Exhibit 10.19




 





 


 


$8,000,000


 


TERM LOAN AGREEMENT


 


Dated as of May 20, 2005


 


among


 


NATIONAL MENTOR HOLDINGS, INC.,


 


NATIONAL MENTOR, INC.,


 


CERTAIN SUBSIDIARIES THEREOF


 


and


 


BANK OF AMERICA, N.A.




 


 





 





















 


TABLE OF CONTENTS


 


	
  Section

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE I.

  	
  DEFINITIONS AND ACCOUNTING
  TERMS

  	
   

  
	
  1.01

  	
  Defined Terms

  	
   

  
	
  1.02

  	
  Other Interpretive
  Provisions

  	
   

  
	
  1.03

  	
  Accounting Terms

  	
   

  
	
  1.04

  	
  Rounding

  	
   

  
	
  1.05

  	
  Times of Day

  	
   

  
	
  ARTICLE II.

  	
  THE COMMITMENT AND CREDIT
  EXTENSIONS

  	
   

  
	
  2.01

  	
  Loans

  	
   

  
	
  2.02

  	
  Borrowings, Conversions and
  Continuations of Loans

  	
   

  
	
  2.03

  	
  Prepayments

  	
   

  
	
  2.04

  	
  Termination or Reduction of Commitment

  	
   

  
	
  2.05

  	
  Repayment of Loans

  	
   

  
	
  2.06

  	
  Interest

  	
   

  
	
  2.07

  	
  Fees

  	
   

  
	
  2.08

  	
  Computation of Interest and Fees

  	
   

  
	
  2.09

  	
  Evidence of Debt

  	
   

  
	
  2.10

  	
  Payments Generally

  	
   

  
	
  2.11

  	
  Borrowing Agent

  	
   

  
	
  2.12

  	
  Increase in Commitments

  	
   

  
	
  2.13

  	
  Designated Borrowers

  	
   

  
	
  ARTICLE III.

  	
  TAXES, YIELD
  PROTECTION AND ILLEGALITY

  	
   

  
	
  3.01

  	
  Taxes

  	
   

  
	
  3.02

  	
  Illegality

  	
   

  
	
  3.03

  	
  Inability to Determine LIBOR Monthly
  Floating Rate

  	
   

  
	
  3.04

  	
  Increased Costs

  	
   

  
	
  3.05

  	
  Mitigation Obligations

  	
   

  
	
  3.06

  	
  Survival

  	
   

  
	
  ARTICLE IV.

  	
  CONDITIONS
  PRECEDENT TO CREDIT EXTENSIONS

  	
   

  
	
  4.01

  	
  Conditions of Initial Loan

  	
   

  
	
  4.02

  	
  Conditions to all Loans

  	
   

  
				



 


i





















 


	
  ARTICLE V.

  	
  REPRESENTATIONS
  AND WARRANTIES

  	
   

  
	
  5.01

  	
  Financial Condition

  	
   

  
	
  5.02

  	
  No Change

  	
   

  
	
  5.03

  	
  Existence; Compliance with Law

  	
   

  
	
  5.04

  	
  Power; Authorization; Enforceable
  Obligations

  	
   

  
	
  5.05

  	
  No Legal Bar

  	
   

  
	
  5.06

  	
  Litigation

  	
   

  
	
  5.07

  	
  No Default

  	
   

  
	
  5.08

  	
  Ownership of Property; Liens

  	
   

  
	
  5.09

  	
  Licenses, Intellectual Property

  	
   

  
	
  5.10

  	
  Taxes

  	
   

  
	
  5.11

  	
  Federal Regulations

  	
   

  
	
  5.12

  	
  Labor Matters

  	
   

  
	
  5.13

  	
  ERISA

  	
   

  
	
  5.14

  	
  Investment Company Act; Other Regulations

  	
   

  
	
  5.15

  	
  Subsidiaries

  	
   

  
	
  5.16

  	
  Use of Proceeds

  	
   

  
	
  5.17

  	
  Environmental Matters

  	
   

  
	
  5.18

  	
  Accuracy of Information, etc

  	
   

  
	
  5.19

  	
  Mortgages

  	
   

  
	
  5.20

  	
  Solvency

  	
   

  
	
  5.21

  	
  Senior Indebtedness

  	
   

  
	
  5.22

  	
  Regulation H

  	
   

  
	
  ARTICLE VI.

  	
  AFFIRMATIVE COVENANTS

  	
   

  
	
  6.01

  	
  Financial Statements

  	
   

  
	
  6.02

  	
  Certificates; Other Information

  	
   

  
	
  6.03

  	
  Payment of Obligations

  	
   

  
	
  6.04

  	
  Maintenance of Existence; Compliance

  	
   

  
	
  6.05

  	
  Maintenance of Property; Insurance

  	
   

  
	
  6.06

  	
  Inspection of Property; Books and Records;
  Discussions

  	
   

  
	
  6.07

  	
  Notices

  	
   

  
	
  6.08

  	
  Environmental Laws

  	
   

  
				



 


ii





















 


	
  6.09

  	
  Additional Mortgages, etc

  	
   

  
	
  ARTICLE VII.

  	
  NEGATIVE COVENANTS

  	
   

  
	
  7.01

  	
  Financial Condition Covenants

  	
   

  
	
  7.02

  	
  Indebtedness

  	
   

  
	
  7.03

  	
  Liens

  	
   

  
	
  7.04

  	
  Fundamental Changes

  	
   

  
	
  7.05

  	
  Disposition of Property

  	
   

  
	
  7.06

  	
  Restricted Payments

  	
   

  
	
  7.07

  	
  Capital Expenditures

  	
   

  
	
  7.08

  	
  Investments

  	
   

  
	
  7.09

  	
  Optional
  Payments and Modifications of Certain Debt Instruments

  	
   

  
	
  7.10

  	
  Transactions with
  Affiliates

  	
   

  
	
  7.11

  	
  Sales and Leasebacks

  	
   

  
	
  7.12

  	
  Swap Agreements

  	
   

  
	
  7.13

  	
  Changes in Fiscal Periods

  	
   

  
	
  7.14

  	
  Negative Pledge Clauses

  	
   

  
	
  7.15

  	
  Clauses
  Restricting Subsidiary Distributions

  	
   

  
	
  7.16

  	
  Lines of Business

  	
   

  
	
  7.17

  	
  Insurance
  Subsidiary Investments

  	
   

  
	
  7.18

  	
  Insurance Subsidiary

  	
   

  
	
  7.19

  	
  Foreign Subsidiaries

  	
   

  
	
  ARTICLE VIII.

  	
  EVENTS OF
  DEFAULT AND REMEDIES

  	
   

  
	
  8.01

  	
  Events of Default

  	
   

  
	
  8.02

  	
  Application of Funds

  	
   

  
	
  ARTICLE IX.

  	
  GUARANTY

  	
   

  
	
  9.01

  	
  Guaranty

  	
   

  
	
  9.02

  	
  Payment

  	
   

  
	
  9.03

  	
  Absolute Rights and
  Obligations

  	
   

  
	
  9.04

  	
  Waiver of Notice;
  Subrogation

  	
   

  
	
  ARTICLE X.

  	
  MISCELLANEOUS

  	
   

  
	
  10.01

  	
  Amendments; Etc

  	
   

  
	
  10.02

  	
  Notices,
  Effectiveness; Electronic Communication

  	
   

  
				



 


iii





















 


	
  10.03

  	
  No Waiver;
  Cumulative Remedies

  	
   

  
	
  10.04

  	
  Expenses;
  Indemnity; Damage Waiver

  	
   

  
	
  10.05

  	
  Payments Set Aside

  	
   

  
	
  10.06

  	
  Successors and Assigns

  	
   

  
	
  10.07

  	
  Confidentiality

  	
   

  
	
  10.08

  	
  Right of Setoff

  	
   

  
	
  10.09

  	
  Interest Rate Limitation
  

  	
   

  
	
  10.10

  	
  Counterparts;
  Integration; Effectiveness  

  	
   

  
	
  10.11

  	
  Survival of
  Representations and Warranties  

  	
   

  
	
  10.12

  	
  Severability  

  	
   

  
	
  10.13

  	
  Governing Law;
  Jurisdiction; Etc  

  	
   

  
	
  10.14

  	
  Waiver of Jury Trial  

  	
   

  
	
  10.15

  	
  USA PATRIOT Act Notice  

  	
   

  
	
  10.16

  	
  Time of the Essence  

  	
   

  



 


iv





















 


	
  SCHEDULES

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  2.01(a)

  	
  Refinanced Property; Amounts and
  Amortization Schedules of Closing Date Term Loans  

  	
   

  
	
  5.04

  	
  Consents, Authorizations, Filings and
  Notices  

  	
   

  
	
  5.06

  	
  Litigation  

  	
   

  
	
  5.07

  	
  No Default  

  	
   

  
	
  5.09

  	
  Licenses, Intellectual Property
  

  	
   

  
	
  5.15

  	
  Subsidiaries  

  	
   

  
	
  5.19

  	
  UCC Filing Jurisdictions  

  	
   

  
	
  5.22

  	
  Mortgaged Property in Special Flood Hazard
  Area

  	
   

  
	
  7.02(d)

  	
  Existing Indebtedness

  	
   

  
	
  7.03(f)

  	
  Existing Liens

  	
   

  
	
  7.08(g)

  	
  Existing Investments  

  	
   

  
	
  10.02

  	
  Notices; Lending Office; Payments
  

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBITS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Form of

  	
   

  
	
   

  	
   

  	
   

  
	
  A

  	
  Loan Notice

  	
   

  
	
  B

  	
  Designated Borrower Request and Assumption
  Agreement  

  	
   

  
	
  C

  	
  Designated
  Borrower Notice  

  	
   

  
	
  D

  	
  Opinion of
  Counsel to the Loan Parties  

  	
   

  
	
  E

  	
  Borrowing Base
  Certificate  

  	
   

  
	
  F

  	
  Compliance
  Certificate  

  	
   

  



 


v





















 


TERM
LOAN AGREEMENT


 


This TERM LOAN AGREEMENT (“Agreement”) is entered into as of May 20,
2005, among NATIONAL MENTOR HOLDINGS, INC., a Delaware corporation (“Holdings”),
NATIONAL MENTOR, INC., a Delaware corporation (“Mentor”), REM ARROWHEAD,
INC. (“REM Arrowhead”), REM CONNECTICUT COMMUNITY SERVICES, INC. (“REM
Connecticut”), REM INDIANA, INC. (“REM Indiana”), REM NORTH DAKOTA,
INC. (“REM North Dakota”), REM WISCONSIN, INC. (“REM Wisconsin I”),
REM WISCONSIN II, INC. (“REM Wisconsin II”), REM WISCONSIN III, INC. (“REM
Wisconsin III”), and certain other wholly-owned subsidiaries of Holdings
and Mentor parties hereto from time to time as Designated Borrowers (together
with REM Arrowhead, REM Connecticut, REM Indiana, REM North Dakota, REM
Wisconsin I, REM Wisconsin II and REM Wisconsin III,  collectively, the “Borrowers”) and
BANK OF AMERICA, N.A. (the “Lender”).


 


Holdings, Mentor and the Borrowers have requested that the Lender
provide a multiple advance term loan facility, and the Lender is willing to do
so on the terms and conditions set forth herein.


 


In consideration of the mutual covenants and agreements herein
contained, the parties hereto covenant and agree as follows:


 


ARTICLE I.

DEFINITIONS AND ACCOUNTING TERMS


 


1.01                        Defined
Terms.  As used in this Agreement,
the following terms shall have the meanings set forth below:


 


“Acceptable Appraisal” means (a) with respect to each
Refinanced Property, an appraisal which is (i) prepared by an independent,
third party acceptable to the Lender, (ii) dated no earlier than May 1,
2003, and (iii) otherwise satisfactory to the Lender, and (b) with
respect to each Acquired Property, an appraisal which (i) is prepared by
an independent, third party acceptable to the Lender, (ii) is dated no
earlier than 1 year prior to the date of the Loan to be extended to acquire
such Mortgaged Property, and (iii) otherwise complies with the Lender’s
standard and customary appraisal requirements.


 


“Acquired EBITDA” means (a) EBITDA attributable to each
Permitted Acquisition consummated by Mentor or any of its Subsidiaries plus
(b) the Pro Forma Cost Reductions, if any, applicable to each such
Permitted Acquisition.


 


“Acquired Property” is defined in Section 2.01.


 


“Acquisition” means any acquisition of all or substantially all
of the assets or over 80% of the equity interests of any Person or division
thereof.


 


“Affiliate” means as to any Person, any other Person that,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person.  For purposes
of this definition, “control” of a Person means the power, directly or
indirectly to direct or cause the 


 


1





















 


direction of the management and policies of
such Person, whether through the ability to exercise voting power, by contract
or otherwise.


 


“Agreement” means this Term Loan Agreement.


 


“Applicable Margin” means the following percentages per annum,
based upon the Consolidated Leverage Ratio as set forth in the most recent
Compliance Certificate received by the Lender pursuant to Section 6.02(b):


 


	
  Pricing

  Level

  	
   

  	
  Consolidated

  Leverage Ratio

  	
   

  	
  Applicable Margin for
 LIBOR Floating Rate 

  Loans

  	
   

  	
  Applicable Margin for

  Base Rate Loans

  	
   

  
	
  1

  	
   

  	
  >3.50:1

  	
   

  	
  3.75%

  	
   

  	
  1.50%

  	
   

  
	
  2

  	
   

  	
  3 3.25:1 but < 3.50:1

  	
   

  	
  3.50%

  	
   

  	
  1.50%

  	
   

  
	
  3

  	
   

  	
  3 3.00:1 but <
  3.25:1

  	
   

  	
  3.25%

  	
   

  	
  1.25%

  	
   

  
	
  4

  	
   

  	
  < 3.00:1

  	
   

  	
  3.00%

  	
   

  	
  1.00%

  	
   

  



 


Any increase or decrease in the Applicable Margin resulting from a
change in the Consolidated Leverage Ratio shall become effective as of the
first Business Day immediately following the date a Compliance Certificate is
delivered pursuant to Section 6.02(b); provided, however,
that if a Compliance Certificate is not delivered when due in accordance with such
Section, then Pricing Level 1 shall apply as of the first Business Day after
the date on which such Compliance Certificate was required to have been
delivered.  The Applicable Margin in
effect from the Closing Date until the first Business Day immediately following
the first date a Compliance Certificate is delivered pursuant to Section 6.02(b) shall
be determined based upon Pricing Level 1.


 


“Appraised Value” means, with respect to any real property, the
fair market value thereof as set forth in an Acceptable Appraisal furnished to
the Lender (or if more than one Acceptable Appraisal has been furnished with
respect to such real property, the Acceptable Appraisal most recently furnished
to the Lender).


 


“Approved Fund” means any Fund that is administered or managed
by (a) the Lender, (b) an Affiliate of the Lender or (c) an
entity or an Affiliate of an entity that administers or manages the Lender.


 


“Asset Sale” means any Disposition of property or series of
related Dispositions of property (excluding any such Disposition permitted by
clause (a), (b), (c), (d), (g) or (h) of Section 7.05 or
clause (b) of Section 7.08) other than any Home Sale or Sale
Leaseback Transaction that yields gross proceeds to any Loan Party (valued at
the initial principal amount thereof in the case of non-cash proceeds
consisting of notes or other debt securities and valued at fair market value in
the case of other non-cash proceeds) in excess of $2,000,000 in the aggregate
in any fiscal year.


 


“Audited Financial Statements” means the audited consolidated
balance sheet of the Holdings and its Subsidiaries for the fiscal year ended September 30,
2004, and the related 


 


2





















 


consolidated statements of income or
operations, shareholders’ equity and cash flows for such fiscal year of
Holdings and its Subsidiaries, including the notes thereto.


 


“Availability Period” means the period from and including the
Closing Date to the earlier of (a) 3 months prior to the Maturity Date and
(b) the date of termination of the Commitment.


 


“Bank of America” means Bank of America, N.A. or any successor
thereof.


 


“Base Rate” means for any day a fluctuating rate per annum equal
to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the
rate of interest in effect for such day as publicly announced from time to time
by Bank of America as its “prime rate.” 
The “prime rate” is a rate set by Bank of America based upon various
factors including Bank of America’s costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans, which may be priced at, above, or below such announced rate.  Any change in such rate announced by Bank of
America shall take effect at the opening of business on the day specified in
the public announcement of such change.


 


“Base Rate Loan” means a Loan that bears interest based on the
Base Rate.


 


“Board” means the Board of Governors of the Federal Reserve
System of the United States (or any successor).


 


“Borrower” or “Borrowers” has the meaning specified in
the introductory paragraph hereto.


 


“Borrowing Agent”  is
defined in Section 2.11.


 


“Borrowing Base”  means,
as of the date of determination thereof, an amount equal to 75% of the
Appraised Value of all Mortgaged Properties for which Acceptable Appraisals
have been received as of such date; provided, that if all or any part of
any Mortgaged Property is subject to a casualty or other damage, any taking
under power of eminent domain or by condemnation or similar proceeding
(including any conveyance made in settlement of any such proceeding or
threatened proceeding) or other event that in the reasonable discretion of the
Lender materially reduces the fair market value thereof, the Appraised Value
shall be adjusted downward by an amount estimated by the Lender in good faith
to account for the reduction of  the fair
market value of such Mortgaged Property caused by event; provided, further
that such adjustment be effective only until the Lender receives satisfactory
evidence that Restoration of such Mortgaged Property has been completed and the
fair market value of the Mortgaged Property after Restoration (as demonstrated
to the reasonable satisfaction of the Lender) is equal to or greater than the
fair market value of the Mortgaged Property immediately prior to such event.


 


“Business” is defined in Section 5.17(b).


 


“Business Day” means any day other than a Saturday, Sunday or
other day on which commercial banks are authorized to close under the Laws of,
or are in fact closed in, the state where the Lending Office is located and, if
such day relates to any LIBOR Floating Rate Loan, 


 


3





















 


means any such day on which dealings in
Dollar deposits are conducted by and between banks in the London interbank
eurodollar market.


 


“Capital Expenditures” means for any period, with respect to any
Person, the aggregate of all expenditures by such Person and its Subsidiaries
during such period for the acquisition, rental, lease, purchase, construction,
replacement, repair or use of any property, the value of which should be
capitalized under GAAP on a consolidated balance sheet of such Person and its
Subsidiaries (including, without limitation, the aggregate principal amount of
Capital Lease Obligations incurred during such period).


 


“Capital Lease Obligations” means as to any Person, the
obligations of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, to the extent such obligations are required to be
classified and accounted for as capital leases on a balance sheet of such
Person under GAAP and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such time
determined in accordance with GAAP.


 


“Capital Stock” means any and all shares, interests,
participations or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person (other than
a corporation) and any and all warrants, rights or options to purchase any of
the foregoing.


 


“Cash Equivalents” means (a) marketable direct obligations
issued by, or unconditionally guaranteed by, the United States Government or
issued by any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition; (b) certificates of deposit, time deposits, eurodollar time
deposits or overnight bank deposits having maturities of six months or less
from the date of acquisition issued by the Lender or by any commercial bank
organized under the laws of the United States or any state thereof having
combined capital and surplus of not less than $500,000,000; (c) commercial
paper of an issuer rated at least A-1 by Standard & Poor’s Ratings
Services (“S&P”) or P-1 by Moody’s Investors Service, Inc. (“Moody’s”),
or carrying an equivalent rating by a nationally recognized rating agency, if
both of the two named rating agencies cease publishing ratings of commercial
paper issuers generally, and maturing within six months from the date of
acquisition; (d) repurchase obligations of the Lender or of any commercial
bank satisfying the requirements of clause (b) of this definition, having
a term of not more than 30 days, with respect to securities issued or fully
guaranteed or insured by the United States government; (e) securities with
maturities of one year or less from the date of acquisition issued or fully
guaranteed by any state, commonwealth or territory of the United States, by any
political subdivision or taxing authority of any such state, commonwealth or
territory or by any foreign government, the securities of which state,
commonwealth, territory, political subdivision, taxing authority or foreign
government (as the case may be) are rated at least A by S&P or A by Moody’s;
(f) securities with maturities of one year or less from the date of
acquisition backed by standby letters of credit issued by the Lender or any
commercial bank satisfying the requirements of clause (b) of this
definition; (g) money market mutual or similar funds that invest
substantially in assets satisfying the requirements of clauses (a) through
(f) of this definition; (h) money market funds that (i) comply
with the criteria set forth in SEC Rule 2a-7 under the Investment Company
Act of 1940, as amended, (ii) are rated AAA by S&P and Aaa by Moody’s
and (iii) have portfolio assets of at 


 


4





















 


least $5,000,000,000; or (i) other
short-term investments utilized by Permitted Foreign Subsidiaries in accordance
with the normal investment practices for cash management in investments of a
type analogous to the foregoing.


 


“Change in Law” means the occurrence, after the date of this
Agreement, of any of the following: (a) the adoption or taking effect of
any law, rule, regulation or treaty, (b) any change in any law, rule,
regulation or treaty or in the administration, interpretation or application
thereof by any Governmental Authority or (c) the making or issuance of any
request, guideline or directive (whether or not having the force of law) by any
Governmental Authority.


 


“Change of Control” means (a) prior to an Initial Public
Offering, for any reason (i) MDP Holder and its Affiliates shall fail to
have the right to appoint a majority of the board of directors of Holdings and
thereby control the management of Holdings, Mentor and its Subsidiaries; (ii) (A) Mentor
shall cease to own of record and beneficially 100% of the issued and
outstanding voting power of all Capital Stock of National Mentor, LLC on a
fully diluted basis, or (B) National Mentor, LLC shall cease to own of
record and beneficially, directly or indirectly through one or more other
Subsidiaries, all of the issued and outstanding voting power of all Capital
Stock of all of its Subsidiaries (including all Borrowers) on a fully diluted
basis except as otherwise permitted to be disposed of or merged hereunder; (iii) Holdings
shall cease to own, directly or indirectly, 100% of the outstanding voting
power of all Capital Stock of Mentor on a fully diluted basis; or (iv) MDP
Holder and its Affiliates shall cease to own and control of record and
beneficially, directly, on a fully diluted basis, at least 51% of the issued
and outstanding voting power of all Capital Stock of Holdings; and (b) after
any Initial Public Offering, (i) any “person” or “group” (as such terms
are used in Sections 13(d) and 14(d) of the Exchange Act), other than
MDP Holder is or becomes the beneficial owner, directly or indirectly, of more
than 40% of the total voting power of all Capital Stock of Holdings; or (b) any
event in subclause (a)(ii) or (a)(iii) of this definition shall
occur.


 


“Closing Date” means the first date all the conditions precedent
in Section 4.01 are satisfied or waived by the Lender in accordance
with Section 10.01.


 


“Code” means the Internal Revenue Code of 1986, as amended from
time to time.


 


“Collateral” means all property of the Loan Parties, now owned
or hereafter acquired, upon which a Lien is purported to be created by any
Mortgage.


 


“Commitment” means the obligation of the Lender to make Loans
hereunder in an aggregate principal amount at any one time not to exceed
$8,000,000, as such amount may be adjusted from time to time in accordance with
this Agreement.


 


“Commonly Controlled Entity” means an entity, whether or not
incorporated, that is under common control with Mentor within the meaning of Section 4001
of ERISA or is part of a group of entities that includes Mentor and that is
treated as a single employer under Section 414 of the Code.


 


“Compliance Certificate” means a certificate duly executed by a
Responsible Officer substantially in the form of Exhibit F attached
hereto.


 


5





















 


“Consolidated EBITDA” means for any period, Consolidated Net
Income for such period plus, without duplication, the sum of (a) income
(and franchise taxes in the nature of income taxes) and foreign withholding tax
expense for such period and any state single business unitary or similar tax, (b) Consolidated
Interest Expense, amortization or writeoff of debt discount and debt issuance
costs and commissions, discounts and other fees and charges associated with
Indebtedness (including the Loans), (c) depreciation and amortization
expense, (d) amortization of intangibles (including, but not limited to,
goodwill) and organization costs, (e) any extraordinary, unusual or
non-recurring non-cash expenses or losses (including, whether or not otherwise
includable as a separate item in the statement of such Consolidated Net Income
for such period, non-cash losses on sales of assets outside of the ordinary
course of business), (f) any non recurring out-of-pocket costs, fees and
expenses with respect to the Syndicated Credit Agreement or the Senior
Subordinated Notes Indenture, including attorneys’ fees, investment banking
fees and other fees, but only to the extent permitted to be included in
calculating Consolidated EBITDA for such period under the Syndicated Credit
Agreement, (g) Management Fees paid in cash or accrued during such period
to the extent permitted to be paid hereunder, (h) Acquired EBITDA for such
period, (i) proceeds of business interruption insurance received during
such period, (j) expenses incurred to the extent covered by indemnification or
refunding provisions in any Permitted Acquisition document, any document
pertaining to any acquisition consummated prior to the Closing Date, or any
insurance to the extent reimbursed (or reasonably expected to be reimbursed
within 120 days of the incurrence thereof), (k) non-cash losses from Asset
Sales for such period (other than non-cash losses from Home Sales and other
than from sales of inventory sold in the ordinary course of business), (1) Ordinary
Course Real Property Gains, (m) non cash expenses incurred in connection with
the issuance of stock options, warrants or other Permitted Capital Stock by
Holdings to employees of Holdings and its Subsidiaries and (n) any Transaction
Bonuses; provided that with respect to clauses (a) through (n)
(other than clauses (h), (i) and (l)), such amounts shall be added to
Consolidated Net Income pursuant to this definition only to the extent such
amounts are deducted in determining Consolidated Net Income, and minus, (a) to
the extent included in the statement of such Consolidated Net Income for such
period, the sum of (i) any extraordinary, unusual or non-recurring income
or gains (including, whether or not otherwise includable as a separate item in
the statement of such Consolidated Net Income for such period, gains on the
sales of assets outside of the ordinary course of business), (ii) income
tax credits (to the extent not netted from income tax expense) and (iii) any
other non-cash income, and (b) any cash payments made during such period
in respect of expenses or losses described in clause (e) above incurred or
taken since the date hereof, which cash payments are made subsequent to the
fiscal quarter in which the relevant expenses or losses were reflected as a
charge in the statement of Consolidated Net Income, but only to the extent that
such cash payments do not exceed such expenses or losses, all as determined on
a consolidated basis.  In addition,
Consolidated EBITDA shall be calculated without giving effect to (w) any gains
or losses (other than as expressly provided in clauses (k) and (1) above)
from sales of assets other than from sales of inventory sold in the ordinary
course of business, (x) purchase accounting adjustments required or permitted
by Accounting Principles Board Opinion Nos. 16 (including non-cash write ups
and non cash charges relating to inventory and fixed assets, in each case
arising in connection with any Permitted Acquisition) and 17 (including non
cash charges relating to intangibles and goodwill arising in connection with
any Permitted Acquisition), (y) any gain or loss recognized in determining
Consolidated Net Income for such period in respect of post-retirement benefits
as a result of the application of FASB 106 and (z) any gain or loss 


 


6





















 


recognized in determining Consolidated Net
Income for such period resulting from the payment of earnout obligations.


 


“Consolidated Interest Coverage Ratio” means for any period, the
ratio of (a) Consolidated EBITDA for such period to (b) Consolidated
Interest Expense for such period.


 


“Consolidated Interest Expense” means for any period, total cash
interest expense (including that attributable to Capital Lease Obligations) of
Holdings and its Subsidiaries for such period with respect to all outstanding
Indebtedness of Holdings and its Subsidiaries (including all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers’ acceptance financing and net costs under Swap Agreements in respect of
interest rates to the extent such net costs are allocable to such period in
accordance with GAAP).


 


“Consolidated Leverage Ratio” means as at the end of any fiscal
quarter, the ratio of (a) Consolidated Total Debt of Holdings and its
Subsidiaries on such day (excluding Subordinated PIK Debt permitted hereunder
and excluding the Magellan Seller Notes, to the extent funds sufficient to pay
the Magellan Seller Notes in full are being held in escrow by Holdings for the
payment thereof) to (b) Consolidated EBITDA for the most recently
completed four fiscal quarters of Holdings and its Subsidiaries.


 


“Consolidated Net Income” means for any period, the consolidated
net income (or loss) of Holdings and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP; provided that there shall be
excluded (a) the income (or deficit) of any Person accrued prior to the
date it becomes a Subsidiary of Holdings or is merged into or consolidated with
Holdings or any of its Subsidiaries, (b) the income (or deficit) of any
Person (other than a Subsidiary of Holdings) in which Holdings or any of its
Subsidiaries has an ownership interest, except to the extent that any such
income is actually received by Holdings or such Subsidiary in the form of
dividends or similar distributions and (c) the undistributed earnings of
any Subsidiary of Holdings to the extent that the declaration or payment of
dividends or similar distributions by such Subsidiary is not at the time
permitted by the terms of any Contractual Obligation (other than under any Loan
Document) or Requirement of Law applicable to such Subsidiary.


 


“Consolidated Total Debt” means at any date, the aggregate
principal amount of all Indebtedness of Holdings and its Subsidiaries at such
date, determined on a consolidated basis, required to be reflected on a
consolidated balance sheet of Holdings and it Subsidiaries in accordance with
GAAP.


 


“Contractual Obligation” means as to any Person, any provision
of any security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.


 


“Debtor Relief Laws” means the Bankruptcy Code of the United
States, and all other liquidation, conservatorship, bankruptcy, assignment for
the benefit of creditors, moratorium, rearrangement, receivership, insolvency,
reorganization, or similar debtor relief Laws of the United States or other
applicable jurisdictions from time to time in effect and affecting the rights
of creditors generally.


 


7





















 


“Default” means any event or condition that constitutes an Event
of Default or that, with the giving of any notice, the passage of time, or
both, would be an Event of Default.


 


“Default Rate” means an interest rate equal to (i) the Base
Rate plus (ii) the Applicable Margin, if any, applicable to Base
Rate Loans plus (iii) 2% per annum; provided, however,
that with respect to a LIBOR Floating Rate Loan, the Default Rate shall be an
interest rate equal to the interest rate (including any Applicable Margin)
otherwise applicable to such Loan plus 2% per annum, in all cases to the
fullest extent permitted by applicable Laws.


 


“Designated Borrower” is defined in Section 2.13.


 


“Designated Borrower Notice” is defined in Section 2.13.


 


“Designated Borrower Request and Assumption Agreement” is
defined in Section 2.13.


 


“Disposition” means with respect to any property, any sale,
lease, sale and leaseback, assignment, conveyance, transfer or other
disposition thereof.  The terms “Dispose”
and “Disposed of’ shall have correlative meanings.


 


“Dollar” and “$” mean lawful money of the United States.


 


“Domestic Subsidiary” means any Subsidiary of Mentor organized
under the laws of any jurisdiction within the United States.


 


“Earnout Obligations” means those payment obligations of
Holdings and its Subsidiaries to former owners of businesses which were
acquired by Holdings or one of its Subsidiaries pursuant to an acquisition
which are in the nature of deferred purchase price to the extent such payment
obligations are required to be set forth on a balance sheet prepared in
accordance with GAAP.


 


“Eligible Assignee” means 
(a) an Affiliate of the Lender; (b) an Approved Fund; and (c) any
other Person (other than a natural person) approved by the Borrowing Agent
(such approval not to be unreasonably withheld or delayed); provided
that no such approval shall be required if an Event of Default has occurred and
is continuing.


 


“Environmental Laws” means any and all foreign, Federal, state,
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees, requirements of any Governmental Authority or other
Requirements of Law (including common law) regulating, relating to or imposing
liability or standards of conduct concerning protection of human health or the
environment, as now or may at any time hereafter be in effect.


 


“Environmental Liability” means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of any Borrower, any other Loan
Party or any of their respective Subsidiaries directly or indirectly resulting
from or based upon (a) violation of any Environmental Law, (b) the
generation, use, handling, transportation, storage, treatment or disposal of
any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the
release or threatened release of any Hazardous Materials into 


 


8





















 


the environment or (e) any contract,
agreement or other consensual arrangement pursuant to which liability is
assumed or imposed with respect to any of the foregoing.


 


“ERISA” means the Employee Retirement Income Security Act of
1974, as amended from time to time.


 


“Event of Default” means any of the events specified in Section 8.01,
provided, that any applicable requirement for the giving of notice, the lapse
of time, or both, has been satisfied.


 


“Excluded Taxes” means, with respect to the Lender or any other
recipient of any payment to be made by or on account of any obligation of any
Borrower hereunder, (a) taxes imposed on or measured by its overall net
income (however denominated), and franchise taxes imposed on it (in lieu of net
income taxes), by the jurisdiction (or any political subdivision thereof) under
the laws of which such recipient is organized or in which its principal office
is located, and (b) any branch profits taxes imposed by the United States
or any similar tax imposed by any other jurisdiction in which such Borrower is
located.


 


“Federal Funds Rate”  means,
for any day, the rate per annum equal to the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by the Federal
Reserve Bank of New York on the Business Day next succeeding such day; provided
that (a) if such day is not a Business Day, the Federal Funds Rate for
such day shall be such rate on such transactions on the next preceding Business
Day as so published on the next succeeding Business Day, and (b) if no
such rate is so published on such next succeeding Business Day, the Federal
Funds Rate for such day shall be the average rate (rounded upward, if necessary,
to a whole multiple of 1/100 of 1%) charged to the Lender on such day on such
transactions as determined by the Lender.


 


“Foreign Subsidiary” means any Subsidiary of Mentor that is not
a Domestic Subsidiary.


 


“Fund” means any Person (other than a natural person) that is
(or will be) engaged in making, purchasing, holding or otherwise investing in
commercial loans and similar extensions of credit in the ordinary course of its
business.


 


“GAAP” means generally accepted accounting principles in the
United States as in effect from time to time, except that for purposes of Section 7.01,
GAAP shall be determined on the basis of such principles in effect on the
Closing Date, and consistent with those used in the preparation of the Audited
Financial Statements.  In the event that
any “Accounting Change” (as defined below) shall occur and such change results
in a change in the method of calculation of financial covenants, standards or
terms in this Agreement, then Holdings, Mentor, the Borrowers and the Lender
agree to enter into negotiations in order to amend such provisions of this
Agreement so as to reflect equitably such Accounting Changes with the desired
result that the criteria for evaluating Holdings’ financial condition shall be
the same after such Accounting Changes as if such Accounting Changes had not
been made.  Until such time as such an
amendment shall have been executed and delivered by Holdings, Mentor, the
Borrowers and the Lender, all financial covenants, standards and terms in this
Agreement shall continue to be calculated or construed as if such Accounting
Changes had not occurred.  “Accounting
Changes” refers to changes in accounting principles required by the
promulgation of any rule, regulation, 


 


9





















 


pronouncement or opinion by the Financial
Accounting Standards Board of the American Institute of Certified Public
Accountants or, if applicable, the SEC.


 


“Governmental Authority” means any nation or government, any
state or other political subdivision thereof, any agency, authority,
instrumentality, regulatory body, court, central bank or other entity
exercising executive, legislative, judicial, taxing, regulatory or
administrative functions of or pertaining to government, any securities
exchange and any self-regulatory organization (including the National
Association of Insurance Commissioners).


 


“Group Members” means Holdings, Mentor, the Borrowers and their
respective Subsidiaries, collectively.


 


“Guarantee Obligation” means, as to any Person (the “guaranteeing
person”), any obligation, including a reimbursement, counterindemnity or
similar obligation, of the guaranteeing person that guarantees or in effect
guarantees, or which is given to induce the creation of a separate obligation
by another Person (including any bank under any letter of credit) that
guarantees or in effect guarantees, any Indebtedness, leases, dividends or
other obligations (the “primary obligations”) of any other third Person
(the “primary obligor”) in any manner, whether directly or indirectly,
including any obligation of the guaranteeing person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting
direct or indirect security therefor, (ii) to advance or supply funds (1) for
the purchase or payment of any such primary obligation or (2) to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (iv) otherwise to assure or
hold harmless the owner of any such primary obligation against loss in respect
thereof; provided, however, that the term Guarantee Obligation
shall not include endorsements of instruments for deposit or collection in the
ordinary course of business.  The amount
of any Guarantee Obligation of any guaranteeing person shall be deemed to be
the lower of (a) an amount equal to the stated or determinable amount of
the primary obligation in respect of which such Guarantee Obligation is made
and (b) the maximum amount for which such guaranteeing person may be
liable pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for which
such guaranteeing person may be liable are not stated or determinable, in which
case the amount of such Guarantee Obligation shall be such guaranteeing person’s
maximum reasonably anticipated liability in respect thereof as determined by a
Responsible Officer of Holdings or Mentor in good faith.


 


“Hazardous Materials” means all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or
asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious
or medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.


 


“Home Sale” means any Disposition or series of Dispositions of
real property of any Loan Party in the ordinary course of business in a
transaction in which such real property is sold solely for its value as real
estate and not as a going concern in excess of $1,000,000 in the 


 


10





















 


aggregate in any fiscal year; provided
that a Sale Lease Back Transaction shall not be considered a Home Sale.


 


“Indebtedness” means of any Person at any date, without
duplication, (a) all indebtedness of such Person for borrowed money, (b) all
obligations of such Person for the deferred purchase price of property or
services (other than current trade payables and accrued expenses incurred in
the ordinary course of such Person’s business), (c) all obligations of
such Person evidenced by notes, bonds, debentures or other similar instruments,
(d) all indebtedness created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (e) the principal portion of all Capital Lease Obligations of
such Person, (f) all obligations of such Person, contingent or otherwise,
as an account party or applicant under or in respect of acceptances, letters of
credit, surety bonds or similar arrangements, (g) the liquidation value of
all mandatorily redeemable preferred Capital Stock issued to parties other than
Holdings or its Subsidiaries of such Person, if the scheduled redemption date
is prior to December 31, 2011, (h) all Guarantee Obligations of such
Person in respect of obligations of the kind referred to in clauses (a) through
(g) above, (i) all obligations of the kind referred to in clauses (a) through
(h) above secured by (or for which the holder of such obligation has an
existing right, contingent or otherwise, to be secured by) any Lien on property
(including accounts and contract rights) owned by such Person, whether or not
such Person has assumed or become liable for the payment of such obligation,
(j) all Earnout Obligations; and (k) for the purposes of Section 8.01(e) only,
all obligations of such Person in respect of Swap Agreements; provided
in each case that (i) the amount of Indebtedness which is limited or
nonrecourse to such Person or for which recourse is limited to an identified
asset shall be equal to the lesser of (1) the amount of such Indebtedness
and (2) the fair market value of such asset as at the date of
determination, (ii) amounts which are reserved by such Person for payment
of insurance premiums due within twelve months of such date shall not
constitute Indebtedness and (iii) Indebtedness shall not include
obligations with respect to deferred compensation.  The Indebtedness of any Person shall include
the Indebtedness of any other entity (including any partnership in which such
Person is a general partner) to the extent such Person is liable therefor as a
result of such Person’s ownership interest in or other relationship with such
entity, except to the extent the terms of such Indebtedness expressly provide
that such Person is not liable therefor.


 


“Indemnified Taxes” means Taxes other than Excluded Taxes.


 


“Indemnitees” is defined in Section 10.04(b).


 


“Initial Public Offering” means the initial public offering of
the common stock of Holdings.


 


“Insolvency” means, with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section 4245
of ERISA.


 


“Insolvent” means a condition of Insolvency.


 


11





















 


“Insurance Subsidiary” means any Subsidiary of Mentor engaged
solely in the general liability, professional liability, health and benefits
and workers compensation and such other insurance business as may be approved
by the Lender in its reasonable discretion, for the underwriting of insurance
policies for Mentor and its Subsidiaries and the respective employees, officers
or directors thereof.


 


“Intellectual Property” means all rights, priorities and
privileges relating to intellectual property, whether arising under United
States, multinational or foreign laws or otherwise, including copyrights,
copyright licenses, patents, patent licenses, trademarks, trademark licenses,
technology, know-how and processes, and all rights to sue at law or in equity
for any infringement or other impairment thereof, including the right to
receive all proceeds and damages therefrom, collectively.


 


“Interest Payment Date” means, as to any Loan, the last Business Day
of each month and the Maturity Date.


 


“Investments” is defined in Section 7.08.


 


“IRS” means the United States Internal Revenue Service.


 


“Laws” means, collectively, all international, foreign, Federal,
state and local statutes, treaties, rules, guidelines, regulations, ordinances,
codes and administrative or judicial precedents or authorities, including the
interpretation or administration thereof by any Governmental Authority charged
with the enforcement, interpretation or administration thereof, and all
applicable administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental Authority,
in each case whether or not having the force of law.


 


“Lending Office” means the office or offices of the Lender
described as such on Schedule 10.02, or such other office or
offices as the Lender may from time to time notify the Borrowing Agent.


 


“LIBOR Monthly Floating Rate” means, on each day, the
fluctuating rate of interest equal to the rate of interest (rounded upwards, if
necessary to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as
the 1 month London interbank offered rate for deposits in United States Dollars
at approximately 11:00 a.m. (London time) on the first Business Day of
each calendar month, as adjusted from time to time in the Lender’s sole
discretion for then-applicable reserve requirements, deposit insurance assessment
rate and other regulatory costs; provided, however, if more than
one rate is specified on Reuters Screen LIBO page, the applicable rate shall be
the arithmetic mean of all such rates. 
Any change in the rate will take effect on the date of such change in
the Index as indicated on Telerate Page 3750.  Interest will accrue on any non-banking day
at the rate in effect on the immediately preceding banking day.


 


“LIBOR Floating Rate Loan” means any Loan at any time that it
bears interest at a rate based on the LIBOR Monthly Floating Rate.


 


“Lien” means any mortgage, pledge, hypothecation, collateral
assignment, security deposit arrangement, encumbrance, lien (statutory or
other), charge or other security interest or 


 


12





















 


any preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including any conditional sale or other title retention agreement and any
capital lease having substantially the same economic effect as any of the
foregoing).


 


“Loan”  means any term
loan extended to (or on behalf of) any Borrower pursuant to Section 2.01.


 


“Loan Documents” means this Agreement, the Notes, the Mortgages
and each Designated Borrower Request and Assumption Agreement.


 


“Loan Notice” means a notice of (a) a borrowing of a Loan,
or (b) a conversion of a Loan from one Type to the other, which, if in
writing, shall be substantially in the form of Exhibit A.


 


“Loan Parties” means each Group Member that is a party to a Loan
Document (including all Persons who become Designated Borrowers after the
Closing Date).


 


“Magellan Note Documents” means the Magellan Seller Notes and
any other agreements of any Loan Party relating thereto.


 


“Magellan Purchase Agreement” means the Stock Purchase Agreement
among National MENTOR, LLC, Holdings and the Magellan Seller dated January 18,
2001, as amended, modified and supplemented from time to time as permitted
hereunder or in the Loan Documents.


 


“Magellan Reserve” means at any time of determination, the then
outstanding principal amount plus accrued and unpaid interest on the Magellan
Seller Notes.


 


“Magellan Seller” means Magellan Public Network, Inc. and
Magellan Health Services, Inc.


 


“Magellan Seller Notes” means that certain subordinated
indebtedness in the original principal amount of $10,000,000 issued by Holdings
to the Magellan Seller.


 


“Managed Care Plans” means all health maintenance organizations,
preferred provider organizations, individual practice associations, competitive
medical plans and similar arrangements.


 


“Management Fees” is defined in Section 7.10.


 


“Material Adverse Effect” means a material adverse effect on (a) the
business, property, operations or condition (financial or otherwise) of Mentor
or, taken as a whole, Holdings and its Subsidiaries, (b) the ability of
any Loan Party to perform its material obligations under the Loan Documents to
which it is a party, or (c) the validity or enforceability of this
Agreement, the Note, or, taken as a whole, any of the other Loan Documents, or
the rights or remedies of the Lender under this Agreement, any Note or, taken
as whole, the other Loan Documents.


 


“Materials of Environmental Concern” means any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum products
or any hazardous or toxic substances, materials 


 


13





















 


or wastes, defined or regulated as such in or
under any Environmental Law, including asbestos, polychlorinated biphenyls and
urea-formaldehyde insulation.


 


“Maturity Date” means the earliest to occur of (a) May 20,
2010, (b) the date that is six months prior to the Revolving Termination
Date (as defined in the Syndicated Credit Agreement) or (c) the date of
earlier refinancing, replacement or other termination of the revolving
commitments under the Syndicated Credit Agreement.


 


“MDP Holder” means Madison Dearborn Capital Partners III, L.P.


 


“Mortgaged Property” means all real property in which the Lender
shall have been granted a Lien pursuant to the Mortgages and, in the case of
calculating the Borrowing Base only, in which the Lender is being granted a
Lien under a Mortgage on or before the date of the applicable Loan.


 


“Mortgages” means all fee mortgages, deeds of trust, deeds to
secure debt and similar instruments, executed or to be executed by each
Borrower which provide the Lender a valid first priority Lien in the real
property described therein in order to secure the Obligations.


 


“Multiemployer Plan” means a Plan that is a “multiemployer plan”
as defined in Section 4001 (a)(3) of ERISA.


 


“Net Cash Proceeds” means (a) in connection with any Asset
Sale, Home Sale, Sale Leaseback Transaction, any Recovery Event or any other
Prepayment Event, the proceeds thereof in the form of cash and Cash Equivalents
(including any such proceeds received by way of deferred payment of principal
pursuant to a note or installment receivable or purchase price adjustment
receivable or otherwise, but only as and when received), net of attorneys’
fees, accountants’ fees, investment banking fees, amounts required to be
applied to the repayment of Indebtedness (including, without limitation,
principal, interest, premium and penalties, if any) secured by a Lien expressly
permitted hereunder on any asset that is the subject of such Asset Sale, Home
Sale, Sale Leaseback Transaction or Recovery Event (in each case, other than
any Lien pursuant to a Mortgage) and other related fees and expenses actually
incurred in connection therewith and net of taxes paid or reasonably estimated
to be payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements) and net of (i) any
reasonable reserves established in connection therewith, (ii) reasonable
holdbacks and (iii) reasonable indemnity obligations relating thereto, and
(b) in connection with any issuance or sale of Capital Stock or any
incurrence of Indebtedness, the cash proceeds received from such issuance or
incurrence, net of attorneys’ fees, investment banking fees, accountants’ fees,
underwriting discounts and commissions and other related fees and expenses
actually incurred in connection therewith.


 


“Net Payment Amount” means in connection with any Sale Leaseback
Transaction, at any time of determination thereof, the remaining aggregate
amount of lease rental payments required to be made by a Loan Party pursuant to
the terms of the original lease agreements pursuant to such Sale Leaseback
Transaction, as appropriately discounted.


 


“Non-Profit Entities” means each of REM New Jersey Properties, Inc.,
a New Jersey corporation, and any entity duly acquired or formed and organized
by Holdings or any 


 


14





















 


Subsidiary as a not for profit entity under
applicable state law in furtherance of the business needs of Holdings and its
Subsidiaries.


 


“Note” means any promissory note evidencing Loans.


 


“Obligations” means all advances to, and debts, liabilities,
obligations, covenants and duties of, any Loan Party arising under any Loan
Document or otherwise with respect to any Loan, whether direct or indirect
(including those acquired by assumption), absolute or contingent, due or to
become due, now existing or hereafter arising and including interest and fees
that accrue after the commencement by or against any Loan Party or any
Affiliate thereof of any proceeding under any Debtor Relief Laws naming such
Person as the debtor in such proceeding, regardless of whether such interest
and fees are allowed claims in such proceeding.


 


“Ordinary Course Real Property Gains” means actual cash gains
realized by Mentor and its Subsidiaries from a Home Sale to any Person which is
not an Affiliate of Mentor or any of its Subsidiaries in an arm’s length
transaction, in the aggregate not to exceed either (i) $1,500,000 for any
period of four consecutive fiscal quarters or (ii) $500,000 for any single
fiscal quarter; provided, however, it being understood that for
purposes of calculating Consolidated EBITDA, any gains in excess of $500,000 in
any single fiscal quarter may be carried forward into subsequent fiscal
quarters and included in Consolidated EBITDA in such subsequent periods.


 


“Other Taxes” means all present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or under any other Loan Document or from the
execution, delivery or enforcement of, or otherwise with respect to, this
Agreement or any other Loan Document.


 


“Participant” is defined in Section 10.06(c).


 


“PBGC” means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA (or any successor).


 


“Permitted Acquisition” means an Acquisition permitted under the
Syndicated Credit Agreement.


 


“Permitted Capital Stock” means (a) common stock of
Holdings and (b) any preferred stock of Holdings (or any equity security
of Holdings that is convertible into or exchangeable for any preferred stock of
Holdings), so long as the terms of any such preferred stock or equity security
of Holdings (i) do not provide any collateral security, (ii) do not
provide any guaranty or other support by Mentor or any of its Subsidiaries, (iii) do
not contain any mandatory put, redemption, repayment, sinking fund or other
similar provision occurring before November 4, 2012 (other than as a
result of a change of control or similar event), (iv) do not require the
cash payment of dividends or interest, (v) do not contain any financial
maintenance covenants, and (vii) to the extent any such preferred stock or
equity security does not otherwise comply with clauses (b)(i) through (iv) hereof,
such preferred stock or equity security is otherwise reasonably satisfactory to
the Lender.


 


“Permitted Disposition” means (i) any sale or discount of
past due isolated accounts receivable in the ordinary course of business; (ii) (x)
any lease as lessor (under a short term 


 


15





















 


lease) or license as licensor of isolated
parcels of real property or isolated items of personal property (including
Intellectual Property) in the ordinary course of business and (y) any grant of
options to purchase, lease or acquire isolated parcels of real property (other
than all or any portion of any Mortgaged Property) or isolated items of personal
property (including Intellectual Property) in the ordinary course of business;
and (iii) any sale or exchange of isolated specific items of equipment, so
long as the purpose of each sale or exchange is to acquire (and results within
180 days of such sale or exchange in the acquisition of) replacement items of
equipment which are, in the reasonable business judgment of Mentor and its
Subsidiaries, the functional equivalent of the item of equipment so sold or
exchanged.


 


“Permitted Foreign Subsidiaries” means any Foreign Subsidiary
which is organized under the laws of Canada or, in the case of any Insurance
Subsidiary, is organized under the laws of any jurisdiction other than the
United States.


 


“Permitted Lien” means a Lien permitted to exist pursuant to Section 7.03.


 


“Person” means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of whatever
nature.


 


“Plan” means at a particular time, any employee benefit plan
that is covered by ERISA and in respect of which Mentor or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an “employer” as deemed in Section 3(5) of
ERISA.


 


“Prepayment Event” means any of the following:


 


(a)                                  any
sale, transfer or other Disposition of any Mortgaged Property; or


 


(b)                                 any
casualty or other insured damage to, or any taking under power of eminent
domain or by condemnation or similar proceeding (including any conveyance made
in settlement of any such proceeding or threatened proceeding) of, any
Mortgaged Property, but only if the Net Cash Proceeds from such casualty,
damage or taking exceeds the lesser of $50,000 and 20% of the Appraised Value
of such Mortgaged Property (or if an Acceptable Appraisal has not been
furnished with respect to such Mortgaged Property, $25,000)(the “Prepayment
Threshold Amount”); provided, that if (i) the Net Cash Proceeds
from any event described in this clause (b) exceeds the Prepayment
Threshold Amount, (ii) there are sufficient insurance proceeds or
sufficient other amounts available to the applicable Borrower to fully pay for
the restoration or repair of the Mortgaged Property (as applicable, “Restoration”)
and the projected fair market value of the Mortgaged Property after Restoration
(as demonstrated to the reasonable satisfaction of the Lender) is equal to or
greater than the fair market value of the Mortgaged Property immediately prior
to such casualty, damage or other event, and (iii) the applicable Borrower
(or Borrowing Agent on its behalf) presents sufficient evidence to the Lender
that such Mortgaged Property will be restored prior to the maturity date of the
Loan used to obtain or refinance such Mortgaged Property, then a Prepayment
Event shall not occur as a result of such event and the Lender shall release
any property insurance proceeds or condemnation or similar awards received by
it on account of such event in accordance with its customary disbursement 


 


16





















 


procedures for similar events so long as (x)
Event of Default exists, and (y) the applicable Borrower promptly commences and
thereafter diligently continues the Restoration to completion (which completion
shall occurs no later than 180 days after the applicable casualty, damage or
other event) so that fair market value of such Mortgaged Property (as
demonstrated to the reasonable satisfaction of the Lender) after such Restoration
is equal to or greater than the fair market value of the Mortgaged Property
immediately prior to such casualty, damage or other event.


 


“Pro Forma Cost Reductions” means to the extent reasonably
acceptable to the Lender and realizable within 90 days after the applicable
Acquisition, cost savings reasonably expected to result from operational
efficiencies expected to be created by employee terminations, facilities
consolidations and closings, standardization of employee benefits and
compensation policies, consolidation of property, casualty and other insurance
coverage and policies, reductions in taxes other than income taxes and other
cost savings reasonably expected to be realized for such period from all
acquisitions of an acquired entity or business.


 


“Projections” is defined in Section 6.02(c).


 


“Properties” is defined in Section 5.17(a).


 


“Recovery Event” means any settlement of or payment in respect
of any property or casualty insurance claim or any condemnation proceeding
relating to any asset of any Loan Party, in excess of $1,000,000 in the
aggregate in any fiscal year.


 


“Refinanced Property” means the real property listed on Schedule 2.01(a) attached
hereto.


 


“Regulation U” means Regulation U of the Board as in effect from
time to time.


 


“Reinvestment Deferred Amount” means with respect to any
Reinvestment Event occurring prior to the refinancing, replacement or other
termination of the Syndicated Credit Agreement, the aggregate Net Cash Proceeds
received by any Group Member in connection therewith that are not applied to
prepay amounts outstanding under the Syndicated Credit Agreement as a result of
the delivery of a Reinvestment Notice.


 


“Reinvestment Event” means any Home Sale, Asset Sale, or
Recovery Event in respect of which Mentor has delivered a Reinvestment Notice.


 


“Reinvestment Notice” means a written notice executed by a
Responsible Officer and delivered under the Syndicated Credit Agreement
pursuant to the provisions thereof.


 


“Related Parties” means, with respect to any Person, such Person’s
Affiliates and the partners, directors, officers, employees, agents and
advisors of such Person and of such Person’s Affiliates.


 


“Reorganization” means with respect to any Multiemployer Plan,
the condition that such plan is in reorganization within the meaning of Section 4241
of ERISA.


 


17





















 


“Reportable Event” means any of the events set forth in Section 4043(c) of
ERISA, other than those events as to which the thirty day notice period is
waived by applicable regulations under Section 4043 of ERISA.


 


“Requirement of Law” means as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of
an arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.


 


“Responsible Officer” means, with respect to any Person, the
chief executive officer, president, vice president, chief financial officer,
treasurer or the senior vice president of finance of such Person, but in any
event, with respect to financial matters, the chief financial officer,
treasurer or senior vice president of finance of such Person (or, in the case
of any Borrower, of Holdings or Mentor).


 


“Restoration”  is defined
in the definition of Prepayment Event.


 


“Restricted Payments” is defined in Section 7.06.


 


“Sale Leaseback Transaction” is defined in Section 7.11.


 


“SEC” means the Securities and Exchange Commission, any
successor thereto and any analogous Governmental Authority.


 


“Senior Subordinated Note Indenture” means the Indenture dated
as of November 4, 2004, entered into by Mentor and certain of its
Subsidiaries in connection with the issuance of the Senior Subordinated Notes,
together with all instruments and other agreements entered into by Mentor or
such Subsidiaries in connection therewith.


 


“Senior Subordinated Notes” means the subordinated notes of
Mentor issued pursuant to the Senior Subordinated Note Indenture.


 


“Single Employer Plan” means any Plan that is covered by Title
IV of ERISA, but that is not a Multiemployer Plan.


 


“Solvent” when used with respect to any Person, means that, as
of any date of determination, (a) the amount of the “fair value” of the
assets of such Person will, as of such date, exceed the amount of all “liabilities
of such Person, contingent or otherwise”, as of such date, as such quoted terms
are determined in accordance with applicable federal and state laws governing
determinations of the insolvency of debtors, (b) the present fair saleable
value of the assets of such Person will, as of such date, be greater than the
amount that will be required to pay the probable liability of such Person on
its debts as such debts become absolute and matured, (c) such Person will
not have, as of such date, an unreasonably small amount of capital with which
to conduct its business, and (d) such Person will be able to pay its debts
as they mature.  The amount of contingent
liabilities at any time shall be computed as the amount that can reasonably be
expected to become an actual or matured liability.  For purposes of this definition, (i) ”debt”
means liability on a “claim”, and (ii) ”claim” means any (x) right to
payment, whether or not 


 


18





















 


such a right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured or (y) right to an equitable
remedy for breach of performance if such breach gives rise to a right to
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured or unmatured, disputed, undisputed,
secured or unsecured.


 


“Specified Change of Control” means a “Change of Control” (or
any other defined term having a similar purpose) as defined in the Senior
Subordinated Note Indenture.


 


“Subordinated PIK Debt” means any subordinated Indebtedness or
redeemable preferred stock of Holdings incurred after November 4, 2004
(including any subordinated debt which extends, renews, replaces or is in
exchange for subordinated debt of Holdings existing on November 4, 2004)
to the extent permitted by the provisions of the Syndicated Credit Agreement; provided
that such Indebtedness or redeemable preferred stock has no scheduled principal
payments prior to December 31, 2012, and the interest on such Indebtedness
or the dividends payable in respect of such redeemable preferred stock is not
required to be paid in cash prior to such date.


 


“Subsidiary” means as to any Person, a corporation, partnership,
limited liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such
other ownership interests having such power only by reason of the happening of
a contingency) to elect a majority of the board of directors or other managers
of such corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person.  Unless otherwise qualified, all references to
a “Subsidiary” or to “Subsidiaries” in this Agreement shall refer to a
Subsidiary or Subsidiaries of Mentor (including, but not limited to, each
Borrower).  Notwithstanding anything else
herein to the contrary, the definition of Subsidiary shall not include
Non-Profit Entities.


 


“Swap Agreement” means any agreement with respect to any swap,
forward, future or derivative transaction or option or similar agreement
involving, or settled by reference to, one or more rates, currencies,
commodities, equity or debt instruments or securities, or economic, financial or
pricing indices or measures of economic, financial or pricing risk or value or
any similar transaction or any combination of these transactions; provided
that no phantom stock or similar plan providing for payments only on account of
services provided by current or former directors, officers, employees or
consultants of Mentor or any of its Subsidiaries shall be a “Swap Agreement”.


 


“Syndicated Credit Agreement” means that certain Amended and
Restated Credit Agreement dated as of November 4, 2004 among Holdings,
Mentor, J.P. Morgan Chase Bank, as Administrative Agent and the lenders party
thereto, as in effect on the date hereof and as the same may be amended,
restated, supplemented or otherwise modified from time to time; provided,
that (i) to the extent an action or other matter is permitted hereunder to
the extent permitted by the Syndicated Credit Agreement and such action or
other matter requires the approval, consent or satisfaction of, or an amendment
or waiver from, the Administrative Agent, Lenders or Required Lenders under the
Syndicated Credit Agreement, such  action
or other matter shall require the approval, consent or satisfaction of, or an
amendment or waiver from, the 


 


19





















 


Lender under this Agreement, and (ii) in
the event the Syndicated Credit Agreement is refinanced, replaced or the
revolving commitments are otherwise terminated, the references to the
Syndicated Credit Agreement in Article VII hereof and any related
definitions utilized therein shall mean the Syndicated Credit Agreement as in
effect immediately prior to such refinancing, replacement or termination, as
the case may be.


 


“Taxes” means all present or future taxes, levies, imposts,
duties, deductions, withholdings, assessments, fees or other charges imposed by
any Governmental Authority, including any interest, additions to tax or
penalties applicable thereto.


 


“Third Party Payor Programs” means all third party payor
programs in which Mentor and its Subsidiaries currently or in the future may
participate, including, without limitation, Medicare, Medicaid, Blue Cross
and/or Blue Shield, Managed Care Plans, other private insurance programs and
employee assistance programs.


 


“Total Outstandings” mean, on any date, the aggregate outstanding
principal amount of Loans after giving effect to any borrowings and prepayments
or repayments of Loans occurring on such date.


 


“Transaction Bonuses” means any bonuses payable to any officer
or employee of Holdings or any of its Subsidiaries (including any Person who
becomes an officer or employee of any Group Member in connection with a
Permitted Acquisition) in connection with any Permitted Acquisition in an
aggregate amount not exceeding $1,000,000; provided that the amount of
all such bonuses payable in connection with all Permitted Acquisitions shall
not exceed $3,000,000 in the aggregate.


 


“Type” means, with respect to a Loan, its character as a Base
Rate Loan or a LIBOR Floating Rate Loan.


 


“United States” means the United States of America.


 


“U.S. Bank Facility” means the Term Loan Agreement, dated as of August 4,
2004, by and among Holdings, National MENTOR, LLC, certain Subsidiaries of
National MENTOR, LLC party thereto as borrowers and U.S. Bank National
Association, as in effect on the Closing Date.


 


“Wholly Owned Subsidiary” means, as to any Person, any other
Person all of the Capital Stock of which (other than directors’ qualifying
shares required by law) is owned by such Person directly and/or through other
Wholly Owned Subsidiaries.


 


1.02                        Other
Interpretive Provisions.  With
reference to this Agreement and each other Loan Document, unless otherwise
specified herein or in such other Loan Document:


 


(a)                                  The
definitions of terms herein shall apply equally to the singular and plural
forms of the terms defined.  Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms.  The words “include,”
“includes” and “including” shall be deemed to be followed by the phrase “without
limitation.”  The word “will” shall be
construed to have the same meaning and effect as the word “shall.”  Unless the context 


 


20





















 


requires
otherwise, (i) any definition of or reference to any agreement, instrument
or other document shall be construed as referring to such agreement, instrument
or other document as from time to time amended, supplemented or otherwise
modified (subject to any restrictions on such amendments, supplements or
modifications set forth herein or in any other Loan Document), (ii) any
reference herein to any Person shall be construed to include such Person’s
successors and assigns, (iii) the words “herein,” “hereof” and “hereunder,”
and words of similar import when used in any Loan Document, shall be construed
to refer to such Loan Document in its entirety and not to any particular
provision thereof, (iv) all references in a Loan Document to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, the Loan Document in which such
references appear, (v) any reference to any law shall include all
statutory and regulatory provisions consolidating, amending replacing or
interpreting such law and any reference to any law or regulation shall, unless
otherwise specified, refer to such law or regulation as amended, modified or
supplemented from time to time, and (vi) the words “asset” and “property”
shall be construed to have the same meaning and effect and to refer to any and
all tangible and intangible assets and properties, including cash, securities,
accounts and contract rights.


 


(b)                                 In
the computation of periods of time from a specified date to a later specified
date, the word “from” means “from and including;” the words “to”
and “until” each mean “to but excluding;” and the word “through”
means “to and including.”


 


(c)                                  Section headings
herein and in the other Loan Documents are included for convenience of
reference only and shall not affect the interpretation of this Agreement or any
other Loan Document.


 


1.03                        Accounting
Terms.  All accounting terms not
specifically or completely defined herein shall be construed in conformity
with, and all financial data (including financial ratios and other financial
calculations) required to be submitted pursuant to this Agreement shall be
prepared in conformity with, GAAP, except as otherwise specifically
prescribed herein.


 


1.04                        Rounding.  Any financial ratios required to be
maintained by the Loan Parties pursuant to this Agreement shall be calculated
by dividing the appropriate component by the other component, carrying the
result to one place more than the number of places by which such ratio is
expressed herein and rounding the result up or down to the nearest number (with
a rounding-up if there is no nearest number).


 


1.05                        Times of
Day.  Unless otherwise specified, all
references herein to times of day shall be references to Eastern time (daylight
or standard, as applicable).


 


ARTICLE II.

THE COMMITMENT AND CREDIT EXTENSIONS


 


2.01                        Loans.  Subject to the terms and conditions set forth
herein, the Lender agrees to (a) make term loans on the Closing Date to
the Borrowers in an aggregate principal amount of $6,222,000, the amounts and
amortization schedules of which Loans are more specifically set forth on Schedule 2.01(a) and
the proceeds of which Loans shall be used to refinance 


 


21





















 


Indebtedness
under the U.S. Bank Facility secured by the Refinanced Property, and (b) from
time to time to make additional term loans to the Borrowers from time to time
on any Business Day during the Availability Period to acquire additional fee
simple interests in real property to be utilized in the business of the
Borrowers (the “Acquired Property”); provided, in each case that (i) the
maximum principal amount of Loans available hereunder with respect to any
individual Mortgaged Property shall not
exceed $250,000, or if an Acceptable Appraisal is furnished to the Lender with
respect to such Mortgaged Property, the lesser of $250,000 and 100% of the
Appraised Value of such Mortgaged Property, and (ii) the aggregate
outstanding amount of all Loans outstanding hereunder shall not exceed at any
time the lesser of (x) the Commitment, and (y) the Borrowing Base.  A Loan may be a Base Rate Loan or a LIBOR
Floating Rate Loan, as further provided herein. 
Except as otherwise set forth herein (including Article IX hereof),
the obligations of each Borrower to repay the Loans made available to it (or
the Borrowing Agent on its behalf) and accrued interest thereon are several and
not joint.


 


2.02                        Borrowings,
Conversions and Continuations of Loans.


 


(a)                                  Each
borrowing and each conversion of a Loan from one Type to the other shall be
made upon the Borrowing Agent’s irrevocable notice to the Lender, which may be
given by telephone.  Each such notice
must be received by the Lender not later than 1:00 p.m. (i) ten
Business Days prior to the requested date of any borrowing utilized to acquire
any Acquired Property, and (ii) three Business Days prior to the requested
date of any conversion of a Base Rate Loan to a LIBOR Floating Rate Loan or of
a LIBOR Floating Rate Loan to a Base Rate Loan. 
Notwithstanding anything to the contrary contained herein, but subject
to the provisions of Section 10.02(d), any such telephonic notice
may be given by an individual who has been authorized in writing to do so by an
officer of the Borrowing Agent.  Each
such telephonic notice must be confirmed promptly by delivery to the Lender of
a written Loan Notice, appropriately completed and signed by an officer of the
Borrowing Agent.  Except as otherwise set
forth on Schedule 2.01(a), each borrowing shall be in a principal
amount of $150,000 or a whole multiple of $5,000 in excess thereof.  Each Loan Notice (whether telephonic or
written) shall specify (i) whether the applicable Borrower is requesting a
borrowing or a conversion of a Loan from one Type to the other, (ii) the
requested date of the borrowing or conversion, as the case may be (which shall
be a Business Day), (iii) the principal amount of the Loan to be borrowed
or converted, (iv) the Type of Loan to be borrowed or to which an existing
Loan is to be converted, and (v) the applicable Borrower for which the
Borrowing Agent has requested such borrowing. 
If the Borrowing Agent fails to specify a Type of Loan in a Loan Notice,
then the applicable Loan shall be made as a Base Rate Loan.


 


(b)                                 Upon
satisfaction of the applicable conditions set forth in Section 4.02
(and, if a borrowing is the initial Loan, Section 4.01), the Lender
shall make the proceeds of each Loan available to applicable Borrowers either
by (i) crediting the account of the Borrowing Agent or such Borrower on
the books of the Lender with the amount of such proceeds or (ii) wire
transfer of such proceeds, in each case in accordance with instructions
provided to (and reasonably acceptable to) the Lender by the Borrowing Agent.


 


(c)                                  During
the existence of a Default, no Loan may be requested as or converted to a LIBOR
Floating Rate Loan without the consent of the Lender, and, at the election of
the Lender, all LIBOR Floating Rate Loans shall convert to Base Rate Loans.


 


22


















 


(d)                                 The
Lender shall promptly notify the Borrowing Agent of the interest rate
applicable to any LIBOR Floating Rate Loan upon determination of such interest
rate.  The determination of the LIBOR
Monthly Floating Rate by the Lender shall be conclusive in the absence of
manifest error.  At any time that a Base
Rate Loan is outstanding, the Lender shall notify the Borrowing Agent of any
change in the Lender’s prime rate used in determining the Base Rate promptly
following the public announcement of such change.


 


2.03                        Prepayments.


 


(a)                                  Voluntary
Prepayments.  Any Borrower may, upon
notice to the Lender, at any time or from time to time voluntarily prepay any
Loan in whole or in part without premium or penalty; provided that (i) such
notice must be received by the Lender not later than 1:00 p.m. on the date
of prepayment of a Base Rate Loan; and (ii) any prepayment of a LIBOR
Floating Rate Loan shall be in a principal amount of  $100,000 or a whole multiple of $50,000 in
excess thereof or, if less, the entire principal amount thereof then
outstanding.  Each such notice shall
specify the date and amount of such prepayment and the Type(s) of Loan(s) to be
prepaid.  If such notice is given by any
Borrower, such Borrower shall make such prepayment and the payment amount
specified in such notice shall be due and payable on the date specified
therein.


 


(b)                                 Mandatory
Prepayments.  (i) If for any
reason the Total Outstandings at any time exceed the lesser of the Commitment
or the Borrowing Base, the Borrowers shall immediately prepay Loans in an
aggregate amount equal to such excess; and (ii) in the event and on each
occasion that any Net Cash Proceeds are received by or on behalf of any
Borrower in respect of any Prepayment Event, such Borrower shall, immediately
after such Net Cash Proceeds are received, prepay the
Loans secured by the Mortgaged Property that is the subject matter of such
Prepayment Event in an amount equal to 100% of such Net Cash Proceeds.


 


(c)                                  Application
of Prepayments.  Prepayments shall be applied to
the remaining installments of any Loan prepaid in the inverse order of
maturity.


 


2.04                        Termination
or Reduction of Commitment.  The
Borrowers may, upon notice to the Lender, terminate the Commitment, or from
time to time permanently reduce the Commitment; provided that (i) any
such notice shall be received by the Lender not later than 1:00 p.m., five
Business Days prior to the date of termination or reduction, (ii) any such
partial reduction shall be in an aggregate amount of $200,000 or any whole
multiple of $50,000 in excess thereof, and (iii) the Borrowers shall not
terminate or reduce the Commitment if, after giving effect thereto and to any
concurrent prepayments hereunder, the Total Outstandings would exceed the
Commitment.  All fees accrued until the
effective date of any termination of the Commitment shall be paid on the
effective date of such termination.


 


2.05                        Repayment
of Loans.


 


(a)                                  Each
Borrower shall:


 


(i) make
equal monthly payments of principal on each Loan made to it (or on its behalf)
on the last Business Day of each month, in each case based on the amortization
schedules set forth below and commencing on the last Business
Day of the month next 


 


23





















 


succeeding
the month in which such Loan is advanced hereunder  (collectively, the “Scheduled Amortization”):


 


	
  Borrower

  	
   

  	
  Amortization Schedule

  
	
  REM Arrowhead, Inc. 

  REM Connecticut Community Services, Inc. 

  REM Wisconsin, Inc. 

  REM Wisconsin II, Inc. 

  REM Wisconsin III, Inc.

  	
   

  	
  20 years

  
	
  REM Indiana, Inc.

  	
   

  	
  12 years

  
	
  REM North Dakota, Inc.

  	
   

  	
  5 years

  
	
  Designated Borrowers

  	
   

  	
  20 years unless otherwise agreed between the Lender
  and the Borrowing Agent in writing on or before the date of such Loan

  



 


provided,
in each case that the Scheduled Amortization with respect to each Loan utilized
with respect to a Refinanced Property shall be as
set forth on Schedule 2.01(a); and


 


(ii) repay
the remaining any outstanding principal balance of the Loans made to it (or on
its behalf) on the Maturity Date.


 


2.06                        Interest.


 


(a)                                  Subject
to the provisions of subsection (b) below, (i) each LIBOR
Floating Rate Loan shall bear interest on the outstanding principal amount
thereof at a rate per annum equal to the LIBOR Monthly Floating Rate plus
the Applicable Margin; and (ii) each Base Rate Loan shall bear interest on
the outstanding principal amount thereof from the applicable borrowing date at
a rate per annum equal to the Base Rate plus the Applicable Margin.


 


(b)                                 (i)                                     If
any amount payable by the Borrowers under any Loan Document is not paid when
due (without regard to any applicable grace periods), whether at stated
maturity, by acceleration or otherwise, such amount shall thereafter bear
interest at a fluctuating interest rate per annum at all times equal to the
Default Rate to the fullest extent permitted by applicable Laws.


 


(ii)                                 While
any Event of Default exists, the Borrowers shall pay interest on the principal
amount of all outstanding Obligations hereunder at a fluctuating interest rate
per annum at all times equal to the Default Rate to the fullest extent
permitted by applicable Laws.


 


24





















 


(iii)                              Accrued
and unpaid interest on past due amounts (including interest on past due
interest) shall be due and payable upon demand.


 


(c)                                  Interest
on each Loan shall be due and payable in arrears on each Interest Payment Date
applicable thereto and at such other times as may be specified herein.  Interest hereunder shall be due and payable
in accordance with the terms hereof before and after judgment, and before and
after the commencement of any proceeding under any Debtor Relief Law.


 


2.07                        Fees.  Each Borrower, jointly and severally, agrees
to pay to the Lender a fee equal to 0.50% of the Commitment, payable on the
Closing Date.  Such fee shall be fully
earned when payable and shall not be refundable for any reason whatsoever.


 


2.08                        Computation
of Interest and Fees.  All
computations of interest for Base Rate Loans when the Base Rate is determined
by the Lender’s “prime rate” shall be made on the basis of a year of 365 or 366
days, as the case may be, and actual days elapsed.  All other computations of fees and interest
shall be made on the basis of a 360-day year and actual days elapsed (which
results in more fees or interest, as applicable, being paid than if computed on
the basis of a 365-day year).  Interest
shall accrue on each Loan for the day on which the Loan is made, and shall not
accrue on a Loan, or any portion thereof, for the day on which the Loan or such
portion is paid, provided that any Loan that is repaid on the same day
on which it is made shall, subject to Section 2.10(a), bear
interest for one day.


 


2.09                        Evidence
of Debt.  The Loans made by the
Lender shall be evidenced by one or more accounts or records maintained by the Lender
in the ordinary course of business.  The
accounts or records maintained by the Lender shall be conclusive absent
manifest error of the amount of the Loans made by the Lender to the Borrowers
and the interest and payments thereon. 
Any failure to so record or any error in doing so shall not, however,
limit or otherwise affect the obligation of any Borrower hereunder to pay any
amount owing with respect to the Obligations. 
The Notes shall evidence the Lender’s Loans in addition to such accounts
or records.  The Lender may attach
schedules to the Notes and endorse thereon the date, Type, amount and maturity
of each Loan and payments with respect thereto. 
Each determination by the Lender of an interest rate or fee hereunder
shall be conclusive and binding for all purposes, absent manifest error.


 


2.10                        Payments
Generally.


 


(a)                                  All
payments to be made by the Borrowers shall be made without condition or
deduction for any counterclaim, defense, recoupment or setoff.  Except as otherwise expressly provided herein,
all payments by the Borrowers hereunder shall be made to the Lender at the
applicable Lending Office in Dollars and in immediately available funds not
later than 2:00 p.m. on the date specified herein.  All payments received by the Lender after
2:00 p.m. shall be deemed received on the next succeeding Business Day and
any applicable interest or fee shall continue to accrue.


 


25





















 


(b)                                 If
any payment to be made by any Borrower shall come due on a day other than a
Business Day, payment shall be made on the next following Business Day, and
such extension of time shall be reflected in computing interest or fees, as the
case may be.


 


(c)                                  The
Loan Parties irrevocably authorize the Lender to debit Bank of America Deposit
Account #0055151344 (ABA number: 011000138; Account Name: Mentor Management, Inc.)
(or such other account as the Loan Parties may have with the Lender from time
to time) for all payments due under this Agreement.


 


(d)                                 Nothing
herein shall be deemed to obligate the Lender to obtain the funds for any Loan
in any particular place or manner or to constitute a representation by the
Lender that it has obtained or will obtain the funds for any Loan in any
particular place or manner.


 


2.11                        Borrowing
Agent.  Each of the Borrowers hereby
directs the Lender to disburse the proceeds of each Loan, to or at the
direction of Mentor (the “Borrowing Agent”), and such distribution will,
in all circumstances, be deemed to be made to the applicable Borrower(s).  From time to time, the Borrowing Agent shall
further distribute the proceeds of the Loans to the particular Borrower or
Borrowers, and each Borrower represents and warrants that the subsequent
receipt and use of such proceeds and benefits by any particular Borrower inures
to the economic benefit directly and indirectly of the other Borrowers.  Each Borrower hereby irrevocably designates,
appoints, authorizes and directs the Borrowing Agent (including each of the
Borrowing Agent’s officers) to act on behalf of such Borrower for the purposes
set forth in this Section 2.11, and to act on behalf of such
Borrower for purposes of giving notice to the Lender of requests for Loans,
conversions and for otherwise giving and receiving notices and certifications
under this Agreement or any other Loan Document and otherwise for taking all
other action contemplated to be taken by the Borrowing Agent (including each of
the Borrowing Agent’s officers) hereunder or under any other Loan
Document.  The Lender is entitled to rely
and act on the instructions of the Borrowing Agent, by and through any officer,
on behalf of each of the Borrowers.  Each
Borrower covenants and agrees to assume liability for and to protect, indemnify
and hold harmless the Lender from any and all liabilities, obligations,
damages, penalties, claims, causes of action, costs, charges and expenses
(including without limitation, attorneys’ fees), which may be incurred by,
imposed or asserted against the Lender, howsoever arising or incurred because
of, out of or in connection with the disbursements of any Loan in accordance
with this Section 2.11; provided, however, the liability of
the Borrowers pursuant to this indemnity shall not extend to any liability,
obligation, damage, penalty, claim, cause of action, cost, charge or expense
caused by or arising out of the gross negligence or willful misconduct of the
Lender.  The Borrowing Agent shall
maintain detailed accounting and records of all disbursements and payments made
to each Borrower with respect to proceeds of Loans received by it.  Not in any way in limitation of any other
provisions set forth herein, such books and records may be reviewed and copied
by the Lender at the Borrowing Agent’s expense at reasonable intervals and upon
reasonable notice given by the Lender to the Borrowing Agent.


 


2.12                        Increase
in Commitments.


 


(a)                                  Provided
there exists no Default, upon notice to the Lender, the Borrowing Agent may on
a one time basis request an increase in the Commitment by an amount not
exceeding $4,000,000.


 


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(b)                                 The
Lender shall notify the Borrowing Agent as to whether or not it agrees to
increase the Commitment and, if so, whether by an amount equal to, or less
than, such requested increase.


 


(c)                                  If
the Commitment is increased in accordance with this Section, the Lender and the
Borrowing Agent shall determine the effective date (the “Increase Effective
Date”).


 


(d)                                 As
a condition precedent to such increase, the Borrowing Agent shall deliver to
the Lender a certificate of each Loan Party dated as of the Increase Effective
Date signed by a Responsible Officer of such Loan Party (i) certifying and
attaching the resolutions adopted by such Loan Party approving or consenting to
such increase, and (ii) in the case of the Borrowing Agent, certifying
that, before and after giving effect to such increase, (A) the
representations and warranties contained in Article V and the other
Loan Documents are true and correct on and as of the Increase Effective Date,
except to the extent that such representations and warranties specifically
refer to an earlier date, in which case they are true and correct as of such
earlier date, and except that for purposes of this Section 2.12,
the representations and warranties contained in subsections (a) and (b) of
Section 5.01 shall be deemed to refer to the most recent statements
furnished pursuant to clauses (a) and (b), respectively, of Section 6.01,
and (B) no Default exists.


 


(e)                                  This
Section shall supersede any provisions in Section 10.01 to the
contrary.


 


2.13                        Designated
Borrowers.


 


(a)                                  The
Borrowing Agent may at any time, upon not less than 15 Business Days’ notice
from the Borrowing Agent to the Lender (or such shorter period as may be agreed
by the Lender in its sole discretion), designate any additional direct or
indirect, wholly-owned Subsidiary of Mentor acceptable to the Lender, in its
reasonable discretion (each an “Applicant Borrower”) to receive Loans
hereunder by delivering to the Lender a duly executed notice and agreement in
substantially the form of Exhibit B (a “Designated Borrower
Request and Assumption Agreement”). 
The parties hereto acknowledge and agree that prior to any Applicant
Borrower becoming entitled to utilize the credit facilities provided for herein
the Lender shall have received such supporting resolutions, incumbency
certificates, opinions of counsel and other documents or information, in form
and content satisfactory to the Lender as may be required by the Lenders in its
reasonable discretion, and a Note signed by such new Applicant Borrower.  If the Lender agrees that an Applicant
Borrower shall be entitled to receive Loans hereunder, then promptly following
receipt of all such requested resolutions, incumbency certificates, opinions of
counsel and other documents or information, the Lender shall send a notice in
substantially the form of Exhibit C (a “Designated Borrower
Notice”) to the Borrowing Agent specifying the effective date upon which
the Applicant Borrower shall constitute a Borrower for purposes hereof, whereupon
from and after such Applicant Borrower shall be a “Designated Borrower” and the
Lender agrees to permit such Designated Borrower to receive Loans hereunder, on
the terms and conditions set forth herein, and each of the parties agrees that
such Designated Borrower otherwise shall be a Borrower for all purposes of this
Agreement.  Each Subsidiary that is or
becomes a Designated Borrower pursuant to this Section 2.13 shall
at all times remain a direct or indirect, wholly-owned Subsidiary of Mentor for
so long as such Person is a Designated Borrower.


 


27





















 


(b)                                 Each
Subsidiary of Mentor that is or becomes a
Designated Borrower pursuant to this Section 2.13 hereby
irrevocably appoints the Borrowing Agent as its agent for all purposes relevant
to this Agreement and each of the other Loan Documents, as more particularly
set forth in Section 2.11 above.


 


ARTICLE III.

TAXES, YIELD PROTECTION AND ILLEGALITY


 


3.01                        Taxes.


 


(a)                                  Payments
Free of Taxes.  Any and all payments
by or on account of any obligation of the Borrowers hereunder or under any
other Loan Document shall be made free and clear of and without reduction or
withholding for any Indemnified Taxes or Other Taxes, provided that if
any Borrower shall be required by applicable law to deduct any Indemnified
Taxes (including any Other Taxes) from such payments, then (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section) the Lender receives an amount equal to the sum it would have
received had no such deductions been made, (ii) such Borrower shall make
such deductions and (iii) such Borrower shall timely pay the full amount
deducted to the relevant Governmental Authority in accordance with applicable
law.


 


(b)                                 Payment
of Other Taxes by the Borrowers. 
Without limiting the provisions of subsection (a) above, the
Borrowers shall timely pay any Other Taxes to the relevant Governmental
Authority in accordance with applicable law.


 


(c)                                  Indemnification
by the Borrowers.  The Borrowers
shall indemnify the Lender, within 10 days after demand therefor, for the full
amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or
Other Taxes imposed or asserted on or attributable to amounts payable under
this Section) paid by the Lender and any penalties, interest and reasonable
expenses arising therefrom or with respect thereto, whether or not such
Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted
by the relevant Governmental Authority. 
A certificate as to the amount of such payment or liability delivered to
the Borrowers by the Lender shall be conclusive absent manifest error.


 


(d)                                 Evidence
of Payments.  As soon as practicable
after any payment of Indemnified Taxes or Other Taxes by any Borrower to a
Governmental Authority, such Borrower shall deliver to the Lender the original
or a certified copy of a receipt issued by such Governmental Authority
evidencing such payment, a copy of the return reporting such payment or other
evidence of such payment reasonably satisfactory to the Lender.


 


3.02                        Illegality.  If the Lender determines that any Law has
made it unlawful, or that any Governmental Authority has asserted that it is
unlawful, for the Lender or its Lending Office to make, maintain or fund LIBOR
Floating Rate Loans, or to determine or charge interest rates based upon the
LIBOR Monthly Floating Rate, or any Governmental Authority has imposed material
restrictions on the authority of the Lender to purchase or sell, or to take
deposits of, Dollars in the London interbank market, then, on notice thereof by
the Lender to the Borrowers, 


 


28





















 


any
obligation of the Lender to make LIBOR Floating Rate Loans or to convert Base
Rate Loans to LIBOR Floating Rate Loans shall be suspended until the Lender
notifies the Borrowers that the circumstances giving rise to such determination
no longer exist.  Upon receipt of such
notice, the Borrowers shall, immediately upon demand from the Lender, prepay
or, if applicable, convert all LIBOR Floating Rate Loans to Base Rate Loans.


 


3.03                        Inability
to Determine LIBOR Floating Rate.  If
the Lender determines that for any reason in connection with any request for a
LIBOR Floating Rate Loan or a conversion of a Base Rate Loan to a LIBOR
Floating Rate Loan that (a) Dollar deposits are not being offered to banks
in the London interbank eurodollar market for the applicable amount of such
LIBOR Floating Rate Loan, (b) adequate and reasonable means do not exist
for determining the LIBOR Monthly Floating Rate with respect to a proposed
LIBOR Floating Rate Loan, or (c) the LIBOR Monthly Floating Rate with
respect to a proposed LIBOR Floating Rate Loan does not adequately and fairly
reflect the cost to the Lender of funding such Loan, the Lender will promptly
so notify the Borrowing Agent. 
Thereafter, the obligation of the Lender to make or maintain LIBOR
Floating Rate Loans shall be suspended until the Lender revokes such
notice.  Upon receipt of such notice, the
Borrowers may revoke any pending request for a borrowing of or conversion to a
LIBOR Floating Rate Loan or, failing that, will be deemed to have converted such
request into a request for a borrowing of Base Rate Loans in the amount
specified therein.


 


3.04                        Increased
Costs.


 


(c)                                  Increased
Costs Generally.  If any Change in
Law shall:


 


(i)                                     impose,
modify or deem applicable any reserve, special deposit, compulsory loan,
insurance charge or similar requirement against assets of, deposits with or for
the account of, or credit extended by, the Lender (except any reserve
requirement reflected in the LIBOR Monthly Floating Rate);


 


(ii)                                  subject
the Lender to any tax of any kind whatsoever with respect to this Agreement or
any Eurodollar Loan, or change the basis of taxation of payments to the Lender
in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 3.01
and the imposition of, or any change in the rate of, any Excluded Tax payable
by the Lender); or


 


(iii)                               impose
on the Lender or the London interbank market any other condition, cost or
expense affecting this Agreement or Eurodollar Loans;


 


and the result of any of
the foregoing shall be to increase the cost to the Lender of making or
maintaining any Eurodollar Loan (or of maintaining its obligation to make any
such Loan), or to reduce the amount of any sum received or receivable by the
Lender hereunder (whether of principal, interest or any other amount) then,
upon request of the Lender, the applicable Borrower will pay to the Lender such
additional amount or amounts as will compensate the Lender for such additional
costs incurred or reduction suffered.


 


(d)                                 Capital
Requirements.  If the Lender
determines that any Change in Law affecting the Lender or its Lending Office or
the Lender’s holding company, if any, regarding capital 


 


29





















 


requirements
has or would have the effect of reducing the rate of return on the Lender’s
capital or on the capital of the Lender’s holding company, if any, as a
consequence of this Agreement, the Commitment of the Lender or the Loans made
by the Lender, to a level below that which the Lender or the Lender’s holding
company could have achieved but for such Change in Law (taking into
consideration the Lender’s policies and the policies of the Lender’s holding
company with respect to capital adequacy), then from time to time the Borrowers
will pay to the Lender such additional amount or amounts as will compensate the
Lender or the Lender’s holding company for any such reduction suffered.


 


(e)                                  Certificates
for Reimbursement.  A certificate of
the Lender setting forth the amount or amounts necessary to compensate the
Lender or its holding company, as the case may be, as specified in subsection (a) or
(b) of this Section and delivered to the Borrowers shall be
conclusive absent manifest error.  The
Borrowers shall pay the Lender the amount shown as due on any such certificate
within 10 days after receipt thereof.


 


(f)                                    Delay
in Requests.  Failure or delay on the
part of the Lender to demand compensation pursuant to the foregoing provisions
of this Section shall not constitute a waiver of the Lender’s right to
demand such compensation, provided that the Borrowers shall not be
required to compensate the Lender pursuant to the foregoing provisions of this Section for
any increased costs incurred or reductions suffered more than nine months prior
to the date that the Lender notifies the Borrowers of the Change in Law giving
rise to such increased costs or reductions and of the Lender’s intention to
claim compensation therefor (except that, if the Change in Law giving rise to
such increased costs or reductions is retroactive, then the nine-month period
referred to above shall be extended to include the period of retroactive effect
thereof).


 


3.05                        Mitigation
Obligations.  If the Lender requests
compensation under Section 3.04, or any Borrower is required to pay
any additional amount to the Lender or any Governmental Authority for the
account of the Lender pursuant to Section 3.01, or if the Lender
gives a notice pursuant to Section 3.02, then the Lender shall use
reasonable efforts to designate a different Lending Office for funding or
booking its Loans hereunder or to assign its rights and obligations hereunder
to another of its offices, branches or affiliates, if, in the judgment of the
Lender, such designation or assignment (i) would eliminate or reduce
amounts payable pursuant to Section 3.01 or 3.04, as the
case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02,
as applicable, and (ii) in each case, would not subject the Lender to any
unreimbursed cost or expense and would not otherwise be disadvantageous to the
Lender.  The Borrowers agree to pay all
reasonable costs and expenses incurred by the Lender in connection with any
such designation or assignment.


 


3.06                        Survival.  Each Borrower’s obligations under this Article III
shall survive termination of the Commitment and repayment of all other
Obligations hereunder.


 


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ARTICLE IV.

CONDITIONS PRECEDENT TO CREDIT EXTENSIONS


 


4.01                        Conditions
of Initial Loan.  The obligation of
the Lender to make its initial Loan hereunder is subject to satisfaction of the
following conditions precedent:


 


(a)                                  The
Lender’s receipt of the following, each of which shall be originals or
facsimiles (followed promptly by originals) unless otherwise specified, each
properly executed by a Responsible Officer of the signing Loan Party, each
dated the Closing Date (or, in the case of certificates of governmental
officials, a recent date before the Closing Date) and each in form and
substance satisfactory to the Lender:


 


(i)                                     executed
counterparts of this Agreement and Mortgages with respect to each of the
Refinanced Properties, sufficient in number for distribution to the Lender and
the Borrowing Agent;


 


(ii)                                  a
Note, duly executed by each Borrower;


 


(iii)                               such
certificates of resolutions or other action, incumbency certificates and/or
other certificates of Responsible Officers of each Loan Party as the Lender may
require evidencing the identity, authority and capacity of each Responsible
Officer thereof authorized to act as a Responsible Officer in connection with
this Agreement and the other Loan Documents to which such Loan Party is a
party;


 


(iv)                              such
documents and certifications as the Lender may reasonably require to evidence
that each Loan Party is duly organized or formed, existing and in good standing
in each jurisdiction where its ownership, lease or operation of properties or
the conduct of its business requires such qualification, except to the extent
that failure to do so could not reasonably be expected to have a Material
Adverse Effect;


 


(v)                                 a
favorable opinion of Ruberto, Israel & Weiner, P.C., counsel to the
Loan Parties, addressed to the Lender, as to the matters set forth in Exhibit D
and such other matters concerning the Loan Parties and the Loan Documents as
the Lender may reasonably request;


 


(vi)                              a
certificate of a Responsible Officer of each Loan Party either (A) attaching
copies of all consents, licenses and approvals required in connection with the
execution, delivery and performance by such Loan Party and the validity against
such Loan Party of the Loan Documents to which it is a party, and such
consents, licenses and approvals shall be in full force and effect, or (B) stating
that no such consents, licenses or approvals are so required;


 


(vii)                           a
certificate signed by a Responsible Officer of Holdings certifying (A) that
the conditions specified in Sections 4.02(a) and (b) have
been satisfied, and (B) that there has been no event or circumstance since
the date of the Audited Financial Statements that has had or could be
reasonably expected to have, either individually or in the aggregate, a
Material Adverse Effect;


 


31





















 


(viii)                        evidence
that all insurance required to be maintained pursuant to the Loan Documents has
been obtained and is in effect;


 


(ix)                                a
Borrowing Base Certificate, dated as of the Closing Date, in the form of Exhibit E,
acceptable to the Lender;


 


(x)                                   evidence
of the filing of the Mortgages reflecting the filing in all places required by
applicable law to perfect the Liens of the Lender thereunder as a first
priority Lien as to Collateral purported to be granted thereunder, and such
other documents and/or evidence of other actions as may be necessary under
applicable law to perfect the Liens of the Lender thereunder as first priority
Liens in and to such other Collateral as the Lender may require;


 


(xi)                                an
ALTA Lender’s title policy with respect to each of the Refinanced Properties
dated as of the date and time of recording each Mortgage thereon, insuring the
first lien priority of such Mortgage and reflecting only such title exceptions
as are acceptable to the Lender, together with all endorsements reasonably
requested by the Lender;


 


(xii)                             Uniform
Commercial Code search results showing only those Liens as are acceptable to
the Lender;


 


(xiii)                          flood
certificates for each of the Refinanced Properties in form and substance
satisfactory to the Lender;


 


(xiv)                         evidence
that the U.S. Bank Facility has been or concurrently with the Closing Date is
being terminated and all Liens securing obligations under the U.S. Bank
Facility have been or concurrently with the Closing Date are being released;
and


 


(xv)                            such
other assurances, certificates, documents, consents or opinions as the Lender
reasonably may require.


 


(b)                                 Any
fees required to be paid on or before the Closing Date shall have been paid.


 


(c)                                  The
Borrowers shall have paid all fees, charges and disbursements of counsel to the
Lender (including special counsel in each jurisdiction where a Mortgage is to
be filed) to the extent invoiced prior to or on the Closing Date, plus such
additional amounts of such fees, charges and disbursements as shall constitute
its reasonable estimate of such fees, charges and disbursements incurred or to
be incurred by it through the closing proceedings (provided that such
estimate shall not thereafter preclude a final settling of accounts between the
Borrowers and the Lender).


 


(d)                                 The
Closing Date shall have occurred on or before May 31, 2005.


 


4.02                        Conditions
to all Loans.  The obligation of the
Lender to make any Loan is subject to the following conditions precedent:


 


32





















 


(a)                                  The
representations and warranties of each Loan Party contained in Article V
or any other Loan Document, or which are contained in any document furnished at
any time under or in connection herewith or therewith, shall be true and
correct on and as of the date of such Loan, except to the extent that such
representations and warranties specifically refer to an earlier date, in which
case they shall be true and correct as of such earlier date, and except that
for purposes of this Section 4.02, the representations and
warranties contained in subsections (a) and (b) of Section 5.01
shall be deemed to refer to the most recent statements furnished pursuant to
clauses (a) and (b), respectively, of Section 6.01.


 


(b)                                 No
Default shall exist, or would result from such proposed Loan.


 


(c)                                  The
Lender shall have received a Loan Notice in accordance with the requirements
hereof.


 


(d)                                 The
Lender shall have received the Mortgages and other deliveries required by Section 6.09.


 


Each Loan Notice (other than a Loan Notice requesting only a conversion
of a Loan to the other Type) submitted by the Borrowing Agent shall be deemed
to be a representation and warranty that the conditions specified in Sections
4.02(a) and (b) have been satisfied on and as of the date
of the applicable Loan.


 


ARTICLE V.

REPRESENTATIONS AND WARRANTIES


 


To induce the Lender to enter into this Agreement and to make the
Loans, Holdings, Mentor and the Borrowers hereby jointly and severally
represent and warrant to the Lender that


 


5.01                        Financial
Condition.


 


(a)                                  The
Audited Financial Statements (i) were prepared in accordance with GAAP
consistently applied throughout the period covered thereby, except as otherwise
expressly noted therein; (ii) fairly present the financial condition of
Holdings and its Subsidiaries as of the date thereof and their results of
operations for the period covered thereby in accordance with GAAP consistently
applied throughout the period covered thereby, except as otherwise expressly
noted therein; and (iii) show all material indebtedness and other
liabilities, direct or contingent, of Holdings and its Subsidiaries as of the
date thereof, including liabilities for taxes, material commitments and
Indebtedness.


 


(b)                                 The
unaudited consolidated balance sheet of Holdings and its Subsidiaries dated December 31,
2004, and the related consolidated and consolidating statements
of income or operations, shareholders’ equity and cash flows for the fiscal
quarter ended on that date (i) were prepared in accordance with GAAP
consistently applied throughout the period covered thereby, except as otherwise
expressly noted therein, and (ii) fairly present the financial condition
of Holdings and its Subsidiaries as of the date thereof and their results of
operations for the period 


 


33





















 


covered
thereby, subject, in the case of clauses (i) and (ii), to the absence of
footnotes and to normal year-end audit adjustments.


 


(c)                                  Except
as set forth on Schedule 7.02(d), as of the Closing Date, no Group
Member has any material Guarantee Obligations, contingent liabilities and
liabilities for taxes, or any long-term leases or unusual forward or long-term
commitments, including any Swap Agreements or foreign currency swap or exchange
transactions or other obligations in respect of derivatives, that are not
reflected in the financial statements referenced in subparagraph (b) above.


 


5.02                        No Change.  Since the date of the Audited Financial
Statements, there has been no event or circumstance, either individually or in
the aggregate, that has had or could reasonably be expected to have a Material
Adverse Effect.


 


5.03                        Existence;
Compliance with Law.  Each Group
Member (a) is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization (provided that each of
Unlimited Quest, Inc. may not, on the date hereof, be in good standing in
its jurisdiction of organization but such failure to be in good standing would
not reasonably be expected to have a Material Adverse Effect), (b) has the
power and authority, and the legal right, to own and operate its property, to
lease the property it operates as lessee and to conduct the business in which
it is currently engaged, (c) is duly qualified as a foreign corporation or
other organization and in good standing under the laws of each jurisdiction
where its ownership, lease or operation of property or the conduct of its
business requires such qualification except to the extent that the failure to
comply therewith would not, in the aggregate, reasonably be expected to have a
Material Adverse Effect and (d) is in compliance with all Requirements of
Law except to the extent that the failure to comply therewith would not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.


 


5.04                        Power;
Authorization; Enforceable Obligations. 
Each Loan Party has the power and authority, and the legal right, to
make, deliver and perform the Loan Documents to which it is a party and, in the
case of the Borrowers, to obtain extensions of credit hereunder. Each Loan
Party has taken all necessary organizational action to authorize the execution,
delivery and performance of the Loan Documents to which it is a party and, in
the case of the Borrowers, to authorize the extensions of credit on the terms
and conditions of this Agreement.  No
material consent or authorization of, filing with, notice to or other act by or
in respect of, any Governmental Authority or any other Person is required in
connection with the extensions of credit hereunder or with the execution,
delivery, performance, validity or enforceability of this Agreement or any of
the Loan Documents, except (i) consents, authorizations, filings and notices
described in Schedule 5.04, which consents, authorizations, filings
and notices have been obtained or made and are in full force and effect and (ii) the
filings referred to in Section 5.19.  Each Loan Document has been duly executed and
delivered on behalf of each Loan Party party thereto.  This Agreement constitutes, and each other
Loan Document upon execution will constitute, a legal, valid and binding
obligation of each Loan Party party thereto, enforceable against each such Loan
Party in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors’ rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law).


 


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5.05                        No Legal
Bar.  The execution, delivery and
performance of this Agreement and the other Loan Documents, the borrowings
hereunder and the use of the proceeds thereof will not violate any Requirement
of Law or any material Contractual Obligation of any Group Member (other than
the Magellan Note Documents) and will not result in, or require, the creation
or imposition of any Lien on any of their respective properties or revenues
pursuant to any Requirement of Law or any such Contractual Obligation (other
than the Liens created by the Mortgages).


 


5.06                        Litigation.  Except as set forth on Schedule 5.06,
no litigation, or to the knowledge of Holdings, Mentor or any Borrower, no
investigation or proceeding of or before any arbitrator or Governmental
Authority is pending or, to the best knowledge of Holdings, Mentor or any
Borrower, threatened by or against any Group Member or against any of their
respective properties or revenues (a) with respect to any of the Loan
Documents or any of the transactions contemplated hereby or thereby, (b) as
of the Closing Date, with respect to the Magellan Seller Notes, or (c) that
would reasonably be expected to have a Material Adverse Effect.


 


5.07                        No Default.  Except as set forth on Schedule 5.07,
no Group Member is in default under or with respect to any of its Contractual
Obligations in any respect that would reasonably be expected to have a Material
Adverse Effect.  No Event of Default has
occurred and is continuing.


 


5.08                        Ownership
of Property; Liens.  Each Group
Member has marketable title to, or a valid leasehold interest in, all its real
property, and marketable title to, or a valid leasehold interest in, all its
material other property, and none of such property is subject to any Lien
except as permitted by Section 7.03.  Without limitation of the foregoing, each
Borrower has marketable fee simple title in the Mortgaged Properties subject to
the Mortgages executed by it, including the Refinanced Property subject to each
such Mortgage.


 


5.09                        Licenses,
Intellectual Property.  Except as in
the aggregate would not reasonably be expected to have a Material Adverse
Effect or as set forth in Schedule 5.09 (all of which items set
forth in Schedule 5.09 in the aggregate would not reasonably be
expected to have a Material Adverse Effect), each Group Member has all
necessary licenses, permits, franchises, rights to participate in, or the
benefit of valid agreements to participate in material Third Party Payor
Programs and other rights necessary for the conduct of its business and for the
intended use of its properties and assets to the extent necessary to ensure no
material interruption in cash flow.  Each
Group Member owns, or is licensed to use, all Intellectual Property necessary
for the conduct of its business as currently conducted except to the extent
that a failure would not reasonably be expected to have a Material Adverse
Effect.  No material claim has been
asserted and is pending by any Person challenging or questioning the use of any
Intellectual Property or the validity or effectiveness of any Intellectual
Property, nor does Holdings, Mentor or any Borrower have knowledge of any valid
basis for any such claim.  Except as
would not reasonably be expected to result in a Material Adverse Effect, the
use of Intellectual Property by each Group Member does not infringe on the
rights of any Person in any material respect.


 


5.10                        Taxes.  Each Group Member has filed or caused to be
filed all Federal, material state and other material tax returns that are
required to be filed and has paid all material taxes 


 


35





















 


shown
to be due and payable on said returns or on any assessments made against it or
any of its property and all other taxes, fees or other charges imposed on it or
any of its property by any Governmental Authority (other than any the amount or
validity of which are currently being contested in good faith by appropriate
proceedings and with respect to which reserves in conformity with GAAP have
been provided on the books of the relevant Group Member); no tax Lien has been
filed (other than Permitted Liens), and, to the knowledge of Holdings, Mentor
or any Borrower, no claim is being asserted, with respect to any such tax, fee
or other charge.


 


5.11                        Federal
Regulations.  No part of the proceeds
of any Loans will be used (a) for “buying” or “carrying” any “margin stock”
within the respective meanings of each of the quoted terms under Regulation U
as now and from time to time hereafter in effect or (b) for any purpose
that violates the provisions of the Regulations of the Board.


 


5.12                        Labor
Matters.  Except as, in the
aggregate, would not reasonably be expected to have a Material Adverse Effect:  (a) there are no strikes or other labor
disputes against any Group Member pending or, to the knowledge of Holdings,
Mentor or any Borrower, threatened; (b) hours worked by and payment made
to employees of each Group Member have not been in violation of the Fair Labor
Standards Act or any other applicable Requirement of Law dealing with such
matters; and (c) all payments due from any Group Member on account of
employee health and welfare insurance have been paid or accrued as a liability
on the books of the relevant Group Member.


 


5.13                        ERISA.  Except as would not reasonably be expected to
have a Material Adverse Effect, (i) neither a Reportable Event nor an “accumulated
funding deficiency” (within the meaning of Section 412 of the Code or Section 302
of ERISA) has occurred during the five-year period prior to the date on which
this representation is made or deemed made with respect to any Plan, and each
Plan during such five-year period has complied in all material respects with
the applicable provisions of ERISA and the Code, (ii) no termination of a
Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan
has arisen, during such five-year period and (iii) the present value of
all accrued benefits under each Single Employer Plan (based on those
assumptions used to fund such Plans) did not, as of the last annual valuation
date prior to the date on which this representation is made or deemed made,
exceed the value of the assets of such Plan allocable to such accrued benefits
by a material amount.  To the best of
Holdings, Mentor or any Borrower’s knowledge, neither Mentor nor any Borrower
nor any Commonly Controlled Entity has had a complete or partial withdrawal
from any Multiemployer Plan that has resulted or could reasonably be expected
to result in a material liability under ERISA, and to the best of Holdings,
Mentor or any Borrower’s knowledge, neither Mentor nor any Borrower nor any
Commonly Controlled Entity would become subject to any material liability under
ERISA if Mentor, such Borrower or any such Commonly Controlled Entity were to
withdraw completely from all Multiemployer Plans as of the valuation date most
closely preceding the date on which this representation is made or deemed
made.  No such Multiemployer Plan is in
Reorganization or Insolvent.


 


5.14                        Investment
Company Act; Other Regulations.  No
Loan Party is an “investment company”, or a company “controlled” by an “investment
company”, within the meaning of the Investment Company Act of 1940, as
amended.  No Loan Party is subject to 


 


36





















 


regulation
under any Requirement of Law (other than Regulation X of the Board) that limits
its ability to incur Indebtedness.


 


5.15                        Subsidiaries.  Attached hereto as Schedule 5.15(a) is
an organization chart of each Loan Party and its Subsidiaries as of the Closing
Date.  Except as disclosed to the Lender
by Holdings, Mentor or the Borrowers in writing from time to time after the
Closing Date, (a) Schedule 5.15(b) sets forth the name
and jurisdiction of incorporation of each Subsidiary and, as to each such
Subsidiary, the percentage of each class of Capital Stock owned by any Loan
Party and (b) there are no outstanding subscriptions, options, warrants,
calls, rights or other agreements or commitments (other than stock options
granted to employees or directors and directors’ qualifying shares) of any
nature relating to any Capital Stock of Mentor or any Subsidiary, except as
created by the Loan Documents.


 


5.16                        Use of
Proceeds.  The proceeds of the Loans
shall be used (a) to refinance mortgage loans and related indebtedness of
the Borrowers under the U.S. Bank Facility with respect to the Refinanced
Properties and any notes issued by the Borrowers thereunder, and (b) to
purchase Acquired Properties.


 


5.17                        Environmental
Matters.  Except as, in the
aggregate, would not reasonably be expected to have a Material Adverse Effect:


 


(a)                                  the
facilities and properties owned, leased or operated by any Group Member (the “Properties”)
do not contain, and have not previously contained, any Materials of
Environmental Concern in amounts or concentrations or under circumstances that
constitute or constituted a violation of, or could reasonably be expected to
give rise to liability under, any applicable Environmental Law;


 


(b)                                 no
Group Member has received any notice of any violation, alleged violation,
noncompliance, liability or potential liability regarding environmental matters
or compliance with Environmental Laws with regard to any of the Properties or
the business operated by any Group Member (the “Business”), nor does
Holdings, Mentor or any Borrower have knowledge or reason to believe that any
such notice will be received or is being threatened;


 


(c)                                  Materials
of Environmental Concern have not been transported or disposed of from the
Properties in violation of, or in a manner or to a location that would
reasonably be expected to give rise to liability under, any Environmental Law,
nor have any Materials of Environmental Concern been generated, treated, stored
or disposed of at, on or under any of the Properties in violation of, or in a
manner that would reasonably be expected to give rise to liability under, any
applicable Environmental Law;


 


(d)                                 with
respect to any liability arising under any Environmental Law, no judicial
proceeding or governmental or administrative action is pending or, to the best
knowledge of Holdings, Mentor or any Borrower, threatened, to which any Group
Member is or will be named as a party with respect to the Properties or the
Business, nor are there any consent decrees or other decrees, consent orders,
administrative orders or other orders, or other administrative or judicial
requirements outstanding under any Environmental Law with respect to the
Properties or the Business;


 


37





















 


(e)                                  there
has been no release or threat of release of Materials of Environmental Concern
at or from the Properties, or arising from or related to the operations of any
Group Member in connection with the Properties or otherwise in connection with
the Business, in violation of or in amounts or in a manner that would
reasonably be expected to give rise to liability under Environmental Laws;


 


(f)                                    the
Properties and all operations at the Properties are in compliance, and within
all applicable statute-of-limitations periods have been in compliance, with all
applicable Environmental Laws, and there is no contamination at, under or about
the Properties or violation of any Environmental Law with respect to the
Properties or the Business; and


 


(g)                                 no
Group Member has assumed, contractually or by operation of law, any liability
of any other Person under Environmental Laws.


 


5.18                        Accuracy
of Information, etc.  No statement or
factual information with respect to any Loan Party or any of its Subsidiaries
contained in this Agreement, any other Loan Document or any other factual
document, certificate or statement (other than any projections, pro  formas
or other estimates with respect to any Loan Party or any of its Subsidiaries)
furnished by or by Persons directed on behalf of any Loan Party to the Lender,
for use in connection with the transactions contemplated by this Agreement or
the other Loan Documents, when taken as a whole, contained as of the date such
statement, information, document or certificate was so furnished, any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements contained herein or therein not materially misleading.  The projections and pro forma financial information contained in the materials
referenced above were, and the projections hereafter delivered, when delivered,
will be based upon good faith estimates and assumptions believed by management
of each Loan Party to be reasonable at the time made and no Loan Party knows as
of the date hereof any fact making such estimates and assumptions no longer
true in any material respects, it being recognized by the Lender that such
financial information as it relates to future events is not to be viewed as
fact and that actual results during the period or periods covered by such
financial information may differ from the projected results set forth therein
by a material amount.  There is no fact
known to any Loan Party that could reasonably be expected to have a Material
Adverse Effect that has not been expressly disclosed herein, in the other Loan
Documents.


 


5.19                        Mortgages.  Each of the Mortgages is effective to create
in favor of the Lender, a legal, valid and enforceable (subject to the effect
of bankruptcy, insolvency, reorganization, receivership, moratorium and other
similar laws affecting creditors’ rights) Lien on the Mortgaged Properties and
other Collateral described therein and proceeds thereof, and when the Mortgages
are filed in the appropriate recording offices and financing statements or
other filings specified on Schedule 5.19(a) in appropriate
form are filed in the offices so specified on Schedule 5.19(a) each
such Mortgage shall constitute a fully perfected Lien on, and security interest
in, all right, title and interest of the Loan Parties in the Mortgaged
Properties, the Collateral and the proceeds thereof, as security for the
Obligations (as defined in the relevant Mortgage), in each case prior and
superior in right to any other Person (except that the security interest
created in such real property and the Mortgaged Property may be subject to the
Permitted Liens related thereto).


 


38





















 


5.20                        Solvency.  The Loan Parties on a consolidated basis are,
and after giving effect to the incurrence of all Indebtedness and obligations
being incurred in connection herewith will be and will continue to be, Solvent.


 


5.21                        Senior
Indebtedness.  The obligations of
Mentor and each Borrower hereunder constitute “Senior Debt” under and as
defined in the Senior Subordinated Note Indenture.


 


5.22                        Regulation
H.  Except as set forth on Schedule 5.22,
no Mortgaged Property on the Closing Date is located within an area that has
been designated or identified as an area having special flood hazards as
defined in the Federal Flood Disaster Protection Act of 1973, as amended and in
effect on the Closing Date.


 


ARTICLE VI.

AFFIRMATIVE COVENANTS


 


Holdings, Mentor and each Borrower hereby jointly and severally agree
that, so long as the Commitment remains in effect or any Loan or other amount
is owing to the Lender (other than any contingent indemnification obligation
surviving after the termination of this Agreement) hereunder, Holdings, Mentor
and each Borrower shall and shall cause each of its Subsidiaries, directly or
indirectly, to:


 


6.01                        Financial
Statements.  Furnish to the Lender:


 


(a)                                  as
soon as available, but in any event within 90 days after the end of each fiscal
year of Holdings, a copy of the audited consolidated balance sheet of Holdings
and its consolidated Subsidiaries as at the end of such year and the related
audited consolidated statements of income and of cash flows for such year,
setting forth in each case in comparative form the figures for the previous
year, reported on without a “going concern” or like qualification or exception,
or qualification arising out of the scope of the audit, by Ernst &
Young LLP or other independent certified public accountants of nationally
recognized standing;


 


(b)                                 as
soon as available, but in any event not later than 45 days after the end of
each of the first three quarterly periods of each fiscal year of Holdings, the
unaudited consolidated balance sheet of Holdings and its consolidated
Subsidiaries as at the end of such quarter and the related unaudited
consolidated statements of income and of cash flows for such quarter and the
portion of the fiscal year through the end of such quarter, setting forth in
each case in comparative form the figures for the same quarter in the previous
year, certified by a Responsible Officer as being fairly stated in all material
respects (subject to normal year-end audit adjustments and the absence of
footnotes); and


 


(c)                                  as
soon as available, but in any event not later than 45 days after the end of
each month occurring during each fiscal year of Holdings (other than the third,
sixth, ninth and twelfth such month), the unaudited consolidated balance sheet
of Holdings and its Subsidiaries as at the end of such month and the related
unaudited consolidated statements of income and of cash flows for such month
and the portion of the fiscal year through the end of such month, setting forth
in each case in comparative form the figures for the same month in the previous
year, 


 


39





















 


certified
by a Responsible Officer as being fairly stated in all material respects
(subject to normal year-end audit adjustments and the absence of footnotes).


 


All such financial
statements shall be complete and correct in all material respects and shall be
prepared in reasonable detail and in accordance with GAAP applied (except as
approved by such accountants or a Responsible Officer, as the case may be, and
disclosed in reasonable detail therein) consistently throughout the periods
reflected therein and with prior periods. 
With regard to interim financial statements, such interim financial
statements will not include all of the information and footnotes required by
GAAP for complete financial statements. 
However, all adjustments (consisting of normal, recurring accrual)
considered necessary for a fair presentation will be included therein.


 


6.02                        Certificates;
Other Information.  Furnish to the
Lender:


 


(a)                                  If
requested by the Lender, concurrently with the delivery of the financial
statements referred to in Section 6.01(a), a certificate of the
independent certified public accountants reporting on such financial statements
stating that in making the examination necessary therefor no knowledge was
obtained of any Default or Event of Default, except as specified in such
certificate;


 


(b)                                 concurrently
with the delivery of any financial statements pursuant to Section 6.01(a) and
(b), (i) a certificate of a Responsible Officer stating that, to
the best of each such Responsible Officer’s knowledge, each Loan Party during
such period has observed or performed all of its covenants and other
agreements, and satisfied every condition contained in this Agreement and the
other Loan Documents to which it is a party to be observed, performed or
satisfied by it, and that such Responsible Officer has obtained no knowledge of
any Default or Event of Default except as specified in such certificate and (ii) a
Compliance Certificate containing all information and calculations necessary
for determining compliance by each Group Member with the provisions of this
Agreement referred to therein (including detail with respect to any calculation
of Consolidated EBITDA, including, without limitation, detailed information
with respect to any add-backs, including any such add-backs for anticipated
payments or reimbursements which were not paid or reimbursed) as of the last
day of the fiscal quarter or fiscal year of Holdings, as the case may be;


 


(c)                                  as
soon as available, and in any event no later than 60 days after the end of each
fiscal year of Holdings and its Subsidiaries, a detailed consolidated budget
for the following fiscal year (and no later than 90 days after the end of each
fiscal year of Holdings, a detailed projected consolidated balance sheet of
Holdings and its consolidated Subsidiaries as of the end of the following
fiscal year, the related consolidated statements of projected cash flow,
projected changes in financial position and projected income and a description
of the underlying assumptions applicable thereto), and, as soon as available,
significant revisions, if any, of such budget and projections with respect to
such fiscal year (collectively, the “Projections”), which Projections
shall be prepared in a manner so that the representations and warranties set
forth in Section 5.18 are true and correct in all material
respects;


 


40





















 


(d)                                 no
later than 10 Business Days prior to the effectiveness thereof, copies of
substantially final drafts of any proposed amendment, supplement, waiver or
other modification with respect to the Syndicated Credit Agreement or the
Senior Subordinated Note Indenture;


 


(e)                                  within
five Business Days after the same are sent, copies of all financial statements
and reports that Holdings or Mentor sends to the
holders of any class of its debt securities other than the Lender (including,
without limitation, the holders of the Magellan Seller Notes) or public equity
securities and, within five Business Days after the same are filed, copies of
all financial statements and reports that Holdings or Mentor may make to, or
file with, the SEC; and


 


(f)                                    promptly,
such additional financial and other information concerning a Group Member as
the Lender may from time to time reasonably request.


 


6.03                        Payment of
Obligations.  Pay, discharge or
otherwise satisfy at or before maturity or before they become delinquent, as
the case may be, all its material obligations of whatever nature, except where (i) the
amount or validity thereof is currently being contested in good faith by
appropriate proceedings and reserves in conformity with GAAP with respect
thereto have been provided on the books of the relevant Group Member or (ii) the
failure to pay would reasonably be expected to result in a Material Adverse
Effect.


 


6.04                        Maintenance
of Existence; Compliance.  (a)(i) Preserve,
renew and keep in full force and effect its organizational existence and (ii) take
all reasonable action to maintain all rights, privileges and franchises
necessary or desirable in the normal conduct of its business, except, in each
case, as otherwise permitted by Section 7.04 and except, in the
case of clause (ii) above, to the extent that failure to do so would not
reasonably be expected to have a Material Adverse Effect; and (b) comply
with all Contractual Obligations except to the extent that failure to comply
therewith would not, in the aggregate, reasonably be expected to have a
Material Adverse Effect and Requirements of Law except to the extent that
failure to comply therewith would not, in the aggregate, reasonably be expected
to have a Material Adverse Effect.


 


6.05                        Maintenance
of Property; Insurance.


 


(a)                                  Keep
all material property useful and necessary in its business in good working
order and condition, ordinary wear and tear and ordinary damage by casualty
excepted and maintain with financially sound and reputable insurance companies
insurance (or pursuant to self-insurance to the extent commercially reasonable)
on all its property (other than vehicles) in at least such amounts and against
at least such risks (but including in any event public liability, product
liability and business interruption) as are required by the Mortgages and as
are usually insured against in the same general area by companies engaged in
the same or a similar business and of similar size; provided that the
insurance amount for general liability insurance of each of Mentor and the Borrowers shall in no event be less than $4,000,000
(which shall be available after any reasonable self-insurance or effective
deductibles, which at the date hereof are $1,000,000 per occurrence and
$2,000,000 for all occurrences).


 


(b)                                 Keep
all of its insurable properties now or hereafter owned adequately insured at
all times against loss or damage by fire or other casualty to the extent
customary with respect to 


 


41





















 


like
properties of companies conducting similar businesses and of a similar size and
to the extent reasonably required by the Lender; maintain general liability,
professional liability, business interruption and workers’ compensation
insurance insuring each Loan Party and each Subsidiary thereof to the extent
customary with respect to companies conducting similar businesses and of a
similar size, all by financially sound and reputable insurers (or pursuant to
self insurance to the extent commercially reasonable) and furnish to the Lender
satisfactory evidence of the same (including, if requested by the Lender,
certification by a Responsible Officer of the timely renewal of, and timely
payment of all insurance premiums payable under, all such policies), notify the
Lender of any material reduction in the insurance maintained on its properties
in the aggregate or on any Mortgaged Property after the date hereof and furnish
the Lender reasonably satisfactory evidence of any such change; and provide
that each insurance policy maintained or required to be maintained by any Loan
Party shall (i) name the Lender as loss payee pursuant to a so-called “standard
mortgagee clause” or “Lender’s loss payable endorsement”, with respect to
property coverage of such Loan Party carried as to the Mortgaged Properties,
and shall name the Lender as an additional insured, with respect to general
liability coverage carried by each of Holdings, Mentor and the Borrowers, (ii) provide
that no action of any Loan Party or any Subsidiary or any other Person shall
void any such policy as to the Lender, (iii) provide that the insurer(s)
shall endeavor to notify the Lender of any proposed cancellation of such policy
at least 30 days in advance thereof (unless such proposed cancellation arises
by reason of non-payment of insurance premiums in which case such notice shall
be given at least 10 days in advance thereof) and that the Lender will have the
opportunity to correct any deficiencies justifying such proposed cancellation
and (iv) cause any Insurance Subsidiary to (x) conduct its insurance
business in compliance with all applicable insurance laws, rules, regulations
and orders and using sound actuarial principles and (y) maintain usual and
customary stop-loss coverage and excess coverage reinsurance for individual
claims.  The insurance premiums and other
expenses charged by any Insurance Subsidiary to Mentor or any Borrower and its
Subsidiaries shall be reasonable and customary. 
Mentor will provide the Lender (A) copies of any outside actuarial
reports prepared with respect to any projection, valuation or appraisal of any
Insurance Subsidiary promptly after receipt thereof and (B) once each year
promptly after receipt thereof, an actuarial opinion with respect to any
Insurance Subsidiary from a recognized actuarial firm reasonably satisfactory
to the Lender.


 


(c)                                  With
respect to each Mortgaged Property listed on Schedule 5.22 and each
other Mortgaged Property located within an area that has been or is hereafter
designated or identified as an area having special flood hazards as defined in
the Federal Flood Disaster Protection Act of 1973, as such act may from time to
time be amended and in effect, or pursuant to any other national or state
program of flood insurance, the Borrower that owns such Mortgaged Property
shall carry flood insurance with respect to such Mortgaged Property in an
amount not less than the maximum amount available under the Flood Disaster
Protection Act of 1973 and the regulations issued pursuant thereto, as amended
from time to time, in form complying with the “insurance purchase” requirement
of that Act.


 


6.06                        Inspection
of Property; Books and Records; Discussions.  (a) Keep proper books of records and
account in which full, true and correct entries in conformity with GAAP and all
material Requirements of Law shall be made of all dealings and transactions in
relation to its business and activities, and (b) permit representatives of
the Lender to visit and inspect any of its properties and examine and make
abstracts from any of its books and records (other than 


 


42





















 


materials
protected by the attorney-client privilege and materials which such person may
not disclose without violation of a confidentiality obligation binding upon it)
at any reasonable time (and upon reasonable notice unless an Event of Default
exists) and as often as may reasonably be desired and to discuss the business,
operations, properties and financial and other condition of the Group Members
with officers and employees of the Group Members and with their independent
certified public accountants (provided Mentor is given an opportunity to be
present at such meetings).


 


6.07                        Notices.  Promptly give notice to the Lender:


 


(a)                                  the
occurrence of any Default or Event of Default;


 


(b)                                 any
(i) default or event of default under any Contractual Obligation of any
Group Member or (ii) litigation, investigation or proceeding that may
exist at any time between any Group Member and any Governmental Authority, that
in either case, if not cured or if adversely determined, as the case may be,
could reasonably be expected to have a Material Adverse Effect;


 


(c)                                  any
litigation or proceeding affecting any Group Member (i) in which the
amount involved would be reasonably expected to result in a liability or
judgment of is $5,000,000 or more in excess of that fully covered by insurance
or (ii) in which injunctive or similar relief is sought (if such
injunctive or similar relief would reasonably be expected to result in a
Material Adverse Effect);


 


(d)                                 the
following events, as soon as possible and in any event within 30 days after any
Responsible Officer of Holdings, Mentor or any Borrower, as applicable, knows
or has reason to know thereof:  (i) the
occurrence of any Reportable Event with respect to any Plan, a failure to make
any required contribution to a Single Employer or Multiemployer Plan, the
creation of any Lien in favor of the PBGC or a Plan or any withdrawal from, or
the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the
institution of proceedings or the taking of any other action by the PBGC or
Holdings, Mentor, any Borrower or any Commonly Controlled Entity or any
Multiemployer Plan with respect to the withdrawal from, or the termination,
Reorganization or Insolvency of, any Single Employer or Multiemployer Plan; provided,
however that notice shall only be required for any event described in (i) or
(ii) that would reasonably be expected to result in a liability or
judgment of $5,000,000 or more;


 


(e)                                  any
development or event that has had or would reasonably be expected to have a
Material Adverse Effect; and


 


(f)                                    if
all or any part of any Mortgaged Property is subject to a casualty or other
damage in excess of $25,000, any taking under power of eminent domain or by
condemnation or similar proceeding (including any conveyance made in settlement
of any such proceeding or threatened proceeding) or other event that in the
reasonable discretion of the such Person materially reduces the fair market
value thereof.


 


Each notice pursuant to
this Section 6.07 shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the relevant Group Member proposes to take with respect
thereto.


 


43





















 


6.08                        Environmental
Laws.  (a)  Comply in all
material respects with, and ensure compliance in all material respects by all
tenants and subtenants, if any, at the Properties with, all applicable
Environmental Laws, and obtain and comply in all material respects with and
maintain, and ensure that all tenants and subtenants obtain and comply in all
material respects with and maintain, any and all licenses, approvals,
notifications, registrations or permits required by applicable Environmental
Laws.  This clause (a) shall be
deemed not breached by a noncompliance with the foregoing if, upon learning of
such noncompliance, any affected Group Member promptly undertakes reasonable
efforts to eliminate such noncompliance, and such noncompliance and the
elimination thereof, in the aggregate with any other noncompliance with any of
the foregoing and the elimination thereof, could not reasonably be expected to
have a Material Adverse Effect or to materially and adversely affect the value
of the property secured by any of the Mortgages.


 


(b)                                 Conduct
and complete all material investigations, studies, sampling and testing, and
all material remedial, removal and other actions required under Environmental
Laws and promptly comply in all material respects with all lawful orders and
directives of all Governmental Authorities regarding Environmental Laws in each
case.  This clause (b) shall be
deemed not breached by a failure to comply with such an order or directive if
any affected Group Member timely challenges in good faith such order or
directive in a manner consistent with all applicable Environmental Laws and
pursues such challenge diligently, and the pendency and pursuit of such
challenge, in the aggregate with the pendency and pursuit of any other such
challenges, could not reasonably be expected to have a Material Adverse Effect
or to materially and adversely affect the value of the property secured by any
of the Mortgages.


 


6.09                        Additional
Mortgages, etc.  (a)  With
respect to any Acquired Property, on or before the date of Loan being utilized
to acquire such property (i) execute and deliver to the Lender such
Mortgages or such other documents (including, to the extent required by the
Lender, opinions of counsel), each in form and substance satisfactory to the
Lender, as the Lender reasonably deems necessary or advisable to the grant to
the Lender a first priority mortgage or deed of trust Lien on such property,
subject only to Permitted Liens, (ii) record such Mortgage and take all
other actions necessary or advisable to grant to the Lender a perfected first
priority security interest in such property, including the filing of Uniform
Commercial Code financing statements in such jurisdictions as may be reasonably
required by the Mortgages or by law or as may be requested by the Lender, and (iii) deliver
to the Lender: (A) an ALTA Lender’s title policy dated as of the date and
time of recording such Mortgage, insuring the first lien priority of such
Mortgage and reflecting only such title exceptions as are acceptable to the
Lender, together with all endorsements reasonably requested by the Lender; (B) satisfactory
flood certificates with respect to such Mortgaged Property; and (C) evidence
of insurance for such Mortgaged Property as required by Section 6.05
and the applicable Mortgage.


 


(b)                                 Upon
the request of the Borrowing Agent, any Mortgaged Property as to which the
requirements of Section 6.09(a) have been satisfied may be
included in the Borrowing Base upon receipt by the Lender of (A) a
Borrowing Base Certificate giving effect to the inclusion of such Mortgaged
Property, and (B) an Acceptable Appraisal.


 


(c)                                  Furthermore,
the Borrowers shall cause to be delivered to the Lender such opinions of
counsel, title insurance (and endorsements thereto), appraisals, and other
reports, 


 


44





















 


certificates
and documents as may be requested by the Lender with respect to any Mortgaged
Property, including, if the Lender determines that it is required by law or
regulation to have appraisals prepared in respect of any real property,
appraisals which satisfy the applicable requirements of the Real Estate
Appraisal Reform Amendments of the Financial Institution Reform, Recovery and
Enforcement Act of 1989 and which shall be in form and substance satisfactory
to the Lender.


 


ARTICLE VII.

NEGATIVE COVENANTS


 


Holdings, Mentor and each Borrower hereby jointly and severally agree
that, so long as the Commitment remains in effect or any Loan or other amount
is owing to the Lender (other than any contingent indemnity obligation
surviving after the termination of this Agreement) hereunder, Holdings, Mentor
and each Borrower shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly:


 


7.01                        Financial
Condition Covenants.


 


(a)                                  Consolidated
Leverage Ratio.  Permit the
Consolidated Leverage Ratio as at the last day of any period of four
consecutive fiscal quarters of Holdings (or, if less, the number of full fiscal
quarters subsequent to November 4, 2004) ending with any fiscal quarter
set forth below to exceed the ratio set forth below opposite such fiscal
quarter:


 


	
  Fiscal Quarter

  	
   

  	
  Consolidated

  Leverage Ratio

  
	
   

  	
   

  	
   

  
	
  June 30,
  2005

  	
   

  	
   

  
	
  to December 31,
  2005

  	
   

  	
  5.75 to 1.00

  
	
   

  	
   

  	
   

  
	
  March 31,
  2006

  	
   

  	
   

  
	
  to June 30,
  2006

  	
   

  	
  5.50 to 1.00

  
	
   

  	
   

  	
   

  
	
  September 30,
  2006

  	
   

  	
   

  
	
  to December 31,
  2006

  	
   

  	
  5.25 to 1.00

  
	
   

  	
   

  	
   

  
	
  March 31,
  2007

  	
   

  	
   

  
	
  to June 30,
  2007

  	
   

  	
  5.00 to 1.00

  
	
   

  	
   

  	
   

  
	
  September 30,
  2007

  	
   

  	
   

  
	
  to December 31,
  2007

  	
   

  	
  4.75 to 1.00

  
	
   

  	
   

  	
   

  
	
  March 31,
  2008

  	
   

  	
   

  
	
  to June 30,
  2008

  	
   

  	
  4.50 to 1.00

  
	
   

  	
   

  	
   

  
	
  September 30,
  2008

  	
   

  	
   

  
	
  to December 31,
  2008

  	
   

  	
  4.25 to 1.00

  
	
   

  	
   

  	
   

  
	
  March 31,
  2009

  	
   

  	
   

  
	
  to June 30,
  2009

  	
   

  	
  4.00 to 1.00

  



 


45





















 


	
  September 30,
  2009

  	
   

  	
   

  
	
  to December 31,
  2009

  	
   

  	
  3.75 to 1.00

  
	
   

  	
   

  	
   

  
	
  March 31,
  2010

  	
   

  	
  3.50 to 1.00

  



 


(b)                                 Consolidated
Interest Coverage Ratio.  Permit the
Consolidated Interest Coverage Ratio for any period of four consecutive fiscal
quarters of Holdings (or, if less, the number of full fiscal quarters
subsequent to November 4, 2004) ending with any fiscal quarter set forth
below to be less than the ratio set forth below opposite such fiscal quarter:


 


	
  Fiscal Quarter

  	
   

  	
  Consolidated Interest

  Coverage Ratio

  
	
   

  	
   

  	
   

  
	
  June 30,
  2005

  	
   

  	
   

  
	
  to December 31,
  2005

  	
   

  	
  2.10 to 1.00

  
	
   

  	
   

  	
   

  
	
  March 31,
  2006

  	
   

  	
   

  
	
  to December 31,
  2006

  	
   

  	
  2.20 to 1.00

  
	
   

  	
   

  	
   

  
	
  March 31,
  2007

  	
   

  	
  2.25 to 1.00

  
	
   

  	
   

  	
   

  
	
  June 30,
  2007

  	
   

  	
  2.30 to 1.00

  
	
   

  	
   

  	
   

  
	
  September 30,
  2007

  	
   

  	
   

  
	
  to December 31,
  2007

  	
   

  	
  2.35 to 1.00

  
	
   

  	
   

  	
   

  
	
  March 31,
  2008

  	
   

  	
  2.40 to 1.00

  
	
   

  	
   

  	
   

  
	
  June 30,
  2008

  	
   

  	
  2.45 to 1.00

  
	
   

  	
   

  	
   

  
	
  September 30,
  2008

  	
   

  	
   

  
	
  to March 31,
  2009

  	
   

  	
  2.50 to 1.00

  
	
   

  	
   

  	
   

  
	
  June 30,
  2009

  	
   

  	
   

  
	
  to March 31,
  2010

  	
   

  	
  2.75 to 1.00

  



 


7.02                        Indebtedness.  Create, issue, incur, assume, become liable
in respect of or suffer to exist any Indebtedness, except:


 


(a)                                  Indebtedness
of any Loan Party pursuant to any Loan Document;


 


(b)                                 Indebtedness
of Mentor to any Subsidiary and of any Borrower to Mentor or any other
Borrower;


 


(c)                                  Guarantee
Obligations incurred in the ordinary course of business by Holdings or any of
its Subsidiaries of obligations of any Borrower or, to the extent permitted by
the Syndicated Credit Agreement, any Wholly Owned Subsidiary;


 


(d)                                 Indebtedness
outstanding on the date hereof and listed on Schedule 7.02(d) and
any refinancings, refundings, renewals or extensions thereof (without
increasing, or shortening the maturity of, the principal amount thereof);


 


46


















 


(e)                                  Indebtedness
(including, without limitation, Capital Lease Obligations) secured by Liens
permitted by Section 7.03(g) in an aggregate principal amount
not to exceed, when taken together with the principal amount of all Loans then
outstanding under this Agreement, $20,000,000 at any one time outstanding;


 


(f)                                    (i) Indebtedness
of Mentor in respect of the Senior Subordinated Notes in an aggregate principal
amount not to exceed $150,000,000; and (ii) Guarantee Obligations of any
Subsidiary in respect of such Indebtedness, provided that such Guarantee
Obligations are subordinated to the same extent as the obligations of Mentor in
respect of the Senior Subordinated Notes;


 


(g)                                 Indebtedness
of Mentor or any of its Subsidiaries acquired or assumed pursuant to a
Permitted Acquisition, which Indebtedness was in existence at the time of such
Permitted Acquisition and not incurred in contemplation thereof, in each case
subject to the limitations specified in clause (h) of this Section 7.02;


 


(h)                                 any
other Indebtedness of Mentor or any of its Subsidiaries (including any
Indebtedness of the types referred to in clause (1) of this Section 7.02
in excess of $5,000,000 permitted thereunder), and any refinancings,
refundings, renewals or extensions of any such Indebtedness, in an aggregate
amount as to Indebtedness incurred pursuant to clauses (g) and (h) of
this Section 7.02 (plus the then outstanding aggregate amount of
any refinancings, refundings, renewals or extensions of such Indebtedness and
the Net Payment Amount of any outstanding Sale Leaseback Transactions entered
into pursuant to Section 7.11) not exceeding $30,000,000 at any one
time outstanding; provided, however, in no event shall any
Indebtedness of Permitted Foreign Subsidiaries, together with Investments made
pursuant to Section 7.08(x), exceed $3,000,000 at any one time
outstanding;


 


(i)                                     Indebtedness
of Holdings to Mentor to the extent the related advance would be permitted to
be made as a Restricted Payment hereunder (it being understood that any such
advance shall be deemed to be and shall count as a Restricted Payment for
purposes of Section 7.06);


 


(j)                                     Indebtedness
under performance, surety, statutory or appeal bonds or with respect to worker’s
compensation claims or other bonds permitted under Section 7.03;


 


(k)                                  Indebtedness
incurred in the ordinary course of business in respect of netting services,
overdraft protections and otherwise in connection with deposit accounts.


 


(l)                                     Indebtedness
consisting of Earnout Obligations and promissory notes or similar obligations
issued by any Loan Party relating to licenses to be acquired in connection with
a Permitted Acquisition that cannot be transferred to such Loan Party prior to
or concurrently with the consummation of such Permitted Acquisition, in an
aggregate amount (valuing Earnout Obligations only to the extent then required
to be included on a consolidated balance sheet of Holdings) not exceeding
$5,000,000 at any one time outstanding;


 


(m)                               Indebtedness
consisting of promissory notes issued by Holdings or Mentor to officers,
directors and employees of Holdings, Mentor or any Subsidiary of Mentor to
purchase or redeem Capital Stock of Mentor or Holdings to the extent permitted
hereunder, in an


 


47





















 


aggregate
amount not exceeding $1,000,000 at any time outstanding to the extent not
constituting Subordinated PIK Debt;


 


(n)                                 Subordinated
PIK Debt of Holdings in an aggregate amount not exceeding $30,000,000 at any
one time outstanding incurred by it in connection with Permitted Acquisitions
or Investments permitted hereunder, plus the aggregate amount of interest on
such Subordinated PIK Debt paid in kind or through accretion or capitalization;
provided that for purposes of this Section 7.02(n), any
Subordinated PIK Debt in the form of redeemable preferred stock of Holdings
shall be deemed to constitute Indebtedness;


 


(o)                                 Indebtedness
under Swap Agreements permitted pursuant to Section 7.12 and
obligations owed by Holdings, Mentor or any of its Subsidiaries in respect of
any overdraft and other liabilities arising from treasury, depository and cash
management services or any automated clearing house transfers of funds to the
extent permitted under the Syndicated Credit Agreement;


 


(p)                                 Indebtedness
of Mentor that may be deemed to exist under any acquisition agreement
pertaining to acquisitions consummated prior to the Closing Date; and


 


(q)                                 Indebtedness
under the Syndicated Credit Agreement and
related loan documents.


 


7.03                        Liens. 
Create, incur, assume or suffer to exist any Lien upon any of its
property, whether now owned or hereafter acquired, except:


 


(a)                                  Liens
for taxes, assessments, charges or other governmental levies not yet due or
that are being contested in good faith by appropriate proceedings, provided
that adequate reserves with respect thereto are maintained on the books of
Mentor or its Subsidiaries, as the case may be, in conformity with GAAP;


 


(b)                                 carriers’,
warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens
arising in the ordinary course of business that are not overdue for a period of
more than 60 days or that are bonded off and being contested in good faith by
appropriate proceedings;


 


(c)                                  pledges
or deposits in connection with workers’ compensation, unemployment insurance
and other social security legislation and deposits securing liability insurance
carriers under insurance or self insurance arrangements;


 


(d)                                 deposits
to secure the performance of bids, trade contracts (other than for borrowed
money), leases, statutory obligations, contractual or warranty obligation,
surety and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;


 


(e)                                  easements,
rights-of-way, restrictions and other similar encumbrances that, in the aggregate,
do not in any case materially detract from the value of the property subject
thereto or materially interfere with the ordinary conduct of the business of
Mentor or any of its Subsidiaries;


 


48





















 


(f)                                    Liens
in existence on the date hereof listed on Schedule 7.03(f),
securing Indebtedness permitted by Section 7.02(d), provided
that no such Lien is spread to cover any additional property after the Closing
Date and that the amount of Indebtedness secured thereby is not increased;


 


(g)                                 Liens
securing Indebtedness of Mentor or any of its Subsidiaries incurred pursuant to
Section 7.02(e) solely to finance the acquisition or
construction of new equipment, fixed assets or real property or the refinancing
of real property, provided that, (i) such Liens shall be created
(other than in connection with real property refinancings) within 90 days after
the acquisition of such new equipment, fixed assets or real property and (ii) such
Liens do not at any time encumber any property other than the equipment, fixed
assets or real property financed by such Indebtedness;


 


(h)                                 Liens
created pursuant to the Mortgages;


 


(i)                                     contractual
or statutory Liens of landlords and Liens of suppliers (including sellers of
goods) and other Liens imposed by law or pursuant to customary reservations or
retentions of title arising in the ordinary course of business;


 


(j)                                     rights
of setoff or bankers’ liens upon deposits of cash in favor of banks or other
depository institutions whether arising by contract or operation of law,
incurred in the ordinary course of business so long as such deposits are not
intended to be collateral for any obligations;


 


(k)                                  Liens
attaching solely to cash earnest money deposits in connection with any letter
of intent or purchase agreement in connection with a Permitted Acquisition;


 


(l)                                     Liens
arising from precautionary UCC financing statements regarding operating leases
not constituting Indebtedness or consignments;


 


(m)                               Liens
securing Indebtedness permitted hereunder on property or assets acquired
pursuant to a Permitted Acquisition or permitted Investment, or on property or
assets of a Subsidiary of Mentor in existence at the time such Subsidiary is
acquired pursuant to a Permitted Acquisition or permitted Investment, provided
that such Liens are not incurred in connection with or in anticipation of such
Permitted Acquisition or permitted Investment and do not attach to any other
asset of Mentor or any of its Subsidiaries;


 


(n)                                 Liens
on insurance policies and the proceeds thereof securing the financing of the
premiums with respect thereto;


 


(o)                                 Liens
encumbering customary initial deposits and margin deposits, and similar Liens
and margin deposits, and similar Liens attaching to commodity trading accounts
or other brokerage accounts incurred in the ordinary course of business;


 


(p)                                 Liens
incurred in connection with the purchase or shipping of goods or assets on the
related goods or assets and proceeds thereof in favor of the seller or shipper
of such goods or assets;


 


49





















 


(q)                                 Liens
in favor of customs and revenues authorities which secure payment of customs
duties in connection with the importation of goods;


 


(r)                                    Liens
arising out of judgments or awards not constituting an Event of Default under Section 8.01(h);


 


(s)                                  any
interest or title of a licensor, sublicensor, lessor or sublessor under any
license or lease agreement in the ordinary course of business not interfering
with the business of Mentor or any of its Subsidiaries;


 


(t)                                    licenses,
sublicenses, leases or subleases granted to third Persons in the ordinary
course of business not interfering in any material respect with the business of
Mentor or any of its Subsidiaries;


 


(u)                                 Liens
which arise under Article 4 of the UCC on items in collection and
documents and proceeds related thereto;


 


(v)                                 Liens
incurred in the ordinary course of business of Mentor or any Subsidiary not
otherwise permitted by this Section so long as neither (i) the
aggregate outstanding principal amount of the obligations secured thereby nor (ii) the
aggregate fair market value (determined as of the date such Lien is incurred)
of the assets subject thereto exceeds (as to Mentor and all Subsidiaries)
$5,000,000 at any one time;


 


(w)                               any
escrow arrangement in respect of the obligations of Holdings and its
Subsidiaries under the Magellan Note Documents, so long as the funds funded
into escrow do not exceed the amount outstanding under the Magellan Seller
Notes plus interest expected to accrue thereon during a period not to exceed
two years; and


 


(x)                                   Liens
securing the obligations under the Syndicated Credit Agreement; provided,
that such Liens shall not encumber any of the Mortgaged Properties.


 


7.04                        Fundamental Changes.  Enter into any merger, consolidation or amalgamation,
or liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), or Dispose of all or substantially all of its property or
business, except that:


 


(a)                                  any
Subsidiary of Mentor may be merged or consolidated with or into Mentor (provided
that Mentor shall be the continuing or surviving corporation) or with or into
any Borrower or, to the extent permitted by the Syndicated Credit Agreement,
any other Subsidiary (provided
that, to the extent any such transaction involves a Borrower, a Borrower shall be the continuing or surviving
corporation);


 


(b)                                 any
Subsidiary of Mentor may Dispose of any or all of its assets (i) to
Mentor, any Borrower or, to the extent permitted by the Syndicated Credit
Agreement, any other Subsidiary (upon
voluntary liquidation or otherwise) or (ii) pursuant to a Disposition
permitted by Section 7.05; provided, in each case, that to
the extent the Subsidiary making such Disposition is a Borrower, such assets shall be Disposed of to another Borrower; and


 


50





















 


(c)                                  any
Investment expressly permitted by Section 7.08 may be structured as
a merger, consolidation or amalgamation (provided that, to the extent
any such transaction involves a Borrower, a Borrower
shall be the continuing or surviving corporation).


 


7.05                        Disposition of Property.  Dispose of any of its property, whether now
owned or hereafter acquired, or, in the case of any Subsidiary, issue or sell
any shares of such Subsidiary’s Capital Stock to any Person, except:


 


(a)                                  the
Disposition of obsolete or worn out property in the ordinary course of
business;


 


(b)                                 the
Disposition of Cash Equivalents and sale of inventory in the ordinary course of
business;


 


(c)                                  Dispositions
permitted by clause (i) of Section 7.04(b);


 


(d)                                 the
sale or issuance of any Subsidiary’s Capital Stock to Mentor or, to the extent
permitted by the Syndicated Credit Agreement, any other Subsidiary;


 


(e)                                  the
Disposition of other property (other than a Home Sale) in the aggregate having
a book value not exceeding (i) 10% of the consolidated tangible assets of
Mentor and its Subsidiaries in any fiscal year of Mentor or (ii) 15% of
the consolidated tangible assets of Mentor and its Subsidiaries in the
aggregate from and after the Closing Date (with consolidated tangible assets
being determined at the time of any such Disposition by reference to the most
recent consolidated financial statements delivered pursuant to Section 6.01);
provided that not less than 75% of the total consideration for any such
Disposition shall be paid to Mentor in cash or within 180 days after the
consummation of such disposition is reasonably expected to and shall be
converted into cash;


 


(f)                                    Home
Sales and Asset Sales by Mentor or any of its Subsidiaries the Net Cash Proceeds
of which do not exceed $5,000,000 in the aggregate in any fiscal year; provided,
that, to the extent any such Home Sale involves any Mortgaged Property, a
prepayment of Loans is made to the extent required by Section 2.03(b);


 


(g)                                 Mentor
and any of its Subsidiaries may transfer assets to Mentor, any Borrower and, to
the extent permitted by the Syndicated Credit Agreement, any other Subsidiary; provided,
in each case, that to the extent the Subsidiary making such transfer is a
Borrower, such assets shall be transferred to
another Borrower;


 


(h)                                 Mentor
and its Subsidiaries shall be permitted to make Permitted Dispositions;


 


(i)                                     Mentor
and its Subsidiaries shall be permitted to sell or otherwise dispose of
property and other assets in connection with Sale Leaseback Transactions
permitted hereunder; and


 


(j)                                     other
Home Sales involving real property (other than all or any portion of any
Mortgaged Property) sold in the sale-leaseback type transactions that do not
qualify as a Sale Leaseback Transaction hereunder to the extent permitted by
the Syndicated Credit Agreement.


 


51





















 


7.06                        Restricted Payments.  Declare or pay any dividend (other than
dividends payable solely in common stock of the Person making such dividend)
on, or make any payment on account of, or set apart assets for a sinking or
other analogous fund for, the purchase, redemption, defeasance, retirement or
other acquisition of, any Capital Stock of any Group Member, whether now or
hereafter outstanding, or make any other distribution in respect thereof,
either directly or indirectly, whether in cash or property or in obligations of
any Group Member (collectively, “Restricted Payments”), except that:


 


(a)                                  any
Subsidiary may make Restricted Payments to Mentor, any Borrower or, to the
extent permitted by the Syndicated Credit Agreement, any other Subsidiary; provided
that no such distribution shall include all or any part of any Mortgaged
Property;


 


(b)                                 (i) so
long as no Default or Event of Default shall have occurred and be continuing,
Mentor may pay dividends to Holdings to permit Holdings to purchase Holdings’
Capital Stock from present or former officers or employees of any Group Member,
their estates and their heirs upon the death, disability or termination of
employment of such officer or employee, provided, that the aggregate
amount of payments under this clause (i) after the date hereof (net of any
proceeds received by Holdings and contributed to Mentor after the date hereof
in connection with resales of any Capital Stock) shall not exceed either (x)
$3,000,000 in cash in the aggregate during any fiscal year plus (A) the
balance of any such $3,000,000 limit not used in any fiscal year (which may be
used in any subsequent fiscal year), (B) the amount of any equity
contribution made to Mentor for the purpose of such repurchase, and (C) the
proceeds of any key-man life insurance with respect to such employee paid to
Holdings, Mentor or any of its Subsidiaries; or (y) $10,000,000 in cash in the
aggregate for 2005 and all fiscal years thereafter and (ii) Mentor may pay
dividends to Holdings to permit Holdings to pay Management Fees.


 


(c)                                  Mentor
may pay dividends to provide for the payment for customary corporate
indemnities owing to directors of Holdings, Mentor, its Subsidiaries or any of
their Affiliates in the ordinary course of business;


 


(d)                                 Holdings
may make Restricted Payments in the form of repurchases of its Capital Stock
deemed to occur upon the non cash exercise of stock options and warrants;


 


(e)                                  Holdings
or Mentor may make other Restricted Payments made with Net Cash Proceeds of the
issuance by it of Permitted Capital Stock to the extent permitted by the
Syndicated Credit Agreement;


 


(f)                                    Holdings
and its Subsidiaries may pay dividends through issuance of Permitted Capital
Stock and may redeem any Capital Stock in exchange for other Permitted Capital
Stock;


 


(g)                                 Mentor
may make Restricted Payments to Holdings to enable it to make payments required
to be made by it pursuant to any acquisition agreement pertaining to
acquisitions by Mentor and its Subsidiaries consummated prior to the Closing
Date and Permitted Acquisitions by Mentor and its Subsidiaries thereafter; and


 


(h)                                 Mentor
may directly or indirectly make distributions to Holdings or make payments on
behalf of Holdings, to the extent necessary to pay the taxes and the operating
and


 


52





















 


administrative
expenses of Holdings incurred in the ordinary course of its business including,
without limitation, reasonable directors’ fees and expenses.


 


7.07                        Capital Expenditures.  Make or commit to make any Capital
Expenditure, (a) except (a) Capital Expenditures of Mentor and its
Subsidiaries not exceeding $20,000,000 in fiscal year 2005; not exceeding
$22,500,000 in fiscal year 2006; not exceeding $25,000,000 for fiscal year
2007; not exceeding $27,500,000 in fiscal year 2008, and not exceeding
$30,000,000 in any fiscal year thereafter; provided, that (i) up to
100% of any such amount referred to above, if not so expended in the fiscal
year for which it is permitted, may be carried over for expenditure in the next
succeeding fiscal year and (ii) Capital Expenditures made pursuant to this
clause (a) during any fiscal year shall be deemed made, first, in respect
of amounts carried over from the prior fiscal year pursuant to clause (i) above
and, second, in respect of amounts permitted for such fiscal year as provided
above, (b) Capital Expenditures made with the proceeds of any Reinvestment
Deferred Amount, (c) Capital Expenditures made with the proceeds of equity
contributions; and (d) Capital Expenditures made with proceeds obtained
through third party financing permitted hereunder.


 


7.08                        Investments. 
Make any advance, loan, extension of credit (by way of guaranty or
otherwise) or capital contribution to, or purchase any Capital Stock, bonds,
notes, debentures or other debt securities of, or any assets constituting a
business unit of, or make any other investment in, any Person (all of the
foregoing, “Investments”), except in the case of Holdings and any of its
Subsidiaries (other than any Insurance Subsidiary unless otherwise expressly
included in this Section 7.08 or permitted by Section 7.17):


 


(a)                                  accounts
receivable and other extensions of trade credit by Mentor and its Subsidiaries
in the ordinary course of business and advances made to Alliance Human Services
in the ordinary course of business;


 


(b)                                 Investments
in Cash Equivalents;


 


(c)                                  Guarantee
Obligations permitted by Section 7.02;


 


(d)                                 Investments
in assets useful in the business of Mentor and its Subsidiaries made by Mentor
or any of its Subsidiaries with the proceeds of any Reinvestment Deferred
Amount;


 


(e)                                  intercompany
Investments by any Group Member in Mentor or any Person that, prior to such
investment, is a Borrower or, to the extent permitted by the Syndicated Credit
Agreement, any other Subsidiary;


 


(f)                                    existing
Investments as listed on Schedule 7.08(g);


 


(g)                                 Capital
Expenditures to the extent permitted under this Agreement;


 


(h)                                 Permitted
Acquisitions;


 


(i)                                     to
the extent permitted by the Syndicated Credit Agreement, the formation of and
Investments in new Subsidiaries of Mentor (other than Permitted Foreign
Subsidiaries and Insurance Subsidiaries) and in connection with Permitted
Acquisitions;


 


53





















 


(j)                                     Investments
by Holdings, Mentor or any of their respective Subsidiaries in Mentor, any
Borrower or, to the extent permitted by the Syndicated Credit Agreement, any
other Person;


 


(k)                                  Mentor
and its Subsidiaries may receive and own Capital Stock or other investments
acquired as non-cash consideration pursuant to dispositions permitted under Section 7.05;


 


(l)                                     Mentor
and its Subsidiaries may make pledges and deposits permitted under Section 7.03;


 


(m)                               Mentor
and its Subsidiaries may make investments and guarantees expressly permitted
under Sections 7.02, 7.04, 7.05 and 7.06;


 


(n)                                 Mentor
and its Subsidiaries may make an advance or an investment that could otherwise
be made as a Restricted Payment to the extent the related advance or investment
would be permitted under Section 7.06 (it being understood that any
such advance or investment shall be deemed to be and shall count as a
Restricted Payment for purposes of Section 7.06);


 


(o)                                 Mentor
and its Subsidiaries may hold Investments to the extent such Investments
reflect an increase in the value of Investments and would otherwise exceed the
limitations herein;


 


(p)                                 Investments
consisting of endorsements for collection or deposit in the ordinary course of
business;


 


(q)                                 Investments
in deposit accounts opened and maintained in the ordinary course of business;


 


(r)                                    Holdings
and Mentor may acquire and hold promissory notes of employees of Holdings or
its Subsidiaries in connection with such Person’s purchase of Permitted Capital
Stock of Holdings;


 


(s)                                  Investments
received in connection with any bankruptcy or reorganization of, or any good
faith settlement of delinquent accounts and disputes with, any customer or
supplier arising in the ordinary course of business;


 


(t)                                    Mentor
may enter into Swap Agreements that are not speculative in nature to the extent
otherwise permitted hereunder;


 


(u)                                 any
Investments relating to deferred compensation of Holdings, Mentor and their
respective Subsidiaries;


 


(v)                                 Investments
by Mentor and its Subsidiaries in Permitted Acquisitions made with the proceeds
of any Reinvestment Deferred Amounts;


 


(w)                               Investments
by Mentor or any Subsidiary of Mentor in any Permitted Foreign Subsidiary
(including the formation thereof), which, together with Indebtedness of Foreign


 


54





















 


Subsidiaries
permitted to be outstanding pursuant to Section 7.02(h), does not
exceed $3,000,000 at any time outstanding;


 


(x)                                   Investments
by Mentor or any Wholly-Owned Subsidiary in any Insurance Subsidiary (including
in respect of the formation thereof) solely to the extent permitted by Section 7.18(b);


 


(y)                                 other
Investments not listed above, including, without limitation other credit and
other extensions of credit arising in the ordinary course of Mentor’s business,
in an aggregate amount not to exceed the sum of $10,000,000 at any one time; provided
that any such Investment which later qualifies as a Permitted Acquisition shall
not be counted against such amount but shall be counted towards Permitted
Acquisition amounts; provided  further that Investments
representing loans and advances to employees of any Group Member (including for
travel, entertainment and relocation expenses) shall not exceed $2,000,000 in
the aggregate at any one time outstanding; and


 


(z)                                   Investments
in connection with escrow arrangements permitted pursuant to Section 7.03(w).


 


The amount of any Investment shall be the initial amount of such
Investment and any addition thereto and distributions received in respect of
such Investment.


 


7.09                        Optional Payments and
Modifications of Certain Debt Instruments. 
(a) Make or offer to make any optional or voluntary payment,
prepayment, repurchase or redemption of or otherwise optionally or voluntarily
defease or segregate funds with respect to the Senior Subordinated Notes or any
Subordinated PIK Debt; provided that Mentor may pay, prepay, repurchase
or redeem the Senior Subordinated Notes with Net Cash Proceeds received by it
from the issuance of Capital Stock to the extent permitted by the Syndicated
Credit Agreement; (b) amend, modify, waive or otherwise change, or consent
or agree to any material amendment, modification, waiver or other change to,
any of the terms of the Senior Subordinated Notes that is materially adverse to
the Lender; or (c) designate any Indebtedness (other than obligations of
the Loan Parties pursuant to the Syndicated Credit Agreement) as “Designated
Senior Debt” (or any other defined term having a similar purpose) for the
purposes of the Senior Subordinated Note Indenture.


 


7.10                        Transactions with Affiliates.  Enter into any transaction, including any
purchase, sale, lease or exchange of property, the rendering of any service or
the payment of any management, advisory or similar fees, with any Affiliate
(other than Holdings, Mentor, any Borrower or, to the extent permitted by the
Syndicated Credit Agreement, any other Subsidiary unless such transaction is (a) otherwise
permitted under this Agreement, (b) in the ordinary course of business of
the relevant Group Member, and (c) upon fair and reasonable terms no less
favorable to the relevant Group Member than it would obtain in a comparable arm’s
length transaction with a Person that is not an Affiliate.  Notwithstanding the foregoing, (i) Holdings
and its Subsidiaries may pay to MDP Holder fees pursuant to a management
agreement approved by the board of directors of Holdings in an aggregate amount
not to exceed $250,000 in any fiscal year of Holdings (the “Management Fees”)
and expenses and indemnities in connection therewith (which fees, but not
expenses or indemnities, may only be paid when no Event of


 


55





















 


Default
has occurred and is continuing), (ii) Mentor and its Subsidiaries may pay
customary fees to, and the out-of-pocket expenses of its board of directors and
may provide customary corporate indemnities for the benefit of members of its
board of directors, and (iii) any transaction involving a Loan Party and a
non-Loan Party shall be upon fair and reasonable terms no less favorable to the
relevant Loan Party than it would obtain in a comparable arm’s length
transaction with a Person that is not an Affiliate.


 


7.11                        Sales and Leasebacks.  Enter into any arrangement with any Person
providing for the leasing by any Group Member of any real property for a term
of more than five years or containing an obligation of such Group Member to
repurchase such real property from such Person, which real property has been or
is to be sold or transferred by such Group Member to such Person or to any
other Person to whom funds have been or are to be advanced by such Person on
the security of such property or rental obligations of such Group Member (any
such transaction a “Sale Leaseback Transaction”) except any Sale Leaseback
Transaction permitted by the Syndicated Credit Agreement and not involving any
Mortgaged Property.


 


7.12                        Swap Agreements.  Enter into any Swap Agreement, except (a) Swap
Agreements entered into to hedge or mitigate risks to which Mentor or any
Subsidiary has actual exposure (other than those in respect of Capital Stock
or, except as provided in clause (b) below, the Senior Subordinated Notes)
and (b) Swap Agreements entered into in order to effectively cap, collar
or exchange interest rates (from fixed to floating rates, from one floating
rate to another floating rate or otherwise) with respect to any
interest-bearing liability or investment of Mentor or any Subsidiary.


 


7.13                        Changes in Fiscal Periods.  Permit the fiscal year of Mentor or Holdings
to end on a day other than September 30 or change Mentor’s or Holdings’
method of determining fiscal quarters.


 


7.14                        Negative Pledge Clauses.  Enter into or suffer to exist or become
effective any agreement that prohibits or limits the ability of any Group Member
to create, incur, assume or suffer to exist any Lien to secure the Obligations
upon any property acquired or refinanced with the proceeds of a Loan.


 


7.15                        Clauses Restricting
Subsidiary Distributions.  Enter into
or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Subsidiary of Mentor to (a) make
Restricted Payments in respect of any Capital Stock of such Subsidiary held by,
or pay any Indebtedness owed to, Mentor or any other Subsidiary of Mentor, (b) make
loans or advances to, or other Investments in, Mentor or any other Subsidiary
of Mentor or (c) transfer any of its assets to Mentor or any other
Subsidiary of Mentor, except for such encumbrances or restrictions existing
under or by reason of (i) any restrictions existing under the Loan
Documents, the Senior Subordinated Notes Indenture and the Syndicated Credit
Agreement and (ii) any restrictions with respect to a Subsidiary imposed
pursuant to an agreement that has been entered into in connection with the
Disposition of all or substantially all of the Capital Stock or assets of such
Subsidiary.


 


7.16                        Lines of Business.  Enter into any business, either directly or
through any Subsidiary, except for those businesses in which Mentor and its
Subsidiaries are engaged on the


 


56





















 


date
of this Agreement or that are reasonably related or ancillary thereto, it being
understood and acknowledged that any Insurance Subsidiary shall be the only
entity conducting insurance business (and business reasonably related thereto)
and that any Insurance Subsidiary shall be engaged for the underwriting of
insurance policies for Mentor and its Subsidiaries and each of such Person’s
respective employees, officers or directors. 
As to Holdings, enter into any business except for holding all of the
Capital Stock of Mentor and other transactions specifically permitted
hereunder.  In connection therewith,
Holdings shall have no liabilities other than its liabilities under the Loan
Documents and other transactions specifically permitted hereunder, tax
liabilities incurred in the ordinary course of business, and administrative
expenses incurred in the ordinary course of business.


 


7.17                        Insurance Subsidiary
Investments.  Permit the Insurance
Subsidiary to make any Investment in any Person except:


 


(a)                                  Investments
in Cash Equivalents;


 


(b)                                 Investments
in deposit accounts opened and maintained in the ordinary course of business;
and


 


(c)                                  Investments
in accounts receivable in the ordinary course of business; and


 


(d)                                 Investments
in notes or bonds (including interest only notes or bonds) in an aggregate
amount up to $5,000,000 that are rated at least BBB- by S&P or Baa3 by
Moody’s at the time of purchase; provided that an aggregate amount up to
$3,000,000 of such Investments shall have a rating of at least A by S&P or
A2 by Moody’s at the time of purchase.


 


7.18                        Insurance Subsidiary.  (a) Permit the Insurance Subsidiary to
enter into any (or renew, extend or materially modify any existing) reinsurance
or stop-loss insurance arrangements except in the ordinary course of business
with reinsurers rated as least “A-” by A.M. Best & Co. or
reinsurers whose obligations to the Insurance Subsidiary are secured by letters
of credit or other collateral reasonably acceptable to the board of directors
of the Insurance Subsidiary or (b) permit any Investment in the Insurance
Subsidiary, except for Investments in an aggregate amount not in excess of
$10,000,000; provided that such amount may be increased by non-material
amounts in the discretion and with the approval of the Lender (for the
avoidance of doubt, such Investments shall exclude any expenses and premiums
paid to the Insurance Subsidiary by any Group Member in the ordinary course of
such Group Member’s business).


 


7.19                        Foreign Subsidiaries.  Have a Foreign Subsidiary other than a
Permitted Foreign Subsidiary.


 


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ARTICLE VIII.

EVENTS OF DEFAULT AND REMEDIES


 


8.01                        Events of Default.  If any of the following events shall occur
and be continuing:


 


(a)                                  Any
Borrower shall fail to pay any principal of any Loan when due in accordance
with the terms hereof; or any Borrower shall fail to pay any interest on any
Loan, or any other amount payable hereunder or under any other Loan Document,
within three Business Days after any such interest or other amount becomes due
in accordance with the terms hereof; or


 


(b)                                 any
representation or warranty made or deemed made by any Loan Party herein or in
any other Loan Document or that is contained in any certificate, document or
financial or other statement furnished by it at any time under or in connection
with this Agreement or any such other Loan Document shall prove to have been
inaccurate in any materially adverse respect on or as of the date made or
deemed made; or


 


(c)                                  any
Loan Party shall default in the observance or performance of any agreement
contained in clause (i) or (ii) of Section 6.04(a) (with
respect to Holdings and Mentor only), Section 6.07(a) or Article VII
or IX of this Agreement; or


 


(d)                                 any
Loan Party shall default in the observance or performance of any other
agreement contained in this Agreement or any other Loan Document (other than as
provided in paragraphs (a) through (c) of this Section), and such
default shall continue unremedied for a period of 30 days after the earlier of
knowledge thereof by a Responsible Officer of a Loan Party or notice to Mentor
from the Lender; or


 


(e)                                  any
Group Member shall (i) default in making any payment of any principal of
any Indebtedness (including any Guarantee Obligation, but excluding the Loans,
the Magellan Seller Notes and the Indebtedness under Syndicated Credit
Agreement) on the scheduled or original due date with respect thereto; or (ii) default
in making any payment of any interest on any such Indebtedness (excluding the
Loans, the Magellan Seller Notes and the Indebtedness under Syndicated Credit
Agreement), beyond the period of grace, if any, provided in the instrument or
agreement under which such Indebtedness was created and such default has not
been waived; or (iii) default in the observance or performance of any
other agreement or condition relating to any such Indebtedness or contained in
any instrument or agreement evidencing, securing or relating thereto, or any
other event shall occur or condition exist, the effect of which default or
other event or condition is to cause, or to permit the holder or beneficiary of
such Indebtedness (or a trustee or agent on behalf of such holder or
beneficiary) to cause, with the giving of notice if required, such Indebtedness
to become due prior to its stated maturity or (in the case of any such
Indebtedness constituting a Guarantee Obligation) to become payable and such
default has not been waived; provided, that a default, event or
condition described in clause (i), (ii) or (iii) of this paragraph (e) shall
not at any time constitute an Event of Default unless, at such time, one or
more defaults, events or conditions of the type described in clauses (i), (ii) and
(iii) of this paragraph (e) shall have occurred and be continuing
with respect to Indebtedness the outstanding principal amount of which exceeds
in the aggregate $12,000,000; or


 


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(f)                                    (i) any
Group Member shall commence any case, proceeding or other action (A) under
any existing or future law of any jurisdiction, domestic or foreign, relating
to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have
an order for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any substantial part
of its assets, or any Group Member shall make a general assignment for the
benefit of its creditors; or (ii) there shall be commenced against any
Group Member any case, proceeding or other action of a nature referred to in
clause (i) above that (A) results in the entry of an order for relief
or any such adjudication or appointment or (B) remains undismissed or
undischarged for a period of 60 days; or (iii) there shall be commenced
against any Group Member any case, proceeding or other action seeking issuance
of a warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets that results in the entry of an order for
any such relief that shall not have been vacated, discharged, or stayed or
bonded pending appeal within 60 days from the entry thereof; or (iv) any
Group Member shall take any action in furtherance of, or indicating its consent
to, approval of, or acquiescence in, any of the acts set forth in clause (i),
(ii), or (iii) above; or (v) any Group Member shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay its debts
as they become due; or


 


(g)                                 (i) any
Person shall engage in any non-exempt “prohibited transaction” (as defined in Section 406
of ERISA or Section 4975 of the Code) involving any Plan, (ii) any “accumulated
funding deficiency” (as defined in Section 302 of ERISA), whether or not
waived, shall exist with respect to any Plan or any Lien in favor of the PBGC
or a Plan shall arise on the assets of any Mentor or any Commonly Controlled
Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall be
appointed, to administer or to terminate, any Single Employer Plan, which
Reportable Event or commencement of proceedings or appointment of a trustee is,
in the reasonable opinion of Lender, likely to result in the termination of
such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan
shall terminate for purposes of Title IV of ERISA, (v) Mentor or any
Commonly Controlled Entity shall incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan
or (vi) any other similar event or condition shall occur or exist with
respect to a Plan; and in each case in clauses (i) through (vi) above,
such event or condition, together with all other such events or conditions, if
any, would, in the reasonable opinion of the Lender, reasonably be expected to
have a Material Adverse Effect; or


 


(h)                                 one
or more judgments or decrees shall be entered against any Group Member
involving in the aggregate a liability (not paid or fully covered by insurance
as to which the relevant insurance company has acknowledged coverage) of
$7,500,000 or more, and all such judgments or decrees shall not have been
vacated, discharged, stayed or bonded pending appeal within 45 days from the
entry thereof; or


 


(i)                                     any
of the Mortgages shall cease, for any reason, to be in full force and effect,
or any Loan Party or any Affiliate of any Loan Party shall so assert, or any
Lien created by any of the Mortgages shall cease to be enforceable and of the
same effect and priority purported to be created thereby; or


 


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(j)                                     the
guarantee contained in Article IX hereof shall cease, for any
reason, to be in full force and effect or any Loan Party or any Affiliate of
any Loan Party shall so assert; or


 


(k)                                  a
Change of Control or a Specified Change of Control shall occur; or


 


(l)                                     the
Senior Subordinated Notes or the guarantees thereof shall cease, for any
reason, to be validly subordinated to the Obligations as provided in the Senior
Subordinated Note Indenture, or any Loan Party, any Affiliate of any Loan
Party, the trustee in respect of the Senior Subordinated Notes or the holders
of at least 25% in aggregate principal amount of the Senior Subordinated Notes
shall so assert;


 


(m)                               any
Governmental Authority shall commence a hearing on the renewal of any material
license, consent, authorization, permit, certificate, franchise held by Mentor,
any of its Subsidiaries, or professional employee, officer, director or
contractor of Mentor or any of its Subsidiaries if there is a significant
probability that the result thereof will be the termination, revocation,
suspension or material adverse amendment of any such license, consent,
authorization, permit, certificate, franchise that would have a Material
Adverse Effect;


 


(n)                                 any
Governmental Authority shall commence a formal proceeding seeking the
termination, suspension or revocation of any license, consent, authorization,
permit, certificate, franchise held by Mentor, any of its Subsidiaries, or
professional employee, officer, director or contractor of Mentor or any
Subsidiary of Mentor if the result thereof is reasonably likely to be the
termination, suspension or revocation of any license, consent, authorization,
permit, certificate, franchise that would have a Material Adverse Effect;


 


(o)                                 any
Insurance Subsidiary shall become subject to any conservation, rehabilitation,
liquidation order, directive or mandate issued by any Governmental Authority
which could reasonably be expected to have a Material Adverse Effect;


 


(p)                                 any
“Event of Default” (as defined in the Syndicated Credit Agreement) shall occur;
or


 


(q)                                 the
Syndicated Credit Agreement is refinanced, replaced or the revolving
commitments of the Lenders thereunder otherwise terminate.


 


then, and in any such
event, (A) if such event is an Event of Default specified in clause (i) or
(ii) of paragraph (f) above with respect to Mentor, automatically the
Commitment shall immediately terminate and the Loans (with accrued interest
thereon) and all other amounts owing under this Agreement and the other Loan
Documents shall immediately become due and payable, and (B) if such event
is any other Event of Default, either or both of the following actions may be
taken:  the Lender may (i) by notice
to Mentor declare the Commitment to be terminated forthwith, whereupon the
Commitment shall immediately terminate; (ii) by notice to Mentor, declare
the Loans (with accrued interest thereon) and all other amounts owing under
this Agreement and the other Loan Documents to be due and payable forthwith,
whereupon the same shall immediately become due and payable; and (iii) exercise
all rights and remedies available to it under the Loan Documents or that are
otherwise available at law or in equity. 
Except as expressly provided above in this Section, presentment, demand,
protest and all other notices of any kind are hereby expressly waived by
Holdings, Mentor and each Borrower.


 


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8.02                        Application of Funds.  After the exercise of remedies provided for
in Section 8.01 (or after the Loans have automatically become
immediately due and payable as set forth in the proviso to Section 8.01),
any amounts received on account of the Obligations shall be applied by the
Lender in such order as it elects in its sole discretion.


 


ARTICLE IX.

GUARANTY


 


9.01                        Guaranty. 
Each Loan Party hereby jointly and severally, unconditionally,
absolutely, continually and irrevocably guarantees to the Lender: (a) the
prompt payment in full, when due or declared due and at all such times, of all
Obligations heretofore, now or at any time or times hereafter owing, arising,
due or payable from each other Loan Party to the Lender, including principal,
interest, premiums and fees (including, but not limited to, loan fees and
attorneys’ fees and expenses); and (b) each other Loan Party ‘s prompt,
full and faithful performance, observance and discharge of each and every
agreement, undertaking, covenant and provision to be performed, observed or
discharged under this Agreement and all other Loan Documents.  Each Loan Party’s obligations to the Lender
under this Section 9.01 are hereinafter collectively referred to as
the “Guarantors’ Obligations” and, with respect to each Loan Party
individually, the “Guarantor’s Obligations”.  Notwithstanding the foregoing, the liability
of each Loan Party (other than Holdings and Mentor) individually with respect
to its Guarantor’s Obligations shall be limited to an aggregate amount equal to
the largest amount that would not render its obligations hereunder subject to
avoidance under Section 548 of the United States Bankruptcy Code or any
comparable provisions of any applicable state law.  Each Loan Party agrees that it is jointly and
severally, directly and primarily liable (subject to the limitation in the
immediately preceding sentence) for the obligations under this Article IX.


 


9.02                        Payment. 
If any Loan Party shall default in payment or performance of any of the
Obligations, whether principal, interest, premium, fee (including, but not
limited to, loan fees and attorneys’ fees and expenses), or otherwise, when and
as the same shall become due, and after expiration of any applicable grace
period, whether according to the terms of this Agreement, by acceleration, or
otherwise, or upon the occurrence and during the continuance of any Event of
Default, then any or all of the other Loan Parties will, upon demand thereof by
the Lender, fully pay to the Lender, subject to any restriction on such Person’s
Guarantor’s Obligations set forth in Section 9.01 hereof, an amount
equal to all the Obligations then due and owing.


 


9.03                        Absolute Rights and
Obligations.  The guaranty set
forth in Section 9.01 hereof is a guaranty of payment and not of
collection.  The Guarantors’ Obligations
under this Article IX shall be joint and several, absolute and
unconditional irrespective of, and each Loan Party hereby expressly waives, to
the extent permitted by law, any defense to its obligations under this Article IX
by reason of:


 


(a)                                  any
lack of legality, validity or enforceability against any other Loan Party of
the Credit Agreement, of any of the Notes, of any other Loan Document, or of
any other agreement or instrument creating, providing security for, or
otherwise relating to any of the Guarantors’


 


61





















 


Obligations,
or any other guaranty of any of the Obligations (the Loan Documents and all
such other agreements and instruments being collectively referred to as the “Related
Agreements”);


 


(b)                                 any
action taken under any of the Related Agreements, any exercise of any right or
power therein conferred, any failure or omission to enforce any right conferred
thereby, or any waiver of any covenant or condition therein provided;


 


(c)                                  any
acceleration of the maturity of any of the Obligations, of the Guarantor’s
Obligations of any other Loan Party, or of any other obligations or liabilities
of any Person under any of the Related Agreements;


 


(d)                                 any
release, exchange, non-perfection, lapse in perfection, disposal, deterioration
in value, or impairment of any security for any of the Obligations, for any of
the Guarantor’s Obligations of any Loan Party, or for any other obligations or
liabilities of any Person under any of the Related Agreements;


 


(e)                                  any
dissolution of any other Loan Party or any other party to a Related Agreement,
or the combination or consolidation of any other Loan Party or any other party
to a Related Agreement into or with another entity or any transfer or
disposition of any assets of any other Loan Party or any other party to a
Related Agreement;


 


(f)                                    any
extension (including without limitation extensions of time for payment),
renewal, amendment, restructuring or restatement of, any acceptance of late or
partial payments under, or any change in the amount of any borrowings or any
credit facilities available under, this Agreement, any of the Notes or any
other Loan Document or any other Related Agreement, in whole or in part;


 


(g)                                 the
existence, addition, modification, termination, reduction or impairment of
value, or release of any other guaranty (or security therefor) of the
Obligations (including without limitation the Guarantor’s Obligations of any
other Loan Party and obligations arising under any other guaranty now or
hereafter in effect);


 


(h)                                 any
waiver of, forbearance or indulgence under, or other consent to any change in
or departure from any term or provision contained in this Agreement, any other
Loan Document or any other Related Agreement, including without limitation any
term pertaining to the payment or performance of any of the Obligations, any of
the Guarantor’s Obligations of any other Loan Party, or any of the obligations
or liabilities of any party to any other Related Agreement;


 


(i)                                     any
other circumstance whatsoever (with or without notice to or knowledge of any
such Loan Party) which may or might in any manner or to any extent vary the
risks of such Loan Party, or might otherwise constitute a legal or equitable
defense available to, or discharge of, a surety or a guarantor, including without
limitation any right to require or claim that resort be had to the assets of
any other Loan Party or to any Collateral.


 


It is the express purpose and intent of the parties hereto that this Article IX
and the Guarantors’ Obligations hereunder shall be absolute and unconditional
under any and all circumstances and shall not be discharged except by payment
as herein provided.


 


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9.04                        Waiver of Notice; Subrogation.


 


(a)                                  Each
Loan Party hereby waives to the extent permitted by law notice of the following
events or occurrences:  (i) acceptance
of this Article IX ; (ii) the Lender’s heretofore, now or from
time to time hereafter making Loans and otherwise loaning monies or giving or
extending credit to or for the benefit of the other Loan Parties, whether
pursuant to this Agreement or the Notes or any other Loan Document or Related
Agreement or any amendments, modifications, or supplements thereto, or
replacements or extensions thereof; (iii) presentment, demand, default,
non-payment, partial payment and protest; and (iv) any other event,
condition, or occurrence described in Section 9.03 hereof.  Each Loan Party agrees that the Lender may
heretofore, now or at any time hereafter do any or all of the foregoing in such
manner, upon such terms and at such times as the Lender, in its sole and
absolute discretion, deems advisable, without in any way or respect impairing,
affecting, reducing or releasing such Loan Party from its Guarantor’s
Obligations, and each Loan Party hereby consents to each and all of the
foregoing events or occurrences.


 


(b)                                 Each
Loan Party hereby agrees that payment or performance by such Loan Party of its
Guarantor’s Obligations under this Article IX may be enforced by
the Lender upon demand by the Lender to such Loan Party without the Lender
being required, such Loan Party expressly waiving to the extent permitted by
law any right it may have to require the Lender, to (i) prosecute
collection or seek to enforce or resort to any remedies against any other Loan
Party or any other guarantor of the Obligations, or (ii) seek to enforce
or resort to any remedies with respect to any security interests, Liens or
encumbrances granted to the Lender or other party to a Related Agreement by any
other Person on account of the Obligations or any guaranty thereof.


 


(c)                                  Each
Loan Party agrees with respect to this Article IX that it shall
have no right of subrogation, reimbursement, contribution or indemnity, nor any
right of recourse to security for the Obligation unless and until 93 days
immediately following the date that all Obligations have been indefeasibly paid
in cash and the Commitment and all other obligations of the Lender hereunder
have terminated.  This waiver is
expressly intended to prevent the existence of any claim in respect to such
subrogation, reimbursement, contribution or indemnity by any Loan Party against
the estate of any other Loan Party within the meaning of Section 101 of
the Bankruptcy Code, in the event of a subsequent case involving any other Loan
Party.  If an amount shall be paid to any
Loan Party on account of such rights at any time prior to termination of this
Agreement in accordance with the provisions hereof, such amount shall be held in
trust for the benefit of the Lender and shall forthwith be paid to the Lender
to be credited and applied upon the Guarantors’ Obligations, whether matured or
unmatured, as the Lender may elect.


 


(d)                                 Each
Loan Party further agrees with respect to this Article IX that this
Agreement shall continue to be effective or be reinstated, as the case may be,
at any time payment received by the Lender in respect of any Obligation is
rescinded or must be restored for any reason, or is repaid by the Lender in
whole or in part in good faith settlement of any pending or threatened
avoidance claim.


 


(e)                                  The
agreements in this Article IX shall survive repayment of all of the
Obligations and the termination of this Agreement.


 


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ARTICLE X.

MISCELLANEOUS


 


10.01                 Amendments; Etc.  No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent to any departure by
any Loan Party therefrom, shall be effective unless in writing signed by the
Lender and the applicable Loan Party, and each such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.


 


10.02                 Notices, Effectiveness;
Electronic Communication.


 


(a)                                  Notices
Generally.  Except in the case of
notices and other communications expressly permitted to be given by telephone
(and except as provided in subsection (b) below), all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopier as follows, and all notices and other
communications expressly permitted hereunder to be given by telephone shall be
made to the address, facsimile number, electronic mail address or telephone
number specified for such Person on Schedule 10.02.


 


Notices
sent by hand or overnight courier service, or mailed by certified or registered
mail, shall be deemed to have been given when received; notices sent by
facsimile shall be deemed to have been given when sent (except that, if not
given during normal business hours for the recipient, shall be deemed to have
been given at the opening of business on the next business day for the
recipient).  Notices delivered through
electronic communications to the extent provided in subsection (b) below,
shall be effective as provided in such subsection (b).


 


(b)                                 Electronic
Communications.  Notices and other
communications to the Lender hereunder may be delivered or furnished by
electronic communication (including e mail and Internet or intranet websites)
pursuant to procedures approved by the Lender. 
The Lender or any Loan Party may, in its discretion, agree to accept
notices and other communications to it hereunder by electronic communications
pursuant to procedures approved by it, provided that approval of such
procedures may be limited to particular notices or communications.


 


Unless the Lender otherwise prescribes, (i) notices and other
communications sent to an e-mail address shall be deemed received upon the
sender’s receipt of an acknowledgement from the intended recipient (such as by
the “return receipt requested” function, as available, return e-mail or other
written acknowledgement), provided that if such notice or other
communication is not sent during the normal business hours of the recipient,
such notice or communication shall be deemed to have been sent at the opening
of business on the next business day for the recipient, and (ii) notices
or communications posted to an Internet or intranet website shall be deemed
received upon the deemed receipt by the intended recipient at its e-mail
address as described in the foregoing clause (i) of notification that such
notice or communication is available and identifying the website address
therefor.


 


(c)                                  Change
of Address, Etc.  Each Loan Party and
the Lender may change its address, facsimile or telephone number for notices
and other communications hereunder by notice to the other parties hereto.


 


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(d)                                 Reliance
by Lender.  The Lender shall be
entitled to rely and act upon any notices (including telephonic Loan Notices)
purportedly given by or on behalf of any Loan Party (including any such notices
delivered by Mentor as the Borrowing Agent hereunder) even if (i) such
notices were not made in a manner specified herein, were incomplete or were not
preceded or followed by any other form of notice specified herein, or (ii) the
terms thereof, as understood by the recipient, varied from any confirmation
thereof.  The Loan Parties shall indemnify
the Lender and the Related Parties of the Lender from all losses, costs,
expenses and liabilities resulting from the reliance by such Person on each
notice purportedly given by or on behalf of any Loan Party (including any such
notices delivered by Mentor as the Borrowing Agent hereunder).  All telephonic notices to and other
telephonic communications with the Lender may be recorded by the Lender, and
the Loan Parties hereby consent to such recording.


 


10.03                 No Waiver; Cumulative Remedies.  No failure by the Lender to exercise, and no
delay by the Lender in exercising, any right, remedy, power or privilege
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power
or privilege.  The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.


 


10.04                 Expenses; Indemnity; Damage
Waiver.


 


(a)                                  Costs
and Expenses.  Each Loan Party
hereby, jointly and severally, agrees to pay (i) all reasonable out of
pocket expenses incurred by the Lender and its Affiliates (including the
reasonable fees, charges and disbursements of counsel for the Lender), in
connection with the preparation, negotiation, execution, delivery and
administration of this Agreement and the other Loan Documents or any
amendments, modifications or waivers of the provisions hereof or thereof
(whether or not the transactions contemplated hereby or thereby shall be
consummated), and (ii) all out of pocket expenses incurred by the Lender
(including the fees, charges and disbursements of any counsel for the Lender),
in connection with the enforcement or protection of its rights (A) in
connection with this Agreement and the other Loan Documents, including its
rights under this Section, or (B) in connection with the Loans made
hereunder, including all such out of pocket expenses incurred during any workout,
restructuring or negotiations in respect of such Loans.


 


(b)                                 Indemnification.  Each Loan Party hereby, jointly and
severally, agrees to indemnify the Lender and each Related Party of the Lender
(each such Person being called an “Indemnitee”) against, and hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses (including the fees, charges and disbursements of any counsel
for any Indemnitee), incurred by any Indemnitee or asserted against any Indemnitee
by any third party or by any Loan Party arising out of, in connection with, or
as a result of (i) the execution or delivery of this Agreement, any other
Loan Document or any agreement or instrument contemplated hereby or thereby,
the performance by the parties hereto of their respective obligations hereunder
or thereunder or the consummation of the transactions contemplated hereby or
thereby, (ii) any Loan or the use or proposed use of the proceeds
therefrom, (iii) any actual or alleged presence or release of Hazardous
Materials on or from any property owned or operated by any Loan Party or any of
its Subsidiaries, or any Environmental Liability related in any way to any Loan
Party or any of its Subsidiaries, or (iv) any actual or


 


65





















 


prospective
claim, litigation, investigation or proceeding relating to any of the
foregoing, whether based on contract, tort or any other theory, whether brought
by a third party or by any Loan Party, and regardless of whether any Indemnitee
is a party thereto; provided that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses (x) are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the
gross negligence or willful misconduct of such Indemnitee or (y) result from a
claim brought by any Loan Party against an Indemnitee for breach in bad faith
of such Indemnitee’s obligations hereunder or under any other Loan Document, if
such Loan Party has obtained a final and nonappealable judgment in its favor on
such claim as determined by a court of competent jurisdiction.


 


(c)                                  Waiver
of Consequential Damages, Etc.  To
the fullest extent permitted by applicable law, each Loan Party agrees not to
assert, and hereby waives, any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, this Agreement, any other Loan Document or any agreement or instrument
contemplated hereby, the transactions contemplated hereby or thereby, any Loan
or the use of the proceeds thereof.  No
Indemnitee referred to in subsection (b) above shall be liable for
any damages arising from the use by unintended recipients of any information or
other materials distributed by it through telecommunications, electronic or
other information transmission systems in connection with this Agreement or the
other Loan Documents or the transactions contemplated hereby or thereby.


 


(d)                                 Payments.  All amounts due under this Section shall
be payable not later than ten Business Days after demand therefor.


 


(e)                                  Survival.  The agreements in this Section shall
survive the termination of the Commitment and the repayment, satisfaction or
discharge of all the other Obligations.


 


10.05                 Payments Set Aside.  To the extent that any payment by or on
behalf of the any Loan Party is made to the Lender, or the Lender exercises its
right of setoff, and such payment or the proceeds of such setoff or any part
thereof is subsequently invalidated, declared to be fraudulent or preferential,
set aside or required (including pursuant to any settlement entered into by the
Lender in its discretion) to be repaid to a trustee, receiver or any other
party, in connection with any proceeding under any Debtor Relief Law or
otherwise, then, to the extent of such recovery, the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full
force and effect as if such payment had not been made or such set-off had not
occurred.


 


10.06                 Successors and Assigns.


 


(a)                                  The
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns permitted
hereby, except that no Loan Party may assign or otherwise transfer any of its
rights or obligations hereunder without the prior written consent of the Lender
and the Lender may not assign or otherwise transfer any of its rights or
obligations hereunder except (i) to an Eligible Assignee in accordance
with the provisions of subsection (b) of this Section, (ii) by
way of participation in accordance with the provisions of subsection (c) of
this Section, or (iii) by way of pledge or assignment of a security


 


66





















 


interest
subject to the restrictions of subsection (e) of this Section (and
any other attempted assignment or transfer by any party hereto shall be null
and void).  Nothing in this Agreement,
expressed or implied, shall be construed to confer upon any Person (other than
the parties hereto, their respective successors and assigns permitted hereby,
Participants to the extent provided in subsection (c) of this Section and,
to the extent expressly contemplated hereby, the Indemnitees) any legal or
equitable right, remedy or claim under or by reason of this Agreement.


 


(b)                                 The
Lender may at any time assign to one or more Eligible Assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of the Commitment and the Loans at the time owing to it) pursuant to
documentation acceptable to the Lender and the assignee.  From and after the effective date specified
in such documentation, such Eligible Assignee shall be a party to this
Agreement and, to the extent of the interest assigned by the Lender, have the
rights and obligations of the Lender under this Agreement, and the Lender
shall, to the extent of the interest so assigned, be released from its
obligations under this Agreement (and, in the case of an assignment of all of
the Lender’s rights and obligations under this Agreement, shall cease to be a
party hereto but shall continue to be entitled to the benefits of Sections 3.01,
3.04 and 10.04 with respect to facts and circumstances occurring
prior to the effective date of such assignment).  Upon request, the Borrowers (at their
expense) shall execute and deliver new or replacement Notes to the Lender and
the assignee, and shall execute and deliver any other documents reasonably
necessary or appropriate to give effect to such assignment and to provide for
the administration of this Agreement after giving effect thereto.


 


(c)                                  The
Lender may at any time, without the consent of, or notice to, any Loan Party,
sell participations to any Person (other than a natural person or a Loan Party
or any Loan Party’s Affiliates or Subsidiaries) (each, a “Participant”)
in all or a portion of the Lender’s rights and/or obligations under this
Agreement (including all or a portion of its Commitment and/or Loans); provided
that (i) the Lender’s obligations under this Agreement shall remain
unchanged, (ii) the Lender shall remain solely responsible to the Loan
Parties for the performance of such obligations and (iii) the Loan Parties
shall continue to deal solely and directly with the Lender in connection with
the Lender’s rights and obligations under this Agreement.  Subject to subsection (d) of this
Section, each Loan Party agrees that each Participant shall be entitled to the
benefits of Sections 3.01 and 3.04 to the same extent as if it
were the Lender and had acquired its interest by assignment pursuant to subsection (b) of
this Section.  To the extent permitted by
law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were the Lender.


 


(d)                                 A
Participant shall not be entitled to receive any greater payment under Section 3.01
or 3.04 than the Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Mentor’s prior written consent.  A
Participant that is not a “United States person” within the meaning of Section 7701(a)(30)
of the Code shall not be entitled to the benefits of Section 3.01
unless Mentor is notified of the participation sold to such Participant and
such Participant agrees, for the benefit of the Loan Parties, to provide to the
Lender such tax forms prescribed by the IRS as are necessary or desirable to
establish an exemption from, or reduction of, U.S. withholding tax.


 


(e)                                  The
Lender may at any time pledge or assign a security interest in all or any
portion of its rights under this Agreement (including under the Notes, if any)
to secure


 


67





















 


obligations
of the Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank; provided that no such pledge or assignment shall
release the Lender from any of its obligations hereunder or substitute any such
pledgee or assignee for the Lender as a party hereto.


 


10.07                 Confidentiality.  The Lender agrees to maintain the
confidentiality of the Information (as defined below), except that Information
may be disclosed (a) to its and its Affiliates and to its Affiliates’
respective partners, directors, officers, employees, agents, advisors and
representatives (it being understood that the Persons to whom such disclosure
is made will be informed of the confidential nature of such Information and
instructed to keep such Information confidential), (b) to the extent
requested by any regulatory authority purporting to have jurisdiction over it, (c) to
the extent required by applicable laws or regulations or by any subpoena or
similar legal process, (d) to any other party hereto, (e) in
connection with the exercise of any remedies hereunder or under any other Loan
Document or any action or proceeding relating to this Agreement or any other
Loan Document or the enforcement of rights hereunder or thereunder, (f) subject
to an agreement containing provisions substantially the same as those of this
Section, to (i) any assignee of or Participant in, or any prospective
assignee of or Participant in, any of its rights or obligations under this
Agreement or (ii) any actual or prospective counterparty (or its advisors)
to any swap or derivative transaction relating to any Loan Party, (g) with
the consent of Mentor or (h) to the extent such Information (x) becomes
publicly available other than as a result of a breach of this Section or
(y) becomes available to the Lender on a nonconfidential basis from a source
other than any Loan Party.  For purposes
of this Section, “Information” means all information received from any
Loan Party relating to such Loan Party or any of their respective businesses,
other than any such information that is available to the Lender on a
nonconfidential basis prior to disclosure by such Loan Party, provided
that, in the case of information received from any Loan Party after the date
hereof, such information is clearly identified at the time of delivery as
confidential.  Any Person required to
maintain the confidentiality of Information as provided in this Section shall
be considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.


 


10.08                 Right of Setoff.  If an Event of Default shall have occurred
and be continuing, the Lender and each of its Affiliates is hereby authorized
at any time and from time to time, to the fullest extent permitted by
applicable law, to setoff and apply any and all deposits (general or special,
time or demand, provisional or final, in whatever currency) at any time held
and other obligations (in whatever currency) at any time owing by the Lender or
any such Affiliate to or for the credit or the account of any Loan Party
against any and all of the obligations of such Loan Party now or hereafter
existing under this Agreement or any other Loan Document to the Lender,
irrespective of whether or not the Lender shall have made any demand under this
Agreement or any other Loan Document and although such obligations of such Loan
Party may be contingent or unmatured or are owed to a branch or office of the
Lender different from the branch or office holding such deposit or obligated on
such indebtedness.  The rights of the
Lender and its Affiliates under this Section are in addition to other
rights and remedies (including other rights of setoff) that the Lender or its
Affiliates may have.  The Lender agrees
to notify Mentor promptly after any such setoff and application; provided
that the failure to give such notice shall not affect the validity of such
setoff and application.


 


68










 










 


10.09      Interest Rate Limitation.  Notwithstanding anything to the contrary
contained in any Loan Document, the interest paid or agreed to be paid under
the Loan Documents shall not exceed the maximum rate of non-usurious interest
permitted by applicable Law (the “Maximum Rate”).  If the Lender shall receive interest in an
amount that exceeds the Maximum Rate, the excess interest shall be applied to
the principal of the Loans or, if it exceeds such unpaid principal, refunded to
the applicable Borrower.  In determining
whether the interest contracted for, charged, or received by the Lender exceeds
the Maximum Rate, the Lender may, to the extent permitted by applicable Law, (a) characterize
any payment that is not principal as an expense, fee, or premium rather than
interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize,
prorate, allocate, and spread in equal or unequal parts the total amount of
interest throughout the contemplated term of the Obligations hereunder.


 


10.10      Counterparts; Integration;
Effectiveness.  This
Agreement may be executed in counterparts (and by different parties hereto in
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract.  This Agreement and the other Loan Documents
constitute the entire contract among the parties relating to the subject matter
hereof and supersede any and all previous agreements and understandings, oral
or written, relating to the subject matter hereof.  Except as provided in Section 4.01,
this Agreement shall become effective when it shall have been executed by the
Lender and when the Lender shall have received counterparts hereof that, when
taken together, bear the signatures of each of the other parties hereto.  Delivery of an executed counterpart of a
signature page of this Agreement by telecopy shall be effective as
delivery of a manually executed counterpart of this Agreement.


 


10.11      Survival of Representations
and Warranties.  All
representations and warranties made hereunder and in any other Loan Document or
other document delivered pursuant hereto or thereto or in connection herewith
or therewith shall survive the execution and delivery hereof and thereof.  Such representations and warranties have been
or will be relied upon by the Lender, regardless of any investigation made by
the Lender or on its behalf and notwithstanding that the Lender may have had
notice or knowledge of any Default at the time of any Loan, and shall continue
in full force and effect as long as any Loan or any other Obligation hereunder
shall remain unpaid or unsatisfied.


 


10.12      Severability.  If any provision of this Agreement or the
other Loan Documents is held to be illegal, invalid or unenforceable, (a) the
legality, validity and enforceability of the remaining provisions of this
Agreement and the other Loan Documents shall not be affected or impaired
thereby and (b) the parties shall endeavor in good faith negotiations to
replace the illegal, invalid or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the illegal,
invalid or unenforceable provisions.  The
invalidity of a provision in a particular jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.


 


10.13      Governing Law; Jurisdiction;
Etc.


 


(a)           GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE COMMONWEALTH OF


 


69





















 


MASSACHUSETTS; PROVIDED THAT THE LENDER SHALL
RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.


 


(b)           SUBMISSION TO
JURISDICTION.  EACH LOAN PARTY
IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE
NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS
SITTING IN SUFFOLK COUNTY, OF ANY UNITED STATES DISTRICT COURT SITTING IN
SUFFOLK COUNTY, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE
PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
SUCH COMMONWEALTH COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
IN SUCH FEDERAL COURT.  EACH OF THE
PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON
THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS AGREEMENT OR IN ANY OTHER
LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE LENDER MAY OTHERWISE HAVE TO
BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AGAINST THE ANY LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY
JURISDICTION.


 


(c)           WAIVER OF VENUE.  EACH LOAN PARTY IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS
SECTION.  EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING IN ANY SUCH COURT.


 


(d)           SERVICE OF
PROCESS.  EACH PARTY HERETO
IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES
IN SECTION 10.02.  NOTHING IN
THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.


 


10.14      Waiver of Jury Trial.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY).  EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR


 


70





















 


ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT
IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.


 


10.15      USA PATRIOT Act Notice.  The Lender that is subject to the Act (as
hereinafter defined) and hereby notifies the Borrowers that pursuant to the
requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into
law October 26, 2001)) (the “Act”), it is required to obtain,
verify and record information that identifies the Borrowers, which information
includes the name and address of the Borrowers and other information that will
allow the Lender to identify the Borrowers in accordance with the Act.


 


10.16      Time of the Essence.  Time is of the essence of the Loan Documents.


 


 


[Signature page follows]


 


71





















 


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


 


	
   

  	
  GUARANTORS:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  NATIONAL
  MENTOR HOLDINGS, INC.

  
	
   

  	
  NATIONAL
  MENTOR, INC.

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Denis M.
  Holler

  	
   

  
	
   

  	
  Name:    Denis
  M. Holler

  
	
   

  	
  Title:         Senior
  Vice President – Finance and

  Assistant Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BORROWERS:

  
	
   

  	
   

  
	
   

  	
  REM
  ARROWHEAD, INC.

  
	
   

  	
  REM
  CONNECTICUT COMMUNITY

  
	
   

  	
     SERVICES,
  INC.

  
	
   

  	
  REM
  INDIANA, INC.

  
	
   

  	
  REM
  NORTH DAKOTA, INC.

  
	
   

  	
  REM
  WISCONSIN, INC.

  
	
   

  	
  REM
  WISCONSIN II, INC.

  
	
   

  	
  REM
  WISCONSIN III, INC.

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Denis M.
  Holler

  	
   

  
	
   

  	
  Name:    Denis
  M. Holler

  
	
   

  	
  Title:    Assistant
  Secretary

  
					



 


S-1





















 


	
   

  	
  BANK OF
  AMERICA, N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Gabriela
  Millhorn

  	
   

  
	
   

  	
  Name:    Gabriela
  Millhorn

  
	
   

  	
  Title:    Senior
  Vice President

  



 


S-2





















 


EXHIBIT A


 


FORM OF LOAN NOTICE


 


Date:                   ,
        


 


To:          Bank of America, N.A.


 


Ladies and Gentlemen:


 


Reference is made to that
certain Term Loan Agreement, dated as of May 20, 2005 (as amended,
restated, extended, supplemented or otherwise modified in writing from time to
time, the “Agreement;” the terms defined therein being used herein as
therein defined), among NATIONAL MENTOR HOLDINGS, INC., a Delaware corporation
(“Holdings”), NATIONAL MENTOR, INC., a Delaware corporation (“Mentor”),
REM ARROWHEAD, INC. (“REM Arrowhead”), REM CONNECTICUT COMMUNITY
SERVICES, INC. (“REM Connecticut”), REM INDIANA, INC. (“REM Indiana”),
REM NORTH DAKOTA, INC. (“REM North Dakota”), REM WISCONSIN, INC. (“REM
Wisconsin I”), REM WISCONSIN II, INC. (“REM Wisconsin II”), REM
WISCONSIN III, INC. (“REM Wisconsin III”), and certain other
wholly-owned subsidiaries of Holdings and Mentor parties thereto from time to
time as Designated Borrowers (together with REM Arrowhead, REM Connecticut, REM
Indiana, REM North Dakota, REM Wisconsin I, REM Wisconsin II and REM Wisconsin
III,  collectively, the “Borrowers”)
and BANK OF AMERICA, N.A. (the “Lender”).


 


Mentor, in its capacity as Borrowing Agent, hereby requests on behalf
of the Borrower referenced in item 4 below (the “Applicable Borrower”)
(select one):


 


o A
Loan              o
A conversion of a Loan to the Type of Loan listed in item 3 below


 


	
  1.

  	
  On
                                                                                 
  (a Business Day).

  
	
   

  	
   

  
	
  2.

  	
  In the amount of                                                                                      .

  
	
   

  	
   

  
	
  3.

  	
  Comprised of/Conversion to 

  	
   

  	
  .

  
	
   

  	
   

  	
  [a Base Rate Loan][a LIBOR Floating Rate
  Loan]

  	
   

  
	
   

  	
   

  
	
  4.

  	
  On behalf of
                                                                                     
  [insert name of applicable Borrower].

  



 


[For a Loan, include the following: 
The Loan requested herein complies with the proviso to the first
sentence of Section 2.01 of the Agreement.  Without limitation of the foregoing:


 


A.            The proceeds of the
Loan are intended to be utilized to acquire certain real property located at                                     ;


 


B.            The Appraised Value
of such Acquired Property is                        ;


 


A-1





















 


C.            Immediately after
giving effect to such Loan, the outstanding amount of all Loans outstanding
under the Agreement will be                      ;


 


D.            Immediately after
giving effect to such Loan, the Borrowing Base will be                  ,
a calculation of which is reflected on the Borrowing Base Certificate delivered
in connection herewith; and


 


E.             On or before the
date of the such Loan, the Borrower shall satisfy the requirements of Section 6.09(a) of
the Agreement.(1)]


 


	
   

  	
  NATIONAL MENTOR,
  INC., as Borrowing Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						



 










(1)   With respect to any Acquired Property, on or before the date of
Loan being utilized to acquire such property the applicable Borrower must (i)
execute and deliver to the Lender such Mortgages or such other documents
(including, to the extent required by the Lender, opinions of counsel), each in
form and substance satisfactory to the Lender, as the Lender reasonably deems
necessary or advisable to the grant to the Lender a first priority mortgage or
deed of trust Lien on such property, subject only to Permitted Liens, (ii)
record such Mortgage and take all other actions necessary or advisable to grant
to the Lender a perfected first priority security interest in such property,
including the filing of Uniform Commercial Code financing statements in such
jurisdictions as may be reasonably required by the Mortgages or by law or as
may be requested by the Lender, and (iii) deliver to the Lender: (A) an ALTA
Lender’s title policy dated as of the date and time of recording such Mortgage,
insuring the first lien priority of such Mortgage and reflecting only such
title exceptions as are acceptable to the Lender, together with all
endorsements reasonably requested by the Lender; (B) satisfactory flood certificates
with respect to such Mortgaged Property; and (C) evidence of insurance for such
Mortgaged Property as required by Section 6.05 and the applicable
Mortgage.  


 


A-2





















 


EXHIBIT B


 


FORM OF DESIGNATED BORROWER 

REQUEST AND ASSUMPTION AGREEMENT


 


Date:                      ,
       


 


To:          Bank of America, N.A.


 


Ladies and Gentlemen:


 


Reference is made to that certain Term Loan Agreement, dated as of May 20,
2005 (as amended, restated, extended, supplemented or otherwise modified in
writing from time to time, the “Agreement;” the terms defined therein
being used herein as therein defined), among NATIONAL MENTOR HOLDINGS, INC., a
Delaware corporation (“Holdings”), NATIONAL MENTOR, INC., a Delaware
corporation (“Mentor”), REM ARROWHEAD, INC., REM CONNECTICUT COMMUNITY
SERVICES, INC., REM INDIANA, INC., REM NORTH DAKOTA, INC., REM WISCONSIN, INC.,
REM WISCONSIN II, INC., REM WISCONSIN III, INC., and certain other wholly-owned
subsidiaries of Holdings and Mentor parties thereto from time to time as
Designated Borrowers and BANK OF AMERICA, N.A. (the “Lender”).


 


Each of                       
(the “Applicant Borrower”) and the Borrowing Agent, hereby confirms,
represents and warrants to the Lender that the Applicant Borrower is a direct
or indirect, wholly-owned Subsidiary of Mentor.


 


Upon confirmation from the Lender that the Applicant Borrower is
acceptable to the Lender, the Applicant Borrower will deliver to the Lender the
documents required to be delivered under Section 2.13 of the
Agreement.


 


Immediately upon confirmation from the Lender that the Applicant
Borrower is acceptable to the Lender, the Applicant Borrower shall have
obligations, duties and liabilities toward each of the other parties to the
Agreement identical to those which the Applicant Borrower would have had if the
Applicant Borrower had been an original party to the Agreement as a Borrower.


 


The Applicant Borrower confirms its acceptance of, and consents to, all
representations and warranties, covenants, and other terms and provisions of
the Agreement and further represents and warrants that the representations and
warranties contained in Sections 5.03-5.14 and 5.16-5.19 of the Agreement are
true and correct on and as of the date hereof with respect to the Applicant
Borrower.


 


The parties hereto hereby request that the Applicant Borrower be
entitled to receive Loans under the Agreement, and understand, acknowledge and
agree that neither the Applicant Borrower nor the Borrowing Agent on its behalf
shall have any right to request any Loans for its account unless and until the
effective date designated by the Lender in a Designated Borrower Notice
delivered to the Borrowing Agent pursuant to Section 2.13 of the
Credit Agreement.


 


B-1





















 


This Designated Borrower Request and Assumption Agreement shall
constitute a Loan Document under the Agreement.


 


THIS DESIGNATED BORROWER REQUEST AND ASSUMPTION AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE COMMONWEALTH OF
MASSACHUSETTS.


 


IN WITNESS WHEREOF, the parties hereto have
caused this Designated Borrower Request and Assumption Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.


 


	
   

  	
  [APPLICANT
  BORROWER]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  NATIONAL MENTOR,
  INC., as Borrowing Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
					



 


B-2





















 


EXHIBIT C


 


FORM OF DESIGNATED BORROWER
NOTICE


 


Date:                     ,
       


 


To:          NATIONAL MENTOR, INC., as Borrowing Agent


 


Ladies and Gentlemen:


 


This Designated Borrower Notice is made and delivered pursuant to Section 2.13
of that certain Term Loan Agreement, dated as of May 20, 2005 (as amended,
restated, extended, supplemented or otherwise modified in writing from time to
time, the “Agreement;” the terms defined therein being used herein as
therein defined), among NATIONAL MENTOR HOLDINGS, INC., a Delaware corporation
(“Holdings”), NATIONAL MENTOR, INC., a Delaware corporation (“Mentor”),
REM ARROWHEAD, INC., REM CONNECTICUT COMMUNITY SERVICES, INC., REM INDIANA,
INC., REM NORTH DAKOTA, INC., REM WISCONSIN, INC., REM WISCONSIN II, INC., REM
WISCONSIN III, INC., and certain other wholly-owned subsidiaries of Holdings
and Mentor parties thereto from time to time as Designated Borrowers and BANK
OF AMERICA, N.A. (the “Lender”).


 


 The Lender hereby notifies
Borrowing Agent that effective as of the date hereof [                                     ]
shall be a Designated Borrower and may receive Loans for its account on the
terms and conditions set forth in the Agreement.


 


This Designated Borrower Notice shall constitute a Loan Document under
the Agreement.


 


 


	
   

  	
  BANK OF
  AMERICA, N.A.,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
					



 


C-1





















 


EXHIBIT D


 


FORM OF OPINION OF COUNSEL TO
LOAN PARTIES


 


See attached.


 


D-1





















 


EXHIBIT E


 


FORM OF BORROWING BASE CERTIFICATE


 


Date:                      ,
       


 


To:          Bank of America, N.A.


 


Ladies and Gentlemen:


 


Reference is made to that Term Loan Agreement, dated as of May 20,
2005 (as amended, restated, extended, supplemented or otherwise modified in
writing from time to time, the “Agreement;” the terms defined therein
being used herein as therein defined), among NATIONAL MENTOR HOLDINGS, INC., a
Delaware corporation (“Holdings”), NATIONAL MENTOR, INC., a Delaware
corporation (“Mentor”), REM ARROWHEAD, INC., REM CONNECTICUT COMMUNITY
SERVICES, INC., REM INDIANA, INC., REM NORTH DAKOTA, INC., REM WISCONSIN, INC.,
REM WISCONSIN II, INC., REM WISCONSIN III, INC., and certain other wholly-owned
subsidiaries of Holdings and Mentor parties thereto from time to time as
Designated Borrowers and BANK OF AMERICA, N.A. (the “Lender”).


 


The undersigned Responsible Officer hereby certifies as of the date
hereof that:


 


1.             he/she is the                                                                      of
the Borrowing Agent, and that, as such, he/she is authorized to execute and
deliver this Certificate to the Lender on the behalf the Loan Parties, and


 


2.             the Borrowing Base
(after giving effect to any Loan being made on the date hereof) is $               ,
a true and accurate calculation of which is reflected on Schedule 1
attached hereto.


 


 


	
   

  	
  NATIONAL MENTOR,
  INC., as Borrowing Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						



 


E-1





















 


EXHIBIT F


 


FORM OF COMPLIANCE CERTIFICATE


 


Financial Statement Date:                    ,
       


 


To:          Bank of America, N.A.


 


Ladies and Gentlemen:


 


Reference is made to that Term Loan Agreement, dated as of May 20,
2005 (as amended, restated, extended, supplemented or otherwise modified in
writing from time to time, the “Agreement;” the terms defined therein
being used herein as therein defined), among NATIONAL MENTOR HOLDINGS, INC., a
Delaware corporation (“Holdings”), NATIONAL MENTOR, INC., a Delaware
corporation (“Mentor”), REM ARROWHEAD, INC., REM CONNECTICUT COMMUNITY
SERVICES, INC., REM INDIANA, INC., REM NORTH DAKOTA, INC., REM WISCONSIN, INC.,
REM WISCONSIN II, INC., REM WISCONSIN III, INC., and certain other wholly-owned
subsidiaries of Holdings and Mentor parties thereto from time to time as
Designated Borrowers and BANK OF AMERICA, N.A. (the “Lender”).


 


The undersigned Responsible Officer hereby certifies as of the date
hereof that he/she is the                                                                         of
the Loan Parties, and that, as such, he/she is authorized to execute and
deliver this Certificate to the Lender on the behalf the Loan Parties, and
that:


 


[Use following paragraph 1 for fiscal year-end financial statements]


 


1.             Attached hereto as Schedule 1
are the year-end audited financial statements required by Section 6.01(a) of
the Agreement for the fiscal year of Holdings ended as of the above date,
together with the report and opinion of an independent certified public
accountant required by such section.


 


[Use following paragraph 1 for fiscal quarter-end financial statements]


 


1.             Attached hereto as Schedule 1
are the unaudited financial statements required by Section 6.01(b) of
the Agreement for the fiscal quarter of Holdings ended as of the above
date.  Such financial statements fairly
present the financial condition, results of operations and cash flows of the
Holdings and its Subsidiaries in accordance with GAAP as at such date and for
such period, subject only to normal year-end audit adjustments and the absence
of footnotes.


 


2.             The undersigned has
reviewed and is familiar with the terms of the Agreement and has made, or has
caused to be made under his/her supervision, a detailed review of the
transactions and condition (financial or otherwise) of the Loan Parties during
the accounting period covered by the attached financial statements.


 


3.             A review of the
activities of the Loan Parties during the fiscal period covered by the
financial statements attached as Schedule 1 hereto has been made
under the supervision of


 





















 


the
undersigned with a view to determining whether any Default or Event of Default
occurred during such fiscal period.  To
the best knowledge of the undersigned after making such review,


 


[select one:]


 


[no Default or Event of Default has occurred (whether during such
fiscal period or otherwise) and is continuing on the date hereof.]


 


—or—


 


[the following is a list of each Default or Event of Default that has
occurred (whether during such fiscal period or otherwise) and is continuing on
the date hereof and, in each case, the nature and status of such Default or
Event of Default:]


 


4.             The financial
covenant analyses and information set forth on Schedule 2 attached
hereto are true and accurate on and as of the Financial Statement Date.


 


IN WITNESS WHEREOF, the undersigned has
executed this Certificate as of                         ,
        .


 


 


	
   

  	
  NATIONAL
  MENTOR HOLDINGS, INC.

  
	
   

  	
  NATIONAL
  MENTOR, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  REM
  ARROWHEAD, INC.

  
	
   

  	
  REM
  CONNECTICUT COMMUNITY

  
	
   

  	
   SERVICES, INC.

  
	
   

  	
  REM
  INDIANA, INC.

  
	
   

  	
  REM
  NORTH DAKOTA, INC.

  
	
   

  	
  REM
  WISCONSIN, INC.

  
	
   

  	
  REM
  WISCONSIN II, INC.

  
	
   

  	
  REM
  WISCONSIN III, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 





















 


For the
Quarter/Year ended                                  (“Statement
Date”)


 


SCHEDULE 2 

TO THE COMPLIANCE CERTIFICATE


 


 


[To be attached]


 





















 


Schedule 2.01(a) – Refinanced
Property; Amounts and Amortization Schedules of

Closing Date Term Loans


 


See attached


 





















 


Schedule 5.04 - Consents,
Authorizations, Filings and Notices


 


None.


 





















 


Schedule 5.06 - Litigation


 


None.


 





















 


Schedule 5.07 - No Default


 


None.


 





















 


Schedule 5.09 - Licenses


 


None.


 





















 


Schedule 5.15 - Subsidiaries


 


	
  Entity name

  	
   

  	
  State of 

  Incorporation

  	
   

  	
  Owner (Percentage owned by/type of interest)

  
	
  Carolina
  Behavioral Services, LLC

  	
   

  	
  Delaware

  	
   

  	
  National
  Mentor Healthcare, LLC (100% Membership Interest)

  
	
  Center for
  Comprehensive Services, Inc.

  	
   

  	
  Illinois

  	
   

  	
  National
  Mentor, LLC (100% Common Stock)

  
	
  Family
  Advocacy Services, LLC

  	
   

  	
  Delaware

  	
   

  	
  National
  Mentor Services, LLC (100% Membership Interest)

  
	
  First Step
  Independent Living Program, Inc.

  	
   

  	
  California

  	
   

  	
  National
  Mentor, LLC (100% Common Stock)

  
	
  Horrigan
  Cole Enterprises, Inc.

  	
   

  	
  California

  	
   

  	
  National
  Mentor, LLC (100% Common Stock)

  
	
  Illinois
  Mentor, Inc.

  	
   

  	
  Illinois

  	
   

  	
  National
  Mentor, LLC (100% Common Stock)

  
	
  Loyd’s
  Liberty Homes, Inc.

  	
   

  	
  California

  	
   

  	
  National
  Mentor Healthcare, LLC (100% Common Stock)

  
	
  Massachusetts
  Mentor, Inc.

  	
   

  	
  Massachusetts

  	
   

  	
  National
  Mentor, LLC (100% Common Stock)

  
	
  Mentor
  Management, Inc.

  	
   

  	
  Delaware

  	
   

  	
  National
  Mentor, LLC (100% Common Stock)

  
	
  Mentor
  Maryland, Inc.

  	
   

  	
  Maryland

  	
   

  	
  National
  Mentor Healthcare, LLC (100% Common Stock)

  
	
  National
  Mentor Healthcare, LLC

  	
   

  	
  Delaware

  	
   

  	
  National
  Mentor, LLC (100% Membership Interest)

  
	
  National
  Mentor Services, Inc.

  	
   

  	
  Delaware

  	
   

  	
  National
  Mentor, LLC (100% Common Stock)

  
	
  National
  Mentor Services, LLC

  	
   

  	
  Delaware

  	
   

  	
  National Mentor
  Services, Inc. (100% Membership Interest)

  
	
  Ohio
  Mentor, Inc.

  	
   

  	
  Ohio

  	
   

  	
  National
  Mentor, LLC (100% Common Stock)

  
	
  Rehabilitation
  Achievement Center, Inc.

  	
   

  	
  Illinois

  	
   

  	
  Illinois
  Mentor, Inc. (100% Common Sstock)

  
	
  South
  Carolina Mentor, Inc.

  	
   

  	
  South
  Carolina

  	
   

  	
  National
  Mentor, LLC (100% Common Stock)

  
	
  Unlimited
  Quest, Inc.

  	
   

  	
  California

  	
   

  	
  National
  Mentor Healthcare, LLC (100% Common Stock)

  
	
  REM, Inc.

  	
   

  	
  Minnesota

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Arizona, Inc.

  	
   

  	
  Arizona

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM Arizona
  Rehabilitation, Inc.

  	
   

  	
  Arizona

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Arrowhead, Inc.

  	
   

  	
  Minnesota

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Atlantic, Inc.

  	
   

  	
  Iowa

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM Central
  Lakes, Inc.

  	
   

  	
  Minnesota

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Colorado, Inc.

  	
   

  	
  Colorado

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Community Options, Inc.

  	
   

  	
  West
  Virginia

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Connecticut Community Services, Inc.

  	
   

  	
  Connecticut

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Consulting & Services, Inc.

  	
   

  	
  Minnesota

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Consulting of Ohio, Inc.

  	
   

  	
  Ohio

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM Council
  Bluffs, Inc.

  	
   

  	
  Minnesota

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Development Services, Inc.

  	
   

  	
  Iowa

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Health, Inc.

  	
   

  	
  Minnesota

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM Health
  of Iowa, Inc.

  	
   

  	
  Iowa

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM Health
  of Wisconsin, Inc.

  	
   

  	
  Wisconsin

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM Health
  of Wisconsin II, Inc.

  	
   

  	
  Wisconsin

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Heartland, Inc.

  	
   

  	
  Minnesota

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Hennepin, Inc.

  	
   

  	
  Minnesota

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM Home Health, Inc.

  	
   

  	
  Minnesota

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Indiana, Inc.

  	
   

  	
  Indiana

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM Indiana
  Community Services, Inc.

  	
   

  	
  Indiana

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM Indiana
  Community Services II, Inc.

  	
   

  	
  Indiana

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM Iowa
  Community Services, Inc.

  	
   

  	
  Iowa

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Iowa, Inc.

  	
   

  	
  Iowa

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  



 





















 


	
  REM
  Leadway, Inc.

  	
   

  	
  Minnesota

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Management, Inc.

  	
   

  	
  Minnesota

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Maryland, Inc.

  	
   

  	
  Maryland

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Minnesota Community Services, Inc.

  	
   

  	
  Minnesota

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Minnesota, Inc.

  	
   

  	
  Minnesota

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Nevada, Inc.

  	
   

  	
  Nevada

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM New
  Jersey, Inc.

  	
   

  	
  New Jersey

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM North
  Dakota, Inc

  	
   

  	
  North Dakota

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM North
  Star, Inc.

  	
   

  	
  Minnesota

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Ohio, Inc.

  	
   

  	
  Ohio

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM Ohio
  Waivered Services, Inc.

  	
   

  	
  Ohio

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM Oklahoma
  Community Services, Inc.

  	
   

  	
  Oklahoma

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Pennsylvania Community Services, Inc.

  	
   

  	
  Pennsylvania

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Ramsey, Inc.

  	
   

  	
  Minnesota

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM River
  Bluffs, Inc.

  	
   

  	
  Minnesota

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM SILS of
  Iowa, Inc.

  	
   

  	
  Iowa

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM South
  Central Services, Inc.

  	
   

  	
  Minnesota

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Southwest Services, Inc.

  	
   

  	
  Minnesota

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Utah, Inc.

  	
   

  	
  Utah

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM West
  Virginia, Inc.

  	
   

  	
  West
  Virginia

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Wisconsin, Inc.

  	
   

  	
  Wisconsin

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Wisconsin II, Inc.

  	
   

  	
  Wisconsin

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Wisconsin III, Inc.

  	
   

  	
  Wisconsin

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  
	
  REM
  Woodvale, Inc.

  	
   

  	
  Minnesota

  	
   

  	
  National
  Mentor Services, LLC (100% Common Stock)

  



 





















 


Schedule 5.19 - UCC Filing Jurisdictions


 


	
  Entity name

  	
   

  	
  State of

  Incorporation/

  Organization

  
	
  REM
  Arrowhead, Inc.

  	
   

  	
  Minnesota

  
	
  REM
  Connecticut Community Services, Inc.

  	
   

  	
  Connecticut

  
	
  REM
  Indiana, Inc.

  	
   

  	
  Indiana

  
	
  REM North
  Dakota, Inc

  	
   

  	
  North Dakota

  
	
  REM
  Wisconsin, Inc.

  	
   

  	
  Wisconsin

  
	
  REM
  Wisconsin II, Inc.

  	
   

  	
  Wisconsin

  
	
  REM
  Wisconsin III, Inc.

  	
   

  	
  Wisconsin

  



 





















 


Schedule 5.22 – Mortgaged Property in Flood Hazard Area


 


1.               1575
Manvel Avenue, Grafton, North Dakota


2.               730
Summit Avenue, Grafton, North Dakota


 





















 


Schedule 7.02(d) - Existing
Indebtedness


 


1.               Magellan Seller
Notes-$3,000,000


 





















 


Schedule 7.03(f) - Existing Liens


 


None.


 





















 


Schedule 7.08(g) - Existing
Investments


 


1.                                      Ownership
of Subsidiaries as set forth on Schedule 5.15.


 





















 


Schedule 10.02 – Notices; Lending
Office; Payments


 


BORROWERS:


 


National Mentor, Inc.


313 Congress Street


Boston, MA 02210


Attention: Denis Holler, Senior
VP Finance


Telecopy: 617 790-4930


Telephone: 617 790-4254


Email:
Denis.Holler@thementornetwork.com


 


LENDER:


 


Lending Office 


(for
payments and Loan Requests):


 


Bank of America, N.A.


901 Main Street


14th Floor


Mail Code: TX1-492-14-05


Dallas, TX   75202-3748


Attention:  Shelley Bloom


Telephone:  (214) 209-4103


Telecopier:  (214) 290-9462


Electronic Mail:  shelley.a.bloom@bankofamerica.com


Account No.:   1292000883


Ref:  National Mentor


ABA# 111000012


 


With copy to:


 


Bank of America, N.A.


100 N. Tryon Street


Mail Code: NC1-007-13-06


Charlotte, NC  28255


Attention:  Gabriela Millhorn


Telephone:  (704) 388-4279


Telecopier:  (704) 386-9607


Electronic Mail:  gabriela.millhorn@bofasecurities.com


 





















 


Other Notices:


Bank of America, N.A.


100 N. Tryon Street


Mail Code: NC1-007-13-06


Charlotte, NC  28255


Attention:  Gabriela Millhorn


Telephone:  (704) 388-4279


Telecopier:  (704) 386-9607


Electronic Mail:  gabriela.millhorn@bofasecurities.com