Exhibit 10.2




 





 


 


$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

  	
   

  	
  Page

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE I.

  	
  DEFINITIONS AND
  ACCOUNTING TERMS

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.01

  	
  Defined Terms

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.02

  	
  Other Interpretive Provisions

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.03

  	
  Accounting Terms

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.04

  	
  Rounding

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.05

  	
  Times of Day

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II.

  	
  THE COMMITMENT
  AND CREDIT EXTENSIONS

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.01

  	
  Loans

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.02

  	
  Borrowings, Conversions and Continuations of Loans

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.03

  	
  Prepayments

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.04

  	
  Termination or Reduction of Commitment

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.05

  	
  Repayment of Loans

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.06

  	
  Interest

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.07

  	
  Fees

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.08

  	
  Computation of Interest and Fees

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.09

  	
  Evidence of Debt

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.10

  	
  Payments Generally

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.11

  	
  Borrowing Agent

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.12

  	
  Increase in Commitments

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.13

  	
  Designated Borrowers

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III.

  	
  TAXES, YIELD
  PROTECTION AND ILLEGALITY

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.01

  	
  Taxes

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.02

  	
  Illegality

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.03

  	
  Inability to Determine LIBOR Monthly Floating Rate

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.04

  	
  Increased Costs

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3 05

  	
  Mitigation Obligations

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.06

  	
  Survival

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV.

  	
  CONDITIONS
  PRECEDENT TO CREDIT EXTENSIONS

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.01

  	
  Conditions of Initial Loan

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.02

  	
  Conditions to all Loans

  	
  31

  
					



 


i

















 


	
  ARTICLE V.

  	
  REPRESENTATIONS
  AND WARRANTIES

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.01

  	
  Financial Condition

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.02

  	
  No Change

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.03

  	
  Existence; Compliance with Law

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.04

  	
  Power; Authorization; Enforceable Obligations

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.05

  	
  No Legal Bar

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.06

  	
  Litigation

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.07

  	
  No Default

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.08

  	
  Ownership of Property; Liens

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.09

  	
  Licenses, Intellectual Property

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.10

  	
  Taxes

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.11

  	
  Federal Regulations

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.12

  	
  Labor Matters

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.13

  	
  ERISA

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.14

  	
  Investment Company Act; Other Regulations

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.15

  	
  Subsidiaries

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.16

  	
  Use of Proceeds

  	
  36

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.17

  	
  Environmental Matters

  	
  36

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.18

  	
  Accuracy of Information, etc

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.19

  	
  Mortgages

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.20

  	
  Solvency

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.21

  	
  Senior Indebtedness

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.22

  	
  Regulation H

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI.

  	
  AFFIRMATIVE
  COVENANTS

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.01

  	
  Financial Statements

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.02

  	
  Certificates; Other Information

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.03

  	
  Payment of Obligations

  	
  40

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.04

  	
  Maintenance of Existence; Compliance

  	
  40

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.05

  	
  Maintenance of Property; Insurance

  	
  40

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.06

  	
  Inspection of Property; Books and Records; Discussions

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.07

  	
  Notices

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.08

  	
  Environmental Laws

  	
  42

  



 


ii

















 


	
   

  	
  6.09

  	
  Additional Mortgages, etc.

  	
  42

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII.

  	
  NEGATIVE
  COVENANTS

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.01

  	
  Financial Condition Covenants

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.02

  	
  Indebtedness

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.03

  	
  Liens

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.04

  	
  Fundamental Changes

  	
  49

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.05

  	
  Disposition of Property

  	
  49

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.06

  	
  Restricted Payments

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.07

  	
  Capital Expenditures

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.08

  	
  Investments

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.09

  	
  Optional Payments and Modifications of Certain Debt
  Instruments

  	
  53

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.10

  	
  Transactions with Affiliates

  	
  54

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.11

  	
  Sales and Leasebacks

  	
  54

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.12

  	
  Swap Agreements

  	
  54

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.13

  	
  Changes in Fiscal Periods

  	
  54

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.14

  	
  Negative Pledge Clauses

  	
  55

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.15

  	
  Clauses Restricting Subsidiary Distributions

  	
  55

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.16

  	
  Lines of Business

  	
  55

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.17

  	
  Insurance Subsidiary Investments

  	
  55

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.18

  	
  Insurance Subsidiary

  	
  55

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.19

  	
  Foreign Subsidiaries

  	
  56

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII.

  	
  EVENTS OF
  DEFAULT AND REMEDIES

  	
  56

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.01

  	
  Events of Default

  	
  56

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.02

  	
  Application of Funds

  	
  59

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IX.

  	
  GUARANTY

  	
  59

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.01

  	
  Guaranty

  	
  59

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.02

  	
  Payment

  	
  59

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.03

  	
  Absolute Rights and Obligations

  	
  60

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.04

  	
  Waiver of Notice; Subrogation

  	
  61

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE X.

  	
  MISCELLANEOUS

  	
  62

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.01

  	
  Amendments; Etc.

  	
  62

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.02

  	
  Notices, Effectiveness; Electronic Communication

  	
  62

  



 


iii

















 


	
   

  	
  10.03

  	
  No Waiver; Cumulative Remedies

  	
  63

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.04

  	
  Expenses; Indemnity; Damage Waiver

  	
  63

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.05

  	
  Payments Set Aside

  	
  64

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.06

  	
  Successors and Assigns

  	
  65

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.07

  	
  Confidentiality

  	
  66

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.08

  	
  Right of Setoff

  	
  67

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.09

  	
  Interest Rate Limitation

  	
  67

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.10

  	
  Counterparts; Integration; Effectiveness

  	
  67

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.11

  	
  Survival of Representations and Warranties

  	
  67

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.12

  	
  Severability

  	
  68

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.13

  	
  Governing Law; Jurisdiction; Etc.

  	
  68

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.14

  	
  Waiver of Jury Trial

  	
  69

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.15

  	
  USA PATRIOT Act Notice

  	
  69

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.16

  	
  Time of the Essence

  	
  69

  



 


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:l

  	
   

  	
  3.75%

  	
   

  	
  1.50%

  	
   

  
	
  2

  	
   

  	
  > 3.25:1 but
  <3.50:l

  	
   

  	
  3.50%

  	
   

  	
  1.50%

  	
   

  
	
  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), (l) 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 (l) 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 united 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 denned 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 Pavor
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 Outstanding”
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 Indebtedness under the U.S. Bank Facility
secured by the Refinanced Property, and (b) from


 


21

















 


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.


 


26

















 


(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, any
obligation of the Lender to make LIBOR Floating Rate Loans or to convert Base
Rate Loans


 


28

















 


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 requirements
has or would have the effect of reducing the rate of return on the Lender’s
capital


 


29

















 


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.


 


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:


 


30

















 


(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;


 


(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;


 


31

















 


(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:


 


(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


 


32

















 


(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 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


 


33

















 


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).


 


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


 


34

















 


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 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


 


35

















 


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 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)


 


36

















 


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;


 


(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;


 


37

















 


(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).


 


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.


 


38

















 


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, 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


 


39

















 


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;


 


(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


 


40

















 


(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 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


 


41

















 


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 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;


 


42

















 


(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.


 


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


 


43

















 


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, 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.


 


44

















 


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

  
	
   

  	
   

  	
   

  
	
  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: 


 


45

















 




	
  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 refinancing, refundings,
renewals or extensions thereof (without increasing, or shortening the maturity
of, the principal amount thereof);


 


(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;


 


46

















 


(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 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;


 


47

















 


(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;


 


(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


 


48

















 


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;


 


(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;


 


49

















 


(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


 


(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;


 


 


50

















 


(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.


 


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:


 


51

















 


(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 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


 


52

















 


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;


 


(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;


 


53

















 


(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 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


 


54

















 


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 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


 


55

















 


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 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


 


56














 


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.


 


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 m any certificate, document or
financial or other statement famished by it at any time under or in connection
with this Agreement or any


 


57

















 


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


 


(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 ox 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


 


58

















 


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


 


(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


 


(1)       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;


 


59

















 


(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.


 


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.


 


60

















 


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’ 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;


 


61

















 


(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.


 


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,


 


62

















 


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.


 


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


 


63

















 


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.


 


(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


 


64

















 


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 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


 


65

















 


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
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


 


66

















 


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’s 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
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.


 


67

















 


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.


 


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


 


68

















 


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
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


 


69

















 


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 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


 


70

















 


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

  



 


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  BANK OF AMERICA, N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gabriela Millhorn

  	
   

  
	
   

  	
  Name:
  Gabriela Millhorn

  
	
   

  	
  Title:
  Senior Vice President

  



 


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