Document:

Exhibit

	
	
	CORNERSTONE HEALTHCARE, INC.
2016 OMNIBUS INCENTIVE PLAN

CORNERSTONE HEALTHCARE, INC. 
2016 OMNIBUS INCENTIVE PLAN
Section 1.Purpose
The purpose of the Plan is to promote the interests of the Company by aiding the Company in attracting and retaining employees, officers, consultants, independent contractors and directors capable of assuring the future success of the Company, to offer such persons incentives to continue in the Company’s employ or service and to afford such persons an opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Company.
Section 2. Definitions
As used in the Plan, the following terms shall have the meanings set forth below:
(a) “Affiliate” shall mean (i) any entity that, directly or indirectly through one or more intermediaries, is controlled by the Company and (ii) any entity in which the Company has a significant equity interest, in each case as determined by the Committee.
(b)  “Award” shall mean any Option, Restricted Stock, or Co-Invest Stock granted under the Plan.
(c) “Award Agreement” shall mean any written agreement, contract or other instrument or document evidencing an Award granted under the Plan.  Each Award Agreement shall be subject to the applicable terms and conditions of the Plan and any other terms and conditions (not inconsistent with the Plan) determined by the Committee.
(d) “Board” shall mean the Board of Directors of the Parent Company.
(e) “Change in Control” shall mean a change in ownership or control of the Company effected through any of the following transactions: (i) a merger, consolidation or other reorganization unless securities representing more than 50% of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Company’s outstanding voting securities immediately prior to such transaction; (ii) a sale, transfer or other disposition of all or substantially all of the Company’s assets; or (iii) the acquisition, directly or indirectly, by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company), of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than 50% of the total combined voting power of the Company’s outstanding securities pursuant to a tender or exchange offer made directly to the Company’s stockholders.  Change in Control shall not include an Initial Public Offering (“IPO”) by the Company of its equity securities to the public pursuant to an effective registration statement filed under the Securities Act of 1933, as amended, or under any similar law then in effect.
(f) “Co-Invest Stock” shall mean any Shares granted under Section 6(c) of the Plan.

(g) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder.
(h) “Committee” shall mean a committee of Directors designated by the Board to administer the Plan, which shall initially be the Parent Company’s compensation committee.  The Committee shall be comprised of at least two Directors but not less than such number of Directors as shall be required to permit Awards granted under the Plan to qualify under Rule 16b-3 and Section 162(m) of the Code, and each member of the Committee shall each be an “Outside Director.”
(i) “Company” shall mean Cornerstone Healthcare, Inc., a Nevada Corporation, and any successor corporation.
(j) “Director” shall mean a member of the Board of Directors of the Parent Company.
(k)  “Eligible Person” shall mean any employee, officer, consultant, independent contractor or director providing services to the Company or any Affiliate who the Committee determines to be an Eligible Person.  An Eligible Person must be a natural person.
(l) “Equity Restructuring” shall mean a dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company or other similar corporate transaction or event that affects the Shares such that an adjustment is necessary in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan.
(m) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
(n) “Non-Qualified Stock Option” shall mean an option to purchase Shares granted under Section 6(a) of the Plan.
(o) “Option” shall mean a Non-Qualified Stock Option.
(p) “Outside Director” shall mean any Director of the Parent Company who is an “outside director” within the meaning of Section 162(m) of the Code.
(q) “Market Value” shall be determined by a nationally recognized independent appraiser experienced in valuing the type of assets to be valued, which appraiser shall be selected by the Majority Investor, to arrive at an enterprise value of the Company less all debts and obligations of the Company.  The determination of such appraiser shall be final and binding on all parties, and the fees and expenses of such appraiser shall be borne by the Company. In calculating the Call Price or the Put Price, as applicable, all accounting determinations shall be made in accordance with generally accepted accounting principles consistently applied.
(r) “Parent Company” shall mean The Ensign Group, Inc., a Delaware corporation and any successor corporation.

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(s) “Participant” shall mean an Eligible Person designated to be granted an Award under the Plan.
(t)  “Person” shall mean any individual or entity, including a corporation, partnership, limited liability company, association, joint venture or trust.
(u) “Plan” shall mean The Cornerstone Healthcare, Inc. 2016 Omnibus Incentive Plan, as amended from time to time, the provisions of which are set forth herein.
(v) “Restricted Stock” shall mean any Shares granted under Section 6(b) of the Plan.
(w) “Rule 16b-3” shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act, or any successor rule or regulation.
(x) “Section 162(m)” shall mean Section 162(m) of the Code and the applicable Treasury Regulations promulgated thereunder.
(y) “Securities Act” shall mean the Securities Act of 1933, as amended.
(z) “Service” shall mean the Participant’s performance of services for the Company (or any Affiliate) in the capacity of an employee, officer, consultant, independent contractor or director.
(aa) “Share” or “Shares” shall mean a share or shares of Class B common stock, $0.01 par value per share, of the Company or such other securities or property as may become subject to Awards pursuant to an adjustment made under Section 4(c) of the Plan.
(bb) “Stockholders Agreement” shall mean the Cornerstone Healthcare, Inc. Stockholders Agreement, effective May 26, 2016.
Section 3. Administration
(a) Power and Authority of the Committee.  The Plan shall be administered by the Committee.  Any Awards made to members of the Committee, however, should also be authorized by a disinterested majority of the Board.  Subject to the express provisions of the Plan and to applicable law, the Committee shall have full power and authority to:  (i) designate Participants; (ii) determine the type or types of Awards to be granted to each Participant under the Plan; (iii) determine the number of Shares to be covered by (or the method by which payments or other rights are to be determined in connection with) each Award; (iv) determine the terms and conditions of any Award or Award Agreement; (v) amend the terms and conditions of any Award or Award Agreement and accelerate the exercisability of any Option or waive any restrictions relating to any Award; (vi) determine whether, to what extent and under what circumstances Awards may be exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or suspended; (vii) interpret and administer the Plan and any instrument or agreement, including an Award Agreement, relating to the Plan; (viii) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan.  Unless otherwise expressly provided in the Plan, all designations, 

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determinations, interpretations and other decisions under or with respect to the Plan or any Award or Award Agreement shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon any Eligible Person and any holder or beneficiary of any Award.  
(b) Power and Authority of the Board.  Notwithstanding anything to the contrary contained herein, the Board may, at any time and from time to time, without any further action of the Committee, exercise the powers and duties of the Committee under the Plan, but only to the extent it would not cause a loss of any benefits under Section 162(m).
Section 4. Shares Available for Awards
(a) Shares Available.  Subject to adjustment as provided in Section 4(c) of the Plan, the aggregate number of Shares that may be issued under the Plan shall be 6,258,709 Shares, or (ii) such lesser number of Shares as determined by the Board.  Shares to be issued under the Plan may be either authorized but unissued Shares or Shares re-acquired and held in treasury.  Any Shares that are used by a Participant as full or partial payment to the Company of the purchase price relating to an Award, or in connection with the satisfaction of tax obligations relating to an Award, shall again be available for granting Awards under the Plan.  In addition, if any Shares covered by an Award or to which an Award relates are not purchased or are forfeited, or if an Award otherwise terminates without delivery of any Shares, then the number of Shares counted against the aggregate number of Shares available under the Plan with respect to such Award, to the extent of any such forfeiture or termination, shall again be available for granting Awards under the Plan.  Any Shares that are issued under the Plan shall also reduce the number of Shares that are authorized to be issued under the Parent Company’s 2007 Omnibus Incentive Plan, as amended from time to time.
(b) Accounting for Awards.  For purposes of this Section 4, if an Award entitles the holder thereof to receive or purchase Shares, the number of Shares covered by such Award or to which such Award relates shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Plan.  Any Shares that are used by a Participant as full or partial payment to the Company of the purchase price relating to an Award or in connection with the satisfaction of tax obligations relating to an Award, shall again be available for granting Awards under the Plan.  In addition, if any Shares covered by an Award or to which an Award relates are not purchased or are forfeited, or if an Award otherwise terminates without delivery of any Shares, then the number of Shares counted against the aggregate number of Shares available under the Plan with respect to such Award, to the extent of any such forfeiture or termination, shall again be available for granting Awards under the Plan.  Furthermore, if any Shares are exchanged for Shares of the Parent Company, such Parent Company Shares shall reduce the number of authorized but unissued shares under the Parent Company’s 2007 Omnibus Incentive Plan, as amended from time to time.
(c) Adjustments.  In the event of any Equity Restructuring, the number and type of Shares (or other securities or other property) subject to outstanding Awards, and the purchase price or exercise price with respect to any Award will be proportionately adjusted to avoid dilution or enlargement of rights resulting from such event; provided, however, that the number of Shares covered by any Award or to which such Award relates shall always be a whole number.  The 

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adjustments provided under this Section 4(c) shall be nondiscretionary and shall be final and binding on the affected Participant and the Company.  The Committee shall make such proportionate adjustments to appropriately reflect such Equity Restructuring with respect to the number and kind of Shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Sections 4(a) hereof). Notwithstanding the above, in the event (i) of any reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company or any other similar corporate transaction or event or (ii) the Company shall enter into a written agreement to undergo such a transaction or event, any or all outstanding Awards may be canceled and the holders of any such Awards that are otherwise vested, may be paid in cash, the value of such Awards based upon the price per share of capital stock received or to be received by other stockholders of the Company in such event. Notwithstanding anything to the contrary herein, any such adjustment will be made in accordance with the provisions of Section 409A of the Code to the extent applicable.  
Section 5. Eligibility
Any Eligible Person shall be eligible to be designated a Participant.  In determining which Eligible Persons shall receive an Award and the terms of any Award, the Committee may take into account the nature of the services rendered by the respective Eligible Persons, their present and potential contributions to the success of the Company or such other factors as the Committee, in its discretion, shall deem relevant.  
Section 6. Awards
(a) Option Awards.  The Committee is hereby authorized to grant Options to Eligible Persons with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan, the terms and conditions of any Award, and the Stockholders Agreement, as the Committee shall determine:
(i) Exercise Price.  The purchase price per Share purchasable under an Option shall be determined by the Committee; provided, however, that such purchase price shall not be less than 100% of the Market Value of a Share on the date of grant of such Option.
(ii) Option Term.  The term of each Option shall be fixed by the Committee at the time of grant, but shall not be longer than 10 years from the date of grant.
(iii) Vesting of Option Awards.  The Option shall be exercisable for vested Shares in accordance with the schedule designated by the Committee and set forth in the Award Notice and shall become fully vested on the fifth anniversary of the date of the Award.  
(iv) Time and Method of Exercise.  An Option Award under the Plan may be exercised only during a Put Window established by the Board in its sole discretion, and the Committee shall determine the method or methods by which, and the form or forms (including, without limitation, cash, Shares, other securities, other Awards or other property, or any combination thereof, having a Market Value on the exercise date equal to the applicable exercise price) 

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in which payment of the exercise price with respect thereto may be made or deemed to have been made.
(v) Forfeiture. The Option shall terminate and may no longer be exercised if Grantee ceases to provide Service to the Company or its affiliates, except that: (i) if Grantee’s Service shall be terminated for any reason, voluntary or involuntary, other than for “Cause” or Grantee’s death or disability Grantee may exercise the Option during the next available Put Window (as defined in the terms and conditions of such Options) to the extent the Option was vested and exercisable by Grantee on the date of the termination of Grantee’s Service; (ii) if Grantee’s Service is terminated for Cause, the Option shall be terminated as of the date of the act giving rise to such termination; and (iii) if Grantee’s service terminates due to death or disability such vested Options may be exercised during the next available Put Window after Grantee’s termination of Service by Grantee, or personal representatives, administrators or guardians of Grantee as applicable, or by any person or persons to whom the Option is transferred by will or the applicable laws of descent and distribution.  Notwithstanding the above, in no case may the Option be exercised to any extent by anyone after the Expiration Date.  All unvested options shall be forfeited if Grantee ceases to provide Services to the Company or its affiliates regardless of the circumstances for such separation.

(b) Restricted Stock Awards .  The Committee is hereby authorized to grant Restricted Stock to Eligible Persons with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan, the terms and conditions of any Award, and the Stockholders Agreement, as the Committee shall determine:
(i) Restrictions.  Shares of Restricted Stock shall be subject to such restrictions as the Stockholders Agreement may provide and the Committee may impose (including, without limitation, a restriction on or prohibition against the right to receive any dividend or other right or property with respect thereto), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise as the Committee may deem appropriate.
(ii) Vesting of Restricted Stock Awards.  A Restricted Stock Award shall vest in accordance with the schedule designated by the Committee set forth in the Award Notice and shall become fully vested on the fifth anniversary of the date of the Award.  
(iii) Issuance of Shares.  Any Restricted Stock granted under the Plan may be evidenced in such manner as the Board may deem appropriate, including book-entry registration or issuance of a stock certificate or certificates, which certificate or certificates shall be held by the Company.  Such certificate or certificates shall be registered in the name of the Participant and shall bear an appropriate legend referring to the restrictions and possible forfeiture applicable to such Restricted Stock, as set forth in the Award Agreement.
(iv) Forfeiture.  Except as otherwise determined by the Committee, (A) upon a Participant’s termination of Service (as determined under criteria established by the Committee) during the applicable restriction period or prior to the vesting of such Awards, 

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all applicable Shares of Restricted Stock at such time subject to restriction shall be forfeited to the Company; (B) upon a Participant’s death or disability all applicable Shares of Restricted Stock at such time subject to restriction or that are not vested shall be forfeited to the Company, provided, however, that the Committee may, when it finds that a waiver would be in the best interest of the Company, waive in whole or in part any or all remaining restrictions with respect to Shares of Restricted Stock.
(c) Co-Invest Stock Awards
The Committee is hereby authorized to grant Co-Invest Stock to Eligible Persons with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan, the terms and conditions of any Award, and the Stockholders Agreement, as the Committee shall determine:

(i) Restrictions.  Shares of Co-Invest Stock shall be subject to any restrictions imposed by this Plan or the Stockholders Agreement and any that the Committee may impose (including, without limitation, a restriction on or prohibition against the right to receive any dividend or other right or property with respect thereto), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise as the Committee may deem appropriate.  Notwithstanding the foregoing, any Co-Invest shares shall not be transferrable for a period of six (6) months following the grant date.
(ii) Vesting.  Shares of Co-Invest Stock shall be fully vested at the time of grant.
(iii) Issuance of Shares.  Any Co-Invest Stock granted under the Plan may be evidenced in such manner as the Board may deem appropriate, including book-entry registration or issuance of a stock certificate or certificates, which certificate or certificates shall be held by the Company.  Such certificate or certificates shall be registered in the name of the Participant and shall bear an appropriate legend referring to the restrictions and possible forfeiture applicable to such Restricted Stock, as set forth in the Award Agreement.

(d) General Consideration for Awards.  Awards may be granted for no cash consideration or for any cash or other consideration as determined by the Committee and required by applicable law.
(i) Awards May Be Granted Separately or Together.  Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with any other Award or any award granted under any plan of the Company or any Affiliate.  Awards granted in addition to or in tandem with other Awards or in addition to or in tandem with awards granted under any such other plan of the Company or any Affiliate may be granted either at the same time as or at a different time from the grant of such other Awards or awards.
(ii) Forms of Payment under Awards.  Subject to the terms of the Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise or payment of an Award may be made in such form or 

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forms as the Committee shall determine (including, without limitation, cash, Shares, other securities, other Awards or other property or any combination thereof), and may be made in a single payment or transfer, in installments or on a deferred basis, in each case in accordance with rules and procedures established by the Committee.  
(iii) Limits on Transfer of Awards.  No Award and no right under any such Award shall be transferable by a Participant and the Company shall not be required to recognize any attempted assignment of such rights by any Participant; provided, however, that, if so determined by the Committee or as set forth in the terms and conditions of any Awards or in the Stockholders Agreement (which have been previously approved by the Committee), a Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Participant and receive any property distributable with respect to any Award upon the death of the Participant; Except as otherwise determined by the Committee or as set forth in the terms and conditions of any Awards or in the Stockholders Agreement (which have been previously approved by the Committee), each Award or right under any such Award shall be exercisable during the Participant’s lifetime only by the Participant or, if permissible under applicable law, by the Participant’s guardian or legal representative.  Except as otherwise determined by the Committee, no Award or right under any such Award may be pledged, alienated, attached or otherwise encumbered, and any purported pledge, alienation, attachment or other encumbrance thereof shall be void and unenforceable against the Company or any Affiliate.
(iv) Term of Options.  The term of each Option shall be fixed by the Committee at the time of grant, but shall not be longer than 10 years from the date of grant.
(v) Restrictions; Securities Exchange Listing.  All Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan, applicable federal or state securities laws and regulatory requirements, and the Committee may direct appropriate stop transfer orders and cause other legends to be placed on the certificates for such Shares or other securities to reflect such restrictions.  If the Shares or other securities are traded on a securities exchange, the Company shall not be required, and shall have no liability for failure, to deliver any Shares or other securities covered by an Award unless and until such Shares or other securities have been and continue to be admitted for trading on such securities exchange.  No Shares shall be issued or delivered pursuant to the Plan, and the Company shall have no liability for failure to issue or deliver Shares under the Plan, if doing so would violate any internal policies of the Company.
(vi) Prohibition on Repricing.  Except as provided in Section 4(c) of the Plan, no Option may be amended to reduce its initial exercise or grant price and no Option shall be canceled and replaced with Options having a lower exercise or grant price, without the approval of the stockholders of the Company.
Section 7. Liquidity of Vested Shares

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(a) Vested Shares received through the exercise of Options or the grant of Restricted Stock or Co-Invest Stock Awards under this Plan, are subject to the restrictions on transfer, sale or disposition contained in this Plan, the Stockholders Agreement, and the Terms and Conditions of such Award, including certain Call Rights and certain Put Rights set forth therein.  Specifically, shares shall be subject to the following provisions:
(b) Call Rights.
(iv) Tender Offer.  From time-to-time, the Company may determine in its sole discretion to commence an offer (a “Tender Offer”) to repurchase all or any portion of any vested Shares (as defined in the Stockholders Agreement) held by a Participant.    
(v) Upon termination of employment for any reason following which any Participant (or his or her estate or permitted transferee) continues to hold any vested Shares, or at any other time at the Committee’s sole discretion. 
(vi) The Company’s Call Right shall be exercised as follows:  
(A) the Company shall have the right to purchase all or a portion of vested Shares at the Call Price (the "Call") by delivering written notice to the applicable Participant or Participants (or his or her estate or permitted transferee) (the "Call Notice").  
(B) Upon delivery of the Call Notice, the Company shall, in accordance with Section 7(b)(iii)(D) herein, promptly determine the Call Price hereunder, and within 15 days after the Call Price has been determined, the Company shall purchase and the Participant shall sell the vested Shares as set forth in the Call Notice (the "Call Closing").
(C) At the Call Closing, the Participant shall deliver to the Company duly executed instruments transferring title to the Stockholder Shares to the Company free and clear of all liens and encumbrances, against payment of the appropriate Call Price by either (i) cashier's or certified check payable to the Participant or by wire transfer of immediately available funds to an account designated by the Participant or, to the extent determined by the Committee  in its sole discretion (ii) a number of fully-vested shares of The Ensign Group, Inc. (“Parent Company”) that, when multiplied by the Parent Stock Value, equals the Call Price. The “Parent Stock Value” of Parent Company common stock will be based on the closing price quoted in the NASDAQ System for the Parent Company Stock as of 4:00 P.M., New York time on the Call Closing date.  If for any reason the Parent Company is unable to deliver Parent Company common stock in satisfaction of the Call, the Committee, at its sole discretion, reserves the right to defer or reject the exercise of the Call until such time delivery of Parent Company common stock is possible.   In addition, the payment of any Call Price pursuant to the Call may be delayed to the extent the Committee determines it would be advisable in light of the Company’s financial condition or 

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would be required under any loan or other agreement to which the Parent Company or the Company is a party.
(D) The Call Price of the Shares shall mean the product of (A) the Market Value of the Company, multiplied by (B) a Call Quotient. The “Call Quotient” shall equal the number of shares set forth in the Call Notice being purchased by the Company divided by the total number of outstanding shares of the Company’s Shares (which number shall include all outstanding shares of the Company’s Shares that are convertible into Shares of Class B Common Stock on an as-if converted basis, including outstanding shares of Class A Common Stock). 
(vii) The Company's right to exercise the Call hereunder shall terminate upon the consummation of a Qualified Public Offering.
(c) Participant Put Rights.
(vii) During any Put Window arising under the terms of the Stockholders Agreement and the Terms and Conditions of such Award, a Participant shall have the right to require the Company to purchase all or a portion of the Participant’s Mature Shares, as applicable, at the Put Price (the "Put") by delivering written notice to the Company during the Put Window (the "Put Notice").
(viii) Upon delivery of the Put Notice during the Put Window, the Company shall make commercially reasonable efforts to, in accordance with Section 7(c)(iv) herein, determine the Put Price hereunder, and within 5 business days after the Put Price has been determined, the Company shall purchase and the Participant shall sell the Mature Shares as set forth in the Put Notice (the "Put Closing").
(ix) At the Put Closing, the Participant shall deliver to the Company duly executed instruments transferring title to the Mature Shares to the Company free and clear of all liens and encumbrances, against payment of the appropriate Put Price by either (i) cashier's or certified check payable to the Participant or by wire transfer of immediately available funds to an account designated by the Participant or, to the extent determined by the Committee in its sole discretion (ii) a number of fully-vested shares of the Parent Company that, when multiplied by the Parent Stock Value, equals the Put Price. The “Parent Stock Value” of Parent Company common stock will be based on the Closing price of the Parent Company common stock on the date of the Put Closing. If for any reason the Parent Company is unable to deliver Parent Company common stock in satisfaction of the Put, the Committee, at its sole discretion, reserves the right to defer or reject the exercise of the Put until such time delivery of Parent Company common stock is possible.   In addition, the payment of any Put Price pursuant to the Put may be delayed to the extent the Committee determines it would be advisable in light of the Company’s financial condition or would be required under any loan or other agreement to which the Parent Company or the Company is a party.
(x) The Put Price shall mean the product of (A) the Market Value of the Company, multiplied by (B) a Put Quotient.  The “Put Quotient” shall equal the number of shares set 

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forth in the Put Notice being purchased by the Company divided by the total number of outstanding shares of the Company’s Class A Common Stock on an as-if converted basis and the total number of outstanding shares of Class B Common Stock. 
(xi) In the event that a Participant’s service is terminated without Cause, or because the Participant has died or become disabled, and the Option, Stock, Restricted Stock or Co-Invest Stock is properly vested and/or exercised within the periods proscribed in the Plan, the Stockholders Agreement and the applicable Terms and Conditions of such Award, the Participant shall have the right to require the Company to purchase the shares during the next Put Window on terms and conditions set forth in this Section 7(c).  The Stockholder's right to exercise the Put under the Plan, the Stockholders Agreement or the Terms and Conditions of the applicable Award shall terminate upon the consummation of a Qualified Public Offering.
Section 8. Amendment and Termination; Adjustments
(a) Amendments to the Plan.  The Board may amend, alter, suspend, discontinue or terminate the Plan at any time; provided, however, that, such amendment, alteration, suspension, discontinuation or termination shall be consistent with the terms the Stockholders Agreement and the Securities Act. 
(b) Amendments to Awards.  The Committee may waive any conditions of or rights of the Company under any outstanding Award, prospectively or retroactively.  Except as otherwise provided herein or in an Award Agreement, the Committee may not amend, alter, suspend, discontinue or terminate any outstanding Award, prospectively or retroactively, if such action would adversely affect the rights of the holder of such Award, without the consent of the Participant or holder or beneficiary thereof.  
(c) Correction of Defects, Omissions and Inconsistencies.  The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award or Award Agreement in the manner and to the extent it shall deem desirable to implement or maintain the effectiveness of the Plan.
Section 9. Income Tax Withholding
In order to comply with all applicable federal, state or local income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal, state or local payroll, withholding, income or other taxes, which are the sole and absolute responsibility of a Participant, are withheld or collected from such Participant.  In order to assist a Participant in paying all or a portion of the federal, state and local taxes to be withheld or collected upon exercise or receipt of (or the lapse of restrictions relating to) an Award, the Committee, in its discretion and subject to such additional terms and conditions as it may adopt, may permit the Participant to satisfy such tax obligation by (i) electing to have the Company withhold a portion of the Shares otherwise to be delivered upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Market Value equal to the amount of such taxes (up to the maximum marginal tax rate in the Participant’s jurisdiction) or (ii) delivering to the Company Shares other than Shares 

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issuable upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Market Value equal to the amount of such taxes (but only to the extent of the minimum amount required to be withheld under applicable laws or regulations).  The election, if any, must be made on or before the date that the amount of tax to be withheld is determined.
Section 10. General Provisions
(a) No Rights to Awards.  No Eligible Person or other Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Eligible Persons or holders or beneficiaries of Awards under the Plan.  The terms and conditions of Awards need not be the same with respect to any Participant or with respect to different Participants.
(b) Award Agreements.  No Participant will have rights under an Award granted to such Participant unless and until an Award Agreement shall have been duly executed on behalf of the Company and, if requested by the Company, signed by the Participant.
(c) Plan Provisions Control.  In the event that any provision of an Award Agreement conflicts with or is inconsistent in any respect with the terms of the Plan as set forth herein or subsequently amended, the terms of the Plan shall control.
(d) No Rights of Stockholders.  Neither a Participant nor the Participant’s legal representative shall have any voting rights, dividend rights, or cash dividend rights with respect to any Award or issuance of Shares under this plan other than those rights that are mandated by operation of law. 
(e) No Limit on Other Compensation Arrangements.  Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases.
(f) No Right to Employment.  The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ, nor will it affect in any way the right of the Company or an Affiliate to terminate a Participant’s employment or Service at any time, with or without cause.  In addition, the Company or an Affiliate may at any time dismiss a Participant from employment, free from any liability or any claim under the Plan or any Award, unless otherwise expressly provided in the Plan or in any Award Agreement.  Nothing in this Plan shall confer on any person any legal or equitable right against the Company or any Affiliate, directly or indirectly, or give rise to any cause of action at law or in equity against the Company or an Affiliate.  The Awards granted hereunder shall not form any part of the wages or salary of any Eligible Person for purposes of severance pay or termination indemnities, irrespective of the reason for termination of employment.  Under no circumstances shall any person ceasing to be an employee of the Company or any Affiliate be entitled to any compensation for any loss of any right or benefit under the Plan which such employee might otherwise have enjoyed but for termination of employment, whether such compensation is claimed by way of damages for wrongful or unfair dismissal, breach of contract or otherwise.  By participating in the Plan, each Participant shall be deemed to have accepted all the conditions of the Plan and the terms and conditions of any rules and regulations adopted by the Committee and shall be fully bound thereby.

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(g) Governing Law.  The validity, construction and effect of the Plan or any Award, and any rules and regulations relating to the Plan or any Award, shall be determined in accordance with the internal laws, and not the law of conflicts, of the State of Delaware.
(h) Severability.  If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction or Award, and the remainder of the Plan or any such Award shall remain in full force and effect.
(i) No Trust or Fund Created.  Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and an Eligible Person or any other Person.  To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.
(j) Other Benefits.  No compensation or benefit awarded to or realized by any Participant under the Plan shall be included for the purpose of computing such Participant’s compensation under any compensation-based retirement, disability, or similar plan of the Company unless required by law or otherwise provided by such other plan.
(k) No Fractional Shares.  No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash shall be paid in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated.
(l) Headings.  Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference.  Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.
(m) Section 16 Compliance; Section 162(m) Administration.  The Plan is intended to comply in all respects with Rule 16b-3 or any successor provision, as in effect from time to time, and in all events the Plan shall be construed in accordance with the requirements of Rule 16b-3.  If any Plan provision does not comply with Rule 16b-3 as hereafter amended or interpreted, the provision shall be deemed inoperative.  The Board of Directors, in its absolute discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan with respect to persons who are officers or directors subject to Section 16 of the Exchange Act without so restricting, limiting or conditioning the Plan with respect to other Eligible Persons.  With respect to Options, the Company intends to have the Plan administered in accordance with the requirements for the award of “qualified performance-based compensation” within the meaning of Section 162(m) of the Code.
(n) Conditions Precedent to Issuance of Shares.  Shares shall not be issued, and the Company shall not have any liability for failure to issue Shares, pursuant to the exercise or payment of the purchase price relating to an Award unless such exercise or payment and the issuance and delivery 

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of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act, the Exchange Act, the rules and regulations promulgated thereunder, the requirements of any applicable Stock Exchange and the Delaware General Corporation Law.  As a condition to the exercise or payment of the purchase price relating to such Award, the Company may require that the person exercising or paying the purchase price represent and warrant that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation and warranty is required by law.
Section 11. Effective Date of the Plan
The Plan shall be effective as of May 26, 2016.
Section 12. Term of the Plan
No Award shall be granted under the Plan after (a) the tenth anniversary of the later of (i) the date on which this Plan was adopted by the Board or (ii) the date this Plan was approved by the stockholders of the Company, or (b) any earlier date of discontinuation or termination established pursuant to Section 8(a) of the Plan.  However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond such date, and the authority of the Committee provided for hereunder with respect to the Plan and any Awards, and the authority of the Board to amend the Plan, shall extend beyond the termination of the Plan.

14Exhibit

CORNERSTONE HEALTHCARE, INC. 
 
STOCKHOLDERS AGREEMENT
THIS AGREEMENT is made as of May 26, 2016, between Cornerstone Healthcare, Inc., a Nevada corporation (the "Company"), the Majority Investor listed on the Schedule of Investors attached hereto (the "Majority Investor") and the Minority Investors on the Schedule of Investors attached hereto (the "Minority Investors"), each as may be amended from time to time at the sole discretion of the Committee.  The Majority Investor and the Minority Investors are collectively referred to as the "Stockholders" and individually as a "Stockholder."  Unless otherwise specified herein, the capitalized terms used herein are defined in Section 7 hereof or in that certain 2016 Omnibus Incentive Plan (the "Plan").  
The Majority Investor shall hold shares of the Company's Class A Common Stock and Minority Investors shall hold shares of the Company’s Class B Common Stock pursuant to the Plan.  
The Company and the Stockholders desire to enter into this Agreement for the purposes, among others, of (i) establishing the composition of the Company's Board of Directors (the "Board"), (ii) assuring continuity in the management and ownership of the Company and (iii) limiting the manner and terms by which the Stockholders’ Shares (as defined in paragraph 7 hereof) may be transferred.  
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows:
1.Board of Directors.
(a) From and after the Effective Time (as defined in the Plan) and until the provisions of this paragraph 1 cease to be effective, the holders of the Class A Common Stock shall vote all of its Stockholder Shares that are voting shares and any other voting securities of the Company over which such Stockholder has voting control and shall take all other reasonably necessary or desirable actions within his control (whether in his capacity as a stockholder, director, Stockholder of a board committee or officer of the Company or otherwise, and including, without limitation, attendance at meetings in person or by proxy for purposes of obtaining a quorum and execution of written consents in lieu of meetings), and the Company shall take all reasonably necessary or desirable actions within its control (including, without limitation, calling special board and stockholder meetings), so that:
(i) the authorized number of directors on the Board shall be established at three directors; 
(ii) the following individuals shall be elected to the Board:  Christopher R. Christensen, Suzanne D. Snapper and Daniel H. Walker and shall serve as Directors;

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(iii) any committees of the Board shall be created only upon the approval of Christopher Christensen;
(iv) the removal from the Board (with or without cause) of any representative designated hereunder shall be at the Majority Investor's written request, but only upon such written request and under no other circumstances (in each case, determined on the basis of a vote of the holders of a majority of the Class A Common Shares held by such Persons), provided that if any director elected pursuant to subparagraph (ii) above ceases to be an employee of the Company and its Subsidiaries, he shall be removed as a director promptly after his employment ceases; and 
(v) in the event that any representative designated hereunder ceases to serve as a Stockholder of the Board during his term of office, the resulting vacancy on the Board shall be filled by a representative designated by the Majority Investor.
(b) The Company shall pay the reasonable out-of-pocket expenses incurred by each director in connection with attending the meetings of the Board and any committee thereof.  The Company shall maintain directors and officers indemnity insurance coverage reasonably satisfactory to the Majority Investor Directors, and the Company's certificate of incorporation and bylaws shall provide for indemnification and exculpation of directors to the fullest extent permitted under applicable law.
(c) The provisions of this paragraph 1 shall terminate automatically and be of no further force and effect upon the occurrence of a Qualified Public Offering (as defined in paragraph 7 hereof).
(d) If any party fails to designate a representative to fill a directorship pursuant to the terms of this paragraph 1, such directorship shall remain vacant until such party exercises its right to designate a director hereunder.
(e) Except as required by applicable law, holders of Class B Stock shall have no voting rights.  If any corporate action or other matter on the part of the Company requires a vote of the holders of Class B Common Stock voting separately as a class under the applicable corporate law, the Stockholders who hold such other class of Class B Common Stock shall be entitled to vote as a separate class on such corporate action or other matter as required by applicable corporate law, but such holders (upon notice from the Stockholders holding a majority of the Class A Common Stock) hereby agree to vote all such shares of Class B Common Stock in the same manner with respect to such proposed corporate action or other matter (i.e., either in favor of, or against, such proposed corporate action or other matter) as the Stockholders holding a majority of the Class A Common Stock so vote.
2. Representations and Warranties.  Each Stockholder represents and warrants that (i) such Stockholder is the record owner of the number of Stockholder Shares set forth opposite its name on the Schedule of Investors attached hereto, free and clear of all liens and encumbrances, (ii) this Agreement has been duly authorized, executed and delivered by such Stockholder and constitutes the valid and binding obligation of such Stockholder, enforceable in accordance with 

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its terms, and (iii) such Stockholder has not granted and is not a party to any proxy, voting trust or other agreement which is inconsistent with, conflicts with or violates any provision of this Agreement.  No holder of Stockholder Shares shall grant any proxy or become party to any voting trust or other agreement that is inconsistent with, conflicts with or violates any provision of this Agreement.
3.
    Restrictions on Transfer of Stockholder Shares.
(a) Transfer of Stockholder Shares.  No holder of Stockholder Shares shall sell, transfer, assign, pledge or otherwise dispose of (whether with or without consideration and whether voluntarily or involuntarily or by operation of law, but excluding by way of merger or consolidation) any interest in his Stockholder Shares (a "Transfer"), except pursuant to the provisions of the Plan, the terms and conditions of any awards under the Plan or under paragraph 8 hereof or pursuant to a Public Sale; 
(b) Permitted Transfers.  The restrictions set forth in this paragraph 3 shall not apply with respect to any Transfer of Stockholder Shares by any Stockholder, in the case of an Majority Investor, among its Affiliates (collectively referred to herein as "Permitted Transferees"); provided that the restrictions contained in this paragraph 5 shall continue to be applicable to the Stockholder Shares after any such Transfer and provided further that the transferees of such Stockholder Shares shall have agreed in writing to be bound by the provisions of this Agreement affecting the Stockholder Shares so transferred.
(c) Termination of Restrictions.  The restrictions on the Transfer of Stockholder Shares set forth in this paragraph 3 shall continue with respect to each Stockholder Share until the date on which such Stockholder Share has been transferred in a Public Sale or the consummation of a Qualified Public Offering.
4. Holdback Agreement.  No holder of Stockholder Shares shall effect any public sale or distribution of any Stockholder Shares or of any other capital stock or equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such stock or securities, during the seven days prior to and the 180-day period beginning on the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (as such terms are defined in the Registration Agreement dated as of the date hereof between the Majority Investor and the Company) unless the underwriters managing the registration otherwise agree.  The restrictions on the transfer of Stockholder Shares set forth in this paragraph 4 shall continue with respect to each Stockholder Share until the date on which such Stockholder Share has been transferred in a Public Sale.  
5. Legend.  Each certificate, if any, evidencing Stockholder Shares and each certificate issued in exchange for or upon the transfer of any Stockholder Shares (if such shares remain Stockholder Shares after such transfer) shall be stamped or otherwise imprinted with a legend in substantially the following form:

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"The securities represented by this certificate are subject to a Stockholders Agreement dated as of May 26, 2016, among the issuer of such securities (the "Company") and certain of the Company's stockholders, as amended and modified from time to time.  A copy of such Stockholders Agreement shall be furnished without charge by the Company to the holder hereof upon written request."
The Company shall imprint such legend on certificates, if any, evidencing Stockholder Shares outstanding as of the date hereof, and the Stockholders shall surrender their stock certificates to the Company for such purpose.  The legend set forth above shall be removed from the certificates evidencing any shares that cease to be Stockholder Shares as provided in the definition of such term in paragraph 7 hereof.
6. Transfer.  Prior to transferring any Stockholder Shares (other than a Public Sale or a Sale of the Company) to any Person, the transferring Stockholder Shares shall cause the prospective transferee to be bound by this Agreement and to execute and deliver to the Company and the other Stockholders a counterpart of this Agreement.
7. Definitions.
"Affiliate" of any Person is any other Person controlled by, controlling or under common control with such Person and in the case of any Stockholder that is a partnership or limited liability company, any partner or Stockholder of such Stockholder (provided that the Company shall not be deemed to be an Affiliate of any Stockholder).
"Board" has the meaning set forth in the preamble.
"Class A Common Stock" means the Company's Class A Common Stock.
"Class B Common Stock" means the Company's Class B Common Stock.
"Company" has the meaning set forth in the preamble.
"Committee" shall mean the Compensation Committee of The Ensign Group, Inc.
"Independent Third Party" means any Person (i) who immediately prior to the contemplated transaction, is not a Stockholder or a Stockholder of any Stockholder's Family Group, is not a partner, stockholder or other direct or indirect owner of any Stockholder, is not an officer or director of the Company or any Subsidiary of the Company, does not own any Class A Common Stock, is not a creditor of the Company or any Subsidiary for an aggregate principal amount in excess of $500,000 and does not own or have the right to acquire in excess of 5% of any class of the Company's equity capital stock on a fully-diluted basis (each a "Related Party"), (ii) who is not an Affiliate of any such Related Party and (iii) who is not  a trust for the benefit of such Related Party and/or such other Persons or any Affiliate of such Person.
"Majority Investor" has the meaning set forth in the preamble.

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"Market Value" shall be determined by a nationally recognized independent appraiser experienced in valuing the type of assets to be valued, which appraiser shall be selected by the Majority Investor, to arrive at an enterprise value of the Company less all debts and obligations of the Company.  The determination of such appraiser shall be final and binding on all parties, and the fees and expenses of such appraiser shall be borne by the Company. In calculating the Call Price or the Put Price, as applicable, all accounting determinations shall be made in accordance with generally accepted accounting principles consistently applied.
"Mature Shares" means any Class B Common Stock that is either (i) Restricted Stock that has vested at least six (6) months prior to the date of repurchase, (ii) Class B Common Stock acquired in respect of Options that had been exercised at least six (6) months prior to the date of repurchase, or (iii) any other vested and outstanding shares of Class B Common Stock that has been held at least six (6) months prior to the date of repurchase.  Any unvested shares of Class B Common Stock or vested shares that are forfeited for any other reason under the terms of the Plan or the applicable Option or Restricted Stock Award, shall not be deemed a Mature Share and such shares shall be forfeited and returned to the Company per the terms of the Plan and the applicable Option Award or Restricted Stock Award.
"Minority Investor" has the meaning set forth in the preamble.
"Permitted Transferee" has the meaning set forth in paragraph 3(d) hereof.
"Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.
"Plan" has the meaning set forth in the preamble.
“Put Window” shall be a period not to exceed fifteen (15) days of the one year anniversary of the grant date for the applicable shares of Class B Common Stock.  
"Public Sale" means any sale of Stockholder Shares to the public pursuant to an offering registered under the Securities Act or to the public through a broker, dealer or market maker on a securities exchange or in the over-the-counter market pursuant to the provisions of Rule 144 adopted under the Securities Act.
"Qualified Public Offering" means the sale in an underwritten public offering registered under the Securities Act of shares of the Company's Class B Common Stock having an aggregate offering value of at least $150 million.
"Sale of the Company" means the sale of the Company pursuant to which such party or parties acquire (i) capital stock of the Company possessing the voting power under normal circumstances to elect a majority of the Company's board of directors (whether by merger, consolidation or sale or transfer of the Company's capital stock) or (ii) all or substantially all of the Company's assets determined on a consolidated basis.

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"Securities Act" means the Securities Act of 1933, as amended from time to time.
"Stockholder Shares" means (i) any Class A Common Stock or Class B Common Stock issued, purchased or otherwise acquired by any Stockholder, (ii) any Class B Common Stock issued or issuable directly or indirectly upon conversion of the Class A Common Stock and (iii) any Class B Common Stock issued or issuable with respect to the securities referred to in clauses (i) and (ii) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization.  For purposes of this Agreement, any Person who holds Class A Common Stock shall be deemed to be the holder of the Stockholder Shares issuable directly or indirectly upon conversion of the Class A Common Stock in connection with the transfer thereof or otherwise and regardless of any restriction or limitation on the conversion thereof and shall be subject to the provisions of this Agreement.  As to any particular Stockholder Shares, such shares shall cease to be Stockholder Shares when they have been (a) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them or (b) distributed to the public through a broker, dealer or market maker on a securities exchange or in the over-the-counter market pursuant to Rule 144 under the Securities Act (or any similar provision then in force).
"Stockholders" has the meaning set forth in the preamble.
"Subsidiary" means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the limited liability company, partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof.  For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control the managing director or general partner of such limited liability company, partnership, association or other business entity.
"Transfer" has the meaning set forth in paragraph 3(a).
8. Call Rights.
(a) Upon termination of employment for any reason following which any Stockholder (or his or her estate or permitted transferee) continues to hold any vested Shares, or at any other time at the Committee’s sole discretion, the Company shall have the right to purchase all or a portion of such vested Shares at the Call Price (the "Call") by delivering written notice to the applicable Stockholder or Stockholders (or his or her estate or permitted transferee) (the "Call Notice").  

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(b) Upon delivery of the Call Notice, the Company and the Majority Investor shall, in accordance with Section 8(d) herein, promptly determine the Call Price hereunder, and within fifteen (15) days after the Call Price has been determined, the Company shall purchase and the Stockholder shall sell the vested Shares as set forth in the Call Notice (the "Call Closing").
(c) At the Call Closing, the Stockholder shall deliver to the Company duly executed instruments transferring title to the Stockholder Shares to the Company free and clear of all liens and encumbrances, against payment of the appropriate Call Price by either (i) cashier's or certified check payable to the Investor or by wire transfer of immediately available funds to an account designated by the Investor or, to the extent determined by the Committee (as defined in the Plan) in its sole discretion (ii) a number of fully-vested shares of The Ensign Group, Inc. (“Parent Company”) that, when multiplied by the Parent Stock Value, equals the Call Price. For purposes of this Agreement, the “Parent Stock Value” of Parent Company common stock will be based on the closing price quoted in the NASDAQ System for the Parent Company Stock as of 4:00 P.M., New York time on the Call Closing date.  If for any reason the Parent Company is unable to deliver Parent Company common stock in satisfaction of the Call, the Committee, at its sole discretion, reserves the right to defer or reject the exercise of the Call until such time delivery of Parent Company common stock is possible.   In addition, the payment of any Call Price pursuant to the Call may be delayed to the extent the Committee determines it would be advisable in light of the Company’s financial condition or would be required under any loan or other agreement to which the Parent Company or the Company is a party.
(d) "Call Price" of the Stockholder Shares shall mean the product of (i) the Market Value of the Company, multiplied by (ii) a Call Quotient.  The “Call Quotient” shall equal the number of shares set forth in the Call Notice being purchased by the Company divided by the total number of outstanding shares of the Company’s Class A Common Stock on an as-if converted basis and the total number of outstanding shares of Class B Common Stock. 
(e) The Company's right to exercise the Call hereunder shall terminate upon the consummation of a Qualified Public Offering.
9. Stockholder Put Rights.
(a) During any Put Window, a Stockholder shall have the right to require the Company to purchase all or a portion of the Stockholder’s Mature Shares at the Put Price (the "Put") by delivering written notice to the Company during the Put Window (the "Put Notice").  
(b) The Committee shall cause the Company to provide written notice to the holders of Class B Common Stock, whether vested or unvested, of the preliminary valuation of the Company and the per share price of each share of Class B Common Stock  at least thirty (30) days but not more than 60 days in advance of the Put Window.  Upon delivery of the Put Notice during the Put Window, the Company and the Majority Investor shall make commercially reasonable efforts to, in accordance with Section 9(d) herein, determine the Put Price hereunder, and within 5 business days after the Put Price has been determined, the Company shall purchase and the Stockholder shall sell the Mature Shares as set forth in the Put Notice (the "Put Closing").

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(c) At the Put Closing, the Stockholder shall deliver to the Company duly executed instruments transferring title to the Mature Shares to the Company free and clear of all liens and encumbrances, against payment of the appropriate Put Price by either (i) cashier's or certified check payable to the Investor or by wire transfer of immediately available funds to an account designated by the Investor or, to the extent determined by the Committee (as defined in the Plan) in its sole discretion (ii) a number of fully-vested shares of the Parent Company that, when multiplied by the Parent Stock Value, equals the Put Price. The “Parent Stock Value” of Parent Company common stock will be based on the Closing price of the Parent Company common stock on the date of the Put Closing. If for any reason the Parent Company is unable to deliver Parent Company common stock in satisfaction of the Put, the Committee, at its sole discretion, reserves the right to defer or reject the exercise of the Put until such time delivery of Parent Company common stock is possible.   In addition, the payment of any Put Price pursuant to the Put may be delayed to the extent the Committee determines it would be advisable in light of the Company’s financial condition or would be required under any loan or other agreement to which the Parent Company or the Company is a party.
(d) "Put Price" of the Mature Shares shall mean the product of (A) the Market Value of the Company, multiplied by (B) a Put Quotient.  The “Put Quotient” shall equal the number of shares set forth in the Put Notice being purchased by the Company divided by the total number of outstanding shares of the Company’s Class A Common Stock on an as-if converted basis and the total number of outstanding shares of Class B Common Stock.
(e) In the event that a Stockholder’s service is terminated without Cause, or because the Stockholder has died or become disabled, and the Shares being exercised under the Put are Mature Shares, the Stockholder shall have the right to require the Company to purchase the shares during the next Put Window on terms and conditions set forth in this Section 9.  The Stockholder's right to exercise the Put hereunder shall terminate upon the consummation of a Qualified Public Offering.
10. Sale of the Company.
(a) If the Committee or the Majority Investor approves the sale of the Company to an independent third party (whether by merger, consolidation, sale of all or substantially all of its assets or sale of all of the outstanding Class A Common Stock and Class B Common Stock) and deliver written notice to the holders of Class B Common Stock invoking the provisions of this paragraph (an "Approved Sale"), the holders of Class B Common Stock shall consent to, vote in favor of and raise no objections against the Approved Sale and waive all dissenter's rights, appraisal rights and similar rights in connection with such Approved Sale.  If the Approved Sale is structured as a sale of stock, merger or other transaction having the effect of a sale of stock, the holders of Class B Common Stock shall agree to sell all of their shares of Class B Common Stock pursuant to the Approved Sale and surrender their Option Shares and rights to acquire Option Shares on the terms and conditions approved by the Committee.  The holders of Class B Common Stock shall take all necessary and desirable actions in connection with the consummation of the Approved Sale.  For purposes of this paragraph, an "independent third party" is any person who does not own in excess of 5% of the Company's Class A Common Stock on a fully-diluted basis, who is not 

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controlling, controlled by or under common control with any such 5% owner of the Company's Class A Common Stock and who is not the spouse, ancestor or descendant (by birth or adoption) of any such 5% owner of the Company's Class A Common Stock.
(b) The obligations of the holders of Class B Common Stock with respect to the Approved Sale of the Company are subject to the satisfaction of the following conditions: (i) upon the consummation of the Approved Sale, all of the holders of each class of the Company's capital stock shall receive the same form and amount of consideration per share of such class that such holders would have received if such consideration had been distributed by the Company in complete liquidation pursuant to the rights and preferences under the Company's Articles of Incorporation as of the Approved Sale, or if any holders of the same class of stock are given an option as to the form and amount of consideration to be received, all holders of such class shall be given the same option; and (ii) all holders of then currently exercisable rights to acquire shares of Common Stock shall be given an opportunity to either (A) exercise such rights prior to the consummation of the Approved Sale and participate in such sale as holders of Common Stock or (B) upon the consummation of the Approved Sale, receive in exchange for such rights consideration equal to the amount determined by multiplying (1) the same amount of consideration per share of Common Stock received by the holders of Common Stock in connection with the Approved Sale less the exercise price per share of Common Stock of such rights to acquire Common Stock by (2) the number of shares of Common Stock represented by such rights; provided that the condition that each holder of stock receive, or is provided with the same option to receive, the same form of consideration as set forth above shall be deemed satisfied even if certain holders of the Company's capital stock receive, to the exclusion of others, securities of the entity acquiring the Company in an Approved Sale, so long as each holder of the same class of stock receives the same amount of value, whether in cash or such securities, as of the closing of such Approved Sale with respect to such holder's shares of such class.
(c) In furtherance of the foregoing, (i) each holder of Class B Common Stock shall take, with respect to such holder's shares, all necessary or desirable actions reasonably requested by the Committee and the Majority Investor in connection with the consummation of the Approved Sale and (ii) each holder of Class B Common Stock shall make the same representations, warranties, indemnities and agreements as each other holder, including without limitation, voting to approve such transaction and executing the applicable purchase agreement and related documents, except that (A) each holder of shares shall be obligated only to make representations and warranties with respect to such holder's title to and ownership of shares, authorization, execution and delivery of relevant documents by such holder, enforceability of relevant agreements against such holder and other matters relating to such holder, to enter into covenants in respect of a Transfer of such holder's shares in connection with such Approved Sale and to enter into indemnification obligations with respect to the foregoing, in each case to the extent that each other holder is similarly obligated, but no holder shall be obligated to enter into indemnification obligations with respect to any of the foregoing with respect to such other holder or such other holder's shares, and (B) in no event shall any holder be liable in respect of any indemnity obligations with respect to such holder and the Company and its Subsidiaries in general pursuant to any Approved Sale in an aggregate amount in excess of the total consideration payable to such holder in such Approved Sale.

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(d) If the Company or the holders of the Company's securities enter into any negotiation or transaction for which Rule 506 (or any similar rule then in effect) promulgated by the Securities Exchange Commission may be available with respect to such negotiation or transaction (including a merger, consolidation or other reorganization), the holders of Class B Common Stock shall at the request of the Company, appoint a "purchaser representative" (as such term is defined in Rule 501) reasonably acceptable to the Company.  If any holder of Class B Common Stock appoints a purchaser representative designated by the Company, the Company shall pay the fees of such purchaser representative.  However, if any holder of Class B Common Stock declines to appoint the purchaser representative designated by the Company, such holder shall appoint another purchaser representative (reasonably acceptable to the Company), and such holder shall be responsible for the fees of the purchaser representative so appointed.
(e) the holders of Class B Common Stock (if any) shall bear their pro-rata share (based upon the number of shares sold) of the costs of any sale of Class B Common Stock pursuant to an Approved Sale to the extent such costs are incurred for the benefit of all holders of Common Stock and are not otherwise paid by the Company or the acquiring party.  
(f) The provisions of this Section 10 shall terminate upon the completion of a Qualified Public Offering.
(g) In the event of a sale or exchange by the stockholders of the Company of all or substantially all of the Common Stock held by such stockholders (whether by sale, merger, recapitalization, reorganization, consolidation, combination or otherwise), the Stockholders shall receive in exchange for the shares of Common Stock held by The Stockholder the same portion of the aggregate consideration from such sale or exchange that The Stockholder would have received if such aggregate consideration had been distributed by the Company in complete liquidation pursuant to the rights and preferences set forth in the Company's Certificate of Incorporation as in effect immediately prior to such sale or exchange.  The Stockholder shall take all necessary or desirable actions in connection with the distribution of the aggregate consideration from such sale or exchange as requested by the Company.
11. Initial Public Offering.  In the event that the Committee approves an initial public offering of Common Stock (a "Public Offering") pursuant to an effective registration statement under the Securities Act, the holders of the Class B Common Stock shall take all necessary or desirable actions in connection with the consummation of the Public Offering as requested by the Company.  In the event that such Public Offering is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the capital stock structure would adversely affect the marketability of the offering, the holders of the Class B Common Stock shall, to the extent required by applicable law, consent to and vote for a recapitalization, reorganization and/or exchange of the Common Stock into securities that the managing underwriters, the Board and the holders of a majority of the shares of Common Stock then outstanding (voting as a single class) find acceptable, and the holders of the Class B Common Stock shall take all necessary or desirable actions in connection with the consummation of the recapitalization, reorganization and/or exchange as requested by the Company; provided that the resulting securities reflect and are 

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consistent with the rights and preferences set forth in the Company's Articles of Incorporation as in effect immediately prior to such Public Offering.
12. Nondisclosure.  Except as otherwise consented to by the Majority Investor, all non-public information furnished to a Stockholder pursuant to this Agreement or otherwise regarding the Company or its business that is not generally available to the public (“Confidential Information”) will be kept confidential and will not be disclosed by the Stockholder, or by any of the Stockholder’s agents, representatives or employees, in any manner, in whole or in part, except that: (i) a Stockholder will be permitted to disclose Confidential Information to those of the Stockholder’s agents, representatives and employees who need to be familiar with the information in connection with the Stockholder’s investment in the Company and who are charged with an obligation of confidentiality and nondisclosure to other Persons; (ii) a Stockholder will be permitted to disclose Confidential Information to the Stockholder’s partners and equity holders so long as they agree to keep the information confidential on the terms set forth in this Agreement; (iii) a Stockholder will be permitted to disclose Confidential Information to the extent required by law, so long as the Stockholder will have first provided the Company a reasonable opportunity to contest the necessity of disclosing the information; and (iv) a Stockholder will be permitted to disclose Confidential Information with prior written notice to the Company regarding the Persons and the nature of and restrictions on the Confidential Information to be disclosed, only to the Persons and to the extent necessary for the enforcement of any right of the Stockholder arising under this Agreement.  In addition, as a condition of access to the records and information specified in this subpart, the Company may require the Stockholder to enter into a separate confidentiality and non-disclosure agreement reflecting the terms and conditions contained in this paragraph 12.    
13. Transfers in Violation of Agreement.  Any Transfer or attempted Transfer of any Stockholder Shares in violation of any provision of this Agreement shall be void, and the Company shall not record such Transfer on its books or treat any purported transferee of such Stockholder Shares as the owner of such shares for any purpose.
14. Additional Parties; Joinder.  The Company may permit any Person who acquires Class B Common Stock or rights to acquire Class B Common Stock after the date hereof (the "Acquired Common") to become a party to this Agreement and to succeed to all of the rights and obligations of a "holder of Stockholder Shares" under this Agreement by obtaining an executed joinder to this Agreement from such Person in the form reasonably acceptable to the Company.  Upon the execution and delivery of the joinder by such Person, such Person's Acquired Common shall be Stockholder Shares hereunder, and such Person shall be a "holder of Stockholder Shares" under this Agreement with respect to the Acquired Common.
15. Amendment and Waiver.  Except as otherwise provided herein, no modification, amendment or waiver of any provision of this Agreement shall be effective against the Company or the holders of Stockholder Shares unless such modification, amendment or waiver is approved in writing by the Company or the holders of at least 50.1% of the Majority Investor’s Stockholder Shares and 50.1% of the Minority Investor’s Stockholder Shares, respectively.  The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver 

11

of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.
16. Severability.  Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Agreement in such jurisdiction or affect the validity, legality or enforceability of any provision in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
17. Entire Agreement.  Except as otherwise expressly set forth herein, this Agreement embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.
18. Successors and Assigns.  Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by the Company and its successors and assigns and the Stockholders and any subsequent holders of Stockholder Shares and the respective successors and assigns of each of them, so long as they hold Stockholder Shares. 
19. Counterparts.  This Agreement may be executed in multiple counterparts, each of which shall be an original and all of which taken together shall constitute one and the same agreement. 
20. Remedies.  The Company, the Majority Investor and the Minority Investor shall be entitled to enforce their rights under this Agreement specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in their favor.  The parties hereto agree and acknowledge that a breach of this Agreement would cause irreparable harm and money damages would not be an adequate remedy for any such breach and that, in addition to other rights and remedies hereunder, the Company, any Investor shall be entitled to specific performance and/or injunctive or other equitable relief (without posting a bond or other security) from any court of law or equity of competent jurisdiction in order to enforce or prevent any violation of the provisions of this Agreement.
21. Notices.  Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, or mailed first class mail (postage prepaid, return receipt requested), sent via electronic mail or sent by reputable overnight courier service (charges prepaid) to the Company at the address set forth below and to any other recipient at the address indicated on the schedules hereto and to any subsequent holder of Stockholder Shares subject to this Agreement at such address as indicated by the Company's records, or at such address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party.  Notices shall be deemed to have been given hereunder when delivered personally or electronically, three 

12

days after deposit in the U.S. mail and one day after deposit with a reputable overnight courier service.  The Company's address is:
	
	
	Cornerstone Healthcare, Inc.

	27101 Puerta Real, Suite 450

	Mission Viejo, CA 92691

	Office: (949) 487-9500
Fax: (949) 540-1968
Email: legal@ensigngroup.net

22. Governing Law.  The corporate law of the State of Delaware shall govern all issues and questions concerning the relative rights of the Company and its stockholders.  All other issues and questions concerning the construction, validity, interpretation and enforceability of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.  
23. Business Days.  If any time period for giving notice or taking action hereunder expires on a day which is a Saturday, Sunday or legal holiday in the state in which the Company's chief-executive office is located, the time period shall automatically be extended to the business day immediately following such Saturday, Sunday or legal holiday.
24. Descriptive Headings.  The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.
25. No Strict Construction.  The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any party.
26. Mutual Waiver of Jury Trial.  As a specifically bargained inducement for each of the parties to enter into this Agreement (with each party having had opportunity to consult counsel), each party hereto expressly and irrevocably waives the right to trial by jury in any lawsuit or legal proceeding relating to or arising in any way from this Agreement or the transactions contemplated herein, and any lawsuit or legal proceeding relating to or arising in any way to this Agreement or the transactions contemplated herein shall be tried in a court of competent jurisdiction by a judge sitting without a jury.
*****

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.
	
		
	 
	CORNERSTONE HEALTHCARE, INC.

	 
	By _/s/ Daniel H. Walker                                  
Daniel H. Walker
Its: President

	 
	THE ENSIGN GROUP, INC., as Majority Investor

	 
	By    /s/ Christopher R. Christensen                     
Christopher R. Christensen
Its: President, CEO & Director

	 
	STOCKHOLDER, as Minority Investor

	 
	By                                                                       

Name:________________________________

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