provisions of this Article IV were not performed in accordance with their specific terms or were otherwise breached. The Parties agree that, in order to preserve the qualification of the Contribution and the Distribution as a reorganization within the meaning of Sections 368(a)(1)(D) and 355 of the Code, injunctive relief is appropriate to prevent any violation of the foregoing covenants; provided, however, that injunctive relief shall not be the exclusive legal or equitable remedy for any such violation.

ARTICLE V

COOPERATION AND EXCHANGE OF INFORMATION

5.01 Cooperation.

(a) Notwithstanding anything to the contrary in the Separation Agreement or the Ancillary Agreements, Ensign and SpinCo shall cooperate (and shall cause each of their respective Affiliates to cooperate) fully at such time and to the extent reasonably requested by the other Party in connection with the preparation and filing of any Tax Return or the conduct of any Tax controversy, including any audit, protest, or claim for refund, competent authority proceeding, or litigation in Tax court or any other court of competent jurisdiction (a “Tax Controversy”) (including providing a power of attorney) concerning any issues or any other matter contemplated under this Agreement or otherwise as reasonably requested by the other Party. Each Party shall make its employees and facilities available on a mutually convenient basis to facilitate such cooperation.

(b) Notwithstanding anything to the contrary in this Agreement, if a Party materially fails to comply with any of its obligations set forth in this Section 5.01, upon reasonable request and notice by the other Party, the non-performing Party shall (i) reimburse the other Party for any internal or incremental costs incurred by such other Party in having its employees or agents view or obtain such material, and (ii) to the extent such failure results in the imposition of additional Taxes, be liable in full for such additional Taxes.

5.02 Retention of Records.

(a) The Parties and their Affiliates shall retain and provide to one another on demand books, records, documentation, information, or other materials (including computer data) relating to any Tax Return, or any supplemental information necessary or reasonably helpful to support any position taken therein until the later of (x) the expiration of the applicable statute of limitations (giving effect to any extension, waiver, or mitigation thereof) or (y) in the event any claim has been made under this Agreement for which such information is relevant, the occurrence of a Final Determination with respect to such claim.

 

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(b) The Parties shall retain and make available to one another and to Tax Authorities, records and documentation that specifically include information regarding the amount, basis, and fair market value of all assets exchanged in the Contribution, and relevant facts regarding any liabilities assumed or extinguished as part of Contribution, pursuant to Treasury Regulation Section 1.355-5(d).

(c) If at any time after the Distribution Date a Party proposes to destroy materials or information required to be retained pursuant to Section 5.02(a), it shall first notify the other Party in writing and such other Party shall be entitled to receive such materials or information proposed to be destroyed if such materials or information relate to the other Party or any of its Affiliates or any assets held by the other Party’s or any of its Affiliates.

5.03 Contest Provisions.

(a) The Party responsible for Taxes under Article II (the “Responsible Party”) shall, with respect to a Tax Return, have the exclusive right at its own cost, to control, contest and represent the interests of Ensign, SpinCo, and their respective Affiliates in any Tax Controversy related to such Tax Return; provided, for the avoidance of doubt that Ensign shall be the Responsible Party with respect to any Tax Return reflecting a Tax described in Section 2.02(a)(i)(A). Such right to control shall include the right, in the Responsible Party’s reasonable discretion, to resolve, settle or agree to any deficiency, claim or adjustment proposed, asserted or assessed in connection with or as a result of any such Tax Controversy; provided, however, that at the request of Ensign or at SpinCo’s option, SpinCo shall reasonably participate as described in Section 5.04 in the contest of a Tax Controversy of the Ensign Consolidated Group for any Pre-Distribution Periods.

(b) Ensign shall use reasonable efforts to keep SpinCo advised as to the status of Tax Controversies involving any issue that relates to a Tax of SpinCo or any SpinCo Affiliate or that could reasonably be expected to give rise to a liability of SpinCo or any of its Affiliates under this Agreement (in each case, a “Liability Issue”). Ensign shall promptly furnish to SpinCo copies of any inquiries or requests for information from any Taxing Authority or any other administrative, judicial, or other governmental authority concerning any Liability Issue pertaining to SpinCo.

5.04 Reasonable Participation.

(a) In the event that SpinCo elects or is required to participate in the defense of a Tax Controversy pursuant to Section 5.03(a), Ensign shall (i) provide SpinCo with notice reasonably in advance of any proceeding relating to such Tax Controversy, and (ii) consult in good faith with SpinCo on the resolution of the Tax Controversy and on any written submissions in connection with such Tax Controversy, including providing SpinCo with an opportunity to review and provide comments on any written submission.

 

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(b) SpinCo shall have the right, at its expense, to be present at, and participate in, any proceeding relating to such Tax Controversy to the extent allowed by Law.

(c) Ensign shall not settle, either administratively or after the commencement of litigation, such Tax Controversy without the prior written consent of SpinCo, which shall not be unreasonably withheld, conditioned, or delayed. If SpinCo withholds, conditions, or delays consent in a manner deemed “unreasonable” by Ensign, Article VII shall govern the determination of unreasonable.

5.05 Information for Shareholders.

(a) Ensign shall provide each shareholder that receives SpinCo stock pursuant to the Distribution with the information necessary for such shareholder to comply with the requirements of Section 355 of the Code and the Treasury Regulations thereunder with respect to statements that such shareholders must file with their federal income Tax Returns demonstrating the applicability of Section 355 of the Code to the Distribution.

(b) Ensign shall make available on its website the information required by Section 6045B of the Code with respect to the effect of the Distribution on the basis of Ensign and SpinCo stock in the hands of a U.S. taxpayer.

ARTICLE VI

INDEMNITY OBLIGATIONS AND PAYMENTS

6.01 Indemnity Obligations. In addition to the obligations set forth in Article II,

(a) The Ensign Group shall indemnify and hold harmless SpinCo and any member of the SpinCo Group from and against any liability, cost, or expense, including, without limitation, any fine, penalty, interest, charge, or accountant’s fee, arising out of fraudulent or negligent preparation of any Tax Return or claim for Refund filed by Ensign or an Ensign Affiliate for any period during which SpinCo or any member of the SpinCo Group was or has been a member of the Ensign Consolidated Group, or arising out of the untimely provision of information required to be provided under this Agreement.

(b) The SpinCo Group shall indemnify and hold harmless Ensign and any member of the Ensign Group from and against any liability, cost, or expenses, including, without limitation, any fine, penalty, interest, charge, or accountant’s fee, arising out of fraudulent or negligent information, workpapers, documents, and other items prepared by SpinCo or any SpinCo Affiliate used in the preparation of any Tax Return or claim for Refund filed by Ensign or any Ensign Affiliate for any period during which SpinCo or any SpinCo Affiliate was or has been a member of the Ensign Consolidated Group, or arising out of the untimely provision of information required to be provided under this Agreement.

 

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6.02 Notice. A Party making a claim for indemnification under this Agreement (the “Indemnified Party”) shall provide the Party from whom such indemnification is sought (the “Indemnifying Party”) with written notice of such claim describing such claim in reasonable detail and accompanied by reasonable documentation supporting such claim no later than twenty (20) calendar days after the Indemnified Party (i) files a Tax Return reporting Taxes due which are subject to reimbursement, or (ii) receives written notice from any Taxing Authority with respect to a Final Determination of Taxes that may be subject to indemnification under this Agreement; provided, however, that in the event that timely notice is not provided, the Indemnifying Party shall be relieved of its obligation to indemnify the Indemnified Party only to the extent that such delay results in actual increased costs or actual prejudice.

6.03 Payment. In the event that the Indemnifying Party is required to make a payment to the Indemnified Party pursuant to this Agreement, then to the extent not otherwise provided for in this Agreement or in the Separation Agreement, such payment shall be made according to this Section 6.03.

(a) All payments shall be made to the Indemnified Party or to the appropriate Taxing Authority as specified by the Indemnified Party within the time prescribed for such payment in this Agreement, or if no period is prescribed, within twenty (20) calendar days after delivery of written notice of payment owing together with a computation of the amounts due.

(b) Unless otherwise required by any Final Determination, the Parties agree that any payment made by one Party to the other Party (other than payments of interest and payment of After Tax Amounts pursuant to Section 6.03(c)) pursuant to this Agreement shall be treated for all Tax and financial accounting purposes as payments with respect to stock (dividend distributions or capital contributions, as the case may be) made immediately prior to the Distribution.

(c) If, pursuant to a Final Determination, it is determined that the receipt or accrual of any payment made under this Agreement (other than payments of interest) is subject to any Tax, the Party making such payment shall be liable for (i) the After Tax Amount with respect to such payment, and (ii) interest at the rate described in Section 6.03(d) on the amount of such Tax from the date such Tax is due through the date of payment of such After Tax Amount. The Party making a demand for payment pursuant to this Agreement and for a payment of an After Tax Amount with respect to such payment shall separately specify and compute such After Tax Amount. However, a Party may choose not to specify an After Tax Amount in a demand for payment pursuant to this Agreement without thereby being deemed to have waived its right subsequently to demand an After Tax Amount with respect to such payment.

(d) Any payment that is required to be made pursuant to this Agreement (i) by SpinCo (or a SpinCo Affiliate) to Ensign (or an Ensign Affiliate), or (ii) by Ensign (or an Ensign Affiliate) to SpinCo (or a SpinCo Affiliate), that is not made on or prior to the date that such payment is required to be made pursuant to this Agreement shall thereafter bear interest at the rate established for underpayments pursuant to Section 6621(a)(2) of the Code.

 

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ARTICLE VII

DISPUTE RESOLUTION

7.01 All disputes, controversies, or claims arising under or in connection with this Agreement (including any dispute, controversy, or claim relating to the breach, termination, or validity thereof) between or among any of Ensign or its Affiliates and SpinCo or its Affiliates shall be governed by Article X of the Separation Agreement or the procedures set forth in Section 7.02 as determined by the Parties. If the Parties cannot agree as to which procedure will govern such dispute, such dispute shall be resolved pursuant to Article X of the Separation Agreement. Each Party agrees that the procedures set forth in Article X of the Separation Agreement or Section 7.02, as determined in Section 7.01, shall be the sole and exclusive remedy in connection with any dispute, controversy, or claim relating to any of the foregoing matters.

7.02 With respect to any dispute governed by this Section 7.02, the Parties shall appoint a nationally recognized independent public accounting firm (the “Accounting Firm”) to resolve such dispute. In this regard, the Accounting Firm shall make determinations with respect to the disputed items based solely on representations made by Ensign and SpinCo and their respective representatives, and not by independent review, and shall function only as an expert and not as an arbitrator and shall be required to make a determination in favor of one Party only. The Parties shall require the Accounting Firm to attempt to resolve all disputes no later than sixty (60) days after the submission of such dispute to the Accounting Firm, but in no event later than the due date for the payment of Taxes or the filing of the applicable Tax Return, if applicable, and agree that all decisions by the Accounting Firm with respect thereto shall, absent fraud or manifest error, be final and conclusive and binding on the Parties. The Accounting Firm shall resolve all disputes in a manner consistent with this Agreement and, to the extent not inconsistent with this Agreement, in a manner consistent with the past practices of Ensign and its Affiliates, except as otherwise required by applicable Law. The Parties shall require the Accounting Firm to render all determinations in writing to each of the Parties and to set forth, in reasonable detail, the basis for such determination. The fees and expenses of the Accounting Firm shall be paid by the non-prevailing Party.

7.03 In order to facilitate the comprehensive resolution of related disputes, all claims between any of the parties to a Dispute that arises under or in connection with both this Agreement, on the one hand, and the Separation Agreement and/or the other Ancillary Agreements, on the other hand, may be brought in a single arbitration in accordance with this Section 7.03. Upon the written request of any party to an arbitration proceeding constituted under both this Agreement, on the one hand, and the Separation Agreement and/or the other Ancillary Agreements, on the other hand, the arbitral tribunal shall consolidate such arbitration proceeding with any other arbitration proceeding relating to this Agreement, on the one hand and the Separation Agreement and/or the other Ancillary Agreements, on the other hand, if the arbitral tribunal determines that (i) there are issues of fact or Law common to the proceedings so that a consolidated proceeding would be more efficient than separate proceedings, and (ii) no party to the Dispute would be unduly prejudiced as a result of such consolidation through undue delay or otherwise. In the event of different rulings on this question by the arbitral tribunal constituted hereunder and another arbitral tribunal constituted under this Agreement, on the one hand, and the Separation Agreement and/or the other Ancillary Agreements, on the other hand, the ruling of the arbitral tribunal constituted first in time shall control, and such arbitral tribunal shall serve as the tribunal for any consolidated arbitration. This Section 7.03 shall not apply to any claims brought under Section 7.02.

 

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7.04 In the event of a Dispute, each party to the Dispute shall continue to perform its obligations under the Separation Agreement, this Agreement, and the other Ancillary Agreements in good faith during the resolution of such Dispute as if such Dispute had not arisen, unless and until the Separation Agreement, this Agreement, or the other Ancillary Agreements, as applicable, are terminated in accordance with their respective provisions.

ARTICLE VIII

MISCELLANEOUS

8.01 Incorporation by Reference. The following sections of the Separation Agreement are hereby incorporated in this Agreement by reference to the extent not inconsistent with any of the provisions set forth in this Agreement: Section 12.3 (Amendments and Waivers); Section 12.4 (Entire Agreement); Section 12.5 (Survival of Agreements); Section 12.9 (Counterparts; Electronic Delivery); Section 12.10 (Severability); Section 12.11 (Assignability; Binding Effect); Section 12.12 (Governing Law); Section 12.13 (Construction); Section 12.14 (Performance); and Section 12.15 (Title and Headings).

8.02 Third Party Beneficiaries. This Agreement shall be binding upon and inure solely to the benefit of Ensign, SpinCo, and their respective Affiliates, and nothing herein, express or implied, is intended to or shall confer upon any third parties any legal or equitable right, benefit, or remedy of any nature whatsoever under or by reason of this Agreement.

8.03 Effectiveness. This Agreement shall become effective on the Distribution Date.

8.04 Changes in Law. Any reference to a provision of the Code, Treasury Regulations, or a Law of another jurisdiction shall include a reference to any applicable successor provision or Law. If, due to any change in applicable Law or regulations or their interpretation by any court of Law or other governing body having jurisdiction subsequent to the date specified in the preamble to this Agreement, performance of any provision of this Agreement or any transaction contemplated hereby shall become impracticable or impossible, the Parties shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such provision.

8.05 Notices. All notices, requests, permissions, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly given (a) five (5) Business Days following sending by registered or certified mail, postage prepaid, (b) when sent, if sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient, (c) when delivered, if delivered personally to the intended recipient, and (d) one (1) Business Day following sending by overnight delivery via a national courier service and, in each case, addressed to a Party at the following address for such Party (as updated from time to time by notice in writing to the other Party):

 

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  (a)

If to Ensign, at:

The Ensign Group, Inc.

29222 Rancho Viejo Rd., Suite 127

San Juan Capistrano, CA 92675

Attention: General Counsel

Email: legal@ensignservices.net

 

  (b)

If to SpinCo, at:

The Pennant Group, Inc.

1675 E. Riverside Dr., Ste. 150

Eagle, ID 83616

Attention: General Counsel

Email: legal@pennantservices.com

8.06 Joint and Several Liability. SpinCo and each SpinCo Affiliate shall have joint and several liability for any obligation of SpinCo or a SpinCo Affiliate arising pursuant to this Agreement. Ensign and each Ensign Affiliate shall have joint and several liability for any obligation of Ensign or an Ensign Affiliate arising pursuant to this Agreement.

8.07 Tax Sharing Agreements. All Tax sharing, indemnification and similar agreements, written or unwritten, as between any member of the SpinCo Group, on the one hand, and any member of the Ensign Group, on the other hand (other than the Separation Agreement, this Agreement, or any other Ancillary Agreement), shall be or shall have been terminated as of the Effective Time and, after the Effective Time, none of such Parties (or their respective Subsidiaries) to any such Tax sharing, indemnification or similar agreement shall have any further rights or obligations under any such agreement.

8.08 Expenses. Unless otherwise expressly provided in this Agreement, each Party shall bear any and all expenses that arise from their respective obligations under this Agreement.

8.09 Confidentiality. Each Party shall hold and cause its consultants and advisors to hold in strict confidence, unless compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of Law, all information written or oral concerning the other Party hereto furnished it by such other Party or its representatives pursuant to this Agreement (except to the extent that such information can be shown to have been (i) previously known by the Party to which it was furnished, (ii) in the public domain through no fault of such Party, or (iii) later lawfully acquired from other sources by the Party to which it was furnished), and each Party shall not release or disclose such information to any other person, except its auditors, attorneys, financial advisors, bankers, and other consultants and advisors who shall be advised of the provisions of this Section 8.09. Each Party shall be deemed to have satisfied its obligation to hold confidential information concerning or supplied by the other Party if it exercises the same care as it takes to preserve confidentiality for its own similar information.

 

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8.10 Limitation on Damages. Each Party irrevocably waives, and no Party shall be entitled to seek or receive, consequential, special, indirect or incidental damages (including without limitation damages for loss of profits) or punitive damages, regardless of how such damages were caused and regardless of the theory of liability; provided that the foregoing shall not limit each Party’s indemnification obligations set forth in the Separation Agreement and the Ancillary Agreements.

8.11 Consent by Affiliates. Each of Ensign and SpinCo shall cause each of its respective Affiliates (including any entity that becomes an Affiliate after the date hereof) to consent to, and be bound by, the terms, conditions, covenants, and provisions of this Agreement.

8.12 Coordination with Other Agreements. The Parties agree that this Agreement shall take precedence over any and all agreements among the Parties with respect to Tax matters, including indemnification in respect of Tax matters; provided, however, this Agreement shall not take precedence over any Tax matter relating to the payment or reimbursement of Taxes that exists now or in the future under any lease of property between Ensign and SpinCo, or any of their respective Affiliates, as the case may be, and any such Taxes shall be governed exclusively by such leases without regard to this Agreement.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their authorized representatives as of the date first written above.

 

THE ENSIGN GROUP, INC.
By:  

         

Name:  

 

Title:  

 

THE PENNANT GROUP, INC.
By:  

         

Name:  

 

Title:  

 

EX-10.3

Exhibit 10.3

EMPLOYEE MATTERS AGREEMENT

by and between

THE PENNANT GROUP, INC.

and

THE ENSIGN GROUP, INC.

Dated as of [•], 2019


EMPLOYEE MATTERS AGREEMENT

This EMPLOYEE MATTERS AGREEMENT (this “Agreement”) is made and entered into as of [•], 2019, by and between The Pennant Group, Inc., a Delaware corporation (“SpinCo”), and The Ensign Group, Inc., a Delaware corporation (“RemainCo” and with SpinCo each, individually, a “Party”, and, collectively, the “Parties”). Capitalized terms used in this Agreement, but not defined, shall have the meanings ascribed to them in the Master Separation Agreement, dated as of [•], 2019, by and between SpinCo and RemainCo (as amended from time to time, the “Distribution Agreement”).

RECITALS

WHEREAS, pursuant to the Distribution Agreement, RemainCo shall be separated into two separate, publicly-traded companies, one for each of (i) the RemainCo Business, which shall be owned and conducted, directly or indirectly, by RemainCo, and (ii) the SpinCo Business, which shall be owned and conducted, directly or indirectly, by SpinCo; and

WHEREAS, each of RemainCo and SpinCo has determined that it is necessary and desirable to enter into this Agreement in order to allocate, assign or transfer, as applicable, to the appropriate Party, assets, responsibilities, liabilities and obligations with respect to employee compensation, benefits, labor and certain other employment matters associated with personnel of the SpinCo Business and the RemainCo Business, pursuant to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the foregoing, the mutual agreements, provisions and covenants contained in this Agreement, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, SpinCo and RemainCo hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01 Definitions: As used in this Agreement, the following terms shall have the meanings indicated below:

(a) “COBRA” shall mean Code Section 4980B and ERISA Sections 601 through 608 or similar state law.

(b) “Code Section 409A” shall mean Section 409A of the Code and the regulations and guidance promulgated thereunder.

(c) “Cornerstone Equity and Incentive Plan” shall mean The Cornerstone Healthcare, Inc. 2016 Omnibus Incentive Plan, as amended from time to time.

(d) “Cornerstone Options” shall mean a vested or unvested stock option right issued under the Cornerstone Equity and Incentive Plan, which is outstanding immediately prior to the Effective Time.


(e) “Cornerstone Restricted Stock” shall mean a vested or unvested share of restricted stock issued pursuant to the applicable award agreement issued under the Cornerstone Equity and Incentive Plan, which is outstanding immediately prior to the Effective Time.

(f) “Employee” shall mean any individual who is an employee of RemainCo or any of its Subsidiaries (including, for the avoidance of doubt, SpinCo and its Subsidiaries) immediately before the Effective Time, including active employees and employees on vacation and approved leave of absence (including maternity, paternity, family, sick, short-term or long-term disability leave, qualified military service under the Uniformed Services Employment and Reemployment Rights Act of 1994, leave under the Family Medical Leave Act and other approved leaves).

(g) “Employment Claim” shall mean any actual or threatened action, lawsuit, charge, complaint, audit, inquiry, investigation, grievance, arbitration, claim (including ERISA claims), or federal, state, or local judicial or administrative proceeding of whatever kind involving a demand by, on behalf of or relating to an Employee, Former Employee, or current or former independent contractor, or by or relating to any federal, state, or local Government Entity alleging Liability against a Party or against a Party’s pension, welfare or other benefit plan, or such plan’s administrator, trustee or fiduciary.

(h) “Equity Awards” means awards issued under the RemainCo Equity and Incentive Plans and Cornerstone Equity and Incentive Plan.

(i) “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended, or any successor legislation.

(j) “Former Employee” shall mean any individual who was employed by RemainCo or any of its Subsidiaries (including, for the avoidance of doubt, SpinCo and its Subsidiaries) at any time prior to the Effective Time but who is not an Employee hereunder.

(k) “IRS” shall mean the Internal Revenue Service.

(l) “Plan” shall mean any plan, policy, arrangement, contract or agreement providing compensation or benefits for any group of Employees or individual Employee, or the dependents or beneficiaries of any such Employee(s), whether formal or informal or written or unwritten, and including, without limitation, any means, whether or not legally required, pursuant to which any benefit is provided by an employer to any Employee or the beneficiaries of any such Employee. The term “Plan” as used in this Agreement does not include any contract, agreement or understanding relating to settlement of actual or potential employment claims.

(m) “Pre-Spin RemainCo Stock Price” shall mean the closing share price of RemainCo Common Stock on the NASDAQ Global Select Market on the last trading day immediately preceding the Effective Time.

(n) “RemainCo 401(k) Plans” shall have the meaning set forth in Section 2.07 hereof.

 

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(o) “RemainCo Employee” shall mean each Employee who is employed by a member of the RemainCo Group immediately following the Effective Time and any Employee who is transferred after the Effective Time pursuant to Section 2.01.

(p) “RemainCo Equity and Incentive Plans” shall mean The Ensign Group, Inc.’s (i) 2007 Omnibus Incentive Plan and (ii) 2017 Omnibus Incentive Plan, each as amended from time to time.

(q) “RemainCo Equity Awards” shall mean all of the shares of RemainCo Restricted Stock and RemainCo Options.

(r) “RemainCo Group” shall mean RemainCo and each Person that is a direct or indirect Subsidiary or affiliate of RemainCo (other than any member of the SpinCo Group).

(s) “RemainCo Group Health Plans” shall mean the RemainCo Plans providing medical, dental, vision and health care spending account benefits.

(t) “RemainCo Participant” shall mean a RemainCo Employee, any former RemainCo Employee, and any eligible dependent or beneficiary thereof who participates or is eligible to participate in a RemainCo Plan.

(u) “RemainCo Plan” shall mean each Plan that is sponsored, maintained, contributed to or required to be contributed to by any member of the RemainCo Group, but not including any SpinCo Plan.

(v) “RemainCo Options” shall mean unexercised vested or unvested stock option right issued under the RemainCo Equity and Incentive Plans, which are subject to vesting (if applicable) and forfeiture restrictions and is outstanding immediately prior to the Effective Time.

(w) “RemainCo Restricted Stock” shall mean an unvested share of restricted stock issued pursuant to the applicable award agreement issued under the RemainCo Equity and Incentive Plans, which is subject to vesting and forfeiture restrictions and is outstanding immediately prior to the Effective Time.

(x) “RemainCo Welfare Plans” shall mean the RemainCo Plans providing medical, dental, vision, health care spending accounts, disability, life and similar welfare benefits.

(y) “SpinCo 401(k) Plans” shall have the meaning set forth in Section 2.07 hereof.

(z) “SpinCo Employee” shall mean each Employee who is employed by a member of the SpinCo Group immediately following the Effective Time and any Employee who is transferred after the Effective Time pursuant to Section 2.01.

(aa) “SpinCo Equity and Incentive Plan” shall mean the The Pennant Group, Inc. 2019 Omnibus Incentive Plan, as amended from time to time.

 

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(bb) “SpinCo Group” shall mean (a) prior to the Effective Time, SpinCo and each Person that will be a Subsidiary or affiliate of SpinCo as of immediately after the Effective Time; and (b) on and after the Effective Time, SpinCo and each Person that is a Subsidiary of SpinCo.

(cc) “SpinCo Group Health Plans” shall mean the SpinCo Plans providing medical, dental, vision and health care spending account benefits.

(dd) “SpinCo Participant” shall mean a SpinCo Employee, any former SpinCo Employee, and any eligible dependent or beneficiary thereof who participates or is eligible to participate in a SpinCo Plan.

(ee) “SpinCo Plan” shall mean each Plan that is sponsored, maintained or contributed to or required to be contributed to by any member of the SpinCo Group that does not also cover any RemainCo Employee.

(ff) “SpinCo Option” shall mean an unexercised, vested or unvested, stock option issued under the SpinCo Equity and Incentive Plan.

(gg) “SpinCo Restricted Stock” shall mean a vested or unvested stock-settled restricted stock issued under the SpinCo Equity and Incentive Plan.

(hh) “SpinCo RSU” shall mean a vested or unvested stock-settled restricted stock unit issued under the SpinCo Equity and Incentive Plan.

(ii) “SpinCo Welfare Plan” shall have the meaning set forth in Section 2.08(d) hereof.

Section 1.02 Certain Constructions. References to the singular in this Agreement shall refer to the plural and vice-versa, and references to the masculine shall refer to the feminine and vice-versa.

Section 1.03 Schedules, Sections. References to a “Schedule” are, unless otherwise specified, to one of the Schedules attached to this Agreement, and references to a “Section” are, unless otherwise specified, to one of the Sections of this Agreement.

Section 1.04 Effective Time. This Agreement shall be effective as of the Effective Time.

ARTICLE II

ALLOCATION OF EMPLOYEES; EMPLOYEE BENEFITS

Section 2.01 Transfer of Employment of Certain SpinCo Employees. RemainCo and SpinCo will cause the employment of each SpinCo Employee who is not employed by a SpinCo Group member as of the date hereof to be transferred to a SpinCo Group member prior to the Effective Time.

 

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Section 2.02 Re-Allocation of Employees. If the Parties mutually agree after the Effective Time that an Employee or individual independent contractor was incorrectly allocated to the RemainCo Group or the SpinCo Group (or was incorrectly employed or engaged by a member of the RemainCo Group or the SpinCo Group as of the Effective Time), the Parties shall use their reasonable best efforts to correct such misallocation as appropriate (including by transferring the employment or engagement opportunity of such SpinCo Employee or RemainCo Employee (as applicable) or individual independent contractor to the applicable member of the applicable Group or by offering employment or an engagement opportunity to such SpinCo Employee, RemainCo Employee, or individual independent contractor), and, to the extent possible, such correction shall be effective as of the Effective Time.

Section 2.04 Employee Liabilities Generally.

(a) From and after the Effective Time, RemainCo or a member of the RemainCo Group hereby assumes or retains, and shall be responsible for paying, performing, fulfilling and discharging, (i) all Liabilities or obligations expressly assigned to or assumed by a member of the RemainCo Group under this Agreement; and (ii) except as otherwise expressly provided for herein or in the Distribution Agreement, all Liabilities with respect to the employment, service, termination of employment or termination of service of all RemainCo Employees, independent contractors allocated to the RemainCo Business, Former Employees whose employment duties were primarily related to the RemainCo Business at the time the action underlying the Liability occurred, and their respective dependents and beneficiaries (and any alternate payees in respect thereof), whenever incurred. All Liabilities assumed or retained by a member of the RemainCo Group under this Section 2.02(a) shall be “RemainCo Liabilities” for purposes of the Distribution Agreement.

(b) From and after the Effective Time, SpinCo or a member of the SpinCo Group hereby assumes or retains, and shall be responsible for paying, performing, fulfilling and discharging in accordance with their respective terms, (i) all Liabilities or obligations assigned to or assumed by a member of the SpinCo Group under this Agreement; and (ii) except as otherwise expressly provided for herein or in the Distribution Agreement, all Liabilities with respect to the employment, service, termination of employment or termination of service of all SpinCo Employees, independent contractors allocated to the SpinCo Business, Former Employees whose employment duties were primarily related to the SpinCo Business at the time the action underlying the Liability occurred, and their respective dependents and beneficiaries (and any alternate payees in respect thereof), whenever incurred. All Liabilities assumed or retained by a member of the SpinCo Group under this Section 2.02(b) shall be “SpinCo Liabilities” for purposes of the Distribution Agreement.

Section 2.05 No Termination of Employment Intended as a Result of the Allocation of Employees. It is intended that no RemainCo Employee and no SpinCo Employee will experience a termination of employment for severance purposes or otherwise solely as a result of the transactions contemplated by the Distribution Agreement (including any transfer of employment effectuated in connection with those transactions). To the extent permitted by applicable Law, no RemainCo Employees and no SpinCo Employees shall be entitled to any termination or severance payments or benefits as a result of such transactions or transfer, as applicable. RemainCo shall, and shall cause other members of the RemainCo Group (as applicable), and SpinCo shall, and shall cause other members of the SpinCo Group (as applicable), to cause any applicable Plan to be interpreted and administered consistent with such intent, to the greatest extent possible without breaching the applicable Plan.

 

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Section 2.06 At-Will Employment. Nothing in this Agreement shall (a) create any obligation on the part of any member of the RemainCo Group or the SpinCo Group to continue the employment of any RemainCo Employee or SpinCo Employee following the date of this Agreement or the Effective Time (except as required by applicable Law) or (b) change the employment status of any RemainCo Employee or SpinCo Employee from “at-will,” to the extent such RemainCo Employee or SpinCo Employee was an “at-will” employee under applicable Law.

Section 2.07 Service Crediting.

(a) From and after the Effective Time, SpinCo shall, and shall cause other members of the SpinCo Group (as applicable) to, recognize each SpinCo Employee’s service prior to the Effective Time (including service with any member of the RemainCo Group prior to the Effective Time) for all purposes, including purposes of eligibility, vesting and level of paid time off or severance benefits under any SpinCo Plan, to the same extent and for the same purpose such service was recognized as of the Effective Time under the corresponding RemainCo Plan. Notwithstanding the foregoing, nothing herein shall require the SpinCo Group or any equity compensation plan or arrangement maintained by the SpinCo Group after the Effective Time to credit service prior to the Effective Time for purposes of any equity award or other equity-based benefit or equity-based compensation that may be established by the SpinCo Group at any time at or after the Effective Time, except as set forth in Section 3.01 herein.

(b) Notwithstanding anything to the contrary in this Agreement, the Distribution Agreement or any other Ancillary Agreement, no Employee shall receive service credit or benefits to the extent that receipt of such service credit or benefits would result in duplication of benefits provided by another RemainCo Plan or SpinCo Plan.

Section 2.08 Continuity of Benefits and Coverage. It is the intention of RemainCo and SpinCo that there be uninterrupted benefit plan participation and coverage for RemainCo Employees and SpinCo Employees, notwithstanding the transactions contemplated by the Distribution Agreement, this Agreement or any other Ancillary Agreement. Therefore, RemainCo and SpinCo shall use their reasonable best efforts to cause there to be no interruption of coverage with respect to the type of benefits or coverage being provided to such Employees immediately prior to the Effective Time.

Section 2.09 Establishment and Spinoff of 401(k) Plans. Prior to the Effective Time, the Ensign Services, Inc. 401(k) Retirement Savings Plan (the “RemainCo 401(k) Plan”) shall be amended to become a multi-employer plan as that term is defined in the Code, whose participants may include SpinCo Employees and RemainCo Employees. From the Effective Time through December 31, 2020 (the “401(k) Continuation Period”), SpinCo Employees may continue to participate in the RemainCo 401(k) Plan. Liabilities relating to, or arising in connection with plan participants during the 401(k) Continuation Period shall be shared by RemainCo and SpinCo based on the allocation methodology in place prior to the Effective

 

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Time. On or before January 1, 2021, SpinCo (or a designated member of the SpinCo Group) shall have adopted a defined contribution plan that contain a cash or deferred arrangement within the meaning of Section 401(k) of the Code and is intended to be qualified under Section 401(a) of the Code (the “SpinCo 401(k) Plan”). The SpinCo 401(k) Plan is intended to replace the RemainCo 401(k) Plan for the applicable SpinCo Employee. At all times, RemainCo shall retain sponsorship of the RemainCo 401(k) Plans. Upon the establishment of the SpinCo 401(k) Plan (the “401(k) Plan Effective Date”), all SpinCo Employees who, immediately prior to such time, were participants in or otherwise eligible to participate in a RemainCo 401(k) Plan shall be eligible to participate in the corresponding SpinCo 401(k) Plan with respect to compensation paid after the 401(k) Plan Effective Date. As soon as practicable after the 401(k) Plan Effective Date, the accounts of SpinCo Employees under the RemainCo 401(k) Plans and the value of assets attributable to such accounts of SpinCo Employees shall be transferred to the SpinCo 401(k) Plan in a “transfer of assets or liabilities” in accordance with Section 414(l) of the Code and Section 208 of ERISA and the respective rules and regulations promulgated thereunder. The assets so transferred shall be in the form of cash or other property, as RemainCo and SpinCo shall mutually agree prior to such transfer. Prior to such transfer, SpinCo shall provide RemainCo with such documents and other information as RemainCo shall reasonably request to assure itself that the SpinCo 401(k) Plans and the related trusts established pursuant thereto (a) are qualified and tax-exempt under Sections 401(a) and 501(a) of the Code, respectively, and (b) contain participant loan provisions and procedures necessary to effect the orderly transfer of participant loan balances associated with the transfer of assets. Prior to the transfer, RemainCo and SpinCo shall (or shall cause the applicable member(s) of their Group to) notify the IRS of the transfer by timely filing Forms 5310-A, to the extent such filings are required, and RemainCo shall provide to SpinCo copies of such personnel and other records of RemainCo pertaining to the SpinCo Employees and such records of any agent or representative of RemainCo pertaining to the SpinCo Employees, in each case, pertaining to the RemainCo 401(k) Plans and as SpinCo may reasonably request in order to administer and manage the accounts and assets transferred to the SpinCo 401(k) Plans. Upon such transfer, SpinCo and each member of the SpinCo Group and the SpinCo 401(k) Plans shall assume all liabilities and obligations with respect to all amounts transferred from the RemainCo 401(k) Plans to the SpinCo 401(k) Plans in respect of the SpinCo Employees, and RemainCo and each member of the RemainCo Group and the RemainCo 401(k) Plans shall be relieved of all such liabilities and obligations.

Section 2.10 Group Health and Welfare Plan Continuation Coverage.

(a) From the Effective Time through December 31, 2019 (the “Benefits Continuation Period”), RemainCo shall continue the RemainCo Welfare Plans. Liabilities relating to, or arising in connection with, any claims incurred under the RemainCo Welfare Plans by RemainCo Participants and SpinCo Participants during the Benefits Continuation Period, including claims that are self-insured and claims that are fully insured through third party insurance and including the coverage of SpinCo Participants after the Effective Time as described in subsection (b) below, shall be shared by RemainCo and SpinCo based on the allocation methodology in place prior to the Effective Time.

 

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(b) SpinCo Participants who were participating in the RemainCo Welfare Plans immediately prior to the Effective Time shall be entitled to continue participating in the applicable RemainCo Welfare Plans until December 31, 2019, pursuant to the terms of the Transition Services Agreement and the terms and conditions of the applicable RemainCo Welfare Plan. SpinCo Employees who were employed at or before the Effective Time, but who have not completed their benefits waiting or eligibility period for the RemainCo Welfare Plans as of the Effective Time, shall be eligible to participate in the applicable RemainCo Welfare Plans, as of the date prior to January 1, 2020, in which they would have been eligible to participate had they been RemainCo Employees under such RemainCo Welfare Plans, and shall be entitled to continue participating in such RemainCo Welfare Plans until December 31, 2019 pursuant to the terms of the Transition Services Agreement and the terms and conditions of the applicable RemainCo Welfare Plan.

(c) Any SpinCo Employee covered under the RemainCo Group Health Plans who has a qualifying status change (e.g., birth/adoption of a child, marriage) shall be able to make changes to his or her enrollment based on the event in accordance with the terms of the applicable RemainCo Group Health Plan. SpinCo shall be responsible for the costs of SpinCo Participants’ participation in the RemainCo Group Health Plans after the Effective Time, including pursuant to COBRA as described in Section 2.08(e)(ii) hereof, pursuant to the terms of Section 2.08(a) hereof and the Transition Services Agreement.

(d) SpinCo Group Welfare Plans. Effective no later than January 1, 2020, SpinCo or another member of the SpinCo Group shall take, or cause to be taken, all actions necessary and appropriate to establish or designate and administer group medical, dental, vision, health care spending account plans disability, life and similar welfare benefits (collectively, the “SpinCo Welfare Plans”) to provide benefits thereunder for all eligible SpinCo Participants who choose to enroll in such SpinCo plans. With respect to any Liabilities relating to or arising in connection with claims incurred under a SpinCo Welfare Plan by SpinCo Participants from and after the effective date of such SpinCo Welfare Plan, including claims that are self-insured and claims that are fully insured through third party insurance, SpinCo and the applicable SpinCo Welfare Plan shall be solely responsible for such Liabilities.

(e) COBRA Continuation Coverage.

(i) From and after the Effective Time, (A) the RemainCo Group shall assume or retain and shall be solely responsible for, or cause the RemainCo Group Health Plans (and applicable insurance carriers) to be responsible for, the continuation coverage requirements imposed by COBRA as they relate to any RemainCo Participant or Former Employee, and no member of the SpinCo Group shall have any liability or obligation with respect thereto; and (B) subject to Section 2.08(e)(ii) below, the SpinCo Group shall assume or retain and shall be solely responsible for, or cause the SpinCo Group Health Plans (and applicable insurance carriers) to be responsible for, COBRA continuation coverage requirements as they relate to any SpinCo Participant, and no member of the RemainCo Group shall have any liability or obligation with respect thereto.

(ii) A SpinCo Participant who becomes entitled to COBRA continuation coverage by reason of an event that occurs during the Benefits Continuation Period shall be entitled to coverage under the applicable RemainCo Group Health Plans through December 31, 2019, and thereafter, such SpinCo Participant shall be entitled to coverage under the applicable SpinCo Group Health Plans for the remainder of his or her COBRA period after December 31, 2019.

 

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(f) Business Associate Agreements. The Parties acknowledge that the RemainCo Group or the SpinCo Group may provide certain administrative services for the other Party’s group health plans for a transitional period under the terms of the Transition Services Agreement. The Parties acknowledge and agree that providing these administrative services may cause a Party to satisfy the definition of a “business associate” under the Health Insurance Portability and Accountability Act of 1996, as amended and implanted by regulation (“HIPAA”). In such cases, the Party providing the administrative services agrees to comply with the business associate addendum that is attached to the Transition Services Agreement, as well as all other applicable health information privacy Laws.

Section 2.11 Disability Plans. Without limiting the generality of Section 2.08 hereof, each RemainCo Participant and SpinCo Participant who became disabled, as defined under a RemainCo Welfare Plan that provides short-or long-term disability benefits prior to January 1, 2020, shall be eligible or continue to be eligible for such benefits under the applicable RemainCo Welfare Plan in accordance with the terms and conditions of such RemainCo Welfare Plan; provided that SpinCo shall be responsible for reimbursing RemainCo for any self-insured short-term disability benefits with respect to such disabled SpinCo Employee for the period after the Effective Time until such time as those short-term disability benefits terminate in accordance with the terms of such RemainCo Welfare Plan. In the event any such disabled SpinCo Employee becomes eligible to transition directly from receiving short-term disability benefits to receiving long-term disability benefits either before, at or after the Effective Time under the applicable RemainCo Welfare Plan, RemainCo and the applicable RemainCo Welfare Plan shall provide the long-term disability benefits to which such disabled SpinCo Employee is entitled (taking into account, if applicable, the extent to which such employee has elected such coverage and has made the required contributions therefor). After the Benefits Continuation Period, the SpinCo Group shall be solely responsible for providing short- and long-term disability benefits under SpinCo Welfare Plans to eligible SpinCo Employees who become disabled after December 31, 2019, and, effective January 1, 2020, SpinCo or a member of the SpinCo Group shall take, or cause to be taken, all action necessary and appropriate to establish or designate and administer short- and long-term disability plans to provide benefits thereunder for all eligible SpinCo Employees (and their eligible dependents and beneficiaries).Insurance Contracts and Third-Party Vendor Agreements. To the extent any Plan is funded (in whole or in part) through the purchase of an insurance contract, RemainCo and SpinCo shall cooperate, and each shall use its commercially reasonable efforts to effectuate the provisions of this Agreement in relation to such contract and to obtain any necessary consents and maintain any pricing discounts or other preferential terms for both RemainCo (or the applicable member of the RemainCo Group) and SpinCo (or the applicable member of the SpinCo Group) for a reasonable term. To the extent any Plan is administered by a third-party vendor, RemainCo and SpinCo shall cooperate, and each shall use its commercially reasonable efforts to replicate any contract with such third-party vendor for RemainCo (or the applicable member of the RemainCo Group) or SpinCo (or the applicable member of the SpinCo Group), as applicable, and to maintain any pricing discounts or other preferential terms for both RemainCo (or the applicable member of the RemainCo Group) and SpinCo (or the applicable member of the SpinCo Group) for a reasonable term. Neither RemainCo nor SpinCo shall be

 

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liable for failure to obtain consents, new insurance or administrative contracts, pricing discounts, or other preferential terms for the other Party or the applicable member of its Group. Each Party shall be responsible for any new or additional premiums, charges, or administrative fees that such Party may incur with respect to its insurance coverage or contracts pursuant to this Agreement.

Section 2.12 Reimbursements. The Parties acknowledge that the RemainCo Group, on the one hand, and the SpinCo Group, on the other hand, may incur costs and expenses, including, but not limited to, contributions to Plans and the payment of insurance premiums or vendor fees or expenses arising from or related to any of the Plans which are, as set forth in this Agreement, the responsibility of the other Party. Accordingly, the RemainCo Group and the SpinCo Group shall reimburse each other, as soon as practicable, but in any event within thirty (30) days of receipt from the other Party of appropriate verification, for all such costs, fees and expenses. Notwithstanding the foregoing, to the extent this Section 2.10 conflicts with the terms of the Transition Services Agreement related to the same cost or expense, the terms of the Transition Services Agreement shall control.

Section 2.13 No Duplication of Benefits; Service and Other Credit. RemainCo and SpinCo shall adopt, or cause to be adopted, all reasonable and necessary amendments and procedures to prevent SpinCo Participants from receiving duplicative benefits from the RemainCo Plans and the SpinCo Plans. With respect to SpinCo Employees, each SpinCo Plan shall provide that for purposes of determining eligibility to participate, vesting, and entitlement to benefits (but not for accrual of pension benefits under any defined benefit pension plan), service prior to the Effective Time with a RemainCo Group member shall be treated as service with the applicable SpinCo Group member. Such service also shall apply for purposes of satisfying any waiting periods, evidence of insurability requirements, or the application of any preexisting condition limitations under any SpinCo Plan. Each SpinCo Plan shall, to the extent practicable, waive pre-existing condition limitations with respect to SpinCo Employees. SpinCo shall honor any deductible, co-payment and out-of-pocket maximums incurred by the SpinCo Employees and their eligible dependents under the RemainCo Plans in which they participated immediately prior to the Effective Time during the portion of the calendar year prior to the Effective Time in satisfying any deductibles, co-payments or out-of-pocket maximums under the SpinCo Plans in which they are eligible to participate after the Effective Time in the same plan year in which such deductibles, co-payments or out-of-pocket maximums were incurred.

ARTICLE III

INCENTIVE COMPENSATION PLANS AND ARRANGEMENTS

Section 3.01 Treatment of Equity Awards.

(a) RemainCo Equity Awards. The treatment of the RemainCo Equity Awards shall be subject to Section [•] of the Tax Matters Agreement between the parties, dated as of the date hereof.

 

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(i) RemainCo Options. Prior to the Effective Time, RemainCo shall take all actions necessary such that, as of the Effective Time, by virtue of the Distribution, (y) an employee of RemainCo who is a holder of a RemainCo Option shall continue to hold such RemainCo Option (with the number of shares of RemainCo Common Stock to which such RemainCo Option relates and the exercise price of the RemainCo Option following the Distribution, in both cases, adjusted accordingly as a result of the Distribution, in accordance with the equitable adjustment provisions set forth in the RemainCo Equity and Incentive Plans), and (z) an employee of SpinCo who is a holder of a RemainCo Option shall have such RemainCo Options converted to SpinCo Options subject to the same terms and conditions after the Effective Time as the terms and conditions applicable to the corresponding RemainCo Options (with both the number of shares of SpinCo Common Stock to which such SpinCo Option relates and the exercise price of the SpinCo Option following the Distribution, in both cases, adjusted accordingly as a result of the Distribution and to appropriately reflect that SpinCo is the actual employer, in accordance with the equitable adjustment provisions set forth in the RemainCo Equity and Incentive Plans) immediately prior to the Effective Time.

(ii) RemainCo Restricted Stock. Prior to the Effective Time, RemainCo shall take all actions necessary such that, as of the Effective Time, by virtue of the Distribution, each holder of a RemainCo Restricted Stock shall (A) continue to hold the same number of RemainCo Restricted Stock as of immediately prior to the Effective Time, and (B) receive shares of SpinCo Restricted Stock (with the number of shares of SpinCo Common Stock to which such SpinCo Restricted Stock relates rounded down to the nearest whole number, equal to the number of shares of SpinCo Common Stock the holder of such RemainCo Restricted Stock would have been entitled to receive in the Distribution had the shares subject to such RemainCo Restricted Stock represented outstanding vested shares of RemainCo Common Stock). Both the RemainCo Restricted Stock and the SpinCo Restricted Stock shall be subject to the same terms and conditions after the Effective Time as the terms and conditions applicable to the corresponding RemainCo Restricted Stock immediately prior to the Effective Time, and shall be adjusted in accordance with the equitable adjustment provisions set forth in the RemainCo Equity and Incentive Plans and to reflect that SpinCo is the actual employer.

(b) Cornerstone Equity Awards. The treatment of the Cornerstone Equity Awards is as set forth below.

(i) Cornerstone Options. Prior to the Effective Time, RemainCo shall take all actions necessary such that, as of the Effective Time, by virtue of the Distribution, an employee of SpinCo who is a holder of a Cornerstone Option shall have his Cornerstone Options converted to SpinCo Options subject to the same terms and conditions after the Effective Time as the terms and conditions applicable to the corresponding Cornerstone Options (with both the number of shares of SpinCo Common Stock to which such SpinCo Option relates and the exercise price of the SpinCo Option following the Distribution, in both cases, adjusted accordingly as a result of the Distribution and appropriately to reflect employment by SpinCo, in accordance with the equitable adjustment provisions set forth in the Cornerstone Equity and Incentive Plan) immediately prior to the Effective Time.

 

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(ii) Cornerstone Restricted Stock. Prior to the Effective Time, RemainCo shall take all actions necessary such that, as of the Effective Time, by virtue of the Distribution, an employee of either RemainCo or SpinCo who is a holder of Cornerstone Restricted Stock shall have his Cornerstone Restricted Stock converted to SpinCo Restricted Stock subject to the same terms and conditions after the Effective Time as the terms and conditions applicable to the corresponding Cornerstone Restricted Stock (with the number of shares of SpinCo Common Stock to which such SpinCo Restricted Stock relates following the Distribution, adjusted accordingly as a result of the Distribution, in accordance with the equitable adjustment provisions set forth in the Cornerstone Equity and Incentive Plan and to reflect employment by SpinCo) immediately prior to the Effective Time.

(c) Equity and Incentive Plans.

(i) For purposes of the RemainCo Restricted Stock following the Effective Time, a SpinCo Employee’s continued service with a member of the SpinCo Group shall be deemed continued service with a member of the RemainCo Group.

(ii) For purposes of the SpinCo Restricted Stock following the Effective Time, a RemainCo Employee’s continued service with a member of the RemainCo Group shall be deemed continued service with a member of the SpinCo Group.

(iii) In connection with the Distribution, RemainCo shall cause SpinCo to adopt the SpinCo Equity and Incentive Plan, effective as of the Effective Time, and shall approve, as the sole stockholder, the adoption of the SpinCo Equity and Incentive Plan.

(d) Administration. Each of RemainCo and SpinCo shall establish an appropriate administration system in order to handle exercises and delivery of shares in an orderly manner and provide reasonable levels of service for equity award holders.

(e) Code Section 409A. Notwithstanding anything to the contrary contained herein, the provisions of this Section 3.01(e) shall be applied in a manner consistent with Code Section 409A and shall be modified, without the requirement of any further action by SpinCo, Cornerstone, or RemainCo, to the extent necessary to comply with Code Section 409A.

ARTICLE IV

LABOR AND EMPLOYMENT MATTERS

Section 4.01 Payroll Reporting and Tax Withholding.

(a) Form W-2 Reporting. To the extent an Employee’s employing entity changes as a result of the transactions contemplated by the Distribution Agreement, RemainCo and SpinCo shall use the “standard procedure” for preparing and filing IRS Forms W-2 (Wage and Tax Statements), as described in Revenue Procedure 2004-53, for the calendar year in which such change occurs. Under this procedure, each employing entity shall provide (subject to any applicable provisions of the Transition Services Agreement) all required Forms W-2 to report the wages paid and taxes withheld by it during the year in which the Effective Time occurs. With respect to any issuances of RemainCo Common Stock or SpinCo Common Stock described above, the Employee’s employing entity shall reflect such issuance and taxes withheld in connection with such issuance on the Form W-2 provided to such Employee by such employing entity during the year in which such issuance occurs. With respect to RemainCo Employees and SpinCo Employees outside of the United States, the Parties shall cooperate in good faith to obtain the same or similar results, to the extent possible, under applicable tax laws.

 

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(b) Garnishments, Tax Levies, Child Support Orders, and Wage Assignments. With respect to any Employees with garnishments, tax levies, child support orders, or wage assignments in effect immediately prior to the Effective Time, a member of the SpinCo Group (with respect to SpinCo Employees) or a member of the RemainCo Group (with respect to RemainCo Employees) shall, to the extent permitted by applicable Law, honor such payroll deduction authorizations and shall continue to make payroll deductions and payments to the authorized payee, as specified by the court or governmental order which was filed prior to the Effective Time.

(c) Authorizations for Payroll Deductions. Unless otherwise prohibited by this Agreement, any other Ancillary Agreement, a Plan document, or applicable Law, with respect to Employees with authorizations for payroll deductions and direct deposits in effect immediately prior to the Effective Time, a member of the SpinCo Group (with respect to SpinCo Employees) or a member of the RemainCo Group (with respect to RemainCo Employees) shall honor such payroll deduction authorizations and shall not require that such Employee submit a new authorization to the extent that the type of deduction does not differ from that made prior to the Effective Time. Such deduction types include, without limitation, contributions to any Plan and direct deposit of payroll, union dues, employee relocation loans, and other types of authorized company receivables usually collectible through payroll deductions.

Section 4.02 Employment Policies and Practices. Subject to the provisions of the Transition Services Agreement, ERISA and other applicable Law, and unless otherwise specified in this Agreement, each member of the SpinCo Group and the RemainCo Group may, after the Effective Time, adopt, continue, modify or terminate such employment policies, compensation practices, retirement plans, welfare benefit plans, and other employee benefit plans of any kind or description, as each may determine, in its sole discretion, are necessary and appropriate, with respect to SpinCo Employees and RemainCo Employees, respectively; provided that no member of the SpinCo Group may amend or modify any RemainCo Welfare Plan during the Benefits Continuation Period.

Section 4.03 Leave of Absence Policies. Following the Effective Time, the applicable members of the SpinCo Group shall continue to apply the leave policies applicable to inactive SpinCo Employees who are on an approved leave of absence as of the Effective Time in accordance with the terms of such policies applicable to the SpinCo Employees as of the Effective Time. For purposes of such policies, to the extent allowed under applicable law, leaves of absence taken by SpinCo Employees prior to the Effective Time shall be deemed to have been taken as employees of the SpinCo Group.

Section 4.04 Employee Records. The RemainCo Group shall provide to the SpinCo Group (a) any and all original employment records and information (including, but not limited to, any personnel files, Form I-9, Form W-2, Form 1099 or other IRS forms) with respect to the SpinCo Employees that are in the possession of any member of the RemainCo Group that are reasonably required by the SpinCo Group to enable the SpinCo Group to properly employ the SpinCo Employees and to carry out its obligations under this Agreement, applicable Law and

 

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any applicable Collective Bargaining Agreement (“Employee Record”); and (b) copies of any and all employment-related agreements, including, but not limited to, confidentiality agreements, restrictive covenants, arbitration agreements and employment-related acknowledgements to which any RemainCo Employee is a party and under which the SpinCo Group has any rights or obligations following the Effective Time.

Section 4.05 WARN Act. The Parties shall cooperate in good faith so that no terminations of employment in connection with the transactions contemplated or undertaken by this Agreement or the Distribution Agreement have triggered or shall trigger any rights or obligations under the federal Worker Adjustment and Retraining Notification Act, or any other federal, state, or local Law addressing employment separations (collectively, the “WARN Act”).

Section 4.06 Access to Employee Records. Following the Effective Time and to the extent permitted by applicable Law, SpinCo shall permit RemainCo access to Employee Records of SpinCo Employees, to the extent reasonably necessary for RemainCo’s legitimate business purposes or to comply with applicable Law, and RemainCo shall permit SpinCo access to Employee Records of RemainCo Employees, to the extent reasonably necessary for SpinCo’s legitimate business purposes or to comply with applicable Law.

Section 4.07 Protection of Personal Information. The Parties shall comply with all applicable confidentiality obligations and privacy Laws that govern the personal information shared or otherwise made accessible following the Effective Time. Each Party further agrees to use commercially reasonable efforts to protect any personal information of the other Party that it acquires or accesses following the Effective Time.

ARTICLE V

MISCELLANEOUS

Section 5.01 Relationship of Parties. Nothing in this Agreement shall be deemed or construed by the Parties or any third party as creating the relationship of principal and agent, partnership or joint venture between the Parties, it being understood and agreed that no provision contained herein, and no act of the Parties, shall be deemed to create any relationship between the Parties other than the relationship set forth herein.

Section 5.02 Access to Information; Cooperation. The RemainCo Group, the SpinCo Group, and their authorized agents shall be given reasonable and timely access to and may take copies of all information relating to the subjects of this Agreement (to the extent not prohibited by applicable Law) in the custody of the other Party, including any agent, contractor, subcontractor, or any other person or entity under the contract of such Party. The Parties shall provide one another with such information within the scope of this Agreement as is reasonably necessary to administer each Party’s Plans or take the actions required of such Party under this Agreement. The Parties shall cooperate with each other to minimize the disruption caused by any such access and providing of information.

Section 5.03 Complete Agreement. This Agreement and any related provisions of the Transition Services Agreement and the Distribution Agreement shall constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter.

 

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Section 5.04 Counterparts. This Agreement may be executed in more than one counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the Parties and delivered to the other Party.

Section 5.05 Survival. Except as otherwise contemplated by this Agreement or any Ancillary Agreement, all covenants and agreements of the Parties contained in this Agreement shall survive the Effective Time and remain in full force and effect in accordance with its applicable terms.

Section 5.06 Notices. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service or by registered or certified mail (postage prepaid, return receipt requested) to the respective Party at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 5.06):

To RemainCo:

The Ensign Group, Inc.

29222 Rancho Viejo Rd., Suite 127

San Juan Capistrano, CA 92675

Attn: General Counsel

Email: legal@ensignservices.net

To SpinCo:

The Pennant Group, Inc.

1675 E. Riverside Dr., Suite 150

Eagle, ID 83616

Attn: General Counsel

Email: legal@pennantservices.com

Section 5.07 Waivers. The failure of any Party to require strict performance by the other Party of any provision in this Agreement shall not waive or diminish that Party’s right to demand strict performance thereafter of that or any other provision hereof.

Section 5.08 Amendment. This Agreement may not be modified or amended except by an agreement in writing signed by each of the Parties.

Section 5.09 Assignment. Except as otherwise provided for in this Agreement, this Agreement shall not be assignable, in whole or in part, directly or indirectly, by any Party without the prior written consent of the other Party, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void; provided, that a

 

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Party may assign this Agreement in connection with a merger transaction in which such Party is not the surviving entity or the sale by such Party of all or substantially all of its Assets; provided, further, that the surviving entity of such merger or the transferee of such Assets shall agree in writing, reasonably satisfactory to the other Party, to be bound by the terms of this Agreement as if named as a Party hereto.

Section 5.10 Successors and Assigns. The provisions of this Agreement and the obligations and rights hereunder shall be binding upon, inure to the benefit of and be enforceable by (and against) the Parties and their respective successors and permitted transferees and assigns.

Section 5.11 No Circumvention. The Parties agree not to directly or indirectly take any actions, act in concert with any Person who takes an action, or cause or allow any member of any such Party’s Group to take any actions (including the failure to take a reasonable action) such that the resulting effect is to materially undermine the effectiveness of any of the provisions of this Agreement.

Section 5.12 Third Party Beneficiaries. This Agreement is solely for the benefit of the Parties and should not be deemed to confer upon third parties (including current or former employees of the Parties) any remedy, claim, liability, reimbursement, right of action or other right in excess of those existing without reference to this Agreement. Without limiting the generality of the foregoing, nothing contained in this Agreement (i) shall be construed to establish, amend, or modify any Plan or other benefit or compensation plan, program, agreement or arrangement, or (ii) create any rights or obligations in any Person not Party to this Agreement (including any RemainCo Employee or SpinCo Employee), including with respect to (x) any right to employment or continued employment or to a particular term or condition of employment and (y) the ability of the RemainCo Group and the SpinCo Group to amend, modify, or terminate any Plan or other benefit or compensation plan, program, agreement or arrangement at any time established, sponsored or maintained by any of them.

Section 5.13 Title and Headings. Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

Section 5.14 Governing Law. This Agreement shall be interpreted and construed in accordance with the laws of the State of Delaware. Any and all claims, controversies, and causes of action arising out of or relating to this Agreement, whether sounding in contract, tort, statute or otherwise, shall be governed by the laws of the State of Delaware, including its statutes of limitations, without giving effect to any conflict-of-laws or other rule that would result in the application of the laws of a different jurisdiction.

Section 5.15 Dispute Resolution; Consent to Jurisdiction; Specific Performance; Waiver of Jury Trial; Force Majeure. The provisions of Article X (Dispute Resolution) and Sections 10.2(b) (Consent to Arbitration), and 10.2(b)(iv) (Waiver of Jury Trial) of the Distribution Agreement are incorporated herein by reference, mutatis mutandis.

 

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Section 5.16 Severability. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The Parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

Section 5.17 Interpretation. The Parties have participated jointly in the negotiation and drafting of this Agreement. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting or causing any instrument to be drafted.

Section 5.18 No Duplication; No Double Recovery. Nothing in this Agreement is intended to confer to or impose upon any Party a duplicative right, entitlement, obligation or recovery with respect to any matter arising out of the same facts and circumstances.

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first above written.

 

THE PENNANT GROUP, INC.
By:  

             

Name:  
Title:  
THE ENSIGN GROUP, INC.
By:  

             

Name:  
Title:  
EX-10.4

Exhibit 10.4

MASTER LEASE

THIS MASTER LEASE (this “Lease”) is entered into as of [_______], 2019, by and among each of the entities identified on Schedule 1 (collectively, “Landlord”), and each of the entities identified as “Tenant” on Schedule 2 (individually and collectively, “Tenant”). Notwithstanding anything in this Lease to the contrary, Landlord and Tenant hereby agree that this Lease shall not be effective until [________].

RECITALS

A. Landlord desires to lease the Premises to Tenant and Tenant desires to lease the Premises from Landlord upon the terms set forth in this Lease.

B. Pursuant to that certain Guaranty of Master Lease dated of even date herewith (as amended, supplemented or otherwise modified from time to time, the “Guaranty”), Guarantor has agreed to guaranty the obligations of each of the entities comprising Tenant under this Lease.

C. A list of the Facilities covered by this Lease is attached hereto as Schedule 2.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

ARTICLE I

MASTER LEASE; DEFINITIONS; PREMISES; TERM

1.1 Recognition of Master Lease; Irrevocable Waiver of Certain Rights. Tenant and Landlord each acknowledges and agrees that this Lease constitutes a single, indivisible lease of the entire Premises, and the Premises constitutes a single economic unit. The Base Rent, Additional Rent, other amounts payable hereunder and all other provisions contained herein have been negotiated and agreed upon based on the intent to lease the entirety of the Premises as a single and inseparable transaction, and such Base Rent, Additional Rent, other amounts and other provisions would have been materially different had the parties intended to enter into separate leases or a divisible lease. Any Event of Default under this Lease shall constitute an Event of Default as to the entire Premises. Each of the entities comprising Tenant and Guarantor, in order to induce Landlord to enter into this Lease, to the extent permitted by law:

(a) Agrees, acknowledges and is forever estopped from asserting to the contrary that the statements set forth in the first sentence of this Section are true, correct and complete;

(b) Agrees, acknowledges and is forever estopped from asserting to the contrary that this Lease is a new and de novo lease, separate and distinct from any other lease between any of the entities comprising Tenant and any of the entities comprising Landlord that may have existed prior to the date hereof;

(c) Agrees, acknowledges and is forever estopped from asserting to the contrary that this Lease is a single lease pursuant to which the collective Premises are demised as a whole to Tenant;

(d) Agrees, acknowledges and is forever estopped from asserting to the contrary that if, notwithstanding the provisions of this Section, this Lease were to be determined or found to be in any proceeding, action or arbitration under state or federal bankruptcy, insolvency, debtor-relief or other applicable laws to constitute multiple leases demising multiple properties, such multiple leases could not, by the debtor, trustee, or any other party, be selectively or individually assumed, rejected or assigned; and

 

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(e) Forever knowingly waives and relinquishes any and all rights under or benefits of the provisions of the Federal Bankruptcy Code Section 365 (11 U.S.C. § 365), or any successor or replacement thereof or any analogous state law, to selectively or individually assume, reject or assign the multiple leases comprising this Lease following a determination or finding in the nature of that described in the foregoing Section 1.1(d).

1.2 Definitions. Certain initially-capitalized terms used in this Lease are defined in Exhibit A. All accounting terms not otherwise defined in this Lease have the meanings assigned to them in accordance with GAAP.

1.3 Lease of Premises; Ownership.

1.3.1 Upon the terms and subject to the conditions set forth in this Lease, Landlord hereby leases to Tenant and Tenant leases from Landlord all of Landlord’s rights and interest in and to the Premises.

1.3.2 Tenant acknowledges that the Premises are the property of Landlord and that Tenant has only the right to the possession and use of the Premises upon and subject to the terms and conditions of this Lease. Tenant will not, at any time during the Term, take any position, whether in any tax return, public filing, contractual arrangement, financial statement or otherwise, other than that Landlord is the owner of the Premises for federal, state and local income tax purposes and that this Lease is a “true lease”.

1.4 Term. The initial term of this Lease (the “Initial Term”) shall be for the period commencing as of [_____] (the “Commencement Date”) and expiring at 11:59 p.m. on the last day of the calendar month in which the [_______] ([____]) anniversary of the Commencement Date occurs (the “Initial Expiration Date”). The term of this Lease may be extended for three (3) separate terms of five (5) years each (each, an “Extension Term”) if: (a) at least twelve (12), but not more than twenty-four (24) months prior to the end of the then current Term, Tenant delivers to Landlord a written notice (an “Extension Notice”) that it desires to exercise its right to extend the Term for one (1) Extension Term; and (b) no Event of Default shall have occurred and be continuing on the date Landlord receives the Extension Notice or on the last day of the then current Term. During any such Extension Term, except as otherwise specifically provided for herein, all of the terms and conditions of this Lease shall remain in full force and effect. Once delivered to Landlord, an Extension Notice shall be irrevocable.

1.5 Net Lease. This Lease is intended to be and shall be construed as an absolutely net lease, commonly referred to as a “net, net, net” or “triple net” lease, pursuant to which Landlord shall not, under any circumstances or conditions, whether presently existing or hereafter arising, and whether foreseen or unforeseen by the parties, be required to make any payment or expenditure of any kind whatsoever or be under any other obligation or liability whatsoever, except as expressly set forth herein, in connection with the Premises. All Rent payments shall be absolutely net to Landlord, free of all Impositions, utility charges, operating expenses, insurance premiums or any other charges or expenses in connection with the Premises, all of which shall be paid by Tenant.

 

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ARTICLE II

RENT

2.1 Base Rent. During the Term, Tenant will pay to Landlord as base rent hereunder (the “Base Rent”), an annual amount equal to [_____] ($[_____]). Notwithstanding the foregoing, on the first day of the second (2nd) Lease Year and the first day of each Lease Year thereafter during the Term (including, without limitation, during any Extension Term), the Base Rent shall increase to an annual amount equal to the sum of (a) the Base Rent for the immediately preceding Lease Year, and (b) the Base Rent for the immediately preceding Lease Year multiplied by the Adjusted CPI Increase. The Base Rent shall be payable in advance in twelve (12) equal monthly installments on or before the first (1st) Business Day of each calendar month; provided, however, the Base Rent attributable to the first (1st) full calendar month of the Term and the calendar month in which the Commencement Date occurs, which may be a partial month, shall be payable on the Commencement Date. Notwithstanding anything herein to the contrary, Base Rent shall be adjusted pursuant to Section 6.7.

2.2 Additional Rent. In addition to the Base Rent, Tenant shall also pay and discharge as and when due and payable all other amounts, liabilities and obligations which Tenant assumes or agrees to pay under this Lease. In the event of any failure on the part of Tenant to pay any of those items referred to in the previous sentence, Tenant will also promptly pay and discharge every fine, penalty, interest and cost which may be added for non-payment or late payment of the same. Collectively, the items referred to in the first two sentences of this Section 2.2 are referred to as “Additional Rent.” Except as may otherwise be set forth herein, any costs or expenses paid or incurred by Landlord on behalf of Tenant that constitute Additional Rent shall be reimbursed by Tenant to Landlord within ten (10) days after the presentation by Landlord to Tenant of invoices therefor.

2.3 Method of Payment. All Rent payable hereunder shall be paid in lawful money of the United States of America. Except as may otherwise be specifically set forth herein, Rent shall be prorated as to any partial months at the beginning and end of the Term. Rent to be paid to Landlord shall be paid by electronic funds transfer debit transactions through wire transfer of immediately available funds and shall be initiated by Tenant for settlement on or before the Payment Date; provided, however, if the Payment Date is not a Business Day, then settlement shall be made on the next succeeding day which is a Business Day. If Landlord directs Tenant to pay any Base Rent to any party other than Landlord, Tenant shall send to Landlord, simultaneously with such payment, a copy of the transmittal letter or invoice and a check whereby such payment is made or such other evidence of payment as Landlord may reasonably require.

2.4 Late Payment of Rent. Tenant hereby acknowledges that the late payment of Rent will cause Landlord to incur costs not contemplated hereunder, the exact amount of which is presently anticipated to be extremely difficult to ascertain. Accordingly, if any installment of Rent other than Additional Rent payable to a Person other than Landlord (or a Facility Mortgagee) shall not be paid within five (5) days of its Payment Date, Tenant shall pay to Landlord, on demand, a late charge equal to the lesser of (a) five percent (5%) of the amount of such installment or (b) the maximum amount permitted by law. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of late payment by Tenant. The parties further agree that such late charge is Rent and not interest and such assessment does not constitute a lender or borrower/creditor relationship between Landlord and Tenant. In addition, if any installment of Rent other than Additional Rent payable to a Person other than Landlord (or a Facility Mortgagee) shall not be paid within ten (10) days after its Payment Date, the amount unpaid, including any late charges, shall bear interest at the Agreed Rate compounded monthly from such Payment Date to the date of payment thereof, and Tenant shall pay such interest to Landlord on demand. The payment of such late charge or such interest shall neither constitute waiver of nor excuse or cure any default under this Lease, nor prevent Landlord from exercising any other rights and remedies available to Landlord.

2.5 Guaranty. Tenant’s obligations under this Lease are guaranteed by The Pennant Group, Inc., a Delaware corporation (such guarantor, together with its successors and assigns, are herein referred to, individually and collectively, as “Guarantor”) pursuant to the Guaranty.

 

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ARTICLE III

IMPOSITIONS AND OTHER CHARGES

3.1 Impositions.

3.1.1 Subject to Section 3.5, Tenant shall pay all Impositions attributable to a tax period, or portion thereof, occurring during the Term (irrespective of whether the Impositions for such tax period are due and payable after the Term), when due and before any fine, penalty, premium, interest or other cost may be added for non-payment. Where feasible, such payments shall be made directly to the taxing authorities. If any such Imposition may, at the option of the taxpayer, lawfully be paid in installments (whether or not interest shall accrue on the unpaid balance of such Imposition), Tenant may exercise the option to pay same (and any accrued interest on the unpaid balance of such Imposition) in installments (provided no such installments shall extend beyond the Term) and, in such event, shall pay such installments during the Term before any fine, penalty, premium, further interest or cost may be added thereto. Tenant shall deliver to Landlord, not less than five (5) days prior to the due date of each Imposition, copies of the invoice for such Imposition, the check delivered for payment thereof and an original receipt evidencing such payment or other proof of payment satisfactory to Landlord.

3.1.2 Notwithstanding Section 3.1.1 to the contrary, Landlord may elect to pay those Impositions, if any, based on Landlord’s net income, gross receipts, franchise taxes and taxes on its capital stock directly to the taxing authority and within ten (10) Business Days of Landlord delivering to Tenant notice and evidence of such payment, Tenant shall reimburse Landlord for such paid Impositions. In connection with such Impositions, Tenant shall, upon request of Landlord, promptly provide to Landlord such data as is maintained by Tenant with respect to any Facility as may be necessary to prepare any returns and reports to be filed in connection therewith.

3.1.3 Tenant shall prepare and file all tax returns and reports as may be required by Legal Requirements with respect to or relating to all Impositions (other than those Impositions, if any, based on Landlord’s net income, gross receipts, franchise taxes and taxes on its capital stock).

3.1.4 Tenant may, upon notice to Landlord, at Tenant’s option and at Tenant’s sole cost and expense, protest, appeal or institute such other proceedings as Tenant may deem appropriate to effect a reduction of real estate or personal property assessments and Landlord, at Tenant’s expense, shall reasonably cooperate with Tenant in such protest, appeal or other action; provided, however, that upon Landlord’s request in connection with any such protest or appeal, Tenant shall post an adequate bond or deposit sufficient sums with Landlord to insure payment of any such real estate or personal property assessments during the pendency of any such protest or appeal.

3.1.5 Landlord or Landlord’s designee shall use reasonable efforts to give prompt notice to Tenant of all Impositions payable by Tenant hereunder of which Landlord at any time has knowledge, provided, however, that any failure by Landlord to provide such notice to Tenant shall in no way relieve Tenant of its obligation to timely pay the Impositions.

3.1.6 Impositions imposed or assessed in respect of the tax-fiscal period during which the Term terminates shall be adjusted and prorated between Landlord and Tenant, whether or not such Imposition is imposed or assessed before or after such termination, and Tenant’s obligation to pay its prorated share thereof shall survive such termination.

 

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3.2 Utilities; CC&Rs. Tenant shall pay any and all charges for electricity, power, gas, oil, water and other utilities used in connection with each Facility during the Term. Tenant shall also pay all costs and expenses of any kind whatsoever which may be imposed against Landlord during the Term by reason of any of the covenants, conditions and/or restrictions affecting any Facility or any portion thereof, or with respect to easements, licenses or other rights over, across or with respect to any adjacent or other property which benefits any Facility, including any and all costs and expenses associated with any utility, drainage and parking easements. If Landlord is billed directly for any of the foregoing costs, Landlord shall send Tenant the bill and Tenant shall pay the same before it is due.

3.3 Insurance. Subject to Section 3.6, Tenant shall pay or cause to be paid all premiums for the insurance coverage required to be maintained by Tenant hereunder.

3.4 Other Charges. Tenant shall pay all other amounts, liabilities, obligations, costs and expenses paid or incurred with respect to the ownership, repair, replacement, restoration, maintenance and operation of each Facility (“Other Charges”).

3.5 Real Property Imposition Impounds.

3.5.1 If required under the terms of any Facility Mortgage Document, or at Landlord’s option (to be exercised by thirty (30) days’ written notice to Tenant) following (i) the occurrence and during the continuation of an Event of Default, or (ii) following the occurrence of more than one (1) Event of Default in any twelve (12) month period and for the remainder of the Term, and provided Tenant is not already being required to impound such payments in accordance with the requirements of Section 15.4 below, Tenant shall be required to deposit, at the time of any payment of Base Rent, an amount equal to one-twelfth of Tenant’s estimated annual real and personal property taxes required pursuant to Section 3.1. Such amounts shall be applied to the payment of the obligations in respect of which said amounts were deposited in such order of priority as Landlord shall reasonably determine, on or before the respective dates on which the same or any of them would become delinquent. The reasonable cost of administering such impound account shall be paid by Tenant. Nothing in this Section 3.5.1 shall be deemed to affect any right or remedy of Landlord hereunder. If Landlord elects (to the extent permitted pursuant to this Section 3.5.1), to require Tenant to impound Real Property Impositions hereunder, Tenant shall, as soon as they are received, deliver to Landlord copies of all notices, demands, claims, bills and receipts in relation to the Real Property Impositions.

3.5.2 The sums deposited by Tenant under this Section 3.5 shall be held by Landlord, shall not bear interest nor be held by Landlord in trust or as an agent of Tenant, and may be commingled with the other assets of Landlord. Provided no Event of Default then exists and is continuing under this Lease, and provided that Tenant has timely delivered to Landlord copies of any bills, claims or notices that Tenant has received, the sums deposited by Tenant under this Section 3.5 shall be used by Landlord to pay Real Property Impositions as the same become due. Upon the occurrence of any Event of Default, Landlord may apply any funds held by it under this Section 3.5 to cure such Event of Default or on account of any damages suffered or incurred by Landlord in connection therewith or to any other obligations of Tenant arising under this Lease, in such order as Landlord in its discretion may determine.

3.5.3 If Landlord transfers this Lease, it shall transfer all amounts then held by it under this Section 3.5 to the transferee, and Landlord shall thereafter have no liability of any kind with respect thereto. As of the Expiration Date, any sums held by Landlord under this Section 3.5 shall be returned to Tenant provided that there is no Event of Default and provided that any and all Real Property Impositions due and owing hereunder have been paid in full.

3.5.4 Notwithstanding anything herein which may be construed to the contrary, if Landlord elects (to the extent permitted pursuant to Section 3.5.1) to require Tenant to impound Real Property Impositions hereunder, Landlord shall have no liability to Tenant for failing to pay any Real Property Impositions to the extent that: (a) any Event of Default has occurred and is continuing, (b) insufficient deposits under this Section 3.5 are held by Landlord at the time such Real Property Impositions become due and payable, or (c) Tenant has failed to provide Landlord with copies of the bills, notices, and claims for such Real Property Impositions as required pursuant to Section 3.5.1.

 

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3.6 Insurance Premium Impounds. Without limiting or expanding Tenant’s obligation pursuant to Article 15, if required under the terms of any Facility Mortgage Document, or at Landlord’s option (to be exercised by thirty (30) days’ written notice to Tenant) following (i) the occurrence and during the continuation of an Event of Default, or (ii) following the occurrence of more than one (1) Event of Default in any twelve (12) month period and for the remainder of the Term, and provided Tenant is not already being required to impound such payments in accordance with the requirements of Section 15.4 below, Tenant shall be required to deposit, at the time of any monthly payment of Base Rent, an amount equal to one-twelfth of Tenant’s estimated annual insurance premiums required pursuant to Section 3.6 and Article VIII. Such amounts shall be applied to the payment of the obligations in respect of which said amounts were deposited in such order of priority as Landlord shall reasonably determine, on or before the respective dates on which the same or any of them would become delinquent. The reasonable cost of administering such impound account shall be paid by Tenant. Nothing in this Section 3.6 shall be deemed to affect any right or remedy of Landlord hereunder. As applicable, the terms of Section 3.5 shall govern the amounts deposited under this Section 3.6.

ARTICLE IV

ACCEPTANCE OF PREMISES; NO IMPAIRMENT

4.1 Acceptance of Premises. Tenant acknowledges receipt and delivery of possession of the Premises and confirms that Tenant has examined and otherwise has knowledge of the condition of the Premises prior to the execution and delivery of this Lease and has found the same to be in good order and repair, free from Hazardous Materials not in compliance with applicable Hazardous Materials Laws and satisfactory for its purposes hereunder. Regardless, however, of any examination or inspection made by Tenant and whether or not any patent or latent defect or condition was revealed or discovered thereby, Tenant is leasing the Premises “as is” in its present condition. Tenant waives any claim or action against Landlord in respect of the condition of the Premises including any defects or adverse conditions not discovered or otherwise known by Tenant as of the Commencement Date. LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE PREMISES, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, OR AS TO THE NATURE OR QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, OR THE EXISTENCE OF ANY HAZARDOUS MATERIALS, IT BEING AGREED THAT ALL SUCH RISKS, LATENT OR PATENT, ARE TO BE BORNE SOLELY BY TENANT.

4.2 No Impairment. The respective obligations of Landlord and Tenant shall not be affected or impaired by reason of (a) any damage to, or destruction of, any Facility, from whatever cause, or any Condemnation of any Facility (except as otherwise expressly and specifically provided in Article X or Article XI); (b) the interruption or discontinuation of any service or utility servicing any Facility; (c) the lawful or unlawful prohibition of, or restriction upon, Tenant’s use of any Facility due to the interference with such use by any Person or eviction by paramount title; (d) any claim that Tenant has or might have against Landlord on account of any breach of warranty or default by Landlord under this Lease or any other agreement by which Landlord is bound; (e) any bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceedings affecting Landlord or any assignee or transferee of Landlord; (f) any Licensing Impairment; or (g) for any other cause whether similar or dissimilar to any of the foregoing. Tenant hereby specifically waives all rights, arising from any occurrence whatsoever, which may now or hereafter be conferred upon it by law or equity (x) to modify, surrender or terminate this Lease or quit or surrender any Facility, or (y) that would entitle Tenant to any abatement,

 

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reduction, offset, suspension or deferment of Rent. The obligations of Landlord and Tenant hereunder shall be separate and independent covenants and agreements and Rent shall continue to be payable in all events until the termination of this Lease, other than by reason of an Event of Default. Tenant’s sole right to recover damages against Landlord under this Lease shall be to prove such damages in a separate action.

ARTICLE V

OPERATING COVENANTS

5.1 Tenant Personal Property. Tenant shall obtain and install all items of furniture, fixtures, supplies and equipment not included as Landlord Personal Property as shall be necessary or reasonably appropriate to operate each Facility in compliance with this Lease (the “Tenant Personal Property”).

5.2 Landlord Personal Property. Consistent with Tenant’s maintenance obligations hereunder, Tenant may, from time to time, in Tenant’s reasonable discretion, without notice to or approval of Landlord, sell or dispose of any item of the Landlord Personal Property; provided, however, that, unless such item is functionally obsolete, Tenant shall promptly replace such item with an item of similar or superior quality, use and functionality, and any such replacement item shall, for all purposes of this Lease, continue to be treated as part of the “Landlord Personal Property.” Tenant shall, promptly upon Landlord’s request from time to time, provide such information as Landlord may reasonably request relative to any sales, dispositions or replacements of the Landlord Personal Property pursuant to this Section 5.2 and shall provide to Landlord with an updated inventory of the Landlord Personal Property.

5.3 Primary Intended Use. During the entire Term, Tenant shall continually use each Facility for its Primary Intended Use (subject to Articles X and XI) and for no other use or purposes, and shall operate each Facility in a manner consistent with the Ordinary Course of Business.

5.4 Compliance with Legal Requirements and Authorizations.

5.4.1 Tenant, at its sole cost and expense, shall promptly (a) comply in all material respects with all Legal Requirements and Insurance Requirements regarding the use, condition and operation of each Facility and the Tenant Personal Property, and (b) procure, maintain and comply in all material respects with all Authorizations. The Authorizations for any Facility shall, to the maximum extent permitted by Legal Requirements, relate and apply exclusively to such Facility, and Tenant acknowledges and agrees that, subject to all applicable Legal Requirements, the Authorizations are appurtenant to the Facilities to which they apply, both during and following the termination or expiration of the Term.

5.4.2 Tenant and the Premises shall comply in all material respects with all licensing and other Legal Requirements applicable to the Premises and the business conducted thereon and, to the extent applicable, all Third Party Payor Program requirements. Further, Tenant shall not commit any act or omission that would in any way violate any certificate of occupancy affecting any Facility, result in closure of the Facility, result in the termination or suspension of Tenant’s ability to operate any Facility for its Primary Intended Use or result in the termination, suspension, non-renewal or other limitation of any Authorization, including, but not limited to, the authority to admit residents to any Facility or right to receive reimbursement for items or services provided at any Facility from any Third Party Payor Program.

5.4.3 Tenant shall not transfer any Authorizations to any location other than the Facility operated by such Tenant or as otherwise required by the terms of this Lease nor pledge any Authorizations as collateral security for any loan or indebtedness except as required by the terms of this Lease.

 

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5.5 Preservation of Business. Tenant acknowledges that the diversion of management or supervisory personnel, residents or resident care activities from any Facility to other facilities owned or operated by Tenant, Guarantor, or any of their respective Affiliates will have a material adverse effect on the value and utility of such Facility. Therefore, Tenant agrees that during the Term and for a period of one (1) year thereafter, none of Tenant, Guarantor, nor any of their respective Affiliates shall, without the prior written consent of Landlord (which may not be unreasonably withheld), and except as is necessary for medically appropriate reasons: (i) recommend or solicit the removal or transfer of any resident from any Facility to any other nursing, health care, senior housing, or retirement housing facility (excluding, however, any such facilities that are owned by Landlord (or any of its Affiliates) and leased to Tenant, Guarantor, or any of their respective Affiliates); or (ii) divert actual personnel, residents or resident care activities of any Facility to any other facilities owned or operated by Tenant, Guarantor, or any of their respective Affiliates (excluding, however, any such facilities that are owned by Landlord (or any of its Affiliates) and leased to Tenant, Guarantor, or any of their respective Affiliates) or from which Tenant, Guarantor, or any of their respective Affiliates receive any type of referral fees or other compensation for transfers. In addition to the foregoing, during the Nonsolicitation Period, none of Tenant, Guarantor, nor any of their respective Affiliates shall directly or indirectly, induce any management or supervisory personnel working on or in connection with any Facility or the operations thereof to accept employment at any other nursing, health care, senior housing, or retirement housing facility that is operated, owned, developed, leased, managed, controlled, or invested in by Tenant, Guarantor, or any of their respective Affiliates or in which Tenant, Guarantor, or any of their respective Affiliates otherwise participates in or receives revenues from; provided that advertisements and similar announcements by Tenant seeking employees that are not directed solely to the Facility’s management and supervisory personnel but rather to the public at large or to members of a trade organization or industry or through advertisements in newspapers, periodicals or the media in general shall not be deemed to be an inducement or prohibited hereunder. The obligations of Tenant and Guarantor under this Section 5.5 shall survive the expiration or earlier termination of this Lease.

5.6 Maintenance of Books and Records. Tenant shall keep and maintain, or cause to be kept and maintained, proper and accurate books and records in accordance with GAAP, and a standard modern system of accounting, in all material respects reflecting the financial affairs of Tenant and the results from operations of each Facility, individually and collectively. Landlord shall have the right, from time to time during normal business hours after three (3) Business Days prior oral or written notice to Tenant, itself or through any of Landlord’s Representatives, to examine and audit such books and records at the office of Tenant or other Person maintaining such books and records and to make such copies or extracts thereof as Landlord or Landlord’s Representatives shall request and Tenant hereby agrees to reasonably cooperate with any such examination or audit at Tenant’s cost and expense.

5.7 Financial, Management and Regulatory Reports. Tenant shall provide Landlord with the reports listed in Exhibit D within the applicable time specified therein. All financial information provided shall be prepared in accordance with GAAP and shall be submitted electronically using the applicable template provided by Landlord from time to time or, if no such template is provided by Landlord, in the form of unrestricted, unlocked “.xls” spreadsheets created using Microsoft Excel (2003 or newer editions) or in such other form as Landlord may reasonably require from time to time. For so long as Tenant or any Guarantor is or becomes subject to any reporting requirements of the Securities and Exchange Commission (the “SEC”) during the Term, the timely filing of any such reports with the SEC and publication thereof by the SEC shall be deemed delivery to Landlord hereunder.

5.7.1 In addition to the reports required under Section 5.7 above, upon Landlord’s request from time to time, Tenant shall provide Landlord with such additional information and unaudited quarterly financial information concerning each Facility, the operations thereof and Tenant and Guarantor as Landlord may require for purposes of securing financing for the Premises or its ongoing filings with the Securities and Exchange Commission, under both the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, including, but not limited to, 10-Q Quarterly Reports, 10-K Annual

 

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Reports and registration statements to be filed by Landlord during the Term. Notwithstanding the foregoing, neither Tenant nor Guarantor shall be required to disclose information that is material non-public information or is subject to the quality assurance immunity or is subject to attorney-client privilege or the attorney work product doctrine.

5.7.2 Tenant specifically agrees that Landlord may include Tenant’s financial information and such information concerning the operation of any Facility which does not violate the confidentiality of the facility-resident relationship and the physician-patient privilege under applicable laws, in Landlord’s public filings and informational publications, as necessary or prudent to comply with any reporting requirements under applicable federal or state laws, including those of any successor to Landlord.

5.8 Estoppel Certificates. Tenant shall, at any time upon not less than ten (10) days prior written request by Landlord, have an authorized representative execute, acknowledge and deliver to Landlord or its designee a written statement certifying (a) that this Lease, together with any specified modifications, is in full force and effect, (b) the dates to which Rent and additional charges have been paid, (c) that no default by either party exists or specifying any such default and (d) as to such other matters as Landlord may reasonably request.

5.9 Furnish Information. Tenant shall promptly notify Landlord of any condition or event that constitutes a breach of any term, condition, warranty, representation, or provision of this Lease and of any adverse change in the financial condition of any Tenant or Guarantor and of any Event of Default.

5.10 Affiliate Transactions. No Tenant shall enter into, or be a party to, any transaction with an Affiliate of any Tenant or any of the partners, members or shareholders of any Tenant except in the Ordinary Course of Business and on terms that are fully disclosed to Landlord within a reasonable amount of time and are no less favorable to any Tenant or such Affiliate than would be obtained in a comparable arm’s-length transaction with an unrelated third party; provided that this covenant shall not apply to or restrict guarantees by Tenant of debt financing issued or incurred by the Guarantor.

5.11 Waste. No Tenant shall commit or suffer to be committed any waste on any of the Premises, nor shall any Tenant cause or permit any nuisance thereon.

5.12 Additional Covenants. Tenant shall satisfy and comply with the following covenants throughout the Term:

5.12.1 Tenant shall not, directly or indirectly, create, incur, assume, guarantee or otherwise become or remain directly or indirectly liable with respect to (i) any Debt except for Permitted Debt; or (ii) any Contingent Obligations except for Permitted Contingent Obligations. Tenant shall not default on the payment of any Permitted Debt or Permitted Contingent Obligations.

5.12.2 Tenant shall not, directly or indirectly, (i) acquire or enter into any agreement to acquire any assets other than in the Ordinary Course of Business, or (ii) engage or enter into any agreement to engage in any joint venture or partnership with any other Person.

5.12.3 Tenant shall not cancel or otherwise forgive or release any material claim or material debt owed to any Tenant by any Person, except for adequate consideration and in the Ordinary Course of Business. If any proceedings are filed seeking to enjoin or otherwise prevent or declare invalid or unlawful Tenant’s occupancy, maintenance, or operation of a Facility or any portion thereof for its Primary Intended Use, Tenant shall cause such proceedings to be vigorously contested in good faith, and shall, without limiting the generality of the foregoing, use all reasonable commercial efforts to bring about a favorable and speedy disposition of all such proceedings and any other proceedings.

 

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5.12.4 After the occurrence of an Event of Default under Section 12.1.1 or, upon written notice from the Landlord, after the occurrence of any other Event of Default, and, in each case, until such Event of Default is cured, no Tenant shall make any payments or distributions (including salaries, bonuses, fees, principal, interest, dividends, liquidating distributions, management fees, cash flow distributions or lease payments) to any Guarantor or any Affiliate of any Tenant or any Guarantor, or any shareholder, member, partner or other equity interest holder of any Tenant, any Guarantor or any Affiliate of any Tenant or any Guarantor.

5.13 No Liens. Subject to the provisions of Article VII relating to permitted contests and excluding the applicable Permitted Encumbrances, Tenant will not directly or indirectly create or allow to remain and will promptly discharge at its expense any lien, encumbrance, attachment, title retention agreement or claim upon any Facility, this Lease or Tenant’s interest in any Facility or any attachment, levy, claim or encumbrance in respect of the Rent.

ARTICLE VI

MAINTENANCE AND REPAIR

6.1 Tenants Maintenance Obligation. Tenant shall (a) keep and maintain each Facility in good appearance, repair and condition, and maintain proper housekeeping, (b) promptly make all repairs (interior and exterior, structural and nonstructural, ordinary and extraordinary, foreseen and unforeseen) necessary to keep each Facility in good and lawful order and condition and in compliance with all Legal Requirements, Insurance Requirements and Authorizations and to maintain each Facility in a high quality operating and structural condition for use for its Primary Intended Use, and (c) keep and maintain all Landlord Personal Property and Tenant Personal Property in good condition and repair and replace such property consistent with prudent industry practice. All repairs performed by Tenant shall be done in a good and workmanlike manner. Landlord shall under no circumstances be required to repair, replace, build or rebuild any improvements on any Facility, or to make any repairs, replacements, alterations, restorations or renewals of any nature or description to any Facility, whether ordinary or extraordinary, structural or non-structural, foreseen or unforeseen, or to make any expenditure whatsoever with respect thereto, or to maintain any Facility in any way. Tenant hereby waives, to the extent permitted by law or any equitable principle, the right to make repairs at the expense of Landlord pursuant to any law currently in effect or hereafter enacted.

6.2 Premises Condition Report. Landlord, may from time to time and at Tenant’s sole expense (but, no more than once every twenty-four (24) months at Tenant’s expense, and in no event at a cost to Tenant in excess of Two Thousand Five Hundred Dollars ($2,500) per inspection, with such amount to escalate annually during the Term and any Extension by the same method and at the same rate of increase as the Base Rent as set forth in Section 2.1), cause an engineer designated by Landlord, in its sole discretion, to inspect any Facility and issue a report (a “Premises Condition Report”) with respect to such Facility’s condition. Tenant shall, at its own expense, make any and all repairs or replacements that are recommended by such Premises Condition Report that relate to life safety or are otherwise required to be performed by Tenant under Section 6.1 above.

6.3 Notice of Non-Responsibility. Nothing contained in this Lease and no action or inaction by Landlord shall be construed as (a) constituting the consent or request of Landlord, expressed or implied, to any contractor, subcontractor, laborer, materialman or vendor to or for the performance of any labor or services or the furnishing of any materials or other property for the construction, alteration, addition, repair or demolition of or to any Facility or any part thereof; or (b) giving Tenant any right, power or permission

 

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to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against Landlord in respect thereof or to make any agreement that may create, or in any way be the basis for, any right, title, interest, lien, claim or other encumbrance upon the estate of Landlord in any Facility or any portion thereof. Landlord may post, at Tenant’s sole cost, such notices of non-responsibility upon, or of record against, any Facility to prevent the lien of any contractor, subcontractor, laborer, materialman or vendor providing work, services or supplies to Tenant from attaching against such Facility. Tenant agrees to promptly execute and record any such notice of non-responsibility at Tenant’s sole cost.

6.4 Permitted Alterations. Without Landlord’s prior written consent, which consent shall not be unreasonably withheld, Tenant shall not make any Capital Alterations or Material Alterations. Tenant may, without Landlord’s consent, make any other Alterations provided the same (a) do not decrease the value of the applicable Facility, (b) do not adversely affect the exterior appearance of such Facility and (c) are consistent in terms of style, quality and workmanship to the original Leased Improvements and Fixtures of such Facility, and provided further that the same are constructed and performed in accordance with the following:

6.4.1 Such construction shall not commence until Tenant shall have procured and paid for all municipal and other governmental permits and authorizations required therefor (as well as any permits or approvals required in connection with any Permitted Encumbrance of such Facility); provided, however, that any Plans and Specifications required to be filed in connection with any such permits or authorizations that require the approval of Landlord shall have been so approved by Landlord.

6.4.2 During and following completion of such construction, the parking that is located on the Land of such Facility shall remain adequate for the operation of such Facility for its Primary Intended Use and in no event shall such parking be less than what is required by any applicable Legal Requirements or was located on such Land prior to such construction.

6.4.3 All work done in connection with such construction shall be done promptly and in a good and workmanlike manner using materials of appropriate grade and quality consistent with the existing materials and in conformity with all Legal Requirements.

6.4.4 If, by reason of the construction of any Alteration, a new or revised certificate of occupancy for any component of such Facility is required, Tenant shall obtain such certificate in compliance with all applicable Legal Requirements and furnish a copy of the same to Landlord promptly upon receipt thereof.

6.4.5 Upon completion of any Alteration, Tenant shall promptly deliver to Landlord final lien waivers from each and every general contractor and, with respect to Alterations costing in excess of One Hundred Thousand Dollars ($100,000), each and every subcontractor that provided goods or services costing in excess of One Hundred Thousand Dollars ($100,000) in connection with such Alterations indicating that such contractor or subcontractor has been paid in full for such goods or services, together with such other evidence as Landlord may reasonably require to satisfy Landlord that no liens have been or may be created in connection with such Alteration.

6.5 Capital and Material Alterations. If Landlord consents to the making of any Capital Alterations or Material Alterations, Landlord may impose commercially reasonable conditions thereon in connection with its approval thereof. In addition to any such imposed conditions, all such Alterations shall be constructed and performed in accordance with Sections 6.4.1 through 6.4.5 above, together with the following:

 

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6.5.1 Prior to commencing any such Alterations, Tenant shall have submitted to Landlord a written proposal describing in reasonable detail such proposed Alteration and shall provide to Landlord for approval such plans and specifications, permits, licenses, construction budgets and other information (collectively, the “Plans and Specifications”) as Landlord shall request, showing in reasonable detail the scope and nature of the proposed Alteration.

6.5.2 Such construction shall not, and prior to commencement of such construction Tenant’s licensed architect or engineer (to the extent the services of a licensed architect or engineer are required in connection with such Alterations) shall certify to Landlord that such construction shall not, impair the structural strength of such Facility or overburden or impair the operating efficiency of the electrical, water, plumbing, HVAC or other building systems of such Facility.

6.5.3 Prior to commencing any such Alterations, Tenant’s licensed architect or engineer (to the extent the services of a licensed architect or engineer are required in connection with such Alterations) shall certify to Landlord that the Plans and Specifications conform to and comply with all applicable Legal Requirements and Authorizations.

6.5.4 Promptly following the completion of the construction of any such Alterations, Tenant shall deliver to Landlord: (a) “as built” drawings of any such Alterations included therein, if applicable, certified as accurate by the licensed architect or engineer selected by Tenant to supervise such work; and (b) a certificate from Tenant’s licensed architect or engineer certifying to Landlord that such Alterations have been completed in compliance with the Plans and Specifications and all applicable Legal Requirements.

6.6 Maintenance and Repairs.

6.6.1 With respect to each Facility, and without limiting Tenant’s obligations to maintain the Premises under this Lease, within sixty (60) days following the end of each Lease Year, Tenant shall deliver to Landlord a report (a “Maintenance Expenditures Report”), certified as true, correct and complete by an officer of Tenant, summarizing and describing in reasonable detail all of the Maintenance Expenditures made by Tenant during the preceding Lease Year on each Facility, and such receipts and other information as Landlord may reasonably request relative to the Maintenance Expenditures made by Tenant during the applicable Lease Year, in form and content satisfactory to Landlord in the reasonable exercise of Landlord’s discretion, confirming that Tenant has in such Lease Year spent, with respect to the Premises, at least an aggregate amount of Four Hundred Dollars ($400.00) per operational unit (the Minimum Aggregate Maintenance Amount), minus the Overage Amount (as hereinafter defined), for repair and maintenance of the Facilities excluding normal janitorial and cleaning but including such expenditures to the Facilities and replacements to Landlord’s Personal Property at the Facilities as Tenant deems to be necessary in the exercise of its reasonable discretion. If Tenant fails in any Lease Year to expend the Minimum Aggregate Maintenance Amount minus the Overage Amount, and fails to either (i) cure such default within sixty (60) days after receipt of a written demand from Landlord, or (ii) obtain Landlord’s written approval, in its reasonable discretion, of a repair and maintenance program satisfactory to cure such deficiency, then the same shall be deemed an Event of Default hereunder. As used herein “Overage Amount” means the sum of amounts expended by Tenant pursuant to this Section 6.6.1 in the two (2) immediately preceding Lease Years in excess, if any, of the Minimum Aggregate Maintenance Amount for such prior Lease Years (excluding any such amounts that are financed by Tenant and secured by a lien on the personal property relating thereto).

6.6.2 Tenant’s obligation to deliver the Maintenance Expenditures Report applicable to the last Lease Year shall survive the expiration or termination of this Lease.

 

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6.7 Additional Improvement Funds. In the event Tenant elects to make Capital Alterations at a Facility during a Lease Year in which Tenant has, for such Lease Year, made Maintenance Expenditures in excess of the applicable Minimum Aggregate Maintenance Amount minus the Overage Amount for such Facility, then Tenant may request, in writing, for Landlord to provide Tenant with funds (the “Improvement Funds”) for the cost to complete the Alterations to which said additional Capital Alterations apply. Landlord shall provide Tenant with such Improvement Funds subject to the following terms and conditions:

6.7.1 Notwithstanding anything herein to the contrary, Landlord shall have no obligation to disburse Improvement Funds with respect to a Facility to the extent that disbursement of any such Improvement Funds would result in Landlord having disbursed Improvement Funds during the Term and with respect to such Facility in an aggregate amount exceeding the Facility Improvement Fund Cap applicable to such Facility.

6.7.2 In connection with any Alterations for which Improvement Funds are or may be requested by Tenant, Tenant shall comply with the provisions of Section 6.4 and, to the extent any such Alterations would constitute Capital Alterations or Material Alterations, Tenant shall comply with the provisions of Section 6.5. Prior to commencing any capital repairs or improvements for which Tenant will request disbursement of Improvement Funds, Tenant shall provide Landlord with such written documentation as may be reasonably requested by Landlord with respect to such capital repairs or improvements, which may include, without limitation, plans and specifications, budgets, a work completion schedule, copies of all permits required in connection with such capital repairs or improvements and the names of all contractors to be engaged by Tenant in connection therewith, together with evidence of insurance for each (in form, substance and amount reasonably required by Landlord), and Landlord shall have a reasonable period of time to review and approve the same. Landlord shall not be obligated to disburse the Improvement Funds for any Alterations until Landlord has approved such Alterations in writing, which approval: (i) with respect to any Alterations that are not Material Alterations or Capital Alterations, may not be unreasonably withheld, conditioned or delayed, and (ii) with respect to any Alterations which are Capital Alterations or Material Alterations, may be granted, withheld or conditioned in Landlord’s sole and absolute discretion.

6.7.3 Tenant shall have the right to request disbursement of the Improvement Funds not more than once per calendar month, in increments of not less than Fifteen Thousand Dollars ($15,000) (unless the disbursement is the final one for a particular project, in which case the full amount of such disbursement may be requested). All such disbursement requests shall be in writing and in the form of the request for advance contained in Schedule 4 attached hereto (“Request for Advance”) and shall be accompanied with (i) the following supporting documentation: (A) an itemized account of expenditures to be paid or reimbursed from the requested disbursement, certified by Tenant to be true and correct expenditures which have already been paid or are due and owing and for which no previous disbursement was made hereunder, and (B) copies of invoices or purchase orders from each payee with an identifying reference to the applicable vendor or supplier, which invoices or purchase orders shall support the full amount of costs contained in the requested disbursement; and (ii) mechanic’s lien waivers (conditional and unconditional, as applicable), in form and substance reasonably satisfactory to Landlord, in connection with any repairs, renovations or improvements in excess of Five Thousand Dollars ($5,000) for which a mechanic’s lien may be filed. Landlord shall have the right to make payment directly to any or all applicable vendors or suppliers if so desired by Landlord. No failure by Landlord to insist on Tenant’s strict compliance with the provisions of this Section 6.7 with respect to any request for advance or disbursement of the Improvement Funds shall constitute a waiver or modification of such provisions with respect to any future or other request for advance or disbursement.

 

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6.7.4 Landlord shall, within twenty (20) calendar days of Tenant’s delivery of a Request for Advance and compliance with the conditions for disbursement set forth in this Section 6.7, make disbursements of the requested Improvement Funds to pay or reimburse Tenant for the costs of the applicable capital repairs or improvements.

6.7.5 No Event of Default or event which, with the giving of notice or the passage of time, or both, would constitute an Event of Default, including, without limitation, the recordation of any mechanic’s or other lien against the Premises (or any portion thereof) in connection with the capital repairs or improvements to be funded by the Improvement Funds, shall have occurred and be continuing at the time of any request for disbursement (or the date of disbursement) of the Improvement Funds.

6.7.6 All repairs or improvements funded with the Improvement Funds shall be completed in a good, workmanlike and lien-free manner pursuant to Plans and Specifications or other similar documents provided to and approved by Landlord as set forth above, subject to change orders made in the ordinary course of a project of the size and scope of the applicable capital repair or improvement and approved by Landlord (with respect to change orders in excess of $10,000). If any of such repairs or improvements is completed in a manner not in compliance with this Section 6.7 and the other applicable provisions of this Lease, Tenant shall, promptly after obtaining knowledge thereof or Landlord’s demand therefor, repair or remediate the applicable work to the extent necessary to attain such compliance at its sole cost and expense.

6.7.7 Each and every renovation or improvement funded by Landlord under this Section 6.7 shall immediately become a part of the Premises and shall belong to Landlord subject to the terms and conditions of this Lease.

6.7.8 No disbursement of the Improvement Funds shall be used to remedy any condition which constitutes a default by Tenant under the provisions of this Lease.

6.7.9 In connection with any request for Improvement Funds delivered to Landlord during the last five (5) years of the then Term, Landlord shall have no obligation to disburse any Improvement Funds with respect to any such request unless and until Tenant shall have delivered to Landlord an Extension Notice for the next applicable Extension Term, if any.

6.7.10 From and after the date of disbursement of any Improvement Funds by Landlord, the annual amount of Base Rent then payable under this Lease shall be increased by the product of: (i) the amount of the Improvement Funds disbursed by Landlord, and (ii) the then Improvement Fund Rate. Such increased Base Rent shall commence to be payable on the next Payment Date following disbursement of such Improvement Funds (together with any prorated portion of the Base Rent payable with respect to the month in which such Improvement Funds were advanced).

6.8 Encroachments. If any of the Leased Improvements of any Facility shall, at any time, encroach upon any property, street or right-of-way adjacent to such Facility, then, promptly upon the request of Landlord, Tenant shall, at its expense, subject to its right to contest the existence of any encroachment and, in such case, in the event of any adverse final determination, either (a) obtain valid waivers or settlements of all claims, liabilities and damages resulting from each such encroachment, whether the same shall affect Landlord or Tenant, or (b) make such changes in such Leased Improvements, and take such other actions, as Tenant, in the good faith exercise of its judgment, deems reasonably practicable, to remove such encroachment, including, if necessary, the alteration of any of such Leased Improvements, and in any event take all such actions as may be necessary to be able to continue the operation of such Leased Improvements for the Primary Intended Use of such Facility substantially in the manner and to the extent such Leased Improvements were operated prior to the assertion of such encroachment. Any such alteration shall be made in conformity with the applicable requirements of Sections 6.4 and 6.5.

 

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ARTICLE VII

PERMITTED CONTESTS

Tenant, upon prior written notice to Landlord and at Tenant’s expense, may contest, by appropriate legal proceedings conducted in good faith and with due diligence, the amount, validity or application, in whole or in part, of any licensure or certification decision, Imposition, Legal Requirement, Insurance Requirement, lien, attachment, levy, encumbrance, charge or claim; provided, however, that (a) in the case of an unpaid Imposition, lien, attachment, levy, encumbrance, charge, or claim, the commencement and continuation of such proceedings shall suspend the collection thereof from Landlord and from the applicable Facility, (b) neither the applicable Facility nor any Rent therefrom nor any part thereof or interest therein would be reasonably likely to be in danger of being sold, forfeited, attached or lost pending the outcome of such proceedings, (c) in the case of a Legal Requirement, neither Landlord nor Tenant would be in any danger of civil or criminal liability for failure to comply therewith pending the outcome of such proceedings; (d) Tenant shall give such security as may be demanded by Landlord to insure ultimate payment of, or compliance with, the same and to prevent any sale or forfeiture (or risk thereof) of the applicable Facility or the Rent by reason of such non-payment or non-compliance; (e) in the case of the contest of an Insurance Requirement, the coverage required by Article VIII shall be maintained, and (f) if such contest is resolved against Landlord or Tenant, Tenant shall pay to the appropriate payee the amount required to be paid, together with all interest and penalties accrued thereon, and otherwise comply with the applicable Legal Requirement or Insurance Requirement. Landlord, at Tenant’s expense, shall execute and deliver to Tenant such authorizations and other documents as may reasonably be required in any such contest, and, if reasonably requested by Tenant or if Landlord so desires, shall join as a party therein. The provisions of this Article VII shall not be construed to permit Tenant to contest the payment of Rent or any other amount payable by Tenant to Landlord hereunder. Tenant shall indemnify, defend, protect and hold harmless Landlord from and against any Losses of any kind that may be imposed upon Landlord in connection with any such contest and any Losses resulting therefrom and the provisions of this Article VII shall survive the termination or expiration of this Lease.

ARTICLE VIII

INSURANCE

8.1 Required Policies. During the Term, Tenant shall maintain the following insurance with respect to each Facility at its sole cost and expense:

8.1.1 Fire and Extended Coverage against loss or damage by fire, vandalism and malicious mischief, extended coverage perils commonly known as “Special Risk,” and all physical loss perils normally included in such Special Risk insurance, including but not limited to sprinkler leakage and windstorm, all with an aggregate loss limit per occurrence of not less than [_____] and coverage for flood (only if such Facility is located in whole or in part within a designated 100-year flood plain area and such coverage is available at commercially reasonable premiums) with an aggregate loss limit per occurrence of not less than [______];

8.1.2 If such Facility contains steam boilers, pressure vessels or similar apparatus, insurance with an agreed amount endorsement (such that the insurance carrier has accepted the amount of coverage and has agreed that there will be no co-insurance penalty), covering the major components of the central heating, air conditioning and ventilating systems, boilers, other pressure vessels, high pressure piping and machinery, elevators and escalators, if any, and other similar equipment installed in such Facility, which policy shall insure against physical damage to and loss of occupancy and use of such Facility arising out of an accident, explosion, or breakdown covered thereunder all with an aggregate loss limit per occurrence of not less than [_____];

 

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8.1.3 If there is any storage tank, whether above ground or below ground, located at such Facility, whether or not in use, Storage Tank Insurance affording the parties protection of not less than [_____] per occurrence and in the annual aggregate;

8.1.4 Business Interruption and Extra Expense Coverage for loss of business income on an actual loss sustained basis for no less than twelve (12) months, including either an agreed amount endorsement or a waiver of any co-insurance provisions, so as to prevent Tenant, Landlord and any other insured thereunder from being a co-insurer, and containing an extended period indemnity endorsement that provides that the continued loss of business income will be insured until such income returns to the same level it was prior to the loss or the expiration of not fewer than six (6) months after the date of the completed repairs all with an aggregate loss limit per occurrence of not less than [_____];

8.1.5 Commercial General Liability Coverage (including products and completed operations liability and broad form coverage, broad form property damage, blanket contractual liability, independent contractors liability, personal injury and advertising injury coverage) against claims for bodily injury, death, medical expenses, property damage occurring on, in or about such Facility, affording the parties protection of not less than [_____] per claim and [_____] in the annual aggregate;

8.1.6 Professional Liability Coverage for damages for injury, death, loss of service or otherwise on account of professional services rendered or which should have been rendered, in a minimum amount of [_____] per claim and [_____] in the annual aggregate;

8.1.7 Worker’s Compensation Coverage for injuries sustained by Tenant’s employees in the course of their employment and otherwise consistent with all applicable Legal Requirements and employer’s liability coverage with limits of not less than [_____] each accident, [_____] bodily injury due to disease each employee and [_____] policy limit; and

8.1.8 During such time as Tenant is constructing any improvements, Tenant, at its sole cost and expense, shall carry, or cause to be carried (a) a completed operations endorsement to the commercial general liability insurance policy referred to above, (b) builder’s risk insurance, completed value form, covering all physical loss, in an amount and subject to policy conditions satisfactory to Landlord, and (c) such other insurance, in such amounts, as Landlord deems necessary to protect Landlord’s interest in the Premises from any act or omission of Tenant’s contractors or subcontractors.

8.2 General Insurance Requirements.

8.2.1 All of the policies of insurance required to be maintained by Tenant under this Article VIII shall (a) be written in form satisfactory to Landlord and any Facility Mortgage and issued by insurance companies (i) with a policyholder and financial rating of not less than [“A-”/“X”] in the most recent version of Best’s Key Rating Guide and (ii) authorized to do insurance business in the applicable Situs State; and (b) include a waiver of all rights of subrogation and recovery against Landlord.

8.2.2 All liability type policies (with the exception of Tenant’s workers’ compensation/employer’s liability insurance and professional liability insurance) must name Landlord as an “additional insured.” All property policies shall name Landlord as “loss payee.” All business interruption policies shall name Landlord as “loss payee” with respect to Rent only. Losses shall be payable to Landlord and/or Tenant as provided herein. In addition, the policies, as appropriate, shall name as an “additional insured” or “loss payee” any Facility Mortgagee by way of a standard form of mortgagee’s loss payable endorsement. Any loss adjustment shall require the written consent of Landlord, Tenant, and each Facility Mortgagee unless the amount of the loss is less than $100,000 in which event no consent shall be required.

 

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8.2.3 Within ten (10) days of Landlord’s request, Tenant shall provide Landlord copies of the original policies or a satisfactory ACORD evidencing the existence of the insurance required by this Lease and showing the interest of Landlord (and any Facility Mortgagee(s)). If Landlord is provided with an ACORD certificate, it may demand that Tenant provide a complete copy of the related policy within ten (10) days of the later of Landlord’s written request or the date of the issuance of the policy.

8.2.4 Tenant’s obligations to carry the insurance provided for herein may be brought within the coverage of a so-called “blanket” policy or policies of insurance carried and maintained by Tenant; provided, however, that the coverage afforded Landlord will not be reduced or diminished or otherwise be materially different from that which would exist under a separate policy meeting all other requirements hereof by reason of the use of the blanket policy, and provided further that the requirements of this Article VIII (including satisfaction of the Facility Mortgagee’s requirements and the approval of the Facility Mortgagee) are otherwise satisfied, and provided further that Tenant maintains specific allocations acceptable to Landlord.

8.2.5 Each insurer under the insurance policies maintained by Tenant pursuant to this Article VIII shall agree, by endorsement on the policy or policies issued by it, or by independent instrument furnished to Landlord, that it will give to Landlord thirty (30) days’ written notice before the policy or policies in question shall be altered or cancelled except in the event of nonpayment of premiums in which case each insurer shall provide ten (10) days’ written notice before the policy or policies in question shall be altered or cancelled.

8.3 Replacement Costs. The term “replacement cost” shall mean the actual replacement cost of the insured property from time to time with new materials and workmanship of like kind and quality (including the cost of compliance with changes in zoning and building codes and other laws and regulations, demolition and debris removal and increased cost of construction). If Landlord believes that the replacement cost has increased at any time during the Term, it shall have the right to have such replacement cost redetermined by an impartial national insurance company reasonably acceptable to both parties (the “impartial appraiser”). The determination of the impartial appraiser shall be final and binding, and, as necessary, Tenant shall increase, but not decrease, the amount of the insurance carried pursuant to this Article VIII to the amount so determined by the impartial appraiser. Each party shall pay one-half (1/2) of the fee, if any, of the impartial appraiser. If Tenant has made Alterations, Landlord may at Tenant’s expense have the replacement cost redetermined at any time after such Alterations are made.

8.4 Claims-Made Policies. If Tenant obtains and maintains the commercial general liability coverage and/or professional liability coverage described in Sections 8.1.5 and 8.1.6 above on a “claims-made” basis, Tenant shall provide continuous liability coverage for claims arising during the Term and providing for an extended reporting period reasonably acceptable to Landlord for a minimum of two (2) years after expiration of the Term. If such policy is canceled or not renewed for any reason whatsoever, Tenant must provide evidence of a replacement policy reflecting coverage with retroactive coverage back to the commencement date of the term and maintain such coverage for a period of at least two (2) years beyond the expiration of the Term or Tenant must obtain tail coverage for the length of the remaining term plus at least two (2) years beyond the expiration of the Term.

8.5 Non-Renewal. If Tenant fails to cause the insurance required under Article VIII to be issued in the names herein called for, fails to pay the premiums therefor or fails to deliver such policies or certificates thereof to Landlord, at the times required, Landlord shall be entitled, but shall have no obligation, to obtain such insurance and pay the premiums therefor, in which event the cost thereof, together with interest thereon at the Agreed Rate, shall be repayable to Landlord upon demand therefor.

 

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8.6 Deductibles. Deductibles/self-insured retentions for the insurance policies required under this Article VIII shall not be greater than [_____].

8.7 Increase in Limits; Types of Coverages. If, from time to time after the Commencement Date, Landlord determines in the exercise of its commercially reasonable judgment that the limits of the insurance required to be maintained by Tenant hereunder are no longer commensurate to the limits being regularly required by institutional landlords of similar properties in the applicable Situs State or their institutional lenders or that a particular type of insurance coverage is being regularly required by institutional landlords of similar properties in the applicable Situs State or their institutional lenders and is not then required hereunder, Landlord may notify Tenant of the same, indicating the particular limit or type of coverage that Landlord has determined should be increased or carried by Tenant, as applicable. Unless Tenant, in the exercise of its commercially reasonable judgment, objects to Landlord’s determination, then within thirty (30) days after the receipt of such notice, Tenant shall thereafter increase the particular limit or obtain the particular coverage, as applicable, unless and until further modified pursuant to the provisions of this Section 8.7. Notwithstanding anything herein to the contrary, Landlord shall not request a modification of the insurance requirements of this Lease more frequently than once every three (3) years. If Tenant, in the exercise of its commercially reasonable judgment, objects to Landlord’s determination made under this Section 8.7 and Landlord and Tenant are unable to agree upon the matter within fifteen (15) days of Tenant’s receipt of the applicable notice from Landlord, such determination shall be made by a reputable insurance company, consultant or expert (an “Insurance Arbitrator”) with experience in the assisted living insurance industry as mutually identified by Landlord and Tenant in the exercise of their reasonable judgment. As a condition to a determination of commercial reasonableness with respect to any particular matter, the Insurance Arbitrator shall be capable of providing, procuring or identifying particular policies or coverages that would be available to Tenant and would satisfy the requirement in issue. The determinations made by any such experts shall be binding on Landlord and Tenant for purposes of this Section 8.7, and the costs, fees and expenses of the same shall be shared equally by Tenant and Landlord. If Tenant and Landlord are unable to mutually agree upon an Insurance Arbitrator, each party shall within ten (10) days after written demand by the other select one Insurance Arbitrator. Within ten (10) days of such selection, the Insurance Arbitrators so selected by the parties shall select a third (3rd) Insurance Arbitrator who shall be solely responsible for rendering a final determination with respect to the insurance requirement in issue. If either party fails to select an Insurance Arbitrator within the time period set forth above, the Insurance Arbitrator selected by the other party shall alone render the final determination with respect to the insurance requirement in issue in accordance with the foregoing provisions and such final determination shall be binding upon the parties. If the Insurance Arbitrators selected by the parties are unable to agree upon a third (3rd) Insurance Arbitrator within the time period set forth above, either party shall have the right to apply at Tenant’s and Landlord’s joint expense to the presiding judge of the court of original trial jurisdiction in the county in which any Facility is located to name the third (3rd) Insurance Arbitrator.

8.8 No Separate Insurance. Tenant shall not, on Tenant’s own initiative or pursuant to the request or requirement of any third party, (a) take out separate insurance concurrent in form or contributing in the event of loss with that required in this Article VIII to be furnished by, or which may reasonably be required to be furnished by, Tenant or (b) increase the amounts of any then existing insurance by securing an additional policy or additional policies, unless all parties having an insurable interest in the subject matter of the insurance, including in all cases Landlord and all Facility Mortgagees, are included therein as additional insureds and the loss is payable under such insurance in the same manner as losses are payable under this Lease. Notwithstanding the foregoing, nothing herein shall prohibit Tenant from insuring against risks not required to be insured hereby, and as to such insurance, Landlord and any Facility Mortgagee need not be included therein as additional insureds, nor must the loss thereunder be payable in the same manner as losses are payable hereunder except to the extent required to avoid a default under the Facility Mortgage.

 

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ARTICLE IX

REPRESENTATIONS AND WARRANTIES

9.1 General. Each party represents and warrants to the other that: (a) this Lease and all other documents executed or to be executed by it in connection herewith have been duly authorized and shall be binding upon it; (b) it is duly organized, validly existing and in good standing under the laws of the state of its formation and is duly authorized and qualified to perform this Lease within the applicable Situs State; and (c) neither this Lease nor any other document executed or to be executed in connection herewith violates the terms of any other agreement of such party.

9.2 Anti-Terrorism Representations.

9.2.1 Tenant hereby represents and warrants that neither Tenant, nor any persons or entities holding any legal or beneficial interest whatsoever in Tenant, are (a) the target of any sanctions program that is established by Executive Order of the President or published by the Office of Foreign Assets Control, U.S. Department of the Treasury (“OFAC”); (b) designated by the President or OFAC pursuant to the Trading with the Enemy Act, 50 U.S.C. App. § 5, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-06, the Patriot Act, Public Law 107-56, Executive Order 13224 (September 23, 2001) or any Executive Order of the President issued pursuant to such statutes; or (c) named on the following list that is published by OFAC: “List of Specially Designated Nationals and Blocked Persons” (collectively, “Prohibited Persons”). Tenant hereby represents and warrants to Landlord that no funds tendered to Landlord by Tenant under the terms of this Lease are or will be directly or indirectly derived from activities that may contravene U.S. federal, state or international laws and regulations, including anti-money laundering laws. If the foregoing representations are untrue at any time during the Term, an Event of Default will be deemed to have occurred, without the necessity of notice to Tenant.

9.2.2 Tenant will not during the Term of this Lease engage in any transactions or dealings, or be otherwise associated with, any Prohibited Persons in connection with the use or occupancy of the Premises. A breach of the representations contained in this Section 9.2 by Tenant shall constitute a material breach of this Lease and shall entitle Landlord to any and all remedies available hereunder, or at law or in equity.

9.3 Additional Representations and Warranties. To induce Landlord to execute this Lease and perform its obligations hereunder, Tenant hereby represents and warrants to Lender that the following are true and correct as of the Commencement Date:

9.3.1 No consent or approval of, or filing, registration or qualification with any Governmental Authority or any other Person is required to be obtained or completed by Tenant or any Affiliate in connection with the execution, delivery, or performance of this Lease that has not already been obtained or completed.

9.3.2 The identity of the holders of the partnership or membership interests or shares of stock, as applicable, in Tenant and their respective percentage of ownership as of the Commencement Date are set forth on Schedule 3. No partnership or limited liability company interests, or shares of stock, in Tenant, other than those described above, are issued and outstanding. There are no preemptive or other outstanding rights, options, warrants, conversion rights or similar agreements or understandings for the purchase or acquisition from Tenant of any partnership or limited liability company interest of or shares of stock in Tenant except as may be set forth in Tenant’s organizational and formation documents, complete, true and accurate copies of which have been provided to Landlord.

 

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9.3.3 Neither Tenant nor Guarantor is insolvent and there has been no Bankruptcy Action by or against any of them. Tenant’s assets do not constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted.

9.3.4 All financial statements and other documents and information previously furnished by or on behalf of any Tenant or Guarantor to Landlord in connection with the Facilities and this Lease are true, complete and correct in all material respects and fairly present on a consistent basis with the financial conditions of the subjects thereof for the immediately prior periods as of the respective dates thereof and do not fail to state any material fact necessary to make such statements or information not misleading, and no material adverse change with respect to any Facility, Tenant or Guarantor has occurred since the respective dates of such statements and information. Neither Tenant nor any Guarantor has any material liability, contingent or otherwise, not disclosed in such financial statements and which is required to be disclosed in such financial statements in accordance with GAAP.

9.3.5 Tenant has each Authorization and other rights from, and has made all declarations and filings with, all applicable Governmental Authorities, all self-regulatory authorities and all courts and other tribunals necessary to engage in the management and operation of the Facilities for the Primary Intended Use. No Governmental Authority is, to Tenant’s knowledge, considering limiting, suspending or revoking any such Authorization. All such Authorizations are valid and in full force and effect and Tenant is in material compliance with the terms and conditions of all such Authorizations.

ARTICLE X

DAMAGE AND DESTRUCTION

10.1 Notice of Damage or Destruction. Tenant shall promptly notify Landlord of any damage or destruction of any Facility in excess of $250,000. Said notification shall include: (a) the date of the damage or destruction and the Facility or Facilities damaged, (b) the nature of the damage or destruction together with a description of the extent of such damage or destruction, (c) a preliminary estimate of the cost to repair, rebuild, restore or replace the Facility, and (d) a preliminary estimate of the schedule to complete the repair, rebuilding, restoration or replacement of the Facility. Damage or destruction shall not terminate this Lease.

10.2 Restoration. Tenant shall diligently repair or reconstruct any Facility that has been damaged or destroyed to a like or better condition than existed prior to such damage or destruction in accordance with Section 6.5; provided however, that in the event any Capital Alterations made and funded solely by Tenant are damaged or destroyed, Tenant shall have the option to either repair or replace such Capital Alterations or to remove the same and restore the Facility to substantially the same condition as existed prior to the making of such Capital Alterations. Any net insurance proceeds payable with respect to such damage or destruction shall be paid directly to Landlord and; provided Tenant is diligently performing the restoration and repair work with respect to such Facility and no Event of Default has occurred hereunder, shall be used for the repair or reconstruction of such Facility. Landlord shall disburse any such net insurance proceeds as and when required by Tenant in accordance with normal and customary practice for the payment of a general contractor in connection with construction projects similar in scope and nature to the work being performed by or on behalf of Tenant, including, without limitation, the withholding of ten percent (10%) of each disbursement until the required work is completed as evidenced by a certificate of occupancy or similar evidence issued upon an inspection by the applicable Governmental Authority and proof has been furnished to Landlord that no lien has attached or will attach to the applicable Facility in connection with the restoration and repair work.

 

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10.3 Insufficient Proceeds. If the net insurance proceeds paid to Landlord in connection with any such damage or destruction are insufficient to restore the affected Facilit(ies), Tenant shall nevertheless remain responsible, at its sole cost and expense, to repair and reconstruct the applicable Facilit(ies) as required in this Article X and Tenant shall provide the required additional funds. Tenant expressly assumes all risk of loss in connection with any damage or destruction to a Facility, whether or not such damage or destruction is insurable or insured against. Tenant shall pay any insurance deductible and any other uninsured Losses. Proceeds of business interruption or similar insurance, if any, shall belong to Tenant, provided that such proceeds shall be used in the first instance to timely pay Base Rent and otherwise satisfy Tenant’s obligations under this Lease, and notwithstanding anything in this Lease to the contrary, Tenant shall not have any right under this Lease, and hereby waives all rights under applicable law, to abate, reduce, or offset rent by reason of any damage or destruction of any Facility by reason of an insured or uninsured casualty.

10.4 Facility Mortgagee. Notwithstanding anything in this Lease to the contrary, Tenant hereby acknowledges and agrees that any Facility Mortgagee may retain and disburse any net insurance proceeds payable in connection with any damage or destruction to a Facility. In such event, Tenant shall comply with the requests and requirements of such Facility Mortgagee in connection with the performance of the repair and restoration work and the disbursement of the net insurance proceeds in connection therewith. If, in connection with any damage or destruction to a Facility that results in the loss of fifty percent (50%) or more of the units at the affected Facility or that would cost more than fifty percent (50%) of the value of such Facility to restore, any Facility Mortgagee elects to require that any net insurance proceeds payable in connection with such damage or destruction to a Facility be applied by Landlord to reduce the outstanding principal balance of any Facility Mortgage, Landlord may elect, in its sole discretion and by notice to Tenant delivered promptly after the receipt by Landlord of notice of such election from Facility Mortgagee, to terminate this Lease as to the affected Facility, in which event the current Rent shall be equitably abated as of the effective date of such termination based on the allocable share of Landlord’s initial investment in the Premises to the affected Facility.    Notwithstanding anything in this Lease to the contrary, Tenant shall remain liable for any uninsured portion of any damage or destruction if this Lease is so terminated as to the applicable Facility. If Landlord elects not to terminate this Lease as to the affected Facility (despite the applicable Facility Mortgagee having made the election to require that any net insurance proceeds payable in connection with such damage or destruction to a Facility be applied by Landlord to reduce the outstanding principal balance of such Facility Mortgage), Landlord’s own funds shall be disbursed to Tenant from time to time as, when, and subject to the satisfaction of the same terms, conditions and requirements as would have governed the disbursement of net insurance proceeds that Landlord’s funds replace.

10.5 Impossibility; Tenant’s Obligations Following Casualty. Following a casualty loss, if Tenant cannot within a reasonable time after diligent efforts obtain the necessary government approvals needed to restore such Facility to substantially the same condition which existed prior to such damage (the “Required Reconstruction Approvals”), then Tenant shall pay to Landlord an amount (the “Compensatory Payment”) equal to the greater of (a) the sum of: (i) the Fair Market Value of the affected Facility immediately before such damage or destruction less (ii) the Fair Market Value of the affected Facility immediately after such damage or destruction (the “Post-Casualty Facility”) less (iii) any insurance proceeds received by Landlord, or (b) (i) 89.95% of the Fair Market Value of the Premises as of the Commencement Date less (B) the sum of the present value of (1) the Base Rent and (2) Additional Rent paid to Landlord and not passed through to a third party, received by Landlord as of the Occurrence Date (determined using a discount rate of six percent (6%) per annum) less (iii) any insurance proceeds received by Landlord. Unless, within nine (9) months following the date of any applicable casualty, Tenant has provided Landlord with satisfactory evidence that it has obtained, or is in the process of and continuing to diligently obtain, the Required Reconstruction Approvals, Tenant shall be deemed to be unable to secure the Required Reconstruction Approvals and to be obligated to make the Compensatory Payment to

 

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Landlord (the “Compensatory Payment Date”). Landlord shall have a period of three (3) months after the Compensatory Payment Date to attempt to sell the affected Facility to an independent third party in an arms-length transaction and the gross purchase price payable to Landlord in connection with such transaction shall be deemed to be the Fair Market Value of the Post-Casualty Facility (a “Casualty Sale”). In the event a Casualty Sale occurs within such three (3) month period, Landlord shall provide Tenant with notice of the closing thereof and a written demand for the Compensatory Payment setting forth in reasonable detail the calculation thereof (the “Compensatory Payment Statement”). In the event a Casualty Sale does not occur within such three (3) month period, then the Fair Market Value of the Post-Casualty Facility shall be determined in the manner otherwise set forth in this Lease. The Compensatory Payment shall be due and payable thirty (30) days after the later of (i) Tenant’s receipt of the Compensatory Payment Statement or (ii) the date of determination of the Fair Market Value of the Post-Casualty Facility. Upon Landlord’s receipt of the Compensatory Payment (or upon the occurrence of a Casualty Sale, if earlier), this Lease shall terminate as to the affected Facility and Tenant shall have no further rights or obligations with respect thereto.

ARTICLE XI

CONDEMNATION

Except as provided to the contrary in this Article XI, a Condemnation of any Facility or any portion thereof shall not terminate this Lease, which shall remain in full force and effect, and Tenant hereby waives all rights under applicable law to abate, reduce or offset Rent by reason of any such Condemnation. Following a Complete Taking of any Facility, Tenant may at its election, made within thirty (30) days of the effective date of such Complete Taking, terminate this Lease with respect to such Facility and the current Rent shall be equitably abated as of the effective date of such termination based on the allocable share of Landlord’s initial investment in the Premises to the Facility subject to the Complete Taking. Following a Partial Taking of any Facility, the Rent shall be abated to the same extent as the resulting diminution in the Fair Market Value of such Facility and, as necessary (as reasonably determined by Landlord), Tenant at its sole cost shall restore such Facility in accordance with Section 6.5. Landlord alone shall be entitled to receive and retain any award for a Condemnation other than a Temporary Taking; provided, however, Tenant shall be entitled to submit its own claim in the event of any such Condemnation with respect to the relocation costs incurred by Tenant as a result thereof. In the event of a Temporary Taking of any Facility, Tenant shall be entitled to receive and retain any and all awards for the Temporary Taking; provided, however, that Base Rent shall not be abated during the period of such Temporary Taking.

ARTICLE XII

DEFAULT

12.1 Events of Default. The occurrence of any of the following shall constitute an “Event of Default” and there shall be no cure period therefor except as otherwise expressly provided in this Section 12.1:

12.1.1 Tenant shall fail to pay any installment of Rent within five (5) calendar days of its Payment Date;

12.1.2 (a) The revocation or termination of any Authorization that would have a material adverse effect on the operation of any Facility for its Primary Intended Use; (b) except as permitted pursuant to the terms of Article X or Article XI in connection with a casualty or Condemnation, the voluntarily cessation of operations at any Facility for a period in excess of 30 days; (c) the sale or transfer of all or any portion of any Authorization; or (d) the use of any Facility other than for its Primary Intended Use;

 

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12.1.3 Any material suspension, limitation or restriction placed upon Tenant, any Authorization, any Facility, the operations at any Facility or Tenant’s ability to admit residents at the Premises (e.g., an admissions ban or non-payment for new admissions by any Thirty Party Payor Program resulting from an inspection survey); provided, however, if any such material suspension, limitation or restriction is curable by Tenant under the applicable Authorization or Legal Requirement, it shall not constitute an Event of Default if Tenant promptly commences to cure such breach and thereafter diligently pursues such cure to the completion thereof within the greater of: (a) the time period in which the applicable governmental agency has given Tenant to undertake corrective action, including the additional time allotted under any appeal right so long as (i) Tenant has duly and timely filed an appeal and preserved such appeal right, and (ii) any adverse governmental action is stayed pending appeal, up to the moment such appeal is granted, withdrawn or denied, or (b) thirty (30) days after the occurrence of any such material suspension, limitation or restriction;

12.1.4 an “Event of Default” (as defined in the applicable agreement) shall occur and is continuing under any other lease or agreement between Landlord or an Affiliate of Landlord and Tenant (or Guarantor) or an Affiliate of Tenant (or Guarantor) where the default is not cured within any applicable grace period set forth therein;

12.1.5 an “Event of Default” (as defined in the applicable agreement) shall occur and is continuing under any letter of credit, guaranty, mortgage, deed of trust, or other instrument executed by Tenant (or Guarantor) or an Affiliate of Tenant (or Guarantor) in favor of Landlord or an Affiliate of Landlord, in every case, whether now or hereafter existing, where the default is not cured within any applicable grace period set forth therein;

12.1.6 an “Event of Default” (as defined in the applicable agreement) by Tenant, any Guarantor or any Affiliate of Tenant or any Guarantor shall occur and is continuing under any material lease, guaranty, loan or financing agreement with any other party that is not cured within any applicable cure period provided for therein;

12.1.7 Tenant, any Guarantor, or any Affiliate of Tenant or any Guarantor shall (a) admit in writing its inability to pay its debts generally as they become due; (b) file a petition in bankruptcy or a petition to take advantage of any insolvency act; (c) make an assignment for the benefit of its creditors; (d) consent to the appointment of a receiver of itself or of the whole or any substantial part of its property; or (e) file a petition or answer seeking reorganization or arrangement under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or any state thereof;

12.1.8 Any petition is filed by or against any Tenant, any Guarantor, or any Affiliate of any Tenant or any Guarantor under federal bankruptcy laws, or any other proceeding is instituted by or against any Tenant, any Guarantor or any Affiliate of any Tenant or any Guarantor seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for any Tenant, any Guarantor or any Affiliate of any Tenant or any Guarantor, or for any substantial part of the property of any Tenant, any Guarantor or any Affiliate of any Tenant or any Guarantor, and Tenants fails to notify Landlord of such proceeding within three (3) Business Days of the institution thereof and such proceeding is not dismissed within sixty (60) days after institution thereof;

 

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12.1.9 Any Tenant, any Guarantor or any Affiliate of any Tenant or any Guarantor shall take any action to authorize or effect any of the actions set forth above in the preceding Section 12.1.8, or fails thereafter to vigorously oppose such actions;

12.1.10 The estate or interest of Tenant in the Premises or any part thereof shall be levied upon or attached in any proceeding and the same shall not be vacated or discharged within the later of ninety (90) days after commencement thereof or thirty (30) days after receipt by Tenant of notice thereof from Landlord (unless, in either case, Tenant is in the process of contesting such lien in a good faith manner in accordance to Article VII); provided, however, that such notice shall be in lieu of and not in addition to any notice required under applicable law;

12.1.11 Tenant, any Guarantor or any Affiliate of Tenant or any Guarantor shall be liquidated or dissolved, or begins proceedings towards liquidation or dissolution, or has filed against it a petition or other proceeding to cause it to be liquidated or dissolved and the proceeding is not dismissed within thirty (30) days thereafter, or, in any manner, permits the sale or divestiture of substantially all of its assets except in connection with a dissolution or liquidation following or related to a merger or transfer of substantially all of the assets and liabilities of Tenant with or to its parent corporation or with or to another direct or indirect wholly owned subsidiary of its parent corporation;

12.1.12 Tenant fails to (a) maintain or protect the Premises and Landlord’s interest therein as required under this Lease, including without limitation the obligations to maintain, repair and restore the Premises under this Lease, and any such failure in this clause (a) is not cured by Tenant within thirty (30) days after notice thereof from Landlord, (b) maintain in force at any time during the Term or any extensions thereof the insurance coverages required under Article VIII and any such failure in this clause (b) is not cured by Tenant within five (5) Business Days after notice thereof from Landlord, or (c) fails to return the Premises to Landlord or its designee at the expiration or earlier termination of the Lease, as required by Article XIII, whether or not such failure is due to a casualty and any such failure in this clause (c) is not cured by Tenant within thirty (30) days after notice thereof from Landlord;

12.1.13 Any of the representations or warranties made by Tenant in this Lease or by Guarantor in the Guaranty proves to be untrue when made that would result in a material adverse effect of Tenant’s ability to perform its obligations under this Lease;

12.1.14 Tenant fails to observe or perform any term, covenant or other obligation of Tenant set forth in Section 5.7 and such failure is not cured within ten (10) days after receipt of notice of such failure from Landlord;

12.1.15 Any local, state or federal agency having jurisdiction over the operation of any Facility removes ten percent (10%) or more of the residents or licensed beds located in such Facility other than during any period of repair or restoration following damage, destruction or a Partial Taking;

12.1.16 Tenant fails to perform or comply with the provisions of Section 5.4.3, Section 5.5, Section 5.11, Section 5.12 or Article XVI, and any such failure is not cured by Tenant within thirty (30) days after notice thereof from Landlord;

12.1.17 Tenant fails to observe or perform Tenant’s obligations under Article XV where the default is not cured within the shorter of (i) thirty (30) days after notice thereof from Landlord or the Facility Mortgagee and (ii) the any applicable grace period set forth in the Facility Mortgage Documents;

 

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12.1.18 Tenant fails to observe or perform any other term, covenant or condition of this Lease not previously enumerated in this Section 12.1 and such failure is not cured by Tenant within thirty (30) days after notice thereof from Landlord, unless such failure cannot with due diligence be cured within a period of thirty (30) days or failure to cure after such thirty (30) day period will not have a material adverse effect upon the Facility, in which case such failure shall not be deemed to be an Event of Default if Tenant proceeds promptly and with due diligence to cure the failure and diligently completes the curing thereof; provided, however, that such notice shall be in lieu of and not in addition to any notice required under applicable law.

12.2 Remedies. Upon the occurrence of an Event of Default, Landlord may exercise all rights and remedies under this Lease and the laws of the applicable Situs State that are available to a lessor of real and personal property in the event of a default by its lessee, and as to the Lease Collateral, all remedies granted under the laws of the applicable Situs State to a secured party under its Uniform Commercial Code. Landlord shall have no duty to mitigate damages unless required by applicable law and shall not be responsible or liable for any failure to relet any Facility or to collect any rent due upon any such reletting. Tenant shall pay Landlord, immediately upon demand, all expenses incurred by it in obtaining possession and reletting any Facility, including fees, commissions and costs of attorneys, architects, agents and brokers.

12.2.1 Without limiting the foregoing, Landlord shall have the right (but not the obligation) to do any of the following upon an Event of Default: (a) sue for the specific performance of any covenant of Tenant as to which it is in breach, including without limitation a Limited Remedy Event of Default (as defined below); (b) enter upon any Facility, terminate this Lease, dispossess Tenant from any Facility and/or collect money damages by reason of Tenant’s breach, including the acceleration of all Rent which would have accrued after such termination and all obligations and liabilities of Tenant under this Lease which survive the termination of the Term; (c) elect to leave this Lease in place and sue for Rent and other money damages as the same come due; (d) (before or after repossession of a Facility pursuant to clause (b) above and whether or not this Lease has been terminated) relet such Facility to such tenant, for such term (which may be greater or less than the remaining balance of the Term), rent, conditions (which may include concessions or free rent) and uses as it may determine in its sole discretion and collect and receive any rents payable by reason of such reletting; and (e) sell any Lease Collateral in a non-judicial foreclosure sale.

12.2.2 Upon the occurrence of an Event of Default, and upon commencement of proceedings to enforce the rights of Landlord hereunder, Landlord shall be entitled, as a matter of right, to appoint a receiver to take possession of the Premises, pending the outcome of such proceedings, to manage the operation of the Premises, to collect and disburse all rents, issues, profits and income generated thereby and to the extent applicable and possible, to preserve or replace any Authorization or to otherwise substitute the licensee or provider thereof. If a receiver is appointed pursuant hereto, the receiver shall be paid a reasonable fee for its services and all such fees and other expenses incurred by Landlord in connection with the appointment of the receiver shall be paid in addition to, and not in limitation of, the Rent otherwise due to Landlord hereunder. Tenant irrevocably consents to the appointment of a receiver following an Event of Default and thus stipulates to and agrees not to contest the appointment of a receiver under such circumstances and for such purposes.

12.2.3 If Tenant at any time shall fail to make any payment or perform any act on its part required to be made or performed under this Lease, then Landlord may, without waiving or releasing Tenant from any obligations or default hereunder, make such payment or perform such act for the account and at the expense of Tenant, and enter upon the applicable Facility for the purpose of taking all such action as may be reasonably necessary. No such entry shall be deemed an eviction of Tenant. All sums so paid by Landlord and all necessary and incidental costs and expenses (including reasonable attorneys’ fees and expenses) incurred in connection with the performance of any such act by it, together with interest at the Agreed Rate from the date of the making of such payment or the incurring of such costs and expenses, shall be payable by Tenant to Landlord upon Landlord’s written demand therefor.

 

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12.2.4 No right or remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy given hereunder or now or hereafter existing at law or in equity. Any notice or cure period provided herein shall run concurrently with any provided by applicable law.

12.2.5 If Landlord initiates judicial proceedings or if this Lease is terminated by Landlord pursuant to this Article XII, Tenant waives, to the extent permitted by applicable law, (a) any right of redemption, re-entry, or repossession; and (b) the benefit of any laws now or hereafter in force exempting property from liability for rent or for debt.

12.2.6 Notwithstanding anything in this Lease to the contrary, and without limiting any of the other rights or remedies conferred upon Landlord under this Lease or at law or in equity, upon the occurrence of a Facility Default, Landlord may, at its option and by notice to Tenant, terminate this Lease immediately as to any one or more of the Facilities (selected in Landlord’s discretion and by notice to Tenant) to which such Facility Default relates (a termination of this Lease as to less than all of the Facilities as provided in this Section 12.2.6 is herein referred to as a “Limited Termination Election”) (the Facility or Facilities as to which Landlord elects to terminate this Lease as provided in this Section 12.2.6 are herein referred to as “Terminated Facilities”). Upon delivery of a termination notice as provided in this 12.2.6, Tenant shall have no right to cure the Facility Default in question, all rights of Tenant under this Lease shall cease as to the Terminated Facilities so specified and the provisions of this Section 12.2.6 shall apply. Without limitation of the foregoing, if Landlord makes a Limited Termination Election, the deletion of the applicable Terminated Facilities from this Lease shall be absolutely without limitation of each Tenant’s continuing obligation (on a joint and several basis) for the damages and other amounts owing on account of the Event of Default giving rise to the deletion from this Lease of such Terminated Facilities or the termination of this Lease as to such Terminated Facilities.

(a) If this Lease is terminated as to one or more Terminated Facilities pursuant to this Section 12.2.6, then without necessity of any further action of the parties, this Lease shall terminate as to the Terminated Facility or Terminated Facilities, and the Terminated Facility or Terminated Facilities shall be separated and removed herefrom, at such time (such date, the “Facility Removal Date”) as Landlord delivers notice to Tenant exercising its termination rights pursuant to this Section 12.2.6 (such notice, a “Termination Notice”). As of the applicable Facility Removal Date, this Lease shall be automatically and ipso facto amended to:

 

  (i)

Delete and eliminate the Terminated Facility or Terminated Facilities herefrom;

 

  (ii)

Exclude the applicable Terminated Facility or Terminated Facilities from the definition of “Premises”; and

 

  (iii)

The current Rent shall be equitably reduced as of the Facility Removal Date based on the allocable share of Landlord’s initial investment in the Premises to the Terminated Facility or Terminated Facilities.

(b) Promptly (and in any event within ten (10) days after delivery of Landlord’s request therefor, Tenant shall execute and deliver to Landlord such instrument(s) as Landlord may from time to time request reflecting the elimination of any Terminated Facility or Terminated Facilities herefrom on the terms described above.

 

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(c) Notwithstanding the foregoing, if Landlord elects to make a Limited Termination Election, Tenant and Landlord hereby agree that the Base Rent shall be reduced in accordance with the following: (i) if Landlord re-leases the Terminated Facilities at a rent amount that is equal to or greater than the pro rata share of the Base Rent for such Terminated Facilities, net of all of Landlord expenses incurred (the “Net Replacement Rent Amount”), then the Base Rent shall be reduced by the difference between the Base Rent allocable to such Terminated Facilities and the Net Replacement Rent Amount for such Terminated Facilities, or (ii) if Landlord sells such Terminated Facilities, then the Base Rent shall be reduced by an amount equal to the Rent Offset.

12.3 ASC 840 Savings Clause; Limited Remedy Events of Default.

Subject to Section 12.2.1(a), notwithstanding anything to the contrary herein contained or in any other transaction document executed concurrently herewith, or any other provision of this Lease or any other concurrent transaction document, as amended or replaced from time to time (collectively the “Operating Lease Accounting Rules”), if Landlord is exercising remedies due solely to the Events of Default described in Sections 12.1.2(a), 12.1.3, 12.1.4, 12.1.5, 12.1.6, 12.1.8, 12.1.10, 12.1.13, 12.1.15, 12.1.17 or 12.1.18, or upon the occurrence, for reasons other than the acts or omissions of Tenant, any Guarantor or any Affiliate of any Tenant or any Guarantor, of an Event of Default under Section 12.1.11 (each a “Limited Remedy Event of Default”), the aggregate amount Tenant shall be required to pay to Landlord from and after the date of the occurrence of such Limited Remedy Event of Default (the “Occurrence Date”) shall be limited to the sum of (i) (A) 89.95% of the Fair Market Value of the Premises as of the Commencement Date less (B) the sum of the present value of (1) the Base Rent and (2) Additional Rent paid to Landlord and not passed through to a third party, received by Landlord as of the Occurrence Date (determined using a discount rate of six percent (6%) per annum), (ii) any Impositions, Other Charges and other sums which are due and payable or have accrued under this Lease through the Occurrence Date after any Limited Remedy Event of Default that relates to insurance, utilities, repairs, maintenance, environmental maintenance, remediation and compliance and other customary costs and expenses of operating and maintaining the Premises in substantial compliance with the terms of this Lease, and (iii) any amounts of Impositions, Other Charges and other sums due to third parties which are due and payable or have accrued under this Lease after the Occurrence Date while the Tenant remains in possession of the Premises after any Limited Remedy Event of Default that relates to insurance, utilities, repairs, maintenance, environmental maintenance, remediation and compliance and other customary costs and expenses of operating and maintaining the Premises in substantial compliance with the terms of this Lease (collectively, the “LRED Damages”). Landlord and Tenant hereby agree that the damages available to Landlord as a result of a Limited Remedy Event of Default shall be strictly limited to the LRED Damages and that nothing contained herein or in any other transaction document executed concurrently herewith shall entitle Landlord to additional reimbursement or monetary damages with respect to any such Limited Remedy Event of Default.

ARTICLE XIII

OBLIGATIONS OF TENANT ON EXPIRATION OR TERMINATION OF LEASE

13.1 Surrender. On the Expiration Date or earlier termination or cancellation of this Lease (or the earlier dispossession of Tenant from any Facility), Tenant shall deliver to Landlord or Landlord’s designee (a) possession of each Facility in a neat and clean condition, with each Facility being fully operational as of such date and in compliance with all Authorizations, and (b) all business records (other than corporate financial records or proprietary materials), data, resident records and resident trust accounts, which may be necessary, desirable or advisable for the operation of each Facility for its Primary Intended Use. Tenant shall have no obligation to perform any Alterations necessitated by, or imposed in connection with, a change of ownership inspection survey for the transfer of operation of such Facility to Landlord or Landlord’s designee unless such Alterations were previously required hereunder or by the applicable licensing authorities to be undertaken by Tenant prior to the Expiration Date (or earlier termination date or cancellation of this Lease or earlier dispossession of Tenant from any Facility) and Tenant failed to do so.

 

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13.2 Transition.

13.2.1 In connection with the expiration or earlier termination of this Lease with respect to any Facility, or the earlier dispossession of Tenant from any Facility, Landlord shall have the right to require an Operational Transfer with respect to such Facility by delivery to Tenant of a Transition Notice (as defined below). As used in this Lease, “Operational Transfer” shall mean the transfer and transition, practically and legally, of the day-to-day operations of a Facility for the Primary Intended Use of such Facility to Landlord and/or Landlord’s designee without interruption of the business activities therein, regulatory or otherwise. Landlord may exercise its right to require an Operational Transfer by delivering written notice to Tenant of Landlord’s election to require an Operational Transfer (a “Transition Notice”) at any time.

13.2.2 In connection with an Operational Transfer, or at the time of Tenant’s surrender of a Facility to Landlord or its designee, Tenant shall cooperate fully with Landlord or its designee in transferring (or obtaining) all Authorizations and Governmental Payors’ certifications and shall take all necessary actions, including, without limitation, filing such applications, petitions and transfer notices and making such assignments, conveyances and transfers as are necessary, desirable or advisable to accomplish an Operational Transfer. In connection therewith, Tenant shall transfer, to the extent permitted by applicable law, to Landlord or Landlord’s designee all contracts, including contracts with Governmental Authorities, which may be necessary, desirable or advisable for the operation of each Facility for its Primary Intended Use. Subject to all applicable Legal Requirements, Tenant hereby assigns, effective upon the Expiration Date or earlier termination or cancellation of this Lease (or the earlier dispossession of Tenant from any Facility), all rights to operate the Facility to Landlord or its designee, including all required Authorizations and all rights to apply for or otherwise obtain them. In furtherance of the foregoing, Tenant agrees to enter into a commercially reasonable operations transfer agreement with Landlord or Landlord’s designee, which agreement shall provide, inter alia, for the proration of operational revenues and liabilities based on when Landlord or its designee actually takes possession of the applicable Facility or Facilities.

13.2.3 Tenant agrees to enter into interim sublease agreements or management agreements as may be necessary to effect a transfer of the operations of the Facility or Facilities for their Primary Intended Use prior to the time that Landlord or its designee, as applicable, holds all Authorizations from all applicable Governmental Authorities necessary to so operate such Facility or Facilities. Tenant shall remain as licensee and participating provider in any payment programs with Governmental Payors or third party payors in which a Facility participates until such time as Landlord or its designee has received all Authorizations necessary to operate any Facility. Notwithstanding the foregoing, as a condition to Tenant remaining as licensee and participating provider as set forth above, Landlord or its designee shall, except in connection with a termination of this Lease resulting from an Event of Default (or the earlier dispossession of Tenant from any Facility as a result of an Event of Default), indemnify, defend, protect and hold harmless Tenant from and against any loss, damage, cost or expense incurred by Tenant on account of any third party claim to the extent directly caused by the acts or omissions of Landlord or its designee and during the period while relying on Tenant’s status as licensee or participating provider in any payment programs with Governmental Payors or third party payment programs in which a Facility participates.

13.2.4 Notwithstanding anything in this Lease which may be construed to the contrary, if (i) Landlord delivers a Transition Notice as to a particular Facility or Facilities, (ii) the Term expires prior to the delivery of a Transition Notice but Landlord has not delivered a Closure Notice, or (iii) this Lease is terminated as a result of an Event of Default and Landlord has not delivered a Closure Notice, then in all

 

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such cases Tenant shall thereafter continue to operate the Facility or Facilities in accordance with all of the requirements of this Lease until the earliest to occur of the following: (a) the date on which a successor operator assumes operation of such Facility, (b) the date that is one hundred eighty (180) days after the Expiration Date, or (c) the date on which such Facility is closed by Tenant in accordance with and pursuant to the requirements of this Lease and in connection with a Closure Notice delivered by Landlord.

13.2.5 If Tenant operates one or more Facilities after the Expiration Date or earlier termination of this Lease (either pursuant to Landlord’s request or pursuant to Section 13.2.4, then, from and after the expiration of this Lease and until the earliest to occur of the dates described in Section 13.2.4 (the “Reimbursement Period”), (a) Landlord shall provide Tenant with an operating budget, (b) Landlord shall include in the aforesaid operating budget, and Tenant shall continue to pay during the Reimbursement Period, all Rent that would have been owing under this Lease if this Lease had not expired (equitably prorated if Tenant operates less than all of the Facilities), and (c) Landlord shall reimburse Tenant for any operating deficits that Tenant may be required to fund out-of-pocket on account of operating losses and expenses incurred by Tenant by reason of, or arising out of compliance with, such budget with respect to the Reimbursement Period. Any such reimbursement shall be due from Landlord to Tenant within thirty (30) days after request by Tenant, provided that Tenant shall furnish such documentation of any operating deficits, losses and expenses as Landlord may reasonably request.

13.2.6 Notwithstanding anything to the contrary contained in this Lease, Tenant shall not, prior to delivery of a Closure Notice by Landlord to Tenant, commence to wind up and terminate the operations of any Facility or relocate the residents or occupants of any Facility to any other healthcare or senior living facility (a “Facility Termination”). Notwithstanding the foregoing, if Landlord has not delivered a Closure Notice or a Transition Notice to Tenant prior to the day that is one hundred twenty (120) days following the Expiration Date, then Tenant may commence the Facility Termination as to such Facility or Facilities and, upon the closure of such Facility or Facilities in accordance with this Lease and all applicable Legal Requirements, Tenant shall vacate such Facility or Facilities and surrender possession thereof to Landlord in accordance with all applicable requirements of this Lease. If, prior to the day that is one hundred twenty (120) days following the Expiration Date, Landlord delivers a Transition Notice to Tenant; Tenant shall not commence or otherwise engage in a Facility Termination with respect to the applicable Facility or Facilities. If Landlord delivers a Closure Notice and elects to institute a Facility Termination, Tenant shall, upon the prior written approval of Landlord, take all commercially reasonable steps necessary, in compliance with all Legal Requirements and Authorizations, to timely effectuate the same, all at Tenant’s sole cost and expense.

13.2.7 The terms of this Section 13.2 shall survive the expiration or sooner termination of this Lease.

13.3 Tenant Personal Property. Provided that no Event of Default then exists, in connection with the surrender of the Premises, Tenant may upon at least five (5) Business Days prior notice to Landlord remove from the Premises in a workmanlike manner all Tenant Personal Property, leaving the Premises in good and presentable condition and appearance, including repairing any damage caused by such removal; provided that Landlord shall have the right and option to purchase for itself or its designee the Tenant Personal Property for its then fair market value during such five (5) Business Day notice period, in which case Tenant shall so convey the Tenant Personal Property to Landlord or its designee by executing a bill of sale in a form reasonably required by Landlord. If there is any Event of Default then existing, Tenant will not remove any Tenant Personal Property from the Premises and instead will, on demand from Landlord, convey it to Landlord or its designee for no additional consideration by executing a bill of sale in a form reasonably required by Landlord. Title to any Tenant Personal Property which is not removed by Tenant as permitted above upon the expiration of the Term shall, at Landlord’s election, vest in Landlord or its designee; provided, however, that Landlord may remove and store or dispose at Tenant’s expense any or all of such Tenant Personal Property which is not so removed by Tenant without obligation or accounting to Tenant.

 

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13.4 Facility Trade Name. If this Lease is terminated by reason of an Event of Default or Landlord exercises its option to purchase or is otherwise entitled to retain the Tenant Personal Property pursuant to Section 13.3 above, Landlord or its designee shall be permitted to use the name under which each Facility has done business during the Term in connection with the continued operation of such Facility for its Primary Intended Use, but for no other use and not in connection with any other property or facility.

13.5 Holding Over. If Tenant shall for any reason remain in possession of any Facility after the Expiration Date, such possession shall be a month-to-month tenancy during which time Tenant shall pay as rental on the first (1st) Business Day of each month one and one-half (112) times the total of the monthly Base Rent payable with respect to the last Lease Year, plus all Additional Rent accruing during the month and all other sums, if any, payable by Tenant pursuant to this Lease. Nothing contained herein shall constitute the consent, express or implied, of Landlord to the holding over of Tenant after the Expiration Date, nor shall anything contained herein be deemed to limit Landlord’s remedies.

ARTICLE XIV

INDEMNIFICATION

In addition to the other indemnities contained in this Lease, and notwithstanding the existence of any insurance carried by or for the benefit of Landlord or Tenant, and without regard to the policy limits of any such insurance, Tenant shall protect, indemnify, save harmless and defend Landlord and the Landlord Indemnified Parties from and against all Losses imposed upon or incurred by or asserted against Landlord or any Landlord Indemnified Parties by reason of: (a) any accident, injury to or death of Persons or loss of or damage to property occurring on or about any Facility; (b) any use, misuse, non-use, condition, maintenance or repair of any Facility by Tenant; (c) any failure on the part of Tenant to perform or comply with any of the terms of this Lease or the breach of any representation or warranty made by Tenant herein; and (d) any claim for malpractice, negligence or misconduct committed by any Person on or working from any Facility. Any amounts which become payable by Tenant under this Article XIV shall be paid within ten (10) days after demand by Landlord, and if not timely paid, shall bear interest at the Agreed Rate from the date of such demand until paid. Tenant, at its expense, shall contest, resist and defend any such claim, action or proceeding asserted or instituted against Landlord or any Landlord Indemnified Parties with counsel acceptable to Landlord in its sole discretion and shall not, under any circumstances, compromise or otherwise dispose of any suit, action or proceeding without obtaining Landlord’s written consent. Landlord, at its election and sole cost and expense, shall have the right, but not the obligation, to participate in the defense of any claim for which Landlord or any Landlord Indemnified Parties are indemnified hereunder. If Tenant does not act promptly and completely to satisfy its indemnification obligations hereunder, Landlord may resist and defend any such claims or causes of action against Landlord or any Landlord Indemnified Party at Tenant’s sole cost. The terms of this Article XIV shall survive the expiration or sooner termination of this Lease. For purposes of this Article XIV, any acts or omissions of Tenant, or by employees, agents, assignees, contractors, subcontractors or others acting for or on behalf of Tenant (whether or not they are negligent, intentional, willful or unlawful), shall be strictly attributable to Tenant.

ARTICLE XV

LANDLORD’S FINANCING

15.1 Grant Lien. Without the consent of Tenant, Landlord may from time to time, directly or indirectly, create or otherwise cause to exist any Facility Mortgage upon any Facility or interest therein. This Lease is and at all times shall be subject and subordinate to any such Facility Mortgage which may now or hereafter affect any Facility or interest therein and to all renewals, modifications, consolidations,

 

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replacements, restatements and extensions thereof or any parts or portions thereof; provided, however, so long as no Event of Default has occurred, no Facility Mortgagee shall have the right to disturb Tenant’s leasehold interest or possession of any Facility or interfere with any other rights of Tenant accorded by the terms of this Lease. This provision shall be self-operative and no further instrument of subordination shall be required to give it full force and effect; provided, however, that in confirmation of such subordination, Tenant shall execute promptly any certificate or document that Landlord or any Facility Mortgagee may request for such purposes so long as the same contains commercially reasonable non-disturbance and attornment provisions.

15.2 Attornment. If Landlord’s interest in any Facility or interest therein is sold, conveyed or terminated upon the exercise of any remedy provided for in any Facility Mortgage Documents (or in lieu of such exercise), or otherwise by operation of law: (a) at the request and option of the new owner or superior lessor, as the case may be, Tenant shall attorn to and recognize the new owner or superior lessor as Tenant’s “landlord” under this Lease or enter into a new lease substantially in the form of this Lease with the new owner or superior lessor, and Tenant shall take such actions to confirm the foregoing within ten (10) days after request; and (b) the new owner or superior lessor shall not be (i) liable for any act or omission of Landlord under this Lease occurring prior to such sale, conveyance or termination; (ii) subject to any offset, abatement or reduction of rent because of any default of Landlord under this Lease occurring prior to such sale, conveyance or termination; (iii) bound by any previous modification or amendment to this Lease or any previous prepayment of more than one month’s rent, unless such modification, amendment or prepayment shall have been approved in writing by such Facility Mortgagee or, in the case of such prepayment, such prepayment of rent has actually been delivered to such new owner or superior lessor; or (iv) liable for any security deposit or other collateral deposited or delivered to Landlord pursuant to this Lease unless such security deposit or other collateral has actually been delivered to such new owner or superior lessor.

15.3 Cooperation; Modifications. Notwithstanding anything in this Lease to the contrary, Tenant hereby agrees that in connection with obtaining any Facility Mortgage for any Facility or interest therein, including, without limitation, where the Facility Mortgagee is an Agency Lender, Tenant shall: (i) execute and deliver to such Agency Lender or other Facility Mortgagee (on the form required by such Agency Lender or other Facility Mortgagee) any tenant regulatory agreements (including, without limitation, the form of regulatory agreement typically required by Agency Lenders), subordination agreements (including, without limitation, the form of subordination, assignment and security agreement typically required by Agency Lenders), or other similar agreements customarily required by Agency Lenders and other Facility Mortgagees in connection with a mortgage relating to a senior living facility, and (ii) modify this Lease as necessary to incorporate the provisions and requirements generally imposed by an Agency Lender or other Facility Mortgagee in connection with a facility lease relating to a senior living facility encumbered with a Facility Mortgage by an Agency Lender or other Facility Mortgagee, provided however this section shall not be deemed to (A) impose on Tenant obligations which (i) increase Tenant’s monetary obligations under this Lease, (ii) materially and adversely increase Tenant’s non-monetary obligations under this Lease or (B) diminish Tenant’s rights under this Lease; provided further that any regulatory agreement or intercreditor agreement related to Tenant’s accounts receivables required by any Agency Lender or other Facility Mortgagee shall be deemed not to impose any material monetary or non-monetary obligations on Tenant, and Tenant shall make commercially reasonable efforts to cause its lenders to agree to any customary and commercially reasonable intercreditor agreement. For purposes of the foregoing, any proposed implementation of new occupancy or financial covenants or requirements with respect to payor mix shall be deemed to materially diminish Tenant’s rights under this Lease. Tenant hereby acknowledges and agrees, however, that an obligation under the applicable Facility Mortgage Documents to post impounds for property taxes with respect to any period not more than one (1) month in advance (whether now existing or later created) shall not be deemed or construed to increase Tenant’s monetary obligations under this Lease. If any new Facility Mortgage Documents to be executed by

 

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Landlord or any Affiliate of Landlord would impose on Tenant any obligations under this Section, Landlord shall provide copies of the same to Tenant for informational purposes (but not for Tenant’s approval) prior to the execution and delivery thereof by Landlord or any Affiliate of Landlord. In the event any Agency Lender or other Facility Mortgagee requires, as a condition to making a Facility Mortgage, an intercreditor agreement with any receivables lender of Tenant, Tenant shall enter into any such intercreditor agreement and shall take all commercially reasonable efforts to cause said receivables lender to enter into such intercreditor agreement with said Agency Lender or other Facility Mortgagee on terms acceptable to Tenant, Tenant’s receivables lender, said Agency Lender or other Facility Mortgagee.

15.4 Compliance with Facility Mortgage Documents. Tenant acknowledges that any Facility Mortgage Documents executed by Landlord or any Affiliate of Landlord may impose certain obligations on the “borrower” or other counterparty thereunder to comply with or cause the operator and/or lessee of any Facility to comply with all representations, covenants and warranties contained therein relating to such Facility and the operator and/or lessee of such Facility, including, covenants relating to (a) the maintenance and repair of such Facility; (b) maintenance and submission of financial records and accounts of the operation of such Facility and related financial and other information regarding the operator and/or lessee of such Facility and such Facility itself; (c) the procurement of insurance policies with respect to such Facility; (d) periodic inspection and access rights in favor of the Facility Mortgagee; and (e) without limiting the foregoing, compliance with all applicable Legal Requirements relating to such Facility and the operations thereof. For so long as any Facility Mortgages encumber any Facility or interest therein, Tenant covenants and agrees, at its sole cost and expense and for the express benefit of Landlord, to operate such Facility in strict compliance with the terms and conditions of the Facility Mortgage Documents (other than payment of any indebtedness evidenced or secured thereby) and to timely perform all of the obligations of Landlord relating thereto, or to the extent that any of such duties and obligations may not properly be performed by Tenant, Tenant shall cooperate with and assist Landlord in the performance thereof (other than payment of any indebtedness evidenced or secured thereby); provided however this section shall not be deemed to (A) impose on Tenant obligations which (i) increase Tenant’s monetary obligations under this Lease, (ii) materially and adversely increase Tenant’s non-monetary obligations under this Lease or (B) diminish Tenant’s rights under this Lease. If any new Facility Mortgage Documents to be executed by Landlord or any Affiliate of Landlord would impose on Tenant any obligations under this Section 15.4, Landlord shall provide copies of the same to Tenant for informational purposes (but not for Tenant’s approval) prior to the execution and delivery thereof by Landlord or any Affiliate of Landlord.

15.5 Limitations. Without limiting or expanding Tenant’s obligations pursuant to Sections 15.3 and 15.4, during the Term of this Lease, Tenant acknowledges and agrees that, except as expressly provided elsewhere in this Lease, it shall undertake at its own cost and expense the performance of any and all repairs, replacements, capital improvements, maintenance items and all other requirements relating to the condition of a Facility that are required by any Facility Mortgage Documents or by Facility Mortgagee; provided, however, this Section 15.5 shall not (i) increase Tenant’s monetary obligations under this Lease, (ii) materially and adversely increase Tenant’s non-monetary obligations under this Lease, or (iii) diminish Tenant’s rights under this Lease, except to the extent that, with respect to any Facility, such obligations were provided for in a Facility Mortgage, or otherwise required by the Facility Mortgagee, secured by such Facility on the Commencement Date; and provided, further, that any amounts which Tenant is required to fund into a Facility Mortgage Reserve Account with respect to satisfying any repair or replacement reserve requirements imposed by a Facility Mortgagee shall be credited on a dollar-for-dollar basis against the mandatory expenditure obligations of Tenant for such applicable Facility(ies) under Section 6.6. During the Term of this Lease and provided that no Event of Default shall have occurred and be continuing hereunder, Tenant shall, subject to the terms and conditions of such Facility Mortgage Reserve Account and the requirements of the Facility Mortgagee(s) thereunder, have access to and the right to apply or use (including for reimbursement), to the same extent as Landlord, all monies held in each such Facility

 

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Mortgage Reserve Account for the purposes and subject to the limitations for which such Facility Mortgage Reserve Account is maintained, and Landlord agrees to reasonably cooperate with Tenant in connection therewith. Landlord hereby acknowledges that funds deposited by Tenant in any Facility Mortgage Reserve Account are the property of Tenant and Landlord is obligated to return the portion of such funds not previously released to Tenant within fifteen (15) days following the earlier of (x) the expiration or earlier termination of this Lease with respect to such applicable Facility, (y) the maturity or earlier prepayment of the applicable Facility Mortgage, or (z) an involuntary prepayment or deemed prepayment arising out of the acceleration of the amounts due to a Facility Mortgagee as a result of the exercise of its remedies under the applicable Facility Mortgage; provided, however, that the foregoing shall not be deemed or construed to limit or prohibit Landlord’s right to bring any damage claim against Tenant for any breach of its obligations under this Lease that may have resulted in the loss of any impound funds held by a Facility Mortgagee.

ARTICLE XVI

ASSIGNMENT AND SUBLETTING

16.1 Prohibition. Without the prior written consent of Landlord, which may be withheld or conditioned in its sole and absolute discretion, Tenant shall not suffer or permit any Transfer (including, without limitation, a Transfer of this Lease or any interest herein) other than a Transfer that is expressly permitted pursuant to the terms of this Lease. Any such purported Transfer without Landlord’s prior written consent (each an “Unapproved Transfer”) shall be void and shall, at Landlord’s sole option, constitute an Event of Default giving rise to Landlord’s right, among other things, to terminate this Lease. If Landlord elects to waive its right to terminate this Lease as a result of any such Unapproved Transfer, this Lease shall continue in full force and effect; provided, however, that as of the date of such Unapproved Transfer, the Base Rent shall be increased by five percent (5%).

16.2 Landlord Consent. If Landlord consents to a Transfer, such Transfer shall not be effective and valid unless and until the applicable transferee executes and delivers to Landlord any and all documentation reasonably required by Landlord. Any consent by Landlord to a particular Transfer shall not constitute consent or approval of any subsequent Transfer, and Landlord’s written consent shall be required in all such instances. No consent by Landlord to any Transfer shall be deemed to release Tenant from its obligations hereunder and Tenant shall remain fully liable for payment and performance of all obligations under this Lease. Without limiting the generality of the foregoing, in connection with any sublease arrangement that has been approved by Landlord, as a condition precedent to any such approval, any such sublease agreement shall include provisions required by Landlord pertaining to protecting its status as a real estate investment trust.

16.3 Transfers to Affiliates. Notwithstanding Section 16.1 to the contrary, but subject to the rights of any Facility Mortgagee, Tenant may, without Landlord’s prior written consent, assign this Lease or sublease any Facility to an Affiliate of Tenant or Guarantor if all of the following are first satisfied: (a) such Affiliate fully assumes Tenant’s obligations hereunder; (b) Tenant remains fully liable hereunder and Guarantor remains fully liable under the Guaranty; (c) the use of such Facility remains unchanged; (d) Landlord in its reasonable discretion shall have approved the form and content of all documents for such assignment or sublease and received an executed counterpart thereof; (e) Tenant delivers evidence to Landlord that such assignment or subletting is permissible under all applicable Authorizations or that all necessary consents have been obtained to consummate such assignment or subletting; and (f) Tenant and/or such Affiliate executes and delivers such other documents as may be reasonably required by Landlord to effectuate the assignment and continue the security interests and other rights of Landlord pursuant to this Lease or any other documents executed in connection herewith.

 

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16.4 Permitted Occupancy Agreements. Notwithstanding Section 16.1 to the contrary, Tenant may enter into an occupancy agreement with residents of each Facility without the prior written consent of Landlord provided that (a) the agreement does not provide for life care services; and (b) all residents of each Facility are accurately shown in accounting records for such Facility. Without the prior written consent of Landlord, Tenant shall not materially change the form of resident occupancy agreement that was submitted to Landlord prior to the Commencement Date; provided, however, no consent will be required for changes required by applicable law, including applicable licensure laws, but all changes to the form of resident occupancy agreement will be provided to Landlord as and when such changes are made.

16.5 Costs. Tenant shall reimburse Landlord for Landlord’s reasonable costs and expenses incurred in conjunction with the processing and documentation of any assignment, master subletting or management arrangement, including reasonable attorneys’ or other consultants’ fees whether or not such assignment, master sublease or management agreement is ultimately consummated or executed.

ARTICLE XVII

CERTAIN RIGHTS OF LANDLORD

17.1 Right of Entry. Landlord and its representatives may enter on any Facility at any reasonable time after reasonable notice to Tenant to inspect such Facility for compliance to this Lease, to exhibit such Facility for sale, lease or mortgaging, or for any other reason; provided, however, that no such notice shall be required in the event of an emergency, upon an Event of Default or to post notices of non-responsibility under any mechanic’s or materialman’s lien law. No such entry shall unreasonably interfere with residents, resident care or the operations of such Facility.

17.2 Conveyance by Landlord. If Landlord or any successor owner of any Facility shall convey such Facility other than as security for a debt, Landlord or such successor owner, as the case may be, shall thereupon be released from all future liabilities and obligations of the Landlord under this Lease arising or accruing from and after the date of such conveyance or other transfer and, subject to Section 15.2, all such future liabilities and obligations shall thereupon be binding upon the new owner.

17.3 Granting of Easements, etc. Landlord may, from time to time, with respect to each Facility: (a) grant easements, covenants and restrictions, and other rights in the nature of easements, covenants and restrictions, (b) release existing easements, covenants and restrictions, or other rights in the nature of easements, covenants or restrictions, that are for the benefit of such Facility, (c) dedicate or transfer unimproved portions of such Facility for road, highway or other public purposes, (d) execute petitions to have such Facility annexed to any municipal corporation or utility district, (e) execute amendments to any easements, covenants and restrictions affecting such Facility and (f) execute and deliver to any Person any instrument appropriate to confirm or effect such grants, releases, dedications and transfers (to the extent of its interests in such Facility) without the necessity of obtaining Tenant’s consent provided that such easement or other instrument or action contemplated by this Section 17.3 does not unreasonably interfere with Tenant’s operations at such Facility.

ARTICLE XVIII

ENVIRONMENTAL MATTERS

18.1 Hazardous Materials. Tenant shall not allow any Hazardous Materials to be located in, on, under or about any Facility or incorporated in any Facility; provided, however, that Hazardous Materials may be brought, kept, used or disposed of in, on or about a Facility in quantities and for purposes similar to those brought, kept, used or disposed of in, on or about similar facilities used for purposes similar to such Facility’s Primary Intended Use and which are brought, kept, used and disposed of in strict compliance with all Hazardous Materials Laws.

 

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18.2 Notices. Tenant shall immediately advise Landlord in writing of (a) any Environmental Activities in violation of any Hazardous Materials Laws; (b) any Hazardous Materials Claims against Tenant or any Facility; (c) any remedial action taken by Tenant in response to any Hazardous Materials Claims or any Hazardous Materials on, under or about any Facility in violation of any Hazardous Materials Laws; (d) Tenant’s discovery of any occurrence or condition on or in the vicinity of any Facility that materially increase the risk that such Facility will be exposed to Hazardous Materials; and (e) all communications to or from Tenant, any governmental authority or any other Person relating to Hazardous Materials Laws or Hazardous Materials Claims with respect to any Facility, including copies thereof.

18.3 Remediation. If Tenant becomes aware of a violation of any Hazardous Materials Laws relating to any Hazardous Materials in, on, under or about any Facility or any adjacent property, or if Tenant, Landlord or any Facility becomes subject to any order of any federal, state or local agency to repair, close, detoxify, decontaminate or otherwise remediate any Facility or any property adjacent thereto, Tenant shall immediately notify Landlord of such event and, at its sole cost and expense, cure such violation or effect such repair, closure, detoxification, decontamination or other remediation in accordance with all applicable Legal Requirements and subject to Landlord’s prior approval as to scope, process, content and standard for completion. If Tenant fails to implement and diligently pursue any such cure, repair, closure, detoxification, decontamination or other remediation, Landlord shall have the right, but not the obligation, to carry out such action and to recover from Tenant all of Landlord’s costs and expenses incurred in connection therewith.

18.4 Indemnity. Tenant shall indemnify, defend, protect, save, hold harmless and reimburse Landlord for, from and against any and all Losses and Environmental Costs (whether or not arising out of third-party claims and regardless of whether liability without fault is imposed, or sought to be imposed, on Landlord) incurred in connection with, arising out of, resulting from or incident to, directly or indirectly, before or during (but not after) the Term, (a) Environmental Activities, including the effects of such Environmental Activities on any Person or property within or outside the boundaries of the Land of any Facility, (b) the presence of any Hazardous Materials in, on, under or about any Facility and (c) the violation of any Hazardous Material Laws.

18.5 Environmental Inspections. Landlord shall have the right, from time to time, during normal business hours and upon not less than five (5) days written notice to Tenant, except in the case of an emergency in which event no notice shall be required, to conduct an inspection of any Facility to determine Tenant’s compliance with this Article XVIII. Such inspection may include such testing, sampling and analyses as Landlord deems reasonably necessary and may be performed by experts retained by Landlord. All costs and expenses incurred by Landlord under this 18.5 shall be paid on demand by Tenant; provided, however, absent reasonable grounds to suspect Tenant’s breach of its obligations under this Article XVIII, Tenant shall not be required to pay for more than one (1) such inspection in any two (2) year period with respect to each Facility. The obligations set forth in this Article XVIII shall survive the expiration or earlier termination of this Lease.

ARTICLE XIX

LANDLORD’S SECURITY INTEREST

19.1 Grant of Security Interest. For the purpose of securing the payment and performance obligations of Tenant hereunder and in accordance with the terms of the Intercreditor Agreement, Tenant, as debtor, hereby grants to Landlord, as secured party, a security interest in and an express contractual lien upon, all of Tenant’s right, title and interest in and to the Property Collateral, Accounts Collateral and Authorization Collateral (collectively, the “Lease Collateral”). This Lease constitutes a security agreement covering all such Lease Collateral. Lessor agrees to subordinate its security interest in the Lease Collateral to the administrative agent acting on behalf of Tenant’s lenders, pursuant to the Intercreditor

 

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Agreement. This security interest and agreement shall survive the termination of this Lease resulting from an Event of Default. Tenant shall pay all of Landlord’s filing and reasonable record search fees and other costs for such additional security agreements, financing statements, fixture filings and other documents as Landlord may reasonably require to perfect or continue the perfection of its security interest. Additionally, Tenant shall promptly execute such other separate security agreements with respect to the Lease Collateral as Landlord may request from time to time to further evidence the security interest in the Lease Collateral created by this Lease. Upon the occurrence of an Event of Default, Landlord shall be entitled to exercise any and all rights or remedies available to a secured party under the Uniform Commercial Code, or available to a lessor under applicable state laws, with respect to the Lease Collateral, including the right to sell the same at public or private sale.

19.2 Certain Changes. In no way waiving or modifying the provisions of Article XVI above, Tenant shall give Landlord at least thirty (30) days’ prior written notice of any change in Tenant’s principal place of business, name, identity, jurisdiction of organization or corporate structure.

ARTICLE XX

QUIET ENJOYMENT

So long as Tenant shall pay the Rent as the same becomes due and shall fully comply with all of the terms of this Lease and fully perform its obligations hereunder, Tenant shall peaceably and quietly have, hold and enjoy each Facility for the Term, free of any claim or other action by Landlord or anyone claiming by, through or under Landlord, but subject to all liens and encumbrances of record as of the Commencement Date or thereafter provided for in this Lease or consented to by Tenant.

ARTICLE XXI

REIT RESTRICTIONS

21.1 General REIT Provisions. Tenant understands that, in order for Landlord’s Affiliate, Landlord Parent, or any successor Affiliate that is a real estate investment trust to qualify as a real estate investment trust, certain requirements must be satisfied, including the provisions of Section 856 of the Code. Accordingly, Tenant agrees, and agrees to cause its Affiliates, permitted subtenants, if any, and any other parties subject to its control by ownership or contract, to reasonably cooperate with Landlord to ensure that such requirements are satisfied, including providing Landlord or any of its Affiliates with information about the ownership of Tenant and its Affiliates. Tenant agrees, and agrees to cause its Affiliates, upon request by Landlord or any of its Affiliates, to take all action reasonably necessary to ensure compliance with such requirements.

21.2 Characterization of Rents. The parties hereto intend that Rent and other amounts paid by Tenant hereunder will qualify as “rents from real property” within the meaning of Section 856(d) of the Code, or any similar or successor provision thereto and this Agreement shall be interpreted consistent with this intent.

21.3 Prohibited Transactions. Notwithstanding anything to the contrary herein, Tenant shall not (a) sublet, assign or enter into a management arrangement for any Facility on any basis such that the rental or other amounts to be paid by the subtenant, assignee or manager thereunder would be based, in whole or in part, on either (x) the income or profits derived by the business activities of the subtenant, assignee or manager or (y) any other formula such that any portion of any amount received by Landlord would fail to qualify as “rents from real property” within the meaning of Section 856(d) of the Code, or any similar or successor provision thereto; (b) furnish or render any services to the subtenant, assignee or manager or manage or operate any Facility so subleased, assigned or managed; (c) sublet, assign or enter into a management arrangement for any Facility to any Person (other than a taxable REIT subsidiary of

 

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Landlord) in which Tenant or Landlord owns an interest, directly or indirectly (by applying constructive ownership rules set forth in Section 856(d)(5) of the Code); or (d) sublet, assign or enter into a management arrangement for any Facility in any other manner which could cause any portion of the amounts received by Landlord pursuant to this Lease or any sublease to fail to qualify as “rents from real property” within the meaning of Section 856(d) of the Code, or any similar or successor provision thereto, or which could cause any other income of Landlord to fail to qualify as income described in Section 856(c)(2) of the Code. The requirements of this Section 21.3 shall likewise apply to any further subleasing by any subtenant.

21.4 Personal Property REIT Requirements. Notwithstanding anything to the contrary herein, upon request of Landlord, Tenant shall cooperate with Landlord in good faith and provide such documentation and/or information as may be in Tenant’s possession or under Tenant’s control and otherwise readily available to Tenant regarding the valuation of the Premises to assist Landlord in its determination that Rent allocable for purposes of Section 856 of the Code to the Landlord Personal Property at the beginning and end of a calendar year does not exceed 15% of the total Rent due hereunder (the “Personal Property REIT Requirement”). Tenant shall take such reasonable action as may be requested by Landlord from time to time to ensure compliance with the Personal Property REIT Requirement as long as such compliance does not (a) increase Tenant’s monetary obligations under this Lease, (b) materially and adversely increase Tenant’s non-monetary obligations under this Lease or (c) materially diminish Tenant’s rights under this Lease. Accordingly, if requested by Landlord and at Landlord’s expense, Tenant shall cooperate with Landlord as may be necessary from time to time to more specifically identify and/or value the Landlord Personal Property in connection with the compliance with the Personal Property REIT Requirement.

ARTICLE XXII

NOTICES

All notices and demands, certificates, requests, consents, approvals and other similar instruments under this Lease shall be in writing and sent by personal delivery, U. S. certified or registered mail (return receipt requested, postage prepaid) or FedEx or similar generally recognized overnight carrier regularly providing proof of delivery, addressed as follows:

 

If to Tenant:    If to Landlord:

 

c/o Pennant Services, Inc.

1675 Riverside Dr., Suite 150

Eagle, Idaho 83616

Attention: General Counsel

Email: legal@pennantservices.com

  

 

c/o Ensign Services, Inc.

29222 Rancho Viejo Rd., Suite 127

San Juan Capistrano, CA 92675

Attn: General Counsel

Email: legal@ensignservices.net

A party may designate a different address by notice as provided above. Any notice or other instrument so delivered (whether accepted or refused) shall be deemed to have been given and received on the date of delivery established by U.S. Post Office return receipt or the carrier’s proof of delivery or, if not so delivered, upon its receipt. Delivery to any officer, general partner or principal of a party shall be deemed delivery to such party. Notice to any one co-Tenant shall be deemed notice to all co-Tenants.

ARTICLE XXIII

DISPUTE RESOLUTION

The provisions of Article X of that certain Master Separation Agreement, dated as of the date hereof (the “Separation Agreement”), entered into by and between Landlord Parent and Guarantor, shall apply, mutatis mutandis, to all disputes, controversies or claims (whether arising in contract, tort or otherwise) that may arise out of or relate to, or arise under or in connection with this Lease or the transactions contemplated hereby.

 

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ARTICLE XXIV

RESERVED

ARTICLE XXV

TENANT RIGHT OF FIRST OFFER

25.1 Right of First Offer. Except as otherwise specifically provided herein, in the event Landlord determines that it desires to sell any or all of the Premises at any time during the Term, Landlord shall first, in writing, offer to enter into negotiations for such sale with the applicable Tenant or any Affiliate of such Tenant (a “Sellers Notice”). If the applicable Tenant or an Affiliate thereof (“Buyer”) shall within five (5) Business Days from receipt of a Seller’s Notice give Landlord notice that it wishes to enter into good faith negotiations for the purchase of the applicable Premises (a “Notice of Interest”) within the above-described five (5) Business Day period, Landlord and Buyer shall enter into good faith negotiations for a period of ten (10) days from Landlord’s receipt of the Notice of Interest (the “Sale Negotiation Period”) for the sale and purchase of the applicable Facility or Facilities. If during the Sale Negotiation Period a written agreement with respect to the purchase and sale of the applicable Facility or Facilities (a “Purchase Agreement”) is executed by Landlord and Buyer, Landlord shall sell and Buyer shall purchase the applicable Facility or Facilities on the terms and conditions set forth in the Purchase Agreement.

25.2 Landlords Right to Market. If (i) a Notice of Interest is not given as set forth above, and Landlord in its sole discretion continues to desire to sell the applicable Facility or Facilities then, for a period of one (1) year after the expiration of the time within which a Notice of Interest was required to be given, or (ii) a Notice of Interest is given but Landlord and Buyer do not execute a Purchase Agreement during the Sale Negotiation Period, and Landlord in its sole discretion continues to desire to sell the applicable Facility or Facilities, then for a period of one (1) year from the expiration of the Sale Negotiation Period, Landlord shall be free to sell applicable Facility or Facilities to any third party free from any claim of any right to purchase the applicable Facility or Facilities by Buyer, Guarantor or any Affiliate of Buyer or Guarantor (including, without limitation, any subsequent rights under this Article XXV with respect to the applicable Facility or Facilities, which shall be of no further force or effect). If the applicable Facility or Facilities are not sold within such one (1) year period, before entering into negotiations with any third party for the sale of the applicable Facility or Facilities Landlord shall first offer to enter into negotiations for the sale thereof to Buyer pursuant to the process described above.

25.3 Limitations on Right of First Offer. The foregoing right of first offer (i) is not assignable by Tenant except to an Affiliate of Tenant, (ii) shall simultaneously and automatically terminate upon termination of this Lease, (iii) shall not under any circumstances be extended, modified or in any way altered except by a writing executed by Landlord and Tenant and (iv) shall not apply in the event of (A) a merger transaction or sale by Landlord Parent involving all or substantially all of the assets of it and its subsidiaries, (B) collateral security transfers in connection with any debt or equity financing, or transfers pursuant to a foreclosure or a deed in lieu thereof, (C) a sale or transfer to an Affiliate of Landlord Parent or a joint venture entity in which Landlord Parent or its Affiliate is the managing member or partner, or (D) an Excluded Portfolio Sale (as hereinafter defined) by Landlord Parent and/or its Affiliates. For purposes hereof, an “Excluded Portfolio Sale shall mean a sale by Landlord Parent and/or its Affiliates in a single transaction or series of related transactions of more than ten facilities where less than fifty percent (50%) of the facilities included therein are leased to Tenant under the terms of this Lease. Tenant’s right hereunder to receive a Seller Notice and to otherwise acquire any or all of the Premises pursuant to this Article XXV shall be conditioned on no Event of Default having occurred and then be continuing, and each Purchase Agreement shall include as a closing condition in favor of Landlord that no uncured Event of Default exists as of the closing date thereunder.

 

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25.4 Continuing Right. Except as otherwise specifically set forth in Section 25.2, any sale by Landlord of all or any portion of the Premises to a party other than Buyer, Guarantor or any Affiliate of Buyer or Guarantor pursuant to this Article XXV shall be subject in each instance to all of the rights of Tenant under this Lease, including the rights granted to Tenant under this Article XXV.

ARTICLE XXIV

MISCELLANEOUS

24.1 Memorandum of Lease. Landlord and Tenant shall, promptly upon the request of either, enter into a short form memorandum of this Lease, in form suitable for recording under the laws of the applicable Situs State. Tenant shall pay all costs and expenses of recording any such memorandum and shall fully cooperate with Landlord in removing from record any such memorandum upon the expiration or earlier termination of the Term.

24.2 No Merger. There shall be no merger of this Lease or of the leasehold estate created hereby by reason of the fact that the same Person may acquire, own or hold, directly or indirectly, (a) this Lease or the leasehold estate created hereby or any interest in this Lease or such leasehold estate and (b) the fee estate in the Premises.

24.3 No Waiver. No failure by Landlord to insist upon the strict performance of any term hereof or to exercise any right, power or remedy hereunder and no acceptance of full or partial payment of Rent during the continuance of any Event of Default shall constitute a waiver of any such breach or of any such term. No waiver of any breach shall affect or alter this Lease, which shall continue in full force and effect with respect to any other then existing or subsequent breach.

24.4 Acceptance of Surrender. No surrender to Landlord of this Lease or any Facility, or of any interest therein, shall be valid or effective unless agreed to and accepted in writing by Landlord, and no act by Landlord or any representative or agent of Landlord, other than such a written acceptance by Landlord, shall constitute an acceptance of any such surrender.

24.5 Attorneys’ Fees. If Landlord or Tenant brings an action or other proceeding against the other to enforce any of the terms, covenants or conditions hereof or any instrument executed pursuant to this Lease, or by reason of any breach or default hereunder or thereunder, the party prevailing in any such action or proceeding and any appeal thereupon shall be paid all of its costs and reasonable outside attorneys’ fees incurred therein.

24.6 Brokers. Landlord and Tenant each warrants to the other that it has not had any contact or dealings with any Person which would give rise to the payment of any fee or brokerage commission in connection with this Lease, and each shall indemnify, protect, hold harmless and defend the other from and against any liability for any fee or brokerage commission arising out of any act or omission of such indemnifying party.

24.7 Severability. If any term or provision of this Lease or any application thereof shall be held invalid or unenforceable, the remainder of this Lease and any other application of such term or provision shall not be affected thereby.

 

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24.8 Non-Recourse. Tenant specifically agrees to look solely to the Premises for recovery of any judgment from Landlord; provided, however, the foregoing is not intended to, and shall not, limit any right that Tenant might otherwise have to obtain injunctive relief against Landlord, or any action not involving the personal liability of Landlord. Furthermore, in no event shall Landlord be liable to Tenant for any indirect or consequential damages suffered by Tenant from whatever cause.

24.9 Successors and Assigns. This Lease shall be binding upon Landlord and its successors and assigns and, subject to the provisions of Article XVI, upon Tenant and its successors and assigns.

24.10 Governing Law; Jury Waiver. This Lease shall be governed by and construed and enforced in accordance with the internal laws of New York, without regard to the conflict of laws rules thereof; provided that that the law of the applicable Situs State shall govern procedures for enforcing, in the respective Situs State, provisional and other remedies directly related to such Facility and related personal property as may be required pursuant to the law of such Situs State, including without limitation the appointment of a receiver; and, further provided that the law of the Situs State also applies to the extent, but only to the extent, necessary to create, perfect and foreclose the security interests and liens created under this Lease. EACH PARTY HEREBY WAIVES ANY RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY AGAINST THE OTHER IN CONNECTION WITH ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, INCLUDING RELATIONSHIP OF THE PARTIES, TENANT’S USE AND OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF INJURY OR DAMAGE RELATING TO THE FOREGOING OR THE ENFORCEMENT OF ANY REMEDY.

24.11 Entire Agreement. This Lease constitutes the entire agreement of the parties with respect to the subject matter hereof, and may not be changed or modified except by an agreement in writing signed by the parties. Landlord and Tenant hereby agree that all prior or contemporaneous oral understandings, agreements or negotiations relative to the leasing of the Premises are merged into and revoked by this Lease. All exhibits and schedules to this Lease are hereby incorporated herein by this reference. This Lease is an Ancillary Agreement under the Separation Agreement and shall be interpreted in accordance therewith.

24.12 Headings. All titles and headings to sections, articles or other subdivisions of this Lease are for convenience of reference only and shall not in any way affect the meaning or construction of any provision.

24.13 Counterparts. This Lease may be executed in any number of counterparts, each of which shall be a valid and binding original, but all of which together shall constitute one and the same instrument. Executed copies hereof may be delivered by telecopier, email or other electronic means and upon receipt will be deemed originals and binding upon the parties hereto, regardless of whether originals are delivered thereafter.

24.14 Joint and Several. If more than one Person is the Tenant under this Lease, the liability of such Persons under this Lease shall be joint and several.

24.15 Interpretation. Both Landlord and Tenant have been represented by counsel and this Lease and every provision hereof has been freely and fairly negotiated. Consequently, all provisions of this Lease shall be interpreted according to their fair meaning and shall not be strictly construed against any party. Whenever the words “including”, “include” or “includes” are used in this Lease, they shall be interpreted in a non-exclusive manner as though the words “without limitation” immediately followed. Whenever the words “herein,” “hereof” and “hereunder” and other words of similar import are used in this Lease, they shall be interpreted to refer to this Lease as a whole and not to any particular article, section or other subdivision. Whenever the words “day” or “days” are used in this Lease, they shall mean “calendar day” or “calendar days” unless expressly provided to the contrary. All references in this Lease to designated “Articles,” “Sections” and other subdivisions are to the designated Articles, Sections and other subdivisions of this Lease.

 

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24.16 Time of Essence. Time is of the essence of this Lease and each provision hereof in which time of performance is established and whenever action must be taken (including the giving of notice or the delivery of documents) hereunder during a certain period of time or by a particular date that ends or occurs on a day that is not a Business Day, then such period or date shall be extended until the immediately following Business Day.

24.17 Further Assurances. The parties agree to promptly sign all documents reasonably requested by the other party to give effect to the provisions of this Lease.

24.18 Certain Changes. In no way waiving or modifying the provisions of Article XVI above, Tenant shall give Landlord at least thirty (30) days’ prior written notice of any change in Tenant’s principal place of business, name, identity, jurisdiction of organization or corporate structure.

24.19 California Specific Provisions.

24.19.1 In addition to and not in limitation of any other waiver contained herein, Tenant hereby voluntarily waives the provisions of California Civil Code §§1941 and 1942 and all other provisions of law now in force or that become in force hereafter that provide Tenant the right to make repairs at Landlord’s expense and to deduct the expense of such repairs from Rent owing hereunder.

24.19.2 In addition to and not in limitation of any other waiver contained herein, Tenant hereby voluntarily waives any and all rights that Tenant may have under Legal Requirements to terminate this Lease prior to the Expiration Date, including, without limitation:

(a) the provisions of California Civil Code §1932(1) and all other provisions of law now in force or that become in force hereafter that provide Tenant the right to terminate this Lease if Landlord breaches its obligation, if any, as to placing and securing Tenant in the quiet possession of the Premises, putting the Premises in good condition or repairing the Premises;

(b) the provisions of California Civil Code §§1932(2) and 1933(4) and all other provisions of law now in force or that become in force hereafter that would permit or cause a termination of this Lease or an abatement of Rent upon damage to or destruction of the Premises, it being agreed and acknowledged that Article X constitutes an express agreement between Landlord and Tenant that applies in the event of any such damage to or destruction of the Premises; and

(c) the provisions of California Code of Civil Procedure §1265.130 and all other provisions of law now in force or that become in force hereafter that would allow Tenant to petition the courts to terminate this Lease in the event of a Partial Taking.

24.19.3 Landlord and Tenant hereby agree and acknowledge that Article XI provides for Landlord’s and Tenant’s respective rights and obligations in the event of a Condemnation of any Facility and, in addition to and not in limitation of any other waiver contained herein, each hereby voluntarily waives the application of the provisions of California Code of Civil Procedure §§1265.110-1265.160 to this Lease.

24.19.4 In addition to and not in limitation of any other waiver contained herein, Tenant hereby voluntarily waives the provisions of any and all rights conferred by California Civil Code §3275 and California Code of Civil Procedure §§473, 1174 and 1179 and all other provisions of law now in force or that become in force hereafter that provide Tenant the right to redeem, reinstate or restore this Lease following its termination by reason of Tenant’s breach.

 

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24.19.5 Landlord and Tenant hereby agree that when this Lease requires service of a notice, that notice shall replace rather than supplement any equivalent or similar statutory notice, including any notices required by California Code of Civil Procedure §1161 or any similar or successor statute. When a statute requires service of a notice in a particular manner, service of that notice (or a similar notice required by this Lease) in the manner required by Article XXII shall replace and satisfy the statutory service-of-notice procedures, including those required by California Code of Civil Procedure §1162 or any similar or successor statute.

24.19.6 In addition to, and not in substitution of, any of the remedies otherwise available to Landlord under this Lease following the occurrence of an Event of Default, Landlord shall have the remedy described in California Civil Code §1951.4, which provides that Landlord may continue this Lease in full force and effect after Tenant’s breach and abandonment and enforce all of its rights and remedies under this Lease, including the right to recover Rent as it becomes due. Notwithstanding Landlord’s exercise of the remedy described in California Civil Code §1951.4, Landlord may thereafter elect, in its sole discretion, to exercise any other remedy provided for in this Lease, including, without limitation, the right to terminate this Lease as provided in Section 12.2.1 above.

24.19.7 If Landlord elects to terminate this Lease pursuant to Section 12.2.1 above following the occurrence of an Event of Default, then, notwithstanding anything to the contrary herein, Landlord shall be entitled to recover from Tenant all of the following:

(a) The worth at the time of award (defined below) of the unpaid Rent earned at the time of such termination;

(b) The worth at the time of award of the amount by which the unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such rental loss which Tenant proves could have been reasonably avoided;

(c) The worth at the time of award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could reasonably be avoided;

(d) Any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant’s failure to perform its obligations under this Lease, or which, in the ordinary course of things, would likely result therefrom, including brokers’ commission, cost of tenant improvements, and attorneys’ fees; and

(e) Any other amounts, in addition to or in lieu of those listed above, that may be permitted under the applicable Legal Requirements.

The “worth at the time of the award” of the amount(s) referred to in (x) Sections 24.19.7(a) and 24.19.7(b) shall be computed by allowing interest at the Agreed Rate and (y) Section 24.19.7(c) shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award, plus one percent (1%).

24.19.8 As of the date of this Lease, no Facility has undergone inspection by a “Certified Access Specialist” in connection with California Civil Code §1938.

 

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24.19.9 Tenant agrees to reasonably cooperate with Landlord in connection with any energy usage reporting requirements to which Landlord is subject under applicable Legal Requirements with respect to the Facilities.

24.19.10 In connection with any Alterations or other modifications, capital repairs, or improvements made by or on behalf of Tenant to any Facility, Tenant shall (and all such Alterations, modifications, capital repairs, or improvements shall) comply with all permitting, preapproval, standards, rules, regulations, and requirements imposed by the Office of Statewide Health Planning and Development (“OSHPD”) together with all other Legal Requirements imposed by OSHPD or any other Governmental Authority. Tenant shall indemnify, defend, protect and hold harmless Landlord from and against any Losses of any kind that may be imposed upon Landlord in connection with Tenant’s failure to comply with any rules, regulations, permits or other approvals of OSHPD or any other Governmental Authority in connection with any Alterations, modifications, capital repairs, or improvements made by or on behalf of Tenant to any Facility.

[Signature page follows]

 

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IN WITNESS WHEREOF, this Lease has been executed by Landlord and Tenant as of the date first written above.

TENANT:

[______],

a Nevada [_____]

 

By:  

 

Name:  

 

Title:  

 

[______],

a Nevada [_____]

 

By:  

 

Name:  

 

Title:  

 

[______],

a Nevada [_____]

 

By:  

 

Name:  

 

Title:  

 

[______],

a Nevada [_____]

 

By:  

 

Name:  

 

Title:  

 

[Signatures continue on next page]

 

S-1


[______],

a Nevada [_____]

 

By:  

 

Name:  

 

Title:  

 

[______],

a Nevada [_____]

 

By:  

 

Name:  

 

Title:  

 

[______],

a Nevada [_____]

 

By:  

 

Name:  

 

Title:  

 

[______],

a Nevada [_____]

 

By:  

 

Name:  

 

Title:  

 

[______],

a Nevada [_____]

 

By:  

 

Name:  

 

Title:  

 

[Signatures continue on next page]

 

S-2


[______],

a Nevada [_____]

 

By:  

 

Name:  

 

Title:  

 

[______],

a Nevada [_____]

 

By:  

 

Name:  

 

Title:  

 

[______],

a Nevada [_____]

 

By:  

 

Name:  

 

Title:  

 

[Signatures continue on next page]

 

S-3


LANDLORD:

[______]

 

By:  

 

Name:  

 

Title:  

 

[______]

 

By:  

 

Name:  

 

Title:  

 

[______]

 

By:  

 

Name:  

 

Title:  

 

[______]

 

By:  

 

Name:  

 

Title:  

 

[Signatures continue on next page]

 

S-4


JOINDER

The Pennant Group, Inc., a Delaware corporation, hereby joins in this Lease for the limited purpose of assuming and agreeing to be bound by the obligations contained in Section 5.5.

THE PENNANT GROUP, INC.,

a Delaware corporation

 

By:  

 

Name:  

 

Title:  

 

 

S-5


EXHIBIT A

DEFINED TERMS

For all purposes of this Lease, except as otherwise expressly provided in the Lease or unless the context otherwise requires, the following terms have the meanings assigned to them in this exhibit and include the plural as well as the singular:

Accounts Collateral” means, collectively, all of the following: (i) all of the accounts, accounts receivable, payment intangibles, health-care-insurance receivables and any other right to the payment of money in whatever form, of any of the Tenant Sublessees, or any other indebtedness of any Person owing to any of the Tenant Sublessees (whether constituting an account, chattel paper, document, instrument or general intangible), whether presently owned or hereafter acquired, arising from the provision of merchandise, goods or services by any Tenant Sublessee, or from the operations of any Tenant Sublessee at each Facility, including, without limitation, the right to payment of any interest or finance charges and other obligations with respect thereto; (ii) all of the rights, titles and interests of any of the Tenant Sublessees in, to and under all supporting obligations and all other liens and property subject thereto from time to time securing or purporting to secure any such accounts, accounts receivable, payment intangibles, health-care insurance receivables or other indebtedness owing to any of the Tenant Sublessees; (iii) all of the rights, titles and interests of any of the Tenant Sublessees in, to and under all guarantees, indemnities and warranties, letter-of-credit rights, supporting obligations, insurance policies, financing statements and other agreements or arrangements of whatever character from time to time supporting or securing payment of any such accounts, accounts receivable, payment intangibles, health-care insurance receivables or other indebtedness owing to any of the Tenant Sublessees; (iv) all of the now owned or hereafter acquired deposits of any of the Tenant Sublessees representing proceeds from accounts and any deposit account into which the same may be deposited, all other cash collections and other proceeds of the foregoing accounts, accounts receivable, payment intangibles, health-care insurance receivables or other indebtedness (including, without limitation, late charges, fees and interest arising thereon, and all recoveries with respect thereto that have been written off as uncollectible), and all deposit accounts into which the same are deposited; (v) all proceeds (whether constituting accounts, chattel paper, documents, instruments or general intangibles) with respect to the foregoing; and (vi) all books and records with respect to any of the foregoing.

Additional Rent” has the meaning set forth in Section 2.2.

Adjusted CPI Increase” means the actual CPI Increase as of the date of determination, not to exceed two and one-half percent (2.5%). In no event shall the CPI Increase be a negative number.

Affiliate” means with respect to any Person, any other Person which Controls, is Controlled by or is under common Control with the first Person.

Agency Lender” means any of: (i) the U.S. Department of Housing and Urban Development, (ii) the Federal National Mortgage Association (Fannie Mae), or (iii) the Federal Home Loan Mortgage Corporation (Freddie Mac), or any designees, agents, originators, or servicers of any of the foregoing.

Agreed Rate” means, on any date, a rate equal to [____] ([__]%) per annum above the Prime Rate, but in no event greater than the maximum rate then permitted under applicable law. Interest at the aforesaid rates shall be determined for actual days elapsed based upon a 360 day year.

Alterations” means, with respect to each Facility, any alteration, improvement, exchange, replacement, modification or expansion of the Leased Improvements or Fixtures at such Facility.

 

Exhibit A-1


Authorization” means, with respect to each Facility, any and all licenses, permits, certifications, accreditations, Provider Agreements, CONs, certificates of exemption, approvals, waivers, variances and other governmental or “quasi-governmental” authorizations necessary or advisable for the use of such Facility for its Primary Intended Use and receipt of reimbursement or other payments under any Third Party Payor Program in which such Facility participates.

Authorization Collateral” means any Authorizations issued or licensed to, or leased or held by, Tenant.

Bankruptcy Action” means, with respect to any Person, (i) such Person filing a voluntary petition under the Bankruptcy Code or any other federal or state bankruptcy or insolvency law; (ii) the filing of an involuntary petition against such Person under the Bankruptcy Code or any other federal or state bankruptcy or insolvency law which is not dismissed within sixty (60) days of the filing thereof, or soliciting or causing to be solicited petitioning creditors for any involuntary petition against such Person; (iii) such Person filing an answer consenting to or otherwise acquiescing in or joining in any involuntary petition filed against it, by any other Person under the Bankruptcy Code or any other federal or state bankruptcy or insolvency law, or soliciting or causing to be solicited petitioning creditors for any involuntary petition from any Person; (iv) such Person seeking, consenting to or acquiescing in or joining in an application for the appointment of a custodian, receiver, trustee, or examiner for such Person or any portion of the Facility; (v) such Person making an assignment for the benefit of creditors; or (vi) such Person taking any action in furtherance of any of the foregoing.

Bankruptcy Code” means 11 U.S.C. § 101 et seq., as the same may be amended from time to time.

Base Rent” has the meaning set forth in Section 2.1.

Business Day” means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which national banks in the City of New York, New York, are authorized, or obligated, by law or executive order, to close.

Capital Alterations” means any Alteration for which the budgeted cost exceeds [_____] ($[____]).

Cash Flow” shall mean the aggregate net income of Tenant attributable to the operation of the Facilities as reflected on the income statement of Tenant, plus (i) the provision for depreciation and amortization in such income statement, plus (ii) the provision for management fees in such income statement, plus (iii) the provision for income taxes in such income statement, plus (iv) the provision for Base Rent payments and interest and lease payments, if any, relating to the Facilities in such income statement, plus (v) the provision for any other non-operating items in such income statement, and minus (vi) an imputed management fee equal to five percent (5%) of gross revenues of the Facilities (net of contractual allowances).

“Casualty Sale” has the meaning set forth in Section 10.5.

Change in Control” means, as applied to any Person, a change in the Person that ultimately exerts effective Control over the first Person.

Closure Notice” means a written notice delivered by Landlord to Tenant pursuant to which Landlord notifies Tenant that Tenant may commence a Facility Termination as to a particular Facility or Facilities.

 

Exhibit A-2


CMS” means the United States Department of Health, Centers for Medicare and Medicaid Services or any successor agency thereto.

Code” means the Internal Revenue Code of 1986 and, to the extent applicable, the Treasury Regulations promulgated thereunder, each as amended from time to time.

Commencement Date” has the meaning set forth in Section 1.4.

“Compensatory Payment” has the meaning set forth in Section 10.5.

“Compensatory Payment Date” has the meaning set forth in Section 10.5.

“Compensatory Payment Statement” has the meaning set forth in Section 10.5.

Complete Taking” means the Condemnation of all or substantially all of a Facility or a Condemnation that results in a Facility no longer being capable of being operated for its Primary Intended Use.

CON” means, with respect to each Facility, a certificate of need or similar permit or approval (not including conventional building permits) from a Governmental Authority related to (i) the construction and/or operation of such Facility for the use of a specified number of beds in an assisted living facility or senior independent living facility, or (ii) the alteration of such Facility or (iii) the modification of the services provided at such Facility.

Condemnation” means the exercise of any governmental power, whether by legal proceedings or otherwise, by a Condemnor or a voluntary sale or transfer by Landlord to any Condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending.

Condemnor” means any public or quasi-public authority, or private corporation or individual, having the power of condemnation.

Contingent Obligation” means any direct or indirect liability of Tenant: (i) with respect to any Debt of another Person; (ii) with respect to any undrawn portion of any letter of credit issued for the account of Tenant as to which Tenant is otherwise liable for the reimbursement of any drawing; (iii) to make take-or-pay or similar payments if required regardless of nonperformance by any other party or parties to an agreement; (iv) claims, liabilities and damages arising in the Ordinary Course of Business; or (v) for any obligations of another Person pursuant to any guaranty or pursuant to any agreement to purchase, repurchase or otherwise acquire any obligation or any property constituting security therefor, to provide funds for the payment or discharge of such obligation or to preserve the solvency, financial condition or level of income of another Person. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guarantied or otherwise supported or, if not a fixed and determinable amount, the maximum amount so guarantied or otherwise supported.

Control”, together with the correlative terms “Controlled” and “Controls,” means, as applied to any Person, the possession, directly or indirectly, of the power to direct the management and policies of that Person, whether through ownership, voting control, by contract or otherwise.

CPI” means the United States Department of Labor, Bureau of Labor Statistics Consumer Price Index for All Urban Wage Earners and Clerical Workers, United States Average, Subgroup “All Items” (1982 - 1984 = 100). If the foregoing index is discontinued or revised during the Term, the governmental index or computation with which it is replaced shall be used to obtain substantially the same result as if such index had not been discontinued or revised.

 

Exhibit A-3


CPI Increase” means the percentage increase (but not decrease) in (i) the CPI published for the beginning of each Lease Year, over (ii) the CPI published for the beginning of the immediately preceding Lease Year.

Debt” For any Person, without duplication: (i) all indebtedness of such Person for borrowed money, for amounts drawn under a letter of credit or for the deferred purchase price of property for which such Person or its assets is liable; (ii) all unfunded amounts under a loan agreement, letter of credit or other credit facility for which such Person would be liable if such amounts were advanced thereunder; (iii) all amounts required to be paid by such Person as a guaranteed payment to partners or a preferred or special dividend, including any mandatory redemption of shares or interests; (iv) all indebtedness guaranteed by such Person, directly or indirectly; (v) all obligations under leases that constitute capital leases for which such Person is liable; (vi) all obligations of such Person under interest rate swaps, caps, floors, collars and other interest hedge agreements, in each case whether such Person is liable contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which obligations such Person otherwise assures a creditor against loss; (vii) off-balance sheet liabilities of such Person; and (viii) obligations arising under bonus, deferred compensation, incentive compensation or similar arrangements, other than those arising in the Ordinary Course of Business.

Environmental Activities” mean, with respect to each Facility, the use, generation, transportation, handling, discharge, production, treatment, storage, release or disposal of any Hazardous Materials at any time to or from such Facility or located on or present on or under such Facility.

“Environmental Costs” include interest, costs of response, removal, remedial action, containment, cleanup, investigation, design, engineering and construction, damages (including actual and consequential damages) for personal injuries and for injury to, destruction of or loss of property or natural resources, relocation or replacement costs, penalties, fines, charges or expenses, attorney’s fees, expert fees, consultation fees, and court costs, and all amounts paid in investigating, defending or settling any of the foregoing.

Event of Default” has the meaning set forth in Section 12.1.

Excess Capital Expenditures Amount” has the meaning set forth in Section 6.6.

Expiration Date” means the Initial Expiration Date, as may be extended pursuant to Section 1.4.

Extension Notice” has the meaning set forth in Section 1.4.

Extension Term” has the meaning set forth in Section 1.4.

Facility” means each healthcare facility located on the Premises, as identified on Schedule 2 attached hereto, including, where the context requires, the Land, Leased Improvements, Intangibles and Landlord Personal Property associated with such healthcare facility.

Facility Default” means an Event of Default that relates directly to one or more of the Facilities (such as, for example only and without limitation, an Event of Default arising from a failure to maintain or repair, or to operate for the Primary Intended Use, or to maintain the required Authorizations for, one or more of the Facilities), as opposed to an Event of Default that, by its nature, does not relate directly to any of the Facilities.

 

Exhibit A-4


Facility Improvement Fund Cap” means, with respect to any Facility, the amount equal to the product of: (i) the amount of Landlord’s initial investment in such Facility, and (ii) twenty percent (20%).

Facility Mortgage” means any mortgage, deed of trust or other security agreement or lien encumbering any Facility and securing an indebtedness of Landlord or any Affiliate of Landlord or any ground, building or similar lease or other title retention agreement to which any Facility are subject from time to time.

Facility Mortgage Documents” means with respect to each Facility Mortgage and Facility Mortgagee, the applicable Facility Mortgage, loan or credit agreement, lease, note, collateral assignment instruments, guarantees, indemnity agreements and other documents or instruments evidencing, securing or otherwise relating to the loan made, credit extended, lease or other financing vehicle pursuant thereto. Facility Mortgage Documents shall also include, without limitation, any documents typically required by any Agency Lender in connection with a Facility Mortgage, including, but not limited to: (i) tenant regulatory agreements, (ii) intercreditor agreements with any receivables lender of Tenant, and (iii) any subordination, assignment, and security agreements.

Facility Mortgagee” means the holder or beneficiary of a Facility Mortgage and any other rights of the lender, credit party or lessor under the applicable Facility Mortgage Documents, including, without limitation, any Agency Lender.

Facility Removal Date” has the meaning set forth in Section 12.2.6.

Facility Termination” has the meaning set forth in Section 13.2.6.

Fair Market Value” means the fair market value of a Facility as determined pursuant to Exhibit E.

Fixtures” means all equipment, machinery, fixtures and other items of real and/or personal property, including all components thereof, now and hereafter located in, on, or used in connection with and permanently affixed to or incorporated into the Leased Improvements, including all furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting, ventilating, refrigerating, incineration, air and water pollution control, waste disposal, air-cooling and air-conditioning systems, apparatus, sprinkler systems, fire and theft protection equipment and built-in oxygen and vacuum systems, all of which, to the greatest extent permitted by law, are hereby deemed to constitute real estate, together with all replacements, modifications, alterations and additions thereto.

GAAP” means generally accepted accounting principles, consistently applied.

Governmental Authority” means any court, board, agency, commission, bureau, office or authority or any governmental unit (federal, state, county, district, municipal, city or otherwise) and any regulatory, administrative or other subdivision, department or branch of the foregoing, whether now or hereafter in existence, including, without limitation, CMS, the United States Department of Health and Human Services, any state licensing agency or any accreditation agency or other quasi-governmental authority.

Governmental Payor” means any state or federal health care program providing medical assistance, health care insurance or other coverage of health care items or services for eligible individuals, including but not limited to the Medicare program more fully described in Title XVIII of the Social Security Act (42 U.S.C. §§ 1395 et seq.) and the Medicaid program more fully described in Title XIX of the Social Security Act (42 U.S.C. §§ 1396 et seq.) and the regulations promulgated thereunder.

 

Exhibit A-5


Guarantor” has the meaning set forth in Section 2.5, together with any and all permitted successors and assigns of the Guarantor originally named herein and any additional Person that guaranties the obligations of Tenant hereunder, from time to time.

Guaranty” has the meaning set forth in the Recitals to this Agreement.

Hazardous Materials” mean (i) any petroleum products and/or by-products (including any fraction thereof), flammable substances, explosives, radioactive materials, hazardous or toxic wastes, substances or materials, known carcinogens or any other materials, contaminants or pollutants which pose a hazard to any Facility or to Persons on or about any Facility or cause any Facility to be in violation of any Hazardous Materials Laws; (ii) asbestos in any form which is friable; (iii) urea formaldehyde in foam insulation or any other form; (iv) transformers or other equipment which contain dielectric fluid containing levels of polychlorinated biphenyls in excess of fifty (50) parts per million or any other more restrictive standard then prevailing; (v) medical wastes and biohazards; (vi) radon gas; and (vii) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority or may or could pose a hazard to the health and safety of the occupants of any Facility or the owners and/or occupants of property adjacent to or surrounding any Facility, including, without limitation, any materials or substances that are listed in the United States Department of Transportation Hazardous Materials Table (49 CFR 172.101) as amended from time to time.

Hazardous Materials Laws” mean any laws, ordinances, regulations, rules, orders, guidelines or policies relating to the environment, health and safety, Environmental Activities, Hazardous Materials, air and water quality, waste disposal and other environmental matters.

Hazardous Materials Claims” mean any and all enforcement, clean-up, removal or other governmental or regulatory actions or orders threatened, instituted or completed pursuant to any Hazardous Material Laws, together with all claims made or threatened by any third party against any Facility, Landlord or Tenant relating to damage, contribution, cost recovery compensation, loss or injury resulting from any Hazardous Materials.

Impositions” means any property (real and personal) and other taxes and assessments levied or assessed with respect to this Lease, any Facility, Tenant’s interest therein or Landlord, with respect to any Facility, including, without limitation, any state or county occupation tax, transaction privilege, franchise taxes, margin taxes, business privilege, rental tax or other excise taxes. Notwithstanding the foregoing, Impositions shall not include any local, state or federal income tax based upon the net income of Landlord and any transfer tax or stamps arising from Landlord’s transfer of any interest in any Facility.

Improvement Funds” has the meaning set forth in Section 6.7.

Improvement Funds Rate” means a percentage rate equal to the lesser of (A) the sum of (i) Landlord Parent’s Weighted Average Cost of Capital on the date of determination, plus (ii) a market supported minimum spread reasonably and mutually acceptable to both Landlord and Tenant, and (B) [_____]%.

Initial Expiration Date” has the meaning set forth in Section 1.4.

Initial Term” has the meaning set forth in Section 1.4.

Insurance Requirements” mean all terms of any insurance policy required by this Lease and all requirements of the issuer of any such policy, together with all fire underwriters’ regulations promulgated from time to time.

 

Exhibit A-6


Intangibles” means the interest, if any, of Landlord in and to any of the following intangible property owned by Landlord in connection with the Land and the Leased Improvements: (i) the identity or business of each Facility as a going concern, including, without limitation, any names or trade names by which each Facility may be known, and all registrations for such names, if any; (ii) to the extent assignable or transferable, the interest, if any, of Landlord in and to each and every guaranty and warranty concerning the Leased Improvements or Fixtures, including, without limitation, any roofing, air conditioning, heating, elevator and other guaranty or warranty relating to the construction, maintenance or repair of the Leased Improvements or Fixtures; and (iii) the interest, if any, of Landlord in and to all Authorizations to the extent the same can be assigned or transferred in accordance with applicable law; provided, however, that the foregoing shall not include any CON issued to or held by Landlord which shall only be licensed to Tenant on a temporary basis, which license shall be revocable at any time by Landlord.

Intercreditor Agreement” means an intercreditor agreement substantially in the form attached hereto as Exhibit F and to be entered into by and between Lessor and the administrative agent acting on behalf of Tenant’s lenders.

Land” means, individually and collectively, the real property described in Exhibit B attached to this Lease.

Landlord” has the meaning set forth in the opening preamble, together with any and all successors and assigns of the Landlord originally named herein.

Landlord Indemnified Parties” means Landlord’s Affiliates and Landlord’s and its Affiliates’ agents, employees, owners, partners, members, managers, contractors, representatives, consultants, attorneys, auditors, officers and directors.

Landlord Parent” means The Ensign Group, Inc., a Delaware corporation.

Landlord Parent Weighted Average Cost of Capital” means the weighted average cost of the debt and equity capital of Landlord Parent for the ninety (90) day period immediately preceding the date of determination. Such weighted average cost of capital shall be determined by taking into account the proportional relevance of each of the following components based upon the targeted capital structure of Landlord Parent as of the date of determination: (i) the cost of common equity, which is equal to the twelve (12) month forward funds from operation per share consensus estimate divided by the average common stock price for the period of determination, divided by ninety-five percent (95%); (ii) the cost of preferred equity, which is equal to the weighted average dividend yield of all outstanding series of preferred stock; (iii) the cost of debt, which is equal to the ten (10) year Treasury Rate plus a spread equal to the indicative spread on Landlord Parent’s largest outstanding note plus thirty (30) basis points; and (iv) the cost of internally generated cash, which is equal to the all-in drawn rate on Landlord Parent’s revolving credit facility.

Landlord Personal Property” means the machinery, equipment, furniture and other personal property described in Exhibit C attached to this Lease, together with all replacements, modifications, alterations and substitutes thereof (whether or not constituting an upgrade).

Landlord’s Representatives” means Landlord’s agents, employees, contractors, consultants, attorneys, auditors, architects and other representatives.

Lease” has the meaning set forth in the opening preamble.

Lease Year” means each successive period of twelve (12) calendar months during the Term, commencing as of the same day and month (but not year, except in the case of the first (1st) Lease Year) as the Commencement Date.

Leased Improvements” means all buildings, structures and other improvements of every kind now or hereafter located on the Land including, alleyways and connecting tunnels, sidewalks, utility pipes, conduits, and lines (on-site and off-site to the extent Landlord has obtained any interest in the same), parking areas and roadways appurtenant to such buildings and structures.

Legal Requirements” means all federal, state, county, municipal and other governmental statutes, laws (including common law and Hazardous Materials Laws), rules, policies, guidance, codes, orders, regulations, ordinances, permits, licenses, covenants, conditions, restrictions, judgments, decrees and injunctions applicable to Tenant or affecting any Facility or the applicable Tenant Personal Property or the maintenance, construction, use, condition, operation or alteration thereof, whether now or hereafter enacted and in force, including, any and all of the foregoing that relate to the use of each Facility for its Primary Intended Use.

 

Exhibit A-7


Licensing Impairment” means, with respect to each Facility, (i) the revocation, suspension or non-renewal of any Authorization, (ii) any material withholding, non-payment, reduction or other adverse change respecting any Provider Agreement, (iii) any admissions hold under any Provider Agreement, or (iv) any other act or outcome similar to the foregoing that would have a material adverse effect on Tenant’s ability to continue to operate such Facility for its Primary Intended Use or to receive any rents or profits therefrom.

“Limited Remedy Event of Default” has the meaning set forth in Section 12.2.6.

Limited Termination Election” has the meaning set forth in Section 12.2.6.

Losses” mean all claims, demands, expenses, actions, judgments, damages, penalties, fines, liabilities, losses of every kind and nature (including without limitation losses of use or economic benefit or diminution in value), suits, administrative proceedings, costs and fees, including, without limitation, reasonable attorneys’ and reasonable consultants’ fees and expenses.

“LRED Damages” has the meaning set forth in Section 12.2.6.

Material Alterations” mean any Alterations that (i) would materially enlarge or reduce the size of the applicable Facility, (ii) would tie in or connect with any improvements on property adjacent to the applicable Land, or (iii) would affect the structural components of the applicable Facility or the main electrical, mechanical, plumbing, elevator or ventilating and air conditioning systems for such Facility in any material respect.

Maintenance Expenditures” means, with respect to each Facility, repairs, replacements and improvements to such Facility (other than the Landlord Personal Property) that have been completed in a good, workmanlike and lien free fashion and in compliance with all Legal Requirements and the terms of Sections 6.4 and 6.5 applicable to any Alterations.

Maintenance Expenditures Report” has the meaning set forth in Section 6.6.1.

Minimum Aggregate Maintenance Amount” has the meaning set forth in Section 6.6.1.

Net Replacement Rent Amount” has the meaning set forth in Section 12.2.6.

Nonsolicitation Period” means the period commencing on the date this lease is terminated and ending the date that is six (6) months following the expiration of the Term.

“Occurrence Date” has the meaning set forth in Section 12.2.6.

OFAC” has the meaning set forth in Section 9.2.1.

Operational Transfer” has the meaning set forth in Section 13.2.1.

Ordinary Course of Business” means in respect of any transaction involving Tenant, the ordinary course of business of Tenant, as conducted by Tenant in accordance with past practices. In respect of any transaction involving a Facility or the operations thereof, the ordinary course of operations for such Facility, as conducted by Tenant in accordance with past practices.

 

Exhibit A-8


Overage Amount” has the meaning set forth in Section 6.6.1.

Partial Taking” means any Condemnation of a Facility or any portion thereof that is not a Complete Taking.

Payment Date” means any due date for the payment of the installments of Base Rent or any other sums payable under this Lease.

Permitted Contingent Obligations” means each of the following: (i) Contingent Obligations arising in respect of Tenant’s obligations under this Lease; (ii) Contingent Obligations resulting from endorsements for collection or deposit in the Ordinary Course of Business; (iii) Contingent Obligations incurred in the Ordinary Course of Business, including, without limitation, Contingent Obligations with respect to debt financing issued or incurred by the Guarantor; (iv) Contingent Obligations arising with respect to customary indemnification obligations in favor of purchasers in connection with dispositions of personal property assets permitted under this Lease; and (v) other Contingent Obligations not permitted by clauses (i) through (iv) above, not to exceed, with respect to each Tenant, $100,000 in the aggregate at any time outstanding.

Permitted Debt” means of the following: (i) the obligations of Tenant under this Lease, and (ii), any financing arising and paid on a timely basis in the Ordinary Course of Business other than leasehold financing, including, without limitation, Permitted Contingent Obligations.

Permitted Encumbrances” means, with respect to each Facility, collectively, (i) all easements, covenants, conditions, restrictions, agreements and other matters with respect to such Facility that (a) are of record as of the Commencement Date, (b) Landlord entered into after the Commencement Date (subject to the terms hereof); or (c) are specifically consented to in writing by Landlord, (ii) any liens for Impositions that are not yet due and payable; (iii) occupancy rights of residents of such Facility; and (iv) liens of mechanics, laborers, materialman, suppliers or vendors for sums not yet due, provided that such reserve or other appropriate provisions as shall be required by law or GAAP or pursuant to prudent commercial practices shall have been made therefor.

Person” means any individual, partnership, association, corporation, limited liability company or other entity.

Plans and Specifications” has the meaning set forth in Section 6.5.1.

“Post-Casualty Facility” has the meaning set forth in Section 10.5.

Premises” means, collectively, the Land, Leased Improvements, Related Rights, Fixtures, Intangibles and Landlord Personal Property.

Premises Condition Report” has the meaning set forth in Section 6.2.

Primary Intended Use” means, as to each Facility, the type of healthcare facility corresponding to such Facility as shown on Schedule 2 attached hereto, with no less than the number of licensed beds as shown on Schedule 2 and for ancillary services relating thereto.

Prime Rate” means, on any date, a rate equal to the annual rate on such date reported in The Wall Street Journal to be the “prime rate.”

Prohibited Persons” has the meanings set forth in Section 9.2.1.

 

Exhibit A-9


Property Collateral” means all of Tenant’s right, title and interest in and to the Tenant Personal Property and any and all products, rents, proceeds and profits thereof in which Tenant now owns or hereafter acquires an interest or right.

Provider Agreements” means any agreements issued to or held by Tenant pursuant to which any Facility is licensed, certified, approved or eligible to receive reimbursement under any Third Party Payor Program.

Real Property Impositions” mean any real property Impositions secured by a lien encumbering any Facility or any portion thereof.

Reimbursement Period” has the meaning set forth in Section 13.2.5.

Related Rights” means all easements, rights and appurtenances relating to the Land and the Leased Improvements.

Rent” means, collectively, Base Rent and Additional Rent.

Rent Offset” means, in the event Landlord elects to sell any Terminated Facilities pursuant to Section 12.2.6, for any given time, an amount determined by the following formula:

RO  =  (SP  x  (1  +  LY)n)  x  LY

Where:

 

  RO

is the amount by which Base Rent shall be reduced

 

  SP

equals the value of all consideration received by Landlord from the sale of such Terminated Facilities, net of any applicable Landlord expenses, including without limitation broker fees, sales taxes and closing costs

 

  n

equals the years remaining until the Initial Expiration Date

 

  LY

is a lease yield equal to         %

Request for Advance” has the meaning set forth in Section 6.7.

Required Per Bed Annual Capital Expenditures Amount” means an amount per licensed bed per Lease Year that Tenant is required to expend on Capital Expenditures with respect to each Facility, which amount shall be Four Hundred Dollars ($400).

“Required Reconstruction Approvals” has the meaning set forth in Section 10.5.

Situs State” means the state or commonwealth where a Facility is located.

Temporary Taking” means any Condemnation of a Facility or any portion thereof, whether the same would constitute a Complete Taking or a Partial Taking, where the Condemnor or its designee uses or occupies such Facility, or any portion thereof, for no more than twelve consecutive (12) months.

Tenant” has the meaning set forth in the opening preamble, together with any and all permitted successors and assigns of the Tenant originally named herein.

Tenant Personal Property” shall have the meaning set forth in Section 5.1.

 

Exhibit A-10


Tenant Sublessees” mean Tenant, and any direct or indirect subtenants or operator of any Facility, together with their successors and assigns and any additions thereto or replacements thereof.

Term” means the Initial Term, plus any duly authorized Extension Terms.

Terminated Facilities” has the meaning set forth in Section 12.2.6.

Termination Notice” has the meaning set forth in Section 12.2.6.

Third Party Payor Programs” shall mean any third party payor programs pursuant to which healthcare facilities qualify for payment or reimbursement for medical or therapeutic care or other goods or services rendered, supplied or administered to any admittee, occupant or resident by or from any Governmental Authority, Governmental Payor, bureau, corporation, agency, commercial insurer, non-public entity, “HMO,” “PPO” or other comparable party.

Transfer” means any of the following, whether effectuated directly or indirectly, through one or more step transactions or tiered transactions, voluntarily or by operation of law, (i) assigning, conveying, selling, pledging, mortgaging, hypothecating or otherwise encumbering, transferring or disposing of all or any part of this Lease or Tenant’s leasehold estate hereunder, (ii) subletting of all or any part of any Facility; (iii) engaging the services of any Person for the management or operation of all or any part of any Facility; (iv) conveying, selling, assigning, transferring, pledging, hypothecating, encumbering or otherwise disposing of any stock, partnership, membership or other interests (whether equity or otherwise) in Tenant, Guarantor or any Person that Controls Tenant or any Guarantor, if such conveyance, sale, assignment, transfer, pledge, hypothecation, encumbrance or disposition results, directly or indirectly, in a Change in Control of Tenant or Guarantor (or of such controlling Person); (v) merging or consolidating Tenant, Guarantor, or any Person that Controls Tenant or Guarantor with or into any other Person, if such merger or consolidation, directly or indirectly, results in a Change in Control of Tenant or Guarantor (or in such controlling Person); (vi) dissolving Tenant or Guarantor or any Person that Controls Tenant or Guarantor; (vii) selling, conveying, assigning, or otherwise transferring all or substantially all of the assets of Tenant, Guarantor or any Person that Controls Tenant or Guarantor; (viii) selling, conveying, assigning or otherwise transferring any of the assets of Tenant or Guarantor, if the consolidated net worth of Tenant or Guarantor immediately following such transaction is not at least equal to the consolidated net worth of Tenant or Guarantor, as applicable, as of the Commencement Date; (ix) assigning, conveying, selling, pledging, mortgaging, hypothecating or otherwise encumbering, transferring or disposing of any Authorization; or (ix) entering into or permitting to be entered into any agreement or arrangement to do any of the foregoing or granting any option or other right to any Person to do any of the foregoing, other than to Landlord under this Lease. For purposes hereof, Guarantor shall be deemed a Person that Controls Tenant, whether or not the same is true.

Transition Notice” shall have the meaning set forth in Section 13.2.1.

 

Exhibit A-11


EXHIBIT B

DESCRIPTION OF THE LAND

[to be added]

 

Exhibit B-1


EXHIBIT C

THE LANDLORD PERSONAL PROPERTY

All machinery, equipment, furniture and other personal property located at or about any Facility and that is necessary to own, operate or maintain any Facility in accordance with the terms of this Lease, together with all replacements, modifications, alterations and substitutes thereof (whether or not constituting an upgrade) but excluding the following:

(a) all office supplies, medical supplies, food supplies, housekeeping supplies, laundry supplies, and inventories and supplies physically on hand at the Facility;

(b) all customer lists, resident files, and records related to residents (subject to confidentiality privileges) and all books and records with respect to the operation of the Facility;

(c) all employee time recording devices, proprietary software and discs used in connection with the operation of the Facility by Tenant or any Person who manages the operations of any Facility, all employee pagers, employee manuals, training materials, policies, procedures, and materials related thereto with respect to the operation of the Facilities; and

(d) all telephone numbers, brochures, pamphlets, flyers, mailers, and other promotional materials related to the marketing and advertising of the Tenant’s business at the Facility.

 

Exhibit C


EXHIBIT D

FINANCIAL, MANAGEMENT AND REGULATORY REPORTS

FINANCIAL REPORTING

 

 

   

Quarterly Financial Reporting:

 

   

No later than 60 days after the end of each fiscal quarter of Tenant, Tenant shall deliver to Landlord, presented on a consolidated, quarterly and year-to-date unaudited financial statements prepared for the applicable quarter with respect to Guarantor. Such reports shall include:

 

   

A consolidated balance sheet as of the end of such fiscal quarter;

 

   

Related consolidated statements of income;

 

   

A consolidating Facility-by-Facility basis statement of income and related operating status (including occupancy).

 

   

Together with its delivery to Landlord of the quarterly financial reports and statements required hereunder, Tenant shall deliver, or cause to be delivered, to Landlord, an Officer’s Certificate (for Tenant and a separate Officer’s Certificate (from an officer of any Guarantor) for any financial reports of statements of Guarantor) certifying that the foregoing statements and reports are true and correct and were prepared in accordance with GAAP, applied on a consistent basis, subject to changes resulting from audit adjustments.

 

   

Annual Financial Reporting: As soon as available, and in any event within 90 days after the close of each fiscal year of Tenant, Tenant shall deliver to Landlord, presented on a consolidated basis, financial statements prepared for such fiscal year with respect to Guarantor, including a balance sheet and operating statement as of the end of such fiscal year, together with related statements of income and members’, partners’, or owners’ capital for such fiscal year.

 

   

The annual financial statements delivered by Guarantor hereunder, shall have been audited by an independent certified public accounting firm reasonably satisfactory to Landlord, whose opinion shall be to the effect that such financial statements have been prepared in accordance with GAAP, applied on a consistent basis, and shall not be qualified as to the scope of the audit or as to the status of any Tenant or Guarantor as a going concern.

 

   

Audit and Other Inspection Rights: Without limitation of Tenant’s other obligations as set forth in this Lease or this Exhibit D, Landlord shall have the right, from time to time and at its expense (unless an Event of Default exists, in which case Tenant shall, within ten (10) days after demand therefor, reimburse Landlord for any and all costs and expenses incurred by Landlord in connection with exercising its rights under this paragraph), to audit and inspect the books, records and accounts of Tenant or any Guarantor and/or relative to any Facility(ies) designated by Landlord from time to time, provided, however, that, (a) if no Event of Default exists, Landlord shall give Tenant not less than thirty (30) days advance written notice of the commencement of any such inspection and (b) Landlord shall not require or perform any act that would cause Tenant or any Guarantor to violate any laws, regulations or ordinances relating to employment records or that protect the privacy rights of Tenant’s or Guarantor’s employees or residents. Tenant shall reasonably cooperate (and shall cause its independent accountants and other financial advisors to reasonably cooperate) with all such inspections. Such inspections shall be conducted in a manner that does not materially interfere with Tenant’s business operations or the business operations relative to any affected Facility(ies). Unless otherwise agreed in writing by Landlord and Tenant, such inspections shall occur during normal business hours.

 

Exhibit D-1


   

Method of Delivery: All financial statements, reports, data and other information required to be delivered by Tenant (or Guarantor) pursuant hereto shall be delivered via email to such email address as Landlord may designate from time to time and shall be in the format and otherwise in the form required pursuant to Section 5.7; provided that the timely filing of any such reports with the SEC shall be deemed delivery to Landlord hereunder.

REGULATORY REPORTING