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Exhibit 99.2 PLAN OF MERGER AND ACQUISITION AGREEMENT BY AND AMONG EXTENDICARE HEALTH SERVICES, INC., ALPHA ACQUISITION, INC. AND ASSISTED LIVING CONCEPTS, INC. November 4, 2004




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TABLE OF CONTENTS PageArticle 1 The Merger
    
    11.1
    
    The Merger
    
    11.2
    
    The Closing
    
    21.3
    
    Effective Time
    
    21.4
    
    Effect of the Merger
    
    21.5
    
    Effect on Capital Stock
    
    21.6
    
    Articles of Incorporation and Bylaws of the Surviving Corporation
    
    31.7
    
    Directors and Officers
    
    31.8
    
    Assets, Liabilities, Reserves and Accounts
    
    31.9
    

    Exchange of Certificates
    
    41.10
    
    Effect of the Merger on Stock Options
    
    61.11
    
    Stockholders Meeting
    
    7Article 2 Representations and Warranties of the Acquiring Companies
    
    82.1
    
    Organization
    
    82.2
    
    Authority
    
    82.3
    
    Noncontravention; Required Filings and Consents
    
    82.4
    
    Advisors and Brokers Fees
    
    92.5
    
    Sufficient Funds
    
    92.6
    
    No Share Ownership
    
    9Article 3 Representations and Warranties of The Company
    
    93.1
    
    Organization, Qualification, and Corporate Power
    
    93.2
    
    Subsidiaries
    
    103.3
    
    Authority
    
    103.4
    
    Noncontravention; Required Filings and Consents
    
    103.5
    
    Capitalization
    
    113.6
    
    Contracts
    
    113.7
    
    Insurance
    
    123.8
    
    Financial Statements; Fees
    
    123.9
    
    SEC Filings
    
    133.10
    
    Certain Events
    
    133.11
    
    Property
    
    143.12
    
    Compliance with Laws
    
    163.13
    
    Company Permits
    
    173.14
    
    Tax Matters
    
    183.15
    
    Litigation
    
    183.16
    
    Benefit Plans and Arrangements
    
    183.17
    
    Security Interests
    
    203.18
    
    Labor
    
    203.19
    
    Board Recommendation
    
    203.20
    
    Opinion of Financial Advisor
    
    21




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Page3.21
    
    Brokers or Finders
    
    213.22
    
    Inapplicability of Anti-takeover Defense Provisions
    
    213.23
    
    Rights Agreement
    
    21Article 4 Pre-Closing Covenants
    
    214.1
    
    Notices and Consents
    
    214.2
    
    Responsibility of Acquiring Companies in Connection with Antitrust Matters
    
    214.3
    
    Conduct of the Business of the Company and its Subsidiaries
    
    224.4
    
    Access
    
    244.5
    
    Confidentiality Agreement
    
    244.6
    
    Further Actions
    
    244.7
    
    No Solicitation
    
    244.8
    
    Fees and Expenses
    
    27Article 5 Post-Closing Covenants
    
    285.1
    
    Employee Benefit Plans and Practices
    
    285.2
    
    Indemnification; Directors and Officers Insurance
    
    295.3
    
    No Stockholders Liability
    
    30Article 6 Conditions to Obligation to Close
    
    316.1
    
    Conditions to Obligation of the Acquiring Companies
    
    316.2
    
    Conditions to Obligation of the Company
    
    32Article 7 Termination
    
    337.1
    
    Termination of Agreement
    
    337.2
    
    Effect of Termination
    
    34Article 8 Miscellaneous
    
    348.1
    
    Press Releases and Public Announcements
    
    348.2
    
    No Third-Party Beneficiaries
    
    358.3
    
    Entire Agreement
    
    358.4
    
    Successors and Assigns
    
    358.5
    
    Counterparts
    
    358.6
    
    Headings
    
    358.7
    
    Notices
    
    358.8
    
    Termination of Companys Representations
    
    368.9
    
    Governing Law
    
    368.10
    
    Amendments and Waivers
    
    368.11
    
    Severability
    
    368.12
    
    Construction
    
    368.13
    
    Further Assurances
    
    37
 ANNEX A  Definitions




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PLAN OF MERGER AND ACQUISITION AGREEMENT This PLAN OF MERGER AND ACQUISITION AGREEMENT (this Agreement) is
entered into as of November 4, 2004 by and among EXTENDICARE HEALTH SERVICES,
INC., a Delaware corporation (the Buyer); ALPHA ACQUISITION, INC., a Nevada
corporation and a wholly-owned subsidiary of the Buyer (Alpha Acquisition)
having its principal office at 111 West Michigan Street, Milwaukee, Wisconsin
53203 (the Buyer and Alpha Acquisition are referred to herein collectively as
the Acquiring Companies and individually as an Acquiring Company); and
ASSISTED LIVING CONCEPTS, INC., a Nevada corporation (the Company) having its
principal office at 1349 Empire Central, Suite 900, Dallas, Texas 75247. The
Acquiring Companies and the Company are referred to collectively herein as the
Parties and individually as a Party. Capitalized terms used herein shall
have the meanings set forth therefor in Annex A. RECITALS: A. The respective boards of directors of the Acquiring Companies and the
Company have approved this Agreement and the merger of Alpha Acquisition with
and into the Company (the Merger), in accordance with Chapter 92A of the
Nevada Revised Statutes (the Nevada Act) and upon the terms and subject to
the conditions hereof, whereby each Share issued and outstanding prior to the
Merger will be converted into the right to receive the Per Share Merger
Consideration provided for herein. B. The board of directors of the Company has determined that the Merger is
fair to and in the best interests of the Company and its stockholders. C. The Acquiring Companies and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger. Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree that the foregoing recitals are
true and correct and further agree as follows: Article 2
The Merger 2.1 The Merger. Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the Nevada Act, Alpha Acquisition shall be
merged with and into the Company at the Effective Time. Following the
Effective Time, the separate corporate existence of Alpha Acquisition shall
cease, and the Company shall continue as the surviving corporation (the
Surviving Corporation) as a corporation incorporated and existing under the
laws of the State of Nevada under the name Assisted Living Concepts, Inc.,
and the Surviving Corporation shall succeed to and assume all of the rights and
obligations of Alpha Acquisition and shall continue to hold all rights and
obligations of the Company as in effect prior to the Merger, all in accordance
with the Nevada Act. 1




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2.2 The Closing. The closing of the Merger (the Closing) shall take place on
a date to be specified by the Parties (the Closing Date), which shall be no
later than the third business day after the satisfaction or waiver of the
conditions set forth in Sections 7.1 and 7.2, at the offices of Andrews Kurth
LLP in Houston, Texas, unless another date or place is agreed to in writing by
the Parties. 2.3 Effective Time. Subject to the provisions of this Agreement, the Company
and Alpha Acquisition shall file with the Secretary of State of the State of
Nevada Articles of Merger (the Articles of Merger) executed in accordance
with the relevant provisions of the Nevada Act and shall make all other filings
or recordings required under the Nevada Act to effect the Merger as soon as
practicable on or before the Closing Date. The Merger shall become effective
at such time as the Articles of Merger are duly filed with and accepted by the
Secretary of State of the State of Nevada, or at such later time as the
Acquiring Companies and the Company shall agree and shall specify in the
Articles of Merger (the Effective Time). 2.4 Effect of the Merger. The Merger shall have the effects set forth in this
Agreement, the Articles of Merger and the Nevada Act. Without limiting the
generality of the foregoing, and subject to the Nevada Act and to any other
applicable laws, at the Effective Time, all of the properties, rights,
privileges, powers, franchises and licenses of Alpha Acquisition shall vest in
the Surviving Corporation without reversion or impairment, without further act
or deed, and without any transfer or assignment having occurred; all debts,
liabilities, obligations, restrictions and duties of Alpha Acquisition shall
become the debts, liabilities, obligations, restrictions and duties of the
Surviving Corporation; all properties, rights, privileges, powers, franchises
and licenses of the Company shall remain and continue in the Company, as the
Surviving Corporation, without reversion or impairment, without further act or
deed, and without any transfer or assignment having occurred; and all debts,
liabilities, obligations, restrictions and duties of the Company shall remain
and continue as debts, liabilities, obligations, restrictions and duties of the
Company, as the Surviving Corporation. 2.5 Effect on Capital Stock. By virtue of the Merger and without any action on
the part of any holder of the Shares or the holder of the shares of common
stock of Alpha Acquisition, as of the Effective Time: (a) Common Stock. Each share of common stock, par value $1.00 per
share, of Alpha Acquisition issued and outstanding immediately prior to
the Effective Time shall be converted into one fully paid and
nonassessable share of common stock, par value $.01 per share, of the
Surviving Corporation. (b) Conversion of the Company Shares. Each Share issued and
outstanding as of the Effective Time (other than any Shares (i) held by
the Acquiring Companies, (ii) held by any wholly-owned Subsidiary of the
Acquiring Companies, (iii) in the treasury of the Company or (iv) held by any wholly-owned Subsidiary of the
Company, which Shares, by virtue of the Merger and without any action on
the part of the holder thereof, shall be cancelled and shall cease to
exist with no payment being made with respect thereto, and other than
Dissenting Shares) shall automatically be converted into the right to
receive US$18.50 in cash (the Per Share Merger Consideration). The
aggregate amount of the Per Share Merger Consideration in respect of all
Shares entitled thereto, 2




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and the aggregate amount payable to holders of
Stock Options pursuant to Section 2.10, are collectively referred to as
the Merger Consideration. (c) Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, Shares that are issued and outstanding immediately prior
to the Effective Time and that are held by a holder who was entitled to
demand, and has validly demanded, dissenters rights in accordance with
Section 92A of the Nevada Act (the Dissenting Shares) shall not be
converted into the right to receive the Per Share Merger Consideration
unless and until such holder shall have failed to perfect or shall have
effectively withdrawn or lost such holders dissenters rights under the
Nevada Act but instead shall be converted into the right to receive
payment from the Surviving Corporation with respect to such Dissenting
Shares in accordance with the Nevada Act. If any such holder shall have
failed to perfect or shall have effectively withdrawn or lost such
holders dissenters rights, then each of such holders Shares shall be
treated as a Share that had been converted as of the Effective Time into
the right to receive the Per Share Merger Consideration in accordance
with Section 2.5(b). (d) Cancellation of Shares. As of the Effective Time, all Shares
that are issued and outstanding immediately prior to the Effective Time
(other than Dissenting Shares) shall no longer be outstanding and shall
automatically be cancelled and shall cease to exist, and each holder of a
certificate representing any Shares outstanding immediately prior to the

Effective Time being converted into the right to receive the Per Share
Merger Consideration pursuant to Section 2.5(b) (each a Certificate and
collectively, the Certificates) shall cease to have any rights with
respect thereto, except the right to receive a cash amount equal to the
Per Share Merger Consideration multiplied by the number of Shares
formerly represented by the Certificate, to be paid in consideration
therefor upon surrender of such Certificate in accordance with Section
2.9(b). 2.6 Articles of Incorporation and Bylaws of the Surviving Corporation. From
the Effective Time until thereafter amended as provided by law, the articles of
incorporation and bylaws of the Company, as in effect immediately prior to the
Effective Time, shall be the articles of incorporation and bylaws of the
Surviving Corporation. 2.7 Directors and Officers. (a) The directors of Alpha Acquisition immediately prior to the
Effective Time shall be the directors of the Surviving Corporation, each
to hold office in accordance with the articles of incorporation and
bylaws of the Surviving Corporation. (b) From and after the Effective Time, the officers of the Company
shall be the officers of the Surviving Corporation until the earlier of
their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be, in accordance with the
articles of incorporation and bylaws of the Surviving Corporation. 2.8 Assets, Liabilities, Reserves and Accounts. At the Effective Time, the
assets, liabilities, reserves and accounts of Alpha Acquisition and the Company
shall be taken up on the 3




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books of the Surviving Corporation in such manner as
may be appropriate to give effect to the Merger in accordance with GAAP. 2.9 Exchange of Certificates. (a) Paying Agent; Payment of Merger Consideration. Prior to the
Effective Time, the Buyer shall appoint a bank or trust company
reasonably acceptable to the Company to act as paying agent (the Paying
Agent) for the payment of the Merger Consideration for the benefit of
the Stockholders and the Option Holders. On or before the Closing, the
Buyer shall deposit (or cause to be deposited) the Merger Consideration
(such cash consideration being hereinafter referred to as the Merger
Fund) with the Paying Agent for the benefit of the Stockholders and the
Option Holders. The Merger Fund shall not include Per Share Merger
Consideration for any Dissenting Shares, and the holders of Dissenting
Shares shall not be entitled to receive payment of the Per Share Merger
Consideration related to such Dissenting Shares from the Merger Fund. The
Paying Agent shall, pursuant to irrevocable instructions of the Buyer
given on the Closing Date, transfer to the Surviving Corporation such
amount as is necessary to pay the Option Holders all amounts due to them
under Section 2.10 and to make other payments of the Merger Consideration
out of the Merger Fund. The Merger Fund shall not be used for any other
purpose. (b) Exchange Procedures. Promptly after the Effective Time (but not
later than five (5) Business Days after the date on which the Effective
Time occurs), the Buyer shall cause the Paying Agent to mail or deliver
to each Person who was, at the Effective Time, a holder of record of
Shares and whose Shares are being converted into the right to receive the
Per Share Merger Consideration pursuant to Section 2.5(b) a letter of
transmittal (which shall be in customary form and specify that delivery
shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Paying Agent and
shall otherwise be in a form and have such other provisions as the Buyer
may reasonably specify) containing instructions for use by holders of
Certificates to effect the exchange of their Certificates for the Per
Share Merger Consideration as provided herein. As soon as practicable
after the Effective Time, each holder of an outstanding Certificate or
Certificates shall, upon surrender to the Paying Agent of such Certificate or Certificates and such letter
of transmittal duly executed and completed in accordance with the
instructions thereto (together with such other documents as the Paying
Agent may reasonably request) and acceptance thereof by the Paying Agent
(or, if such shares are held in book-entry or other uncertificated form,
upon the entry through a book-entry transfer agent of the surrender of
such Shares on a book-entry account statement (it being understood that
any references herein to Certificates shall be deemed to include
references to book-entry account statements relating to the ownership of
Shares)), be entitled to an amount of cash (payable by check) equal to
the Per Share Merger Consideration multiplied by the number of Shares
formerly represented by such Certificate or Certificates. The Paying
Agent shall accept such Certificates upon compliance with such reasonable
terms and conditions as the Paying Agent may impose to effect an orderly
exchange thereof in accordance with normal exchange practices. If cash
is to be remitted to a Person other than the Person in whose name the
Certificate surrendered for exchange is registered, it shall be a
condition of such 4




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exchange that the Certificate so surrendered shall be
properly endorsed, with signature guaranteed, or otherwise in proper form
for transfer and that the Person requesting such exchange shall pay to
the Paying Agent any transfer or other taxes required by reason of the
payment of the Per Share Merger Consideration to a Person other than the
registered holder of the Certificate so surrendered, or shall establish
to the satisfaction of the Paying Agent that such tax either has been
paid or is not applicable. Until surrendered as contemplated by this
Section 2.9(b), at any time after the Effective Time, each Certificate
shall be deemed to represent only the right to receive the Per Share
Merger Consideration upon such surrender as contemplated by Section 2.5.
No interest shall be paid or shall accrue on any cash payable as Per
Share Merger Consideration. (c) No Further Ownership Rights in Shares Exchanged for Cash. All
cash paid upon the surrender for exchange of Certificates formerly
representing Shares in accordance with the terms of this Article 2 shall
be deemed to have been paid in full satisfaction of all rights pertaining
to the Shares formerly represented by such Certificates, and there shall
be no further registration of transfers on the stock transfer books of
the Surviving Corporation of the Shares which were issued and outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for transfer,
then they shall be cancelled and exchanged as provided in this Article 1. (d) Termination of Merger Fund. Any portion of the Merger Fund
which remains undistributed to the holders of Certificates for twelve
(12) months after the Effective Time shall be delivered to the Buyer, and
any holders of Certificates who have not theretofore complied with this
Article 2 shall thereafter look only to the Buyer for payment of the
Merger Consideration, subject to escheat and abandoned property and
similar laws. (e) No Liability. None of the Parties or the Paying Agent shall be
liable to any Person in respect of any cash from the Merger Fund
delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. (f) Investment of Merger Fund. The Paying Agent shall invest any
cash in the Merger Fund, as directed by the Buyer; provided, however,
that such investments shall be in obligations of, or guaranteed by, the
United States of America, in commercial paper obligations rated A-1 or
P-1 or better by Moodys Investors Service, Inc. or Standard & Poors
Corporation, respectively, or in certificates of deposit, bank repurchase
agreements or bankers acceptances of commercial banks with capital
exceeding $1 billion. Any interest and other income resulting from such
investments shall be paid to the Buyer. (g) Withholding Rights. The Buyer or the Paying Agent shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of Shares such amounts as the
Buyer or the Paying Agent is required to deduct and withhold with respect
to the making of such payment under the Code, or any provision of state,
local or foreign Tax law. To the extent that amounts are so deducted and
withheld by the Buyer or the Paying Agent, such withheld amounts shall 5




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be treated for all purposes of this Agreement as having been paid to the
holder of the Shares in respect of which such deduction and withholding
was made by the Buyer or the Paying Agent. (h) Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Buyer, the posting by such Person of a bond in such
reasonable amount as the Buyer may require as indemnity against any claim
that may be made against it with respect to such Certificate, the Paying
Agent shall issue in exchange for such lost, stolen or destroyed
Certificate the Per Share Merger Consideration payable pursuant to this
Agreement. 2.10 Effect of the Merger on Stock Options. (a) Vesting of Stock Options. Subject to the applicable provisions
of the Stock Plan, at, or immediately prior to, the Effective Time, the
board of directors of the Company or any committee administering the
Stock Plan shall take all actions necessary, and obtain all consents
necessary, if any, so that all outstanding Stock Options heretofore
granted under the Stock Plan shall become fully vested and exercisable at

the Effective Time and shall be cancelled in exchange for the right to
receive a cash payment from the Acquiring Companies of an amount equal to
(i) the excess, if any, of (x) the Per Share Merger Consideration over
(y) the exercise price per share of the Shares subject to such Stock
Option, multiplied by (ii) the number of Shares for which such Stock
Option shall not theretofore have been exercised. Promptly after the
Effective Time (but not later than five (5) business days after the date
on which the Effective Time occurs), the Acquiring Companies shall pay
the Option Holders the cash payments specified in this Section 2.10(a). (b) Termination of the Stock Plan. The Stock Plan shall terminate
as of the Effective Time, and the provisions in any other agreement,
arrangement or benefit plan providing for the issuance, transfer or grant
of any capital stock of the Company or any interest in respect of any
capital stock of the Company in connection with such Stock Plan shall be of no further force and effect as of the Effective
Time, and the Company shall take such actions to ensure that following
the Effective Time no Option Holder or any participant in or a party to
the Stock Plan or other agreement, arrangement or benefit plan shall have
any right thereunder to acquire any capital stock or any interest in
respect of any capital stock of the Surviving Corporation. (c) Withholding Rights. The Acquiring Companies will be entitled to
deduct and withhold from the amounts otherwise payable pursuant to this
Section 2.10 to any Option Holder such amounts as the Acquiring Companies
are required to deduct and withhold with respect to the making of such
payment under the Code, or any provision of state, local or foreign Tax
law. To the extent that amounts are so deducted and withheld by the
Acquiring Companies, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the Option Holder in
respect of which such deduction and withholding was made by the Acquiring
Companies. 6




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2.11 Stockholders Meeting. (a) If required by the Companys articles of incorporation and/or
any other applicable laws in order to consummate the Merger, the Company,
acting through its board of directors, shall, in accordance with
applicable laws: (i) promptly prepare and file with the SEC a preliminary
information or proxy statement relating to the Merger and this
Agreement and (x) obtain and furnish the information required to be
included by the SEC in the Proxy Statement and, after consultation
with the Buyer, respond promptly to any comments made by the SEC
with respect to the preliminary information or proxy statement and,
subject to compliance with the Securities Exchange Act of 1934, as
amended (the Exchange Act), and SEC rules and regulations
promulgated thereunder, cause a notice of a special meeting and a
definitive information or proxy statement (the Proxy
Statement)
to be mailed to the Stockholders no later than the time required by
applicable laws and the articles of incorporation and bylaws of the
Company, and (y) subject to Section 5.7, seek to obtain the
necessary approvals of the Merger and this Agreement by the
Stockholders; (ii) duly call, give notice of, convene and hold a special
meeting of the Stockholders (the Stockholders
Meeting)as soon
as practicable after the date on which the Proxy Statement has been
mailed to the Stockholders for the purpose of considering and
taking action upon the Merger and this Agreement; and (iii) subject to Section 5.7, include in the Proxy Statement
the recommendation of the Companys board of directors that the
Stockholders vote in favor of the approval of the Merger and the
adoption of this Agreement. (b) If, at any time prior to the Stockholders Meeting, any event
shall occur relating to the Company or the transactions contemplated by
this Agreement that should be set forth in an amendment or a supplement
to the Proxy Statement, the Company shall promptly notify in writing the Buyer of such event. In such case,
the Company, with the cooperation of the Buyer, shall promptly prepare,
file with the SEC and mail such amendment or supplement. (c) The Acquiring Companies shall furnish to the Company the
information relating to the Acquiring Companies required under the
Exchange Act and SEC rules and regulations promulgated thereunder to be
set forth in the Proxy Statement and any amendments or supplements
thereto. (d) The Company shall consult with the Buyer with respect to the
Proxy Statement, and any amendments or supplements thereto, and shall
afford the Buyer reasonable opportunity to comment thereon prior to
finalization of the Proxy Statement. The Company agrees to notify the
Buyer at least three (3) Business Days prior to the mailing of the Proxy
Statement, or any amendments or supplements thereto, to the Stockholders. 7




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(e) The Buyer agrees that it will (i) vote, or cause to be voted,
all of the Shares, if any, owned by it and (ii) take, or cause to be
taken, all corporate actions necessary for it to adopt and approve the
Merger and this Agreement. Article 3
Representations and Warranties
of the Acquiring Companies Each Acquiring Company hereby jointly and severally represents and
warrants to the Company that the statements contained in this Article 3 are
true and correct as of the date of this Agreement: 3.1 Organization. Each Acquiring Company is a corporation duly organized,
validly existing, and in good standing under the laws of its respective
jurisdiction of incorporation and has all corporate powers and authority
required to own, lease and operate its respective properties and carry on its
respective businesses as now conducted. Each Acquiring Company is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the character of the property owned, leased or operated
by it or the nature of its activities makes qualification necessary, except
where the failure to be so qualified has not had, and would not be reasonably
expected to have, individually or in the aggregate, a material adverse effect
on the Acquiring Company. 3.2 Authority. Each Acquiring Company has all necessary corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by each Acquiring Company and the consummation by each Acquiring Company of the
transactions contemplated hereby have been duly and validly authorized and
approved by the board of directors of the Buyer and Alpha Acquisition and,
immediately after the execution and delivery of this Agreement, will be duly
and validly authorized and approved, by the sole stockholder of Alpha Acquisition, and no
other corporate proceedings on the part of either Acquiring Company are
necessary to authorize or approve this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each Acquiring Company and, assuming the due and
valid authorization, execution and delivery of this Agreement by the Company,
constitutes the valid and binding obligation of each Acquiring Company
enforceable against each of them in accordance with its terms, except that such
enforceability (i) may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting or relating to the enforcement of creditors
rights generally and (ii) is subject to general principles of equity. 3.3 Noncontravention; Required Filings and Consents. Neither the execution and
the delivery of this Agreement by either of the Acquiring Companies, nor the
consummation of the transactions contemplated hereby by either of the Acquiring
Companies, will violate any statute, regulation, law, rule, injunction,
judgment, order, decree or ruling of any Governmental Entity to which either
Acquiring Company is subject, or contravene or conflict with any provision of
their respective charters or bylaws, except any such violation, contravention
or conflict that would not reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the Acquiring Company. Except for
(i) the filings contemplated by 8




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Section 2.3, (ii) the notification filing
required under the Hart-Scott-Rodino Act, (iii) any filings required to be made
with the SEC and (iv) the filing of any required notices, applications or other
filings with any Governmental Entities related to the Company Permits or to the
Companys and/or its Subsidiaries continued participation in any Governmental
Entities third party payor programs (the Medicaid Waiver Programs), neither
Acquiring Company is required to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of, any Governmental Entity in
order to consummate the transactions contemplated by this Agreement. 3.4 Advisors and Brokers Fees. The Acquiring Companies will pay all fees and
charges of any advisor or broker retained by them in connection with the
transactions contemplated by this Agreement. 3.5 Sufficient Funds. The Acquiring Companies have, and at all times will
continue to have, sufficient funds available to pay the Merger Consideration
(including the consideration payable pursuant to Section 2.10 hereof) and to
perform their other obligations pursuant to this Agreement. The Acquiring
Companies have identified on Schedule 3.5 the source of funds to be used for
the Merger Consideration, and no financing approvals or consents are needed
with respect to the availability of such funds for the purposes intended
therefor pursuant to this Agreement. 3.6 No Share Ownership.As of the date of this Agreement, neither of the
Acquiring Companies beneficially owns (as such term is defined in Rule 13d-3 of
the Exchange Act) any Shares. Article 4
Representations and Warranties
of The Company The Company represents and warrants to the Acquiring Companies that,
except as set forth in Schedules 4.1 to 4.23, inclusive, (the Company
Disclosure Schedules) that correspond with the Sections of this Article 4, the
statements contained in this Article 3 are true and correct as of the date of
this Agreement; provided, however, that the mere inclusion of an item on the
Company Disclosure Schedules as an exception to a representation or warranty
shall not be deemed to be an admission by the Company that such item is or was
material or is or was required to be disclosed thereon. Any matter disclosed,
or as to which any exception is made, in any item on the Company Disclosure
Schedules shall constitute an exception to each representation and warranty
under this Agreement where the applicability of the disclosed matter or
circumstance to the representation or warranty in question is reasonably
apparent. 4.1 Organization, Qualification, and Corporate Power. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Nevada and has all corporate powers and authority required
to own, lease and operate its properties and carry on its business as now
conducted. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned, leased or operated by it or the nature of its activities
makes qualification necessary, except where the failure to be so qualified has
not had, and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. A complete and 9




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correct list of every
jurisdiction in which the Company and each of its Subsidiaries are incorporated
or qualified to do business as a foreign corporation is set forth on Schedule
4.1. The Company has made available to the Buyer correct and complete copies
of its articles of incorporation and bylaws as amended to date. The Company is
not in default under, or in violation of, the provisions of its articles of
incorporation or bylaws. 4.2 Subsidiaries.All Subsidiaries of the Company, and holders of their
respective outstanding capital stock or other equity interests, are identified
on Schedule 4.2. Each Subsidiary of the Company is a corporation or limited
partnership duly organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation or formation and has all corporate or
partnership powers and authority required to own, lease and operate its
properties and carry on its business as now conducted. Each Subsidiary of the
Company is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where the character of the property owned,
leased or operated by it or the nature of its activities makes qualification
necessary, except where the failure to be so qualified has not had, and would
not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect. The Company has made available to the Buyer complete
and correct copies of the charter, certificate of limited partnership, bylaws,
partnership agreement or other organizational or similar charter-type
documents, each as amended to date, of each of its Subsidiaries. No Subsidiary
of the Company is in default under, or in violation of, the provisions of its
respective charter, certificate of limited partnership, bylaws, partnership agreement or other similar organizational or
similar charter-type documents. 4.3 Authority. The Company has all necessary corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized and approved by the Companys
board of directors, and no other corporate proceedings on the part of the
Company are necessary to authorize or approve this Agreement or to consummate
the transactions contemplated hereby (other than the approval and adoption of
the Merger and this Agreement by the Stockholders to the extent required by the
Companys articles of incorporation and by applicable laws). This Agreement
has been duly and validly executed and delivered by the Company and, assuming
the due and valid authorization, execution and delivery of this Agreement by
the Acquiring Companies, constitutes a valid and binding obligation of the
Company enforceable against it in accordance with its terms, except that such
enforceability (i) may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting or relating to the enforcement of creditors
rights generally and (ii) is subject to general principles of equity. 4.4 Noncontravention; Required Filings and Consents. Neither the execution and
the delivery of this Agreement by the Company, nor the consummation of the
transactions contemplated hereby, will (a) contravene or conflict with any
provision of the articles of incorporation or bylaws of the Company or (b)
violate any statute, regulation, law, rule, injunction, judgment, order, decree
or ruling of any Governmental Entity to which the Company is subject, except in
the case of the foregoing clause (b) any such violation that would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. Except for (i) the filings contemplated by Section 2.3, (ii)
the notification filing required under the Hart-Scott-Rodino Act, (iii) any
filings required to be made with the SEC and (iv) any filings 10




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required to be
made with any Governmental Entities related to the Company Permits or to the
Companys and/or its Subsidiaries continued participation in any Governmental
Entities Medicaid Waiver Programs, the Company is not required to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any Governmental Entity (other than lenders under financing
arrangements) in order to consummate the transactions contemplated by this
Agreement. 4.5 Capitalization. The entire authorized capital stock of the Company is as
set forth on Schedule 4.5, and no Shares other than those reflected on such
Schedule as being currently outstanding have been issued since January 1, 2002.
There are no bonds, debentures, notes or other indebtedness having general
voting rights similar to the voting rights of the Shares (or convertible into
Shares having such rights) (Voting Debt) of the Company or any of the
Subsidiaries of the Company issued and outstanding. There are no outstanding
or authorized options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or commitments of any
character, relating to the issued or unissued capital stock or other equity
interests of the Company or any of its Subsidiaries, obligating the Company or any of its
Subsidiaries to issue, transfer or sell, or cause to be issued, transferred or
sold, any shares of capital stock or Voting Debt of, or other equity interest
in, the Company or any of its Subsidiaries, except for the Stock Options set
forth on Schedule 4.5 (which Schedule includes the grant date and exercise
price of each Stock Option). Except as contemplated by this Agreement, there
are no outstanding contractual obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any Shares or the
capital stock or other equity interests of the Company or any of its
Subsidiaries. All of the outstanding Shares are, and all Shares which may be
issued pursuant to the exercise of outstanding Stock Options will be (when
issued in accordance with the respective terms thereof), duly authorized,
validly issued, fully paid and nonassessable, and such Shares were not issued
in violation of any laws. Each of the outstanding shares of capital stock or
other equity interests of each of the Companys Subsidiaries is duly
authorized, validly issued, fully paid and nonassessable, and was not issued in
violation of any laws, and such shares are owned by the Company or by another
Subsidiary of the Company free and clear of any lien, claim, option, charge,
security interest, limitation, encumbrance and restriction of any kind. To the
Companys Knowledge, there are no voting trusts, proxies or other agreements or
understandings with respect to the voting of the capital stock of the Company. 4.6 Contracts. Schedule 4.6 contains, as of the date of this Agreement, a
complete and accurate listing of all Contracts that (i) involve consideration
or other expenditure in excess of $100,000, (ii) involve consideration or other
expenditure in excess of $30,000 annually and are not terminable at the will of
the Company within three years without penalty, and (iii) involve the referral
of residents to or by the Company. The Company has made available to the Buyer
true and correct copies of all such Contracts. There are no existing breaches
or defaults by the Company or any of its Subsidiaries, or, to the Knowledge of
the Company, any other party to a Contract, under any Contract, other than
breaches or defaults which would not have a Material Adverse Effect and, to the
Knowledge of the Company, no event has occurred which, with the passage of time
or the giving of notice or both, could reasonably be expected to constitute a
breach or default of any Contract, other than breaches or defaults which would
not have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party to any stockholders rights agreement or similar
anti-takeover agreement. 11




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4.7 Insurance. Set forth on Schedule 4.7 is a complete and correct list of all
policies of fire, liability, product liability, professional liability,
environmental impairment, workers compensation, health, medical, director and
officer liability and other forms of insurance presently in effect with respect
to the business and properties of the Company and its Subsidiaries (each a
Policy and collectively, the Policies). The Company has made available to
the Buyer true and correct copies of all of the Policies. The Company and each
of its Subsidiaries is, and has been continuously since January 1, 2002,
insured with the insurers listed on Schedule 3.7. Neither the Company nor any
Subsidiary of the Company has received any notice of cancellation or
termination with respect to any material Policy of the Company or any of its
Subsidiaries. The Company and its Subsidiaries have duly and timely made all
claims that they have been entitled to make under each Policy, other than such
claims, the failure of which to make has not had, and could not reasonably be expected to have, a Material Adverse Effect. There is
no claim pending by the Company or any of its Subsidiaries under any Policies
as to which coverage has been questioned, denied or disputed by the
underwriters of such Policies, and, to the Knowledge of the Company, there is
no basis for denial of any claim under any Policy as a result of the
applications and information provided by the Company to obtain such Policies.
Neither the Company nor any of its Subsidiaries has received any written notice
from or on behalf of any insurance carrier issuing any Policy that insurance
rates therefore will hereafter be substantially increased (except to the extent
that insurance rates may be increased for all similarly situated risks) or that
there will hereafter be a cancellation or an increase in a deductible (or an
increase in premiums in order to maintain an existing deductible) or nonrenewal
of any such Policy. 4.8 Financial Statements; Fees. (a) Financial Statements. The Company has made available to the
Buyer the audited balance sheets, statements of operations/income,
statements of stockholders equity and statements of cash flows,
including the notes thereto, of the Company as of and for the fiscal
years ended December 31, 2002 and 2003 (the Financial Statements). The
Financial Statements have been prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered thereby and present
fairly the financial condition of the Company as of such dates and the
results of operations of the Company for such periods. As of the date of
the Companys financial statements filed with its most recent Quarterly
Report on Form 10-Q (the Report Date), neither the Company nor any of
its Subsidiaries had any liabilities or obligations of any nature
(whether absolute, accrued, contingent, unmatured, unaccrued,
unliquidated, unasserted, conditional or otherwise) that are required to
be reflected, disclosed or reserved against in a balance sheet prepared
in accordance with GAAP that were not reflected, disclosed or reserved
against in the Financial Statements, the Company SEC Documents or
otherwise disclosed on Schedule 4.8(a). (b) Fees. Set forth on Schedule 4.8(b) is a complete and correct
list of all payments (including the dollar amounts thereof) that are
required to be paid, or may be paid, to directors, officers, employees,
representatives or other agents of the Company (other than payments to be
made pursuant to Section 2.10 in respect of Stock Options) as a result of
the Companys execution of this Agreement or the consummation of the 12




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Merger, including fees, severance payments (whether containing a single
or double trigger relating to any change in control) and other similar
payments. 4.9 SEC Filings. Available in the SECs online EDGAR database is a true and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by the Company with the SEC since January 1, 2002 (the
Company SEC Documents), which are all of the documents that the Company was
required to file with the SEC since January 1, 2002. As of their respective
dates, the Company SEC Documents complied in all material respects with the
requirements of the Securities Act of 1933, as amended, or the Exchange Act, as
the case may be, and the rules and regulations of the SEC promulgated
thereunder, and none of the Company SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. 4.10 Certain Events. Except as otherwise disclosed in the Company SEC
Documents, since December 31, 2003 to the date of this Agreement, there has not
been any Material Adverse Change. In addition, since June 30, 2004, the
Company and its Subsidiaries have conducted their businesses only in the
ordinary course of business consistent with past practices and there has not
been, directly or indirectly, any: (a) capital expenditure by the Company or any of its Subsidiaries,
in any single transaction or series of transactions relating to a single
project, exceeding $1.5 million; (b) destruction, damage to, or loss of any assets of the Company or
any of its Subsidiaries exceeding $1.5 million; (c) change in accounting methods, principles or practices
(including, without limitation, any change in depreciation or
amortization policies) by the Company and its Subsidiaries, except
insofar as such changes are (i) required by a change in GAAP or (ii) not
required to be disclosed by GAAP; (d) sale or transfer of any assets of the Company or its
Subsidiaries having a value in excess of $1.5 million, in any single
transaction or series of related transactions; (e) employment agreement or agreements entered into by the Company
or any Subsidiary of the Company pursuant to which the employee is
employed otherwise than at will; (f) payment or granting by the Company or any of its Subsidiaries of
any increase in compensation to any director or executive officer of the
Company or, except as consistent with past practices, any employee of the
Company or its Subsidiaries; (g) granting by the Company or any of its Subsidiaries to any of its
respective directors, executive officers or employees of any increase in
severance or termination pay, except as required under employment,
severance or termination agreements or plans in effect prior to the date
of this Agreement; 13




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(h) adoption or increase in payments to, or benefits under, any of
the Benefit Plans of the Company; (i) declaration or payment of any dividend or any other distribution
in respect of the Companys capital stock or any direct or indirect
redemption, purchase or other acquisition of any such stock of the
Company; or (j) agreement or commitment to do any of the things described in the
preceding clauses (a) through (i). 4.11 Property. (a) A complete and accurate list of all of the real property owned
by the Company and its Subsidiaries is set forth on Schedule 4.11(a)
(collectively, the Owned Real Property). (b) A complete and accurate list of all of the real property that is
leased by the Company and its Subsidiaries is set forth on Schedule
4.11(b) (collectively, the Leased Real Property) (the Owned Real
Property and the Leased Real Property are collectively referred to herein
as the Property). (c) The Company and its Subsidiaries have good and marketable title
to all of their non-leased machinery, equipment, furniture and other
tangible assets located on the Property (Tangible Property), except
those subject to Permitted Liens. To the actual knowledge of the chief
executive officer, chief operating officer and chief financial officer of
the Company, the Tangible Property located on the Property is in good
operating condition and repair, reasonable wear and tear excepted. (d) To the actual knowledge of the chief executive officer, chief
operating officer and chief financial officer of the Company, all of the
buildings and improvements located on the Property are structurally
sound, and all mechanical, electrical, heating, air conditioning,
drainage, sewer, water and plumbing systems are in proper working order,
reasonable wear and tear excepted, and are usable in the ordinary course
of business and adequate and suitable for their intended use. (e) There are no contracts or options to sell the Owned Real
Property or any portion of the Owned Real Property which have been
executed by the Company and its Subsidiaries. (f) The Company has made available to the Acquiring Companies true
and correct copies of all of the leases, including all amendments to such
leases, under which the Company has possession of the Leased Real
Property (the Leases). (g) There is no action or proceeding instituted or pending, or to
the Knowledge of the Company, threatened or contemplated for eminent
domain or for condemnation of the Property. 14




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(h) The Company or one of its Subsidiaries has fee title to the
Owned Real Property and a leasehold interest in the Leased Real Property,
as provided in the applicable Lease, in each case, free and clear of all
liens, encumbrances and defects, except for (i) liens, encumbrances,
defects, exceptions, easements, rights of way, restrictions, covenants,
claims or other similar charges, which have not, individually or in the
aggregate, had a Material Adverse Effect, (ii) taxes or assessments,
special or otherwise, not due and payable or being contested in good
faith, (iii) standard exceptions which would be contained in an ALTA Form
extended coverage owners policy of title insurance (or the locally
available form of title insurance policy, as applicable), (iv) rights of
parties in possession, including residents, beauticians and physical
therapists, (v) any discrepancies, conflicts or boundary lines, shortages
in area, encroachments, or any other facts which an accurate survey would
disclose, the existence of which have not materially interfered with the
continued use of the Property consistent with the current use thereof,
(vi) matters referred to in Schedule 4.11(h) and (vii) any exceptions to
title contained in a title policy listed on Schedule 4.11(h)
(collectively, (i) through (vii), the Permitted Liens). (i) Except for those matters that do not have, and would not
reasonably be expected to have, a Material Adverse Effect: (i) all
activities and operations of the Company and its Subsidiaries since
January 1, 2002 have been and are being conducted in compliance with all
Hazardous Substances Laws; (ii) since January 1, 2002, the Company has
not received any written notice from any Governmental Entity or other
Person that there exists any violation of any Hazardous Substances Laws
associated with the Company or its Subsidiaries, their properties,
activities or operations; (iii) there are no Hazardous Substances present
on, in or under the Property, and no discharge, spillage, uncontrolled
loss, seepage or filtration of Hazardous Substances has occurred on, in
or under the Property since January 1, 2002; (iv) there is no condition
on the Property for which the Company or any of its Subsidiaries has an
obligation to undertake any remedial action pursuant to Hazardous
Substances Laws; and (v) there are no underground storage tanks
currently, or historically, located on, at or under the Property. For
purposes hereof, Hazardous Substances means, without limitation (1)
those substances included within definitions of any one or more of the
terms Hazardous Substance, Hazardous Waste, Toxic Substance and
Hazardous Material in the CERCLA, the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. § 6901, et seq., the Toxic Substance
Control Act, as amended, 15 U.S.C. § 2601, et seq., the Hazardous
Materials Transportation Act, as amended, 49 U.S.C. § 1801 et seq., the
Clean Water Act, as amended, 42 U.S.C. § 1251, et seq., the Clean Air
Act, as amended, 42 U.S.C. § 7401, et seq., the Occupational Safety and
Health Act, as amended, 29 U.S.C. § 651, et seq. (insofar as it relates
to employee health and safety in relation to exposure to Hazardous
Substances) and any other local, state, federal or foreign laws or
regulations related to the protection of public health or the environment
(collectively, Hazardous Substances Laws); (2) such other substances,
materials, pollutants, contaminants or wastes as are or become regulated
under or are classified as hazardous or toxic under any Hazardous
Substances Laws; and (3) any materials, pollutants, contaminants, wastes
or substances that can be defined as (A) petroleum products or wastes;
(B) asbestos; (C) polychlorinated biphenyl; (D) flammable or explosive;
(E) radioactive; or (F) toxic. 15




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(j) To the Knowledge of the Company, the Company and its
Subsidiaries have obtained, and are in substantial compliance with, all
permits necessary for their current activities and operations under any
and all Hazardous Substances Laws. (k) Neither the Company nor any of its Subsidiaries have paid since
January 1, 2002 any civil or criminal fines, penalties, judgments or
other amounts in excess of $5,000 relating to alleged failure to comply
with Hazardous Substances Laws. (l) To the Knowledge of the Company, no polychlorinated biphenyls or
substances containing polychlorinated biphenyls (PCBs), nor any
asbestos or materials containing asbestos are present in the structures
or equipment utilized by the Company or its Subsidiaries, and, to the
Knowledge of the Company, any such PCBs or asbestos previously present in
or on such structures or equipment that were removed by the Company or
its Subsidiaries were disposed of in accordance with all Hazardous
Substances Laws. (m) The Company has not received any notice since January 1, 2002
from any Governmental Entity that the Company, its Subsidiaries, their
activities or operations, the Property or any condition existing thereon
violates any Hazardous Substances Laws applicable to the Property in any
material respect, which condition remains uncured. (n) There is no litigation pending or, to the best of the Companys
Knowledge, threatened against the Property that would, if adversely
determined, have a Material Adverse Effect. (o) The chief executive officer of the Company has evidence that a
general contractor was used in connection with the construction of at
least 90 of the Properties. 4.12 Compliance with Laws. (a) The Company and its Subsidiaries are in compliance with all laws
and ordinances and all governmental rules and regulations to which they
are subject, except where the failure to comply with such laws,
ordinances, rules and regulations, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect. The
Company and its Subsidiaries have not received notice of any material
violation or alleged violation of, and are subject to no material
liability (whether accrued, absolute, contingent, direct or indirect) for
any past or continuing violation of any laws. All material reports,
registrations and returns required to be filed by the Company and its
Subsidiaries with any Governmental Entity have been filed, and were
accurate and complete in all material respects when filed. (b) The Company and its Subsidiaries receive payment under state
Medicaid Waiver Programs and are providers under certain agreements
with state Medicaid Waiver Programs through applicable state agencies.
There is no pending, nor, to the Knowledge of the Company, threatened
proceeding, recoupment action, vendor hold, stop payment, investigation
or similar action under the Medicaid Waiver Programs involving the
Company or any of its Subsidiaries. The Company and its Subsidiaries,
their employees, agents, contractors and stockholders have not engaged
since January 1, 16




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2002 in any activities which are prohibited under the federal
anti-kickback statute, the Stark law, 42 U.S.C. §§ 1320a-7a, 1320a-7b or
1395nn, respectively, or the regulations promulgated thereunder, or
related or similar state or local statutes or regulations, or which are
prohibited by rules of professional conduct, including (i) knowingly and
willfully making or causing to be made any false statement or
representation of a fact in any application for any benefit or payment;
(ii) any failure by a claimant to disclose knowledge of the occurrence of
any event affecting the initial or continued right to any benefit or
payment on its own behalf or on behalf of another, with the intent to
fraudulently secure such benefit or payment; or (iii) knowingly and
willfully soliciting or receiving any remuneration (including any
kickback, bribe or rebate) directly or indirectly, overtly or covertly,
in cash or in kind, or offering to receive such remuneration in return
for referring an individual to a person for the furnishing or arranging
for the furnishing of any item or service for which payment may be made
in whole or in part by the Medicaid Waiver Programs, or in return for
purchasing, leasing or ordering or arranging for, or recommending,
purchasing, leasing or ordering any good, facility service, or item for
which payment may be made in whole or in part by the Medicaid Waiver
Programs. The Company and its Subsidiaries, and their employees and
agents, have conducted the Companys and its Subsidiaries business in
substantial compliance with the requirements of the Medicaid Waiver
Programs, insofar as applicable, and of the applicable state law. The
Company and its Subsidiaries make no representation or warranty under
this Section 4.12 as to their compliance with laws, ordinances,
regulations or rules regulating environmental matters, Company Permits,
tax matters and benefit plans and arrangements (which representations and
warranties are limited to those set forth in Sections 4.11, 4.13, 4.14
and 4.16, respectively). 4.13 Company Permits. The Company and its Subsidiaries hold all of the
permits, licenses, variances, exemptions, orders, franchises, authorizations,
rights, registrations, certifications, accreditations and approvals of
Governmental Entities (collectively, the Company Permits) that are necessary
for the lawful conduct of the businesses of the Company and its Subsidiaries,
except for any such Company Permit the failure of which to have would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. Set forth on Schedule 4.13 is a complete and accurate list of
all of the principal operating Company Permits that are required to operate an
assisted living facility (i.e., other than incidental Company Permits such as
those for food service, fire extinguishers and fire suppression systems). All
Company Permits are in full force and effect as of the date of this Agreement.
The Company and its Subsidiaries are in substantial compliance with the terms
of all Company Permits. Since January 1, 2002, none of the Company or any of
its Subsidiaries has received any notice of any action pending or, to the
Knowledge of the Company, threatened by any Governmental Entities to revoke,
withdraw, modify, restrict or suspend any Company Permit or fine the Company or
any of its Subsidiaries, and no event has occurred which, with or without the
giving of notice, the passage of time, or both, has resulted in, or could
reasonably be expected to result in, a revocation, withdrawal, modification,
restriction or suspension of any Company Permit or imposition of a fine against
the Company or any of its Subsidiaries, except for any such events that have
not, and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. The Company and its Subsidiaries make no
representations or warranties under this Section 4.13 as to permits or licenses relating to environmental matters, which representations
and warranties are limited to those set forth in Section 4.11. 17




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4.14 Tax Matters. With respect to the Company and its Subsidiaries: (a) all
reports, returns, statements (including estimated reports, returns or
statements), and other similar filings required to be filed on or before the
Closing Date by the Company (the Tax Returns) with respect to any Taxes have
been timely filed, and were accurate and complete in all material respects when
filed, with the appropriate Governmental Entities in all jurisdictions in which
such Tax Returns are required to be filed, except where the failure to so file
would not have a Material Adverse Effect; (b) all Taxes owed by the Company and
its Subsidiaries (whether or not shown on any Tax Return) have been paid,
except for Taxes as set forth on the Companys balance sheet dated as of the
Report Date or which are not yet due and payable; (c) none of the forgoing Tax
Returns contain any position which is, or would be, subject to penalties under
Section 6662 of the Code (or any corresponding provision of state, local or
foreign Tax law); (d) no Tax deficiencies have been proposed or assessed by any
Tax authority against the Company or any of its Subsidiaries, except where such
deficiencies would not have a Material Adverse Effect; (e) neither the Company
nor any of its Subsidiaries are liable for any Taxes of any other Person other
than the Company and its Subsidiaries; (f) the Company has not extended or
waived the application of any statute of limitations of any jurisdiction
regarding the assessment or collection of any income Tax; (g) the Company is
not a party to any income Tax allocation or sharing agreement; and (h) there
are no requests for rulings in respect of any income Tax pending between the
Company and any Tax authority. 4.15 Litigation. As of the date of this Agreement, there are no actions,
lawsuits, claims, proceedings, investigations or inquiries, whether civil,
criminal or administrative (Litigation), pending or, to the Knowledge of the
Company, threatened against the Company or any of its Subsidiaries, their
respective businesses or any of their assets, or, to the Knowledge of the
Company and if and to the extent that the Company is, through indemnity or
otherwise, liable therefor, any of the Companys current or former directors or
officers or any other Person whom the Company has agreed to indemnify, as such,
in such amounts as, individually or in the aggregate, would have a Material
Adverse Effect. As of the date of this Agreement, there is no Litigation
pending or, to the Knowledge of the Company, threatened, against the Company by
any Person that questions the legality, validity or propriety of this Agreement
or the Merger. There are no outstanding orders, judgments, injunctions,
awards, or decrees of any Governmental Entity against the Company or any of its
Subsidiaries, any of their properties, assets or businesses, or, to the
Knowledge of the Company, any of the Companys current or former directors or
officers or any other Person whom the Company has agreed to indemnify, as such,
that could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect. 4.16 Benefit Plans and Arrangements. (a) Schedule 4.16 lists all employee benefit plans (within the
meaning of Section 3(3) of ERISA), and other material similar funds,
policies, arrangements, practices and programs, including individual agreements
(individually, a Benefit Plan, and collectively, the Benefit Plans),
which are established, contributed to or maintained by the Company and/or
one or more of its Benefits Affiliates (as defined in the following
sentence) for the benefit of any of their current or former employees or
directors of the Company. The term Benefits Affiliates shall mean (i)
any corporation which is a member of a controlled group of corporations
(as defined in section 414(b) of the Code), 18




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which includes the Company,
(ii) any trade or business (whether or not incorporated) that is under
common control (as defined is section 414(c) of the Code) with the
Company, (iii) any organization (whether or not incorporated) that is a
member of an affiliated service group (as defined in section 414(m) of
the Code), which includes the Company and (iv) any other entity required
to be aggregated with the Company pursuant to the regulations issued
under Section 414(o) of the Code. (b) The Company has made available to the Acquiring Companies true,
correct and complete copies of: (i) all documents embodying each Benefit
Plan, including all amendments thereto, (ii) the most recent annual
report (Form Series 5500) filed with respect to each Benefit Plan for
which such filing is required, including all schedules and other
attachments thereto, and (iii) the most recent actuarial valuation for
each Benefit Plan which is subject to the minimum funding requirements of
section 412 of the Code. (c) With respect to all such Benefit Plans, the Company has made
(or, as of the Closing Date, will make) all contributions thereto which
it has accrued on its Financial Statements as a liability. (d) The Benefit Plans and provisions thereof, the trusts created
thereby, the operation of the Benefit Plans and the actions of any
fiduciaries with respect to the Benefit Plans are (and since January 1,
2002 have been) in material compliance with, and conform (and since
January 1, 2002 have conformed) in all material respects to, the
requirements of applicable provisions of the Code, ERISA and other
applicable statutes and governmental rules and regulations, and each
Benefit Plan has been administered in accordance with its terms. (e) Neither the Company nor any Benefits Affiliate has any material
plan termination or withdrawal liability with respect to any Benefit Plan
that is (i) a defined benefit pension plan subject to Title IV of ERISA,
(ii) a plan subject to the requirements of Code Section 412 or 4971, or
(iii) a multiemployer pension plan, as that term is defined in sections
4001(a)(3) and 3(37) of ERISA; and if any such plan were to be terminated
as of the Closing Date, no assets of the Company or any Benefits
Affiliate would be subject, directly or indirectly, to any liability,
contingent or otherwise, or the imposition of any lien under the Code or
ERISA; and no reportable event (as defined in Section 4043 of ERISA) or
an event described in Section 4062 or 4063 of ERISA has occurred with
respect to any such plan; and no such plan has incurred any accumulated
funding deficiency (as defined in Section 302 of ERISA and Section 412
of the Code), whether or not waived. (f) With respect to any Benefit Plan that is an employee welfare
benefit plan (within the meaning of Section 3(1) of ERISA) (a Welfare
Plan), (i) each Welfare Plan for which contributions are claimed as deductions under any
provision of the Code is in material compliance with all applicable
requirements pertaining to such deductions and (ii) any Welfare Plan that
is a group health plan (within the meaning of Section 5000(b)(1) of the
Code) complies, and has complied since January 1, 2002, in all material
respects with the requirements of Part 6 of Title I of ERISA and Section
4980B of the Code. 19




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(g) There are no actions, suits or claims pending (other than
routine claims for benefits) or, to the Knowledge of the Company,
threatened with respect to any Benefit Plan or against the assets of any
Benefit Plan. (h) Each Benefit Plan which is intended to be a qualified plan under
Code Section 401(a) has received a determination letter that takes into
account the so-called GUST amendments. (i) Other than as may be required under Sections 601 through 609 of
ERISA or under any applicable state continuation law, neither the
Company, any Benefits Affiliate or any Benefit Plan provides, or has any
obligation to provide, or contribute toward the cost of, post-retirement
welfare benefits with respect to any employees, including post-retirement
medical, dental, prescription drug, life insurance, severance or any
other similar benefit, whether provided on an insured or self-insured
basis. (j) Except as provided in Section 2.10, the consummation of the
transactions contemplated by this Agreement will not (i) accelerate the
time of payment or vesting, or increase the amount of compensation due to
any employee or director, (ii) increase the amount of any benefit
otherwise payable under any Benefit Plan or (iii) result in any
prohibited transaction described in Section 406 of ERISA or Section 4975
of the Code for which an exemption is not available. (k) Neither the Company nor any Benefits Affiliate are parties to
any contract, agreement or arrangement which provides for the payment of
compensation for which such entities would not be entitled to claim a
deduction for federal income tax purposes through the operation of
Sections 162(m) or 280G or any other provision of the Code. (l) Neither the Company nor any Benefits Affiliate have been
involved in any transaction that could cause the Company or any current
Benefits Affiliate to be subject to any liability under section 4069 or
4212(c) of ERISA. 4.17 Security Interests. Schedule 4.17 accurately sets forth all security
interests or liens to which the Companys assets are subject. 4.18 Labor. The Company is not a party to, or otherwise bound by, any
collective bargaining agreement. Since January 1, 2002, the Company has not
experienced any strikes or been engaged in any disputes regarding collective
bargaining or unfair labor practices. 4.19 Board Recommendation. The board of directors of the Company, at a meeting
duly called and held on November 4, 2004, has, upon the recommendation of a
special committee (the Special Committee) formed for the purpose of
representing the Company in connection with the possible transactions
contemplated hereby and any alternatives thereto, (i) determined that this
Agreement and the transactions contemplated hereby, including the Merger, are
advisable and fair to and in the best interests of the Company and the
Stockholders and has approved the same and (ii) resolved to recommend that the
Stockholders adopt this Agreement and approve the Merger. 20




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4.20 Opinion of Financial Advisor. The board of directors of the Company has
received the opinion of Jefferies & Company, Inc., dated November 4, 2004, to
the effect that, as of such date, the Per Share Merger Consideration to be
received by the Stockholders pursuant to this Agreement is fair from a
financial point of view to such Stockholders, and such opinion has not been
withdrawn or materially and adversely modified since its issuance. 4.21 Brokers or Finders. The Company represents, as to itself, its
Subsidiaries and its Affiliates, that no agent, broker, investment banker,
financial advisor or other firm or Person is or shall be entitled to any
brokers or finders fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company, except for Jefferies &
Company, Inc., whose fees and expenses shall, prior to the Closing Date, be
paid by the Company in accordance with the Companys agreements with such firm
or accrued on the books and records of the Company. 4.22 Inapplicability of Anti-takeover Defense Provisions. Subject to the
accuracy of the representation of the Acquiring Companies set forth in Section
3.6, the Companys board of directors has taken all such actions as may be
necessary to ensure that, as of the date of this Agreement and at all times on
or prior to the Effective Time, Sections 78.411 through 78.444 of the Nevada
Act, as well as any other anti-takeover defense provisions contained in the
Companys articles of incorporation or bylaws or the Nevada Act are, and shall
be, inapplicable to this Agreement and to the Merger. 4.23 Rights Agreement. Neither the execution nor the delivery of this
Agreement nor the consummation of the Merger will result in a Distribution
Date (as defined in the Rights Agreement). The Company has irrevocably taken
all actions necessary to make the Rights inapplicable to this Agreement and the
Merger. Article 5
Pre-Closing Covenants The Parties agree as follows with respect to the period from the date of
this Agreement through the Closing: 5.1 Notices and Consents. The Parties agree to work together in a cost
effective and expeditious manner to give any notices to, make any filings with,
and use commercially reasonable efforts to obtain any authorizations, consents,
and approvals of the Stockholders and Governmental Entities in connection with
the transactions contemplated by this Agreement. Without limiting the
generality of the foregoing, each of the Parties shall file any Notification
and Report Forms and related material that it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the Hart-Scott-Rodino Act, shall use its
commercially reasonable efforts to obtain a waiver from the applicable waiting
period, and shall make any further filings pursuant thereto that may be
necessary in connection therewith. 5.2 Responsibility of Acquiring Companies in Connection with Antitrust Matters.
In addition to their other obligations pursuant to this Article 4, the
Acquiring Companies, jointly 21




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and severally, covenant and agree that, in the
event early termination of the waiting period is not granted under the
Hart-Scott-Rodino Act, or the waiting period under such Act does not expire
without extension, or in any respect the Merger is challenged by the Federal
Trade Commission or the Antitrust Division of the United States Department of
Justice, then in such event, the Acquiring Companies shall take commercially
reasonable actions to permit the Merger to be consummated as promptly as is
possible without challenge by any such authority. 5.3 Conduct of the Business of the Company and its Subsidiaries. Except as
required by this Agreement or with the prior written consent of the Buyer
(which shall not be unreasonably withheld, delayed or conditioned), during the
period from the date of this Agreement to the Effective Time, the Company
shall, and shall cause each of its Subsidiaries to, conduct its operations only
in the ordinary course of business consistent with past practice and shall use
its commercially reasonable efforts, and shall cause each of its Subsidiaries
to use its commercially reasonable efforts to, (i) preserve intact the business
organization of the Company and each of the Subsidiaries, (ii) use, operate,
maintain and repair all of its Property, Tangible Property, buildings,
improvements and other assets in a normal business manner consistent with past
practices, (iii) keep available the services of its and their present officers
and key employees, (iv) preserve the goodwill of those having business
relationships with the Company and/or its Subsidiaries and (v) conduct the
business with suppliers, customers, creditors and others having business
relationships with the Company and/or its Subsidiaries in a manner which the
board of directors of the Company determines, in good faith, is in the best
interests of the Company and/or its Subsidiaries. Without limiting the
generality of the foregoing, and except as otherwise required or contemplated
by this Agreement or set forth in Schedule 5.3, the Company shall not, and
shall not permit any of its Subsidiaries to, prior to the
Effective Time, without the prior written consent of the Buyer (which shall not
be unreasonably withheld, delayed or conditioned): (a) adopt any amendment to its articles of incorporation or bylaws
or comparable organizational documents; (b) issue, reissue or sell or authorize the issuance, reissuance or
sale of additional shares of capital stock of any class, or shares
convertible into capital stock of any class, or any rights, warrants or
options to acquire any convertible shares or capital stock, other than
the issuance of Shares pursuant to Stock Options outstanding on the date
of this Agreement; (c) declare, set aside or pay any dividend or other distribution
(whether in cash, shares, or property or any combination thereof) in
respect of any class or series of its capital stock other than between
any of the Company and any wholly-owned Subsidiary of the Company; (d) except as contemplated by Section 2.10, split, combine,
subdivide, reclassify or directly or indirectly redeem, purchase or
otherwise acquire, recapitalize or reclassify, or propose to redeem or
purchase or otherwise acquire, any shares of its capital stock, or any of
its other shares or liquidate in whole or in part; 22




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(e) except for (A) increases in salary, wages and benefits of
non-executive officers or employees of the Company or its Subsidiaries in
the ordinary course of business consistent with past practice, (B)
increases in salary, wages and benefits granted to officers and employees
of the Company or its Subsidiaries in conjunction with new hires in the
ordinary course of business consistent with past practice, or (C)
increases in salary, wages and benefits to employees of the Company or
its Subsidiaries pursuant to collective bargaining agreements entered
into in the ordinary course of business consistent with past practice,
(i) increase the compensation or fringe benefits payable or to become
payable to its directors, officers or key employees (whether from the
Company or any of its Subsidiaries), (ii) pay any benefit not required by
any existing plan or arrangement (including, without limitation, the
granting of stock options, stock appreciation rights, shares of
restricted stock or performance units), (iii) grant any severance or
termination pay to directors, officers or other employees (except
pursuant to existing agreements, plans or policies and as required by
such agreements, plans or policies), (iv) enter into or modify any
employment or severance agreement with any director, officer or other key
employee of the Company or any of its Subsidiaries or (v) establish,
adopt, enter into, or amend any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock or Benefit
Plans for the benefit or welfare of any directors, officers or current or
former employees, except in each case to the extent required by
applicable laws or regulations or as contemplated by Section 2.10; (f) (i) sell, lease, transfer or assign any of its assets, tangible
or intangible, other than for a fair consideration in the ordinary course
of business and other than the disposition of obsolete or unusuable
property; (ii) enter into any Contract (other than purchase and sales
orders in the ordinary course of business in accordance with past
practice) that involves (A) consideration or other expenditure in
excess of $100,000, (B) consideration or other expenditure in excess of
$30,000 annually and are not terminable at the will of the Company within
three years without penalty, or (C) the referral of residents to or by
the Company; (iii) accelerate, terminate, modify in any material respect,
or cancel any Contract (other than purchase and sales orders and other
than in the ordinary course of business in accordance with past practice)
that involves (A) consideration or other expenditure in excess of
$100,000, (B) consideration or other expenditure in excess of $30,000
annually and are not terminable at the will of the Company within three
years without penalty, or (C) the referral of residents to or by the
Company; (iv) make any capital expenditure (or series of related capital
expenditures) in excess of $1.5 million (unless such expenditure is
identified in the current business plan of the Company as disclosed to
the Acquiring Companies) or that is outside the ordinary course of
business; (v) delay or postpone the payment of accounts payable and other
liabilities outside the ordinary course of business; (vi) cancel,
compromise, waive or release any right or claim (or series of related
rights and claims) not covered by the reserves or accruals relating to
such claim in the Companys balance sheet dated the Report Date in excess
of $50,000 or that is outside the ordinary course of business; or (vii)
enter into any contract or agreement with any Affiliate of the Company
except for transactions in the ordinary course of business upon
commercially reasonable terms; (g) (i) incur or assume any long-term debt or incur or assume any
short-term debt, except that the Company and its Subsidiaries may incur
or assume debt in the 23




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ordinary course of business consistent with past
practice under existing lines of credit; (ii) assume, guarantee, endorse
or otherwise become liable or responsible (whether directly, contingently
or otherwise) for the obligations of any other Person; (iii) enter into,
assume or modify any leases or management contracts; or (iv) make any
loans, advances or capital contributions to, or investments in, any other
Person, including officers and directors of the Company or any Subsidiary
of the Company, except in the ordinary course of business consistent with
past practice and except for loans, advances, capital contributions or
investments between any wholly-owned Subsidiary of the Company and the
Company or another wholly-owned Subsidiary of the Company; or (h) agree in writing or otherwise to take any of the foregoing
actions. 5.4 Access. Upon reasonable advance notice, the Company shall permit
representatives of the Buyer to have access at reasonable times during normal
business hours, and in a manner so as not to interfere with the normal business
operations of the Company, to the Companys or any of its Subsidiaries
premises, properties, personnel, books, records (including Tax records),
contracts and documents. 5.5 Confidentiality Agreement. The Confidentiality Agreement, dated as of July
7, 2004, as amended, between the Buyer and the Company (the Confidentiality
Agreement) shall be deemed amended by the execution of this Agreement to allow
the Acquiring Companies to disclose the terms and conditions and other
facts with respect to the Merger and the Evaluation Material (as defined in the
Confidentiality Agreement) to (i) any Governmental Entities whose approval or
consent is necessary or advisable in connection with this Agreement and/or the
Merger and (ii) any representatives, agents or employees of the Acquiring
Companies who need to know such information for purposes of preparing for the
operation of the Company following consummation of the Merger, subject to the
recipients confidentiality agreements, where appropriate. Except for the
foregoing amendments, the Confidentiality Agreement shall remain in full force
and shall apply with respect to information furnished thereunder or hereunder
and any other activities contemplated thereby or hereby. 5.6 Further Actions. The Parties agree to use their commercially reasonable
efforts to take all actions and to do all things necessary, proper or advisable
to consummate the Merger by the Closing Date; notwithstanding the foregoing,
nothing set forth in this Section 5.6 shall diminish in any respect the
Acquiring Companies obligations under Section 5.2 above. 5.7 No Solicitation. (a) From the date of this Agreement until the Effective Time or, if
earlier, the termination of this Agreement in accordance with Article 8
(and the payments, if any, required to be made in connection with such
termination pursuant to Section 5.8(b) have been made), the Company will
not, and will not direct, authorize or permit any of its officers,
directors, employees, consultants, representatives and other agents,
including, but not limited to, investment bankers, attorneys and
accountants (collectively, the Representatives), to, directly or
indirectly, (i) initiate, solicit, encourage or facilitate any
prospective purchaser or the invitation or submission of any inquiries,
proposals or offers or any other efforts or attempts that constitute, or
may reasonably be expected to 24




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lead to, an Acquisition Proposal, (ii)
participate in any discussions or negotiations with, or furnish or
disclose any nonpublic information to, any Person or group of Persons
(other than the Acquiring Companies) in connection with any Acquisition
Proposal or otherwise cooperate with or assist or participate in, or
facilitate any such inquiries, proposals, discussions or negotiations or
(iii) accept an Acquisition Proposal or enter into any agreement or
agreement in principle providing for or relating to an Acquisition
Proposal or enter into any agreement or agreement in principle requiring
the Company to abandon, terminate or fail to consummate the transactions
contemplated hereby or breach its obligations hereunder. Notwithstanding
anything in this Section 5.7 to the contrary, the Company may furnish or
disclose nonpublic information to its lessors and lenders, in their
capacity as such. (b) Notwithstanding anything to the contrary contained in Section
5.7(a), if at any time prior to obtaining Stockholder Approval, (i) the
Company and its Representatives have otherwise complied with the
obligations under this Section 5.7(b) and the Company has received an
unsolicited written Acquisition Proposal from a third party that the
board of directors of the Company or the Special Committee believes in
good faith to be bona fide, (ii) the board of directors of the Company or
the Special Committee determines in good faith, after consultation with
its outside legal counsel and
after taking into account the advice of its independent financial
advisors that (A) the Person or group of Persons submitting such
Acquisition Proposal is reasonably capable of consummating such
Acquisition Proposal taking into account the legal, financial, regulatory
and other aspects of such Acquisition Proposal and (B) that such
Acquisition Proposal constitutes or could reasonably be expected to
result in a Superior Proposal and (iii) after consultation with its
outside legal counsel, the board of directors of the Company or the
Special Committee determines in good faith that taking such action is
necessary for the board of directors of the Company or the Special
Committee to comply with its fiduciary duties under applicable law, then
the Company may (x) furnish information with respect to the Company and
its Subsidiaries to the Person or group of Persons making such
Acquisition Proposal and (y) participate in discussions or negotiations
with the Person or group of Persons making such Acquisition Proposal
regarding such Acquisition Proposal; provided, however, that prior to
furnishing any such information or participating in any such discussions
or negotiations, (1) the Company provides written notice to the Buyer of
the identity of the Person or group of Persons making such Acquisition
Proposal and the material terms and conditions thereof and the Company
receives from such Person or group of Persons an executed confidentiality
agreement containing terms no less restrictive than the terms of the
Confidentiality Agreement, dated as of July 7, 2004, as amended, between
the Buyer and the Company, and (2) the Company furnishes such information
to the Buyer (to the extent such information has not been previously
delivered or made available by the Company to the Buyer). (c) Nothing contained in this Section 5.7 shall prohibit the Company
or the board of directors of the Company from taking and disclosing to
the Stockholders a position with respect to a tender or exchange offer by
a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated under the
Exchange Act or from making any other disclosure if, in the good faith
judgment of the board of directors of the Company, after consultation 25




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with its outside legal counsel, failure to do so would result in a
violation of applicable law. (d) Neither the board of directors of the Company nor any committee
thereof shall, directly or indirectly, withdraw (or modify in a manner
adverse to the Buyer and Alpha Acquisition), or propose to withdraw (or
modify in a manner adverse to the Buyer and Alpha Acquisition), the
approval, recommendation or declaration of advisability by such board of
directors or any such committee thereof of this Agreement, or the Merger
or the other transactions contemplated by this Agreement (any such action
being referred to as an Adverse Recommendation Change).
Notwithstanding the foregoing, at any time prior to obtaining Stockholder
Approval, the board of directors of the Company or any committee thereof
may make an Adverse Recommendation Change if the members of such board of
directors or any committee thereof determines in good faith, after
consultation with outside legal counsel, that taking such action is
necessary to comply with its fiduciary duties under applicable law. (e) Neither the board of directors of the Company nor any committee
thereof shall, directly or indirectly, approve, adopt or recommend, or
propose to approve, adopt or recommend, or allow the Company or any of
its Subsidiaries to execute or enter into,
any letter of intent, memorandum of understanding, agreement in
principle, merger agreement, acquisition agreement, option agreement,
joint venture agreement, partnership agreement or other similar agreement
constituting or related to, or that is intended to or could reasonably be
expected to lead to, an Acquisition Proposal. Notwithstanding the
foregoing, the Company shall not be prohibited from entering into a
definitive agreement with respect to an unsolicited, bona fide and
written Acquisition Proposal that is submitted after the date of this
Agreement and prior to obtaining Stockholder Approval by a third party if
(i) the Company and its Representatives have otherwise complied with the
obligations under this Section 5.7, (ii) the Company provides Buyer with
written notice at least five Business Days prior to any meeting of the
board of directors of the Company at which such board of directors will
consider whether such Acquisition Proposal constitutes a Superior
Proposal, during which five-Business Day period the Company shall cause
its financial and legal advisors to negotiate in good faith with Buyer in
an effort to make such adjustments in the terms and conditions of this
Agreement as would enable the Company to proceed with the transactions
contemplated herein on such adjusted terms, (iii) notwithstanding such
negotiations and adjustments pursuant to clause (ii) above, the board of
directors of the Company makes the determination necessary for such
Acquisition Proposal to constitute a Superior Proposal, (iv) the board of
directors of the Company determines in good faith, after having taken
into account the advice of its outside legal counsel, that taking such
action is necessary for the board of directors of the Company to comply
with its fiduciary duties under applicable law, (v) the Company does not
approve or recommend or enter into a definitive agreement with respect to
such Acquisition Proposal at any time before the day that is the fifth
Business Day after Buyer receives written notice from the Company stating
that the board of directors of the Company has determined such
Acquisition Proposal constitutes a Superior Proposal and (vi) on the date
of the approval or recommendation of, or execution of a definitive
agreement with respect to, any such Superior Proposal, the Company makes
the payments 26




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required to be made pursuant to Section 5.8(b) (any such
definitive agreement being referred to herein as a Permitted Alternative
Agreement). (f) In addition to the obligations of the Company set forth in this
Section 5.7, from and after the date hereof, the Company will (i) keep
the Buyer generally informed on a reasonably prompt basis of the status
of and material developments respecting any solicitations, inquiries,
proposals and/or negotiations (including the identity of the Person
making any such inquiry, solicitation or proposal and as to the material
terms and price in respect of any Acquisition Proposal), (ii) provide to
the Buyer as soon as practicable after receipt or delivery thereof with
copies of all written acquisition proposals sent or provided to the
Company or its Representatives from any Person and (iii) provide the
required notice to the Buyer of any intent to take any of the actions
described in Section 5.7(e) or to terminate this Agreement pursuant to
Section 8.1(c) or to enter into a Permitted Alternative Agreement (it
being understood that the Company shall not be entitled to take any of
the actions described in Section 5.7(e), or to terminate this Agreement
in accordance with Section 8.1(c), unless and until it fully complies
with Section 5.7(e)). (g) The Company and its Representatives shall immediately cease any
discussions or negotiations, if any, with any other parties that may be
ongoing as of the date hereof with respect to any Acquisition Proposal. The Company
shall, within five (5) Business Days after the date of this Agreement,
request each Person who has heretofore executed a confidentiality
agreement in connection with its consideration of acquiring the Company
or any portion thereof to return or destroy all confidential information
heretofore furnished to such Person by or on behalf of the Company. The
Company represents and warrants to the Acquiring Companies that neither
the Company nor any of its Representatives has any agreement, arrangement
or understanding in connection with any partys proposed acquisition of
the Company that, directly or indirectly, would be violated or require
any payments in the nature of a topping or break-up fee, expense
reimbursement or the like by reason of the execution of this Agreement
and/or consummation of the Merger. 5.8 Fees and Expenses. (a) Except as otherwise provided in this Section 5.8, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby will be paid by the party incurring such costs and
expenses. (b) If (i) the Company terminates this Agreement pursuant to Section
8.1(c), (ii) the Buyer terminates this Agreement pursuant to Section
8.1(d), (iii) the Buyer terminates this Agreement pursuant to Section
8.1(f) or (iv) the Company or the Buyer terminate this Agreement pursuant
to Sections 8.1(b) or 8.1(i) and in the case of such a termination
pursuant to Sections 8.1(b) or 8.1(i) (A) at any time after the date of
this Agreement and prior to such termination an Acquisition Proposal
shall have been publicly announced or otherwise publicly communicated to
the Stockholders generally and (B) prior to the twelve month anniversary
of such termination, the Company shall enter into a definitive agreement
with respect to an Acquisition Proposal or an 27




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Acquisition Proposal is
consummated, then the Company shall, in the case of clause (i), as
provided in Section 5.7(e)(vi), in the case of clauses (ii) or (iii), not
later than one Business Day following such termination, or in the case of
clause (iv) not later than one Business Day following the entering into
of a definitive agreement with respect to, or the consummation of, an
Acquisition Proposal prior to the twelve month anniversary of such
termination, as applicable, (I) reimburse the Buyer in immediately
available funds for the documented out-of-pocket fees and expenses (but
in no event greater than $2,000,000) incurred by the Buyer in connection
with this Agreement, the transactions contemplated hereby and any related
financing and (II) in the case of clauses (i), (ii) or (iv), pay to the
Buyer in immediately available funds an amount equal to $6,000,000. The
Company acknowledges that the agreements contained in this Section 5.8(b)
are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, the Buyer and Alpha Acquisition would
not enter into this Agreement; accordingly, if the Company fails to pay
the amount due pursuant to this Section 5.8(b), and, in order to obtain
such payment, the Buyer commences a suit which results in a judgment
against the Company for the fee set forth in this Section 5.8(b), the
Company shall pay to the Buyer its costs and expenses (including
reasonable attorneys fees and expenses) in connection with such suit,
together with interest on the amount of the fee at the prime rate as set
forth in the Midwest Edition of The Wall Street Journalin effect on the
date such payment was required to be made. (c) If the Company terminates this Agreement pursuant to Section
8.1(e), then the Buyer shall, not later than one Business Day following
such termination, reimburse the Company in immediately available funds
for the documented out-of-pocket fees and expenses (but in no event
greater than $2,000,000) incurred by the Company in connection with this
Agreement and the transactions contemplated hereby. The Acquiring
Companies acknowledge that the agreements contained in this Section
5.8(c) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, the Company would not
enter into this Agreement; accordingly, if the Buyer fails to pay the
amount due pursuant to this Section 5.8(c), and, in order to obtain such
payment, the Company commences a suit which results in a judgment against
the Buyer for the fee set forth in this Section 5.8(c), the Buyer shall
pay to the Company its costs and expenses (including reasonable
attorneys fees and expenses) in connection with such suit, together with
interest on the amount of the fee at the prime rate as set forth in the
Midwest Edition of The Wall Street Journalin effect on the date such
payment was required to be made. Article 6
Post-Closing Covenants The Parties agree as follows with respect to the period following the Closing: 6.1 Employee Benefit Plans and Practices. (a) From and after the Effective Time, the Surviving Corporation and
its Subsidiaries shall honor in accordance with their terms all of the
existing employment, severance, consulting and salary continuation
agreements between the Company or any 28




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of its Subsidiaries and any current
or former officer, director, employee or consultant of the Company or any
of its Subsidiaries or group of such officers, directors, employees or
consultants that are set forth on Schedule 6.1(a). (b) Until the first anniversary of the Effective Time, the Surviving
Corporation shall not materially and adversely alter the benefits
(including health benefits, severance policies and general employment
policies and procedures) that are available to employees of the Company
and its Subsidiaries on the date hereof (other than modifications to any
employee benefit plans in the ordinary course of business consistent with
past practice and other than with respect to any equity-based
compensation). Nothing in this Section 6.1(b) shall be deemed to prevent
the Surviving Corporation or any of its Subsidiaries from making any
change required by applicable law. (c) To the extent permitted under applicable law, each employee of
the Company or its Subsidiaries shall be given credit for all service
with the Company or its Subsidiaries (or service credited by the Company
or its Subsidiaries) under all employee benefit plans, programs, policies
and arrangements maintained by the Surviving Corporation and its
Subsidiaries in which they participate or in which they become
participants for purposes of eligibility, vesting and benefit accrual
(but not benefit accrual in any defined benefit pension plan) including,
for purposes of determining (i) short-term and long-term disability benefits, (ii) severance benefits, (iii)
vacation benefits and (iv) benefits under any retirement plan. (d) This Section 6.1 shall survive the consummation of the Merger at
the Effective Time and shall continue without limit except as expressly
set forth herein. 6.2 Indemnification; Directors and Officers Insurance. (a) All rights to indemnification and exculpation from liability for
acts and omissions occurring at or prior to the Effective Time and rights
to advancements of expenses relating thereto now existing in favor of the
current or former directors, officers, employees and agents of the
Company and its Subsidiaries (the Indemnitees) as provided in their
respective charters and/or bylaws (or similar organizational documents)
or in any indemnification agreement as of the date of this Agreement,
shall survive the Merger and, for a period of six years from the
Effective Time, such provisions shall not be amended, repealed or
otherwise modified in any manner that would adversely affect the rights
thereunder of any such Indemnitees, unless an alteration or modification
of such documents is required by applicable law or each Indemnitee
affected thereby otherwise consents in writing thereto. Without limiting
the generality of the foregoing, from and after the Closing Date, the
Surviving Corporation shall indemnify and hold harmless each Indemnitee
against all claims, losses, liabilities, damages, judgments, fines and
reasonable fees, costs and expenses, including attorneys fees and
disbursements, incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to (i) the fact that the
Indemnitee is or was an officer, director, employee or agent of the
Company or any of its Subsidiaries or (ii) matters existing or occurring
at or prior to the Effective Time (including this Agreement and the
transactions and actions contemplated hereby), 29




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whether asserted or
claimed prior to, at or after the Effective Time, to the fullest extent
permitted under applicable law. Each Indemnity shall be entitled to
advancement of expenses incurred in the defense of any claim, action,
suit, proceeding or investigation from the Surviving Corporation within
ten (10) Business Days of receipt by the Surviving Corporation from the
Indemnitee of a request thereof; provided, however, that any Person to
whom expenses are advanced provides an undertaking to repay such advances
if it is ultimately determined that such a Person is not entitled to
indemnification. If any claim or claims are asserted or made as to
matters subject to the foregoing indemnity provisions within such
six-year period, all rights to indemnification in respect of any such
claim or claims shall continue until the disposition thereof. The Buyer
shall take all commercially reasonable steps necessary to assure
compliance with the foregoing covenants. (b) For a period of six years after the Effective Time, the
Surviving Corporation shall, and the Buyer shall (in the event of a
failure by the Surviving Corporation to do so), maintain, at no expense
to the beneficiaries thereof, the current policies of officers and
directors liability insurance and fiduciary liability insurance in
respect of acts or omissions occurring at or prior to the Effective Time
(including the transactions contemplated by this Agreement), so long as
the annual premium therefor would not be in excess of $1,050,000 (such
$1,050,000 the Maximum Premium). If the Companys existing insurance
expires, is terminated or cancelled during such six-year
period or exceeds the Maximum Premium, the Surviving Corporation or
the Buyer, as the case may be, shall obtain as much directors and
officers liability insurance as can be obtained for the remainder of
such period for an annualized premium not in excess of the Maximum
Premium, on terms and conditions no less advantageous to the Indemnitees
than the Companys existing directors and officers liability insurance,
covering Indemnitees who are currently covered by the Companys existing
officers and directors or fiduciary liability insurance policies. (c) In the event that the Buyer or the Surviving Corporation or any
of its respective successors or assigns (i) consolidates with or merges
into any other Person and is not the continuing or surviving corporation
or entity of such consolidation or merger or (ii) transfers all or
substantially all of its properties and assets to any Person, proper
provisions shall be made so that such Person assumes the obligations set
forth in this Section 6.2, and Buyer shall cause such Person to assume
such obligations. (d) This Section 6.2, which shall survive the consummation of the
Merger at the Effective Time and shall continue for the periods specified
herein, is intended to benefit the Indemnitees, each of whom are intended
third-party beneficiaries and may enforce the provisions of this Section
6.2. 6.3 No Stockholders Liability.No actions taken by the Acquiring
Companies, whether in connection with the financing of the transactions
contemplated hereby or otherwise, will result in any liability or obligation on
the part of the Stockholders, whether arising in connection with fraudulent
conveyance laws or otherwise. This Section 6.3, which shall survive the
consummation of the Merger at the Effective Time, is intended to benefit the
Stockholders, each of whom are intended third-party beneficiaries and may
enforce the provisions of this Section 6.3. 30




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Article 7
Conditions to Obligation to Close 7.1 Conditions to Obligation of the Acquiring Companies. The obligation of the
Acquiring Companies to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction of the following
conditions: (a) the representations and warranties set forth in Article 3 are
true and correct as of the Closing Date as though made on and as of the
Closing Date (provided that, to the extent any such representation or
warranty speaks as of a specified date, it need only be true and correct
as of such specified date), except where the failure of such
representations and warranties to be so true and correct (without giving
effect to any limitation as to materiality or Material Adverse Effect
set forth therein), individually or in the aggregate, does not have, and
would not be reasonably expected to have, a Material Adverse Effect; (b) the Company shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing; (c) this Agreement and the Merger shall have been adopted and
approved at a meeting of the Stockholders (or an adjournment thereof) by
the holders of a majority of the Shares outstanding as of the record date
for such meeting, or by the written consent of Stockholders having the
same effect (the Stockholder Approval); (d) there shall have been no Material Adverse Change since June 30,
2004; (e) no action, suit or proceeding before any Governmental Entity
shall have been commenced or threatened, and no investigation by any
Governmental Entity shall have been commenced, against the Acquiring
Companies or the Company or any of their respective Affiliates, officers
or directors (in such capacity) seeking to restrain, prevent or change
the Merger, or questioning the validity or legality of the Merger, or
seeking damages in connection with, or imposing any condition on, the
Merger; provided, however, that neither of the following shall impede the
Closing: (i) any such action, suit or proceeding by LTC Properties, Inc.
or any of its Affiliates or (ii) any stockholder litigation arising from
allegations of breach of fiduciary duty relating to this Agreement,
except for such litigation set forth on Schedule A; (f) the Company shall have received the resignations of all of its
directors and the directors of all of its Subsidiaries in a form
reasonably satisfactory to the Buyer or such directors shall have
otherwise been removed; (g) the Company shall have delivered to the Buyer a certificate to
the effect that each of the conditions specified above in Sections 7.1(a)
through (f) is satisfied; (h) all applicable waiting periods (and any extensions thereof)
under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated; 31




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(i) the Parties shall have received (A) all authorizations, consents
and approvals and (B) all material licenses, registrations,
certifications and accreditations, in the case of each of clauses (A) and
(B), of Governmental Entities (other than lenders under financing
agreements) required in order to consummate the transaction contemplated
by this Agreement or necessary for the lawful conduct of the business of
the Company and its Subsidiaries upon consummation of the Merger; and (j) all actions to be taken by the Company in connection with
consummation of the transactions contemplated by this Agreement, and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated by this Agreement, shall have been
reasonably satisfactory in form and substance to the Buyer. The Acquiring Companies may waive any condition specified in this Section 7.1. 7.2 Conditions to Obligation of the Company. The obligation of the Company to
consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions: (a) the representations and warranties set forth in Article 3 that
are qualified as to materiality shall be true and correct, and the
representations and warranties set forth in Article 3 that are not so
qualified shall be true and correct in all material respects, in each
case, as of the Closing Date as though made on and as of the Closing Date
(provided that, to the extent that any such representation or warranty
speaks as of a specified date, it need only be true and correct as of
such specified date); (b) the Acquiring Companies shall have performed and complied with
all of their covenants hereunder in all material respects through the
Closing, and shall have paid the Merger Consideration to the Paying Agent
as required hereunder; (c) no action suit or proceeding before any Governmental Entity
shall have been commenced or threatened, and no investigation by any
Governmental Entity shall have been commenced, against the Acquiring
Companies or the Company or any of their respective Affiliates, officers
or directors (in such capacity) seeking to restrain, prevent or change
the Merger, or questioning the validity or legality of the Merger, or
seeking damages in connection with, or imposing any condition on, the
Merger; provided, however, that neither of the following shall impede the
Closing: (i) any such action, suit or proceeding by LTC Properties, Inc.
or any of its Affiliates or (ii) any stockholder litigation arising from
allegations of breach of fiduciary duty relating to this Agreement,
except for such litigation set forth on Schedule A; (d) the Acquiring Companies shall have delivered to the Company a
certificate to the effect that each of the conditions specified above in
Sections 7.2(a) through (c) is satisfied; (e) Stockholder Approval shall have been obtained; (f) all applicable waiting periods (and any extensions thereof)
under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated; 32




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(g) the Parties shall have received all other authorizations,
consents, and approvals of Governmental Entities referred to in Section
3.3, other than those the failure of which to obtain would not be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect; and (h) all actions to be taken by the Acquiring Companies in connection
with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby shall have been reasonably
satisfactory in form and substance to the Company. The Company may waive any condition specified in this Section 7.2. Article 8
Termination 8.1 Termination of Agreement. The Parties may terminate this Agreement as provided below: (a) the Buyer and the Company may terminate this Agreement by mutual
written consent at any time prior to the Closing, in each case duly
authorized by their respective board of directors; (b) the Company or the Buyer may terminate this Agreement by giving
written notice thereof to the other Party if the Stockholders Meeting is
held and the Company fails to obtain Stockholder Approval at such meeting
(or any reconvened meeting after any adjournment thereof); (c) the Company may, at any time prior to obtaining Stockholder
Approval, terminate this Agreement if the board of directors of the
Company shall have approved, adopted or recommended, or the Company shall
have executed or entered into a definitive agreement with respect to, a
Permitted Alternative Agreement in compliance with Section 5.7(e). (d) The Buyer may terminate this Agreement if any of the following
have occurred: (i) the Company or any of its Representatives violates in
any material manner any of the provisions of Section 5.7; (ii) the
Company enters into any agreement, letter of intent or similar document
contemplating or otherwise relating to any Acquisition Proposal or
Permitted Alternative Agreement; (iii) the board of directors of the
Company or any committee thereof (A) shall have made an Adverse
Recommendation Change, or publicly proposed to make an Adverse
Recommendation Change, or shall have approved or recommended or publicly
proposed to approve or recommend to the Stockholders an Acquisition
Proposal or a Permitted Alternative Agreement or (B) fails to reaffirm
publicly and unconditionally its recommendation to the Stockholders that
they approve this Agreement and the Merger, which public reaffirmation
must be made within ten (10) Business Days after the Buyers written
request to do so (which request may be made at any time that an
Acquisition Proposal is pending and not withdrawn); or (iv) an
Acquisition Proposal is publicly announced and the Company fails to issue
a press 33




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release announcing its opposition to such Acquisition Proposal
within ten (10) Business Days after such Acquisition Proposal is
announced. (e) the Company may terminate this Agreement if prior to the
Effective Time, there shall have occurred, on the part of the Acquiring
Companies, a material breach of any representation, warranty, covenant or
agreement contained in this Agreement which is not curable or, if
curable, is not cured within thirty (30) days after written notice of
such breach is given by the Company to the Buyer, except, in any case,
such failures which are not reasonably like to adversely affect the
ability of the Acquiring Companies to consummate the Merger; (f) the Buyer may terminate this Agreement if prior to the Effective
Time, there shall have occurred, on the part of the Company, a material
breach of any representation, warranty, covenant or agreement contained
in this Agreement which is not curable or, if curable, is not cured
within thirty (30) days after written notice of such
breach is given by the Buyer to the Company, except, in any case,
such failures which are not reasonably like to adversely affect the
Companys ability to consummate the Merger; (g) the Company may terminate this Agreement if there has been a
failure of satisfaction of a condition to the obligations of the Company
set forth in Section 7.2 that has not been waived; (h) the Buyer may terminate this Agreement if there has been a
failure of satisfaction of a condition to the obligations of the
Acquiring Companies set forth in Section 7.1 that has not been waived;
and (i) in the event the Closing shall not have occurred on or before
February 28, 2005, either the Buyer or the Company may terminate this
Agreement by giving written notice thereof to the other Party prior to
Closing (unless the failure to close results primarily from the Party
that elects to terminate because it has breached any covenant contained
in this Agreement); provided, however, that the Buyer or the Company may
elect to extend such date by no more than thirty (30) days if the
condition set forth in Section 7.1(i) or Section 7.2(g), respectively,
has not been satisfied by such date. 8.2 Effect of Termination. If any Party terminates this Agreement pursuant to
Section 8.1 above, then this Agreement shall forthwith become void, and there
shall be no further liability or obligation hereunder on the part of any party
hereto or their respective Affiliates, officers, directors or stockholders;
provided, however, that (i) Section 5.8, this Section 8.2, Article 9 and the
confidentiality and other provisions contained in the Confidentiality Agreement
shall each survive termination and (ii) no such termination shall release any
Party from liability (which liability shall not be limited by Section 5.8) for
a breach of any term or provision of this Agreement. Article 9
Miscellaneous 9.1 Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement prior 34




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to the Closing without the prior approval of the other Party;
provided, however, that either Party may make any public disclosure that it
believes in good faith is required by applicable law or any listing agreement
concerning its publicly-traded securities (in which case such Party shall use
commercially reasonable efforts to advise the other Party prior to making the
disclosure and to limit its disclosures to those required under such applicable
law or agreement). Notwithstanding the foregoing, the Company and the
Acquiring Companies shall use commercially reasonable efforts to jointly draft
all disclosures to employees of matters relating to the Merger. 9.2 No Third-Party Beneficiaries. Except as specifically provided in Section
6.2 and Section 6.3, this Agreement shall not confer any rights or remedies
upon any Person other than the Parties and their respective successors and
permitted assigns. 9.3 Entire Agreement.This Agreement (including the documents referred to
herein) and the Confidentiality Agreement constitute the entire agreement among
the Parties and supersede any prior understandings, agreements, or
representations by or among the Parties, written or oral, to the extent they
have related in any way to the subject matter hereof. 9.4 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the Parties and their respective successors and permitted
assigns. No Party may assign either this Agreement or any of its rights,
interests, or obligations hereunder without the prior written approval of the
other Party. 9.5 Counterparts. This Agreement may be executed in one or more counterparts,
including, without limitation, facsimile counterparts, each of which shall be
deemed an original but all of which together shall constitute one and the same
instrument. 9.6 Headings. The Section headings contained in this Agreement are inserted
for convenience of reference only and shall not affect in any way the meaning
or interpretation of this Agreement. 9.7 Notices. All notices, requests, demands, claims, and other communications
hereunder shall be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed to have been duly given when delivered
in person, by overnight courier or facsimile to the intended recipient as set
forth below: If to the Company:
    
    Assisted Living Concepts, Inc.1349 Empire Central, Suite 900Dallas, Texas 75247Attention:
    
    Special Committee of Board of Directors
Mark Holliday, ChairmanCopy to:
    
    Andrews Kurth LLP600 Travis, Suite 4200Houston, Texas 77002Attention: Roy Bertolatus
 35




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If to an Acquiring Company:
    
    Extendicare Health Services, Inc.111 West Michigan StreetMilwaukee, Wisconsin 53203Attention: Chief Financial OfficerCopy to:
    
    Foley & Lardner LLP777 East Wisconsin AvenueMilwaukee, Wisconsin 53202-5306Attention: Russell E. Ryba
 Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth. 9.8 Termination of Companys Representations. All representations and
warranties made by the Company pursuant to this Agreement shall terminate as of
the Effective Time or upon the termination and abandonment of this Agreement
pursuant to Section 8.1, as the case may be; and neither the Company, nor any
of its officers or directors, shall have any liability hereunder to the
Acquiring Companies or their stockholders, directors or officers in respect
thereof from and after the Effective Time. 9.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Nevada without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Nevada or any other jurisdiction) that would cause the application of the laws

of any jurisdiction other than the State of Nevada. 9.10 Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by each of the
Parties; provided, however, that, after Stockholder Approval is obtained, no
term or condition contained in this Agreement shall be amended or modified in
any manner that by law requires further approval by the Stockholders without so
obtaining such further Stockholder Approval. 9.11 Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. 9.12 Construction. The Parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties, and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word including shall
mean including, without limitation. 36




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9.13 Further Assurances. Upon the terms and subject to the conditions of this
Agreement, each of the Parties hereto shall use commercially reasonable efforts
to take, or cause to be taken, all action, to do, or cause to be done, all
other things necessary, proper or advisable to consummate and make effective as
promptly as practical the transactions contemplated by this Agreement, to
obtain in a timely manner all waivers, consents and approvals required by this
Agreement and to effect all necessary registrations and filings and otherwise
to satisfy or cause to be satisfied all conditions precedent to its obligations
under this Agreement. [SIGNATURE PAGE FOLLOWS] 37




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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written. BUYER:EXTENDICARE HEALTH SERVICES, INC.By:
    
    /s/ Melvin A. RhinelanderName:
    
    Melvin A. RhinelanderTitle:
    
    Chairman and Chief Executive OfficerALPHA ACQUISITION:ALPHA ACQUISITION, INC.By:
    
    /s/ Melvin A. RhinelanderName:
    
    Melvin A. RhinelanderTitle:
    
    Chairman and Chief Executive OfficerCOMPANY:ASSISTED LIVING CONCEPTS, INC.By:
    
    /s/ Steven VickName:
    
    Steven VickTitle:
    
    President/ CEO
 38




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ANNEX A Definitions Acquiring Company / Acquiring Companies has the meaning set forth in
the preface above. Acquisition Proposal means any inquiry, proposal or offer received after
the date of this Agreement from any Person or group of Persons relating to (i)
any direct or indirect acquisition or purchase of assets of the Company or any
of its Subsidiaries that constitutes 20% or more of the net revenues, net
income or assets of the Company and its Subsidiaries, taken as a whole, or 10%
or more of the outstanding Shares, or 20% or more of any class of equity
securities of any Material Subsidiary, (ii) any tender offer or exchange offer
that if consummated would result in any Person or group of Persons beneficially
owning 10% or more of the outstanding Shares or 20% or more of any class of
equity securities of any Material Subsidiary, (iii) any merger, reorganization,
consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any
Material Subsidiary or (iv) any other transaction, the consummation of which
would reasonably be expected to impede, interfere with, prevent or materially
delay the Merger or which would reasonably be expected to dilute materially the
benefits to the Buyer of the transactions contemplated hereby; other than, in
each case, the transactions contemplated by this Agreement. Adverse Recommendation Change has the meaning set forth in Section
5.7(d) above. Affiliates has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Exchange Act. Agreement has the meaning set forth in the preface above. Alpha Acquisition has the meaning set forth in the preface above. Articles of Merger has the meaning set forth in the Section 2.3 above. Benefits Affiliate has the meaning set forth in Section 4.16 above. Benefit Plan / Benefit Plans has the meaning set forth in Section 4.16
above. Business Day means a day other than a Saturday, Sunday or other day on
which commercial banks in the State of Nevada are authorized or required by law
to be closed. Buyer has the meaning set forth in the preface above. CERCLA means the Comprehensive Environmental Response, Compensation and
Liability Act, as amended. Certificate / Certificates has the meaning set forth in Section 2.5(d)
above. Closing has the meaning set forth in Section 2.2 above. Closing Date has the meaning set forth in Section 2.2 above. A-1




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Code means the Internal Revenue Code of 1986, as amended. Company has the meaning set forth in the preface above. Company Disclosure Schedules has the meaning set forth in the preface to
Article 3 above. Company Permits has the meaning set forth in Section 4.13 above. Company SEC Documents has the meaning set forth in Section 4.9 above. Confidentiality Agreement has the meaning set forth in Section 5.5
above. Contract / Contracts means all of the contracts, agreements and
obligations, written or oral, to which the Company or its Subsidiaries are a
party or by which the Company or its Subsidiaries or any of their respective
assets are bound, including any loan, bond, mortgage, indenture, lease
instrument, franchise, license or supplier, vendor or employment agreement. Dissenting Shares has the meaning set forth in Section 2.5(c) above. Effective Time has the meaning set forth in Section 2.3 above. ERISA means the Employee Retirement Income Security Act of 1974, as
amended. Exchange Act has the meaning set forth in Section 2.11(a)(i) above. Financial Statements has the meaning set forth in Section 4.8(a) above. GAAP means generally accepted accounting principles in the United States
as in effect from time to time. Governmental Entity / Governmental Entities means any court, tribunal,
judicial body, arbitrator, stock exchange, administrative or regulatory agency,
self-regulatory organization, regulatory body or commission or other
governmental or quasi-governmental authority or instrumentality, whether local,
state or federal, domestic or foreign. Hart-Scott-Rodino Act means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended. Hazardous Substances has the meaning set forth in Section 4.11(i)
above. Hazardous Substances Laws has the meaning set forth in Section 4.11(i)
above. Indemnitees has the meaning set forth in Section 5.2(a) above. Knowledge when applied to the Company means the actual knowledge of
Steven Vick, Edward Barnes and/or Linda Martin, after reasonable inquiry. Leased Real Property has the meaning set forth in Section 4.11(b) above. A-2




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Leases has the meaning set forth in Section 4.11(f) above. Litigation has the meaning set forth in Section 4.15 above. LTC Leases means those certain Leases pursuant to which LTC Properties,
Inc., or one of its Affiliates, is the lessor of the Leased Real Property. Material Adverse Change means any change in or effect on the business,
results of operations, assets, financial condition or liabilities of the
Company or any of the Subsidiaries of the Company that in the aggregate equals
or exceeds 5% of the aggregate amount of the Merger Consideration. Material Adverse Effect means any change in or effect on the business,
results of operations, assets, financial condition or liabilities of the
Company or any of the Subsidiaries of the Company that is materially adverse to
the Company and its Subsidiaries taken as a whole; provided, however, that any
change or effect resulting from, or directly relating to, any of the following
shall not be taken into account in making any such determination and shall not
be deemed to constitute or give rise to a Material Adverse Effect: (i) any
change or changes in general economic conditions or local, regional or national
industry conditions (including, without limitation, changes in applicable laws
or regulations, and changes in financial or market conditions); (ii) in and of
itself, any change in the market price or trading volume of the Shares; (iii)
in and of itself, a failure by the Company to meet the revenue or earnings
predictions of equity analysts for any period ending (or for which earnings are
released) during the period prior to the Closing Date; (iv) the taking of any
action required by this Agreement or to which the Buyer has given its written
consent; (v) any changes or effects to the extent primarily attributable to the
fact that Buyer is the buyer; (vi) any changes or effects resulting from the
actions of the Buyer or any of its Subsidiaries; (vii) any stockholder
litigation arising from allegations of breach of fiduciary duty relating to
this Agreement, except for such litigation set forth on Schedule A; (viii) any
acts of war or terrorism; (ix) changes in GAAP; or (x) any event or matter
having a change in or effect on the LTC Leases (including, without limitation,
any declaration or threat of declaring an event of default under the LTC
Leases) or any Litigation pending or threatened in connection with the LTC
Leases that directly results from the execution of this Agreement or the
consummation of the Merger; in the case of each of (i), (viii) and (ix), that
do not disproportionately affect the Company or its Subsidiaries. Material Subsidiary means any Subsidiary or Subsidiaries of the Company
whose business constitutes 20% or more of the net revenues, net income or
assets of the Company and its Subsidiaries, taken as a whole. Maximum Premium has the meaning set forth in Section 6.2(b) above. Medicaid Waiver Programs has the meaning set forth in Section 3.3 above. Merger has the meaning set forth in the recitals above. Merger Consideration has the meaning set forth in Section 2.5(b) above. Merger Fund has the meaning set forth in Section 2.9(a) above. A-3




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Nevada Act has the meaning set forth in the recitals above. Option Holder / Option Holders means the holders, or individually a
holder, of Stock Options, together with their successors and assigns. Owned Real Property has the meaning set forth in Section 4.11(a) above. Party / Parties has the meaning set forth in the preface above. Paying Agent has the meaning set forth in Section 2.9(a) above. PCBs has the meaning set forth in Section 4.11(l) above. Permitted Alternative Agreement has the meaning set forth in Section
5.7(e) above. Permitted Liens has the meaning set forth in Section 4.11(h) above. Per Share Merger Consideration has the meaning set forth in Section
2.5(b) above. Person shall mean any natural person, firm, partnership, limited
liability company, joint venture, business trust, trust, association,
corporation, company, unincorporated entity or other entity. Policy / Policies has the meaning set forth in Section 4.7 above. Property has the meaning set forth in Section 4.11(b) above. Proxy Statement has the meaning set forth in Section 2.11(a)(i) above. Report Date has the meaning set forth in Section 4.8(a) above. Representatives has the meaning set forth in Section 5.7(a) above. Rights means rights under the Rights Agreement. Rights Agreement means the Rights Agreement, dated October 1, 2004,
between the Company and American Stock Transfer & Trust Company, as Rights
Agent. SEC means the Securities and Exchange Commission. Share / Shares means the shares, or individually a share, of common
stock, par value $.01 per share, of the Company. Special Committee has the meaning set forth in Section 4.19 above. Stockholders means the holders of Shares, together with their successors
and assigns. Stockholder Approval has the meaning set forth in Section 7.1 above. Stockholders Meeting has the meaning set forth in Section 2.11(a)(ii)
above. A-4




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Stock Options means outstanding options to acquire Shares under the
Stock Plan. Stock Plan means the Companys 2002 Incentive Award Plan, as amended to
date. Subsidiary / Subsidiaries means with respect to any party, any Person
(A) of which such party or any other Subsidiary of such party is a general
partner, (B) of which voting power to elect a majority of the board of
directors or others performing similar functions with respect to such Person is
held by such party or by one or more of its Subsidiaries or (C) of which at
least 50% of the equity interests (or economic equivalent) of such Person are,
directly or indirectly, owned or controlled by such party or by one or more of
its Subsidiaries. Superior Proposal means a bona fide written Acquisition Proposal to
acquire all of the issued and outstanding Shares or all or substantially all of
the properties and assets of the Company that the board of directors of the
Company or the Special Committee in good faith determines, after consultation
with its outside legal counsel and after taking into account the advice of its
independent financial advisor and all of the terms and conditions of such
Acquisition Proposal (including, without limitation, any expense reimbursement
provisions, termination fees and conditions), (A) would, if consummated, result
in a transaction that is more favorable to the Stockholders entitled to receive
the Merger Consideration hereunder (in their capacities as stockholders), from
a financial point of view, than the transactions contemplated hereby and (B) is
capable of being, and is reasonably likely to be, completed without undue
delay. Surviving Corporation has the meaning set forth in the Section 2.1
above. Tangible Property has the meaning set forth in Section 4.11(c) above. Tax means any federal, state, county, local, territorial, provincial or
foreign income, net income, gross receipts, single business, unincorporated
business, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Section 59A of
the Code), customs duties, capital stock, franchise, profits, gains,
withholding, social security (or similar), payroll, unemployment, disability,
workers compensation, real property, personal property, ad valorem,
replacement, sales, use, transfer, registration, value added, alternative or
add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty or addition, whether or not disputed. Tax Returns has the meaning set forth in Section 4.14 above. Voting Debt has the meaning set forth in Section 4.5 above. Welfare Plan has the meaning set forth in Section 4.16(f) above. A-5