Document:

exv10w3

 

Exhibit 10.3

AGREEMENT FOR PAYROLL AND BENEFIT SERVICES

This agreement (the “Agreement”) is entered into this ___day of July, 2006 (the “Effective Date”)
between Extendicare Health Services, Inc., a Delaware corporation, Milwaukee, Wisconsin (“EHSI”)
and Assisted Living Concepts, Inc., a Nevada corporation, Milwaukee, Wisconsin (“ALC”).

Whereas, ALC is currently a wholly owned subsidiary of EHSI; and

Whereas, EHSI currently provides ALC with certain Payroll and Benefit services, as hereafter
defined, for all ALC employees; and

Whereas, effective on the Separation Date, as hereafter defined, ALC shall become an independent,
public company; and

Whereas, ALC shall continue to need the Payroll and Benefit Services currently provided by EHSI and
EHSI is willing to provide such Payroll and Benefit Services;

Now, therefore, for good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged between the parties including without limitation the mutual covenants contained in
this Agreement, the parties hereby covenant and agree as follows:

	 	1.	 	Payroll Services.

	 	1.1.	 	Payroll Services Defined. EHSI covenants and agrees to
provide to ALC, during the Term, as hereafter defined, of this Agreement the
specific Payroll Services which are set forth on Exhibit 1.1 hereto, which is
incorporated herein by reference (the “Payroll Services”). Exhibit 1.1 sets forth
the description of the specific Payroll Services now provided by EHSI to ALC and
the hours per month which are needed to provide the Payroll Services. These
identical Payroll Services shall continue to be provided to ALC during the Term of
this Agreement unless expanded or reduced by ALC as provided for herein.
	 
	 	1.2	 	Additional Payroll Services. The Payroll services do not
include services that may be required upon wage and hour audits, or other specific
projects that ALC may request of EHSI. In the event that ALC determines that it
needs additional payroll services, EHSI agrees to provide such additional payroll
services, provided that EHSI is currently providing such additional payroll
services to its own employees. The parties shall agree upon the additional
compensation to be provided to EHSI by ALC for such additional payroll services
which shall be based upon the actual costs and benefits being paid by EHSI to those
employees who will be providing such additional payroll services plus a reasonable
markup. The parties shall enter into an Addendum to this Agreement setting forth
the terms and conditions governing the

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	 	 	 	delivery of such additional payroll services. Thereafter, such additional
payroll services shall be deemed Payroll Services pursuant to this Agreement.
	 
	 	1.2	 	New Facility Fees. EHSI agrees to provide set-up services for any
newly constructed or acquired assisted living facilities (the “New Facilities”)
that ALC may acquire (the “New Facility Set Up Service”). The new facility set-up
fee for each new assisted living facility added by ALC is:

	 	 	 	 	 
	Number of ALF’s Added:	 	Total One Time Set-Up Fee:
	Between 1 to 4 ALF’s
	 	$	800.00	 
	Between 5 to 9 ALF’s
	 	$	2,500.00	 
	Between 10 to 20 ALF’s
	 	$	3,500.00	 
	More than 20 ALF’s
	 	To be negotiated be no less than $170 per facility

	 	2.	 	Employee Benefit Services.

	 	2.1	 	Employee Benefit Services Defined. EHSI covenants and agrees
to provide to ALC, during the Term, as hereafter defined, of this Agreement the
specific Employee Benefit Services which are set forth on Exhibit 2.1, which is
incorporated herein by reference (the “Benefit Services”). Exhibit 2.1 sets forth
the description of the specific benefit services now provided by EHSI to ALC and
the hours per month which are needed to provide such services. These identical
Benefit Services shall continue to be provided to ALC during the Term of this
Agreement unless expanded or reduced by ALC as provided for herein.
	 
	 	2.2	 	Additional Benefit Services. In the event that ALC determines
that it needs additional benefit services, EHSI agrees to provide such additional
benefit services, provided that EHSI is currently providing such additional benefit
services to its own employees. The parties shall agree upon the additional
compensation to be provided to EHSI by ALC for such additional benefit services
which shall be based upon the actual costs and benefits being paid by EHSI to those
employees who will be providing such additional benefit services plus a reasonable
markup equivalent to the markup provided for the Services. The parties shall enter
into an Addendum to this Agreement setting forth the terms and conditions governing
the delivery of such additional benefit services. Thereafter, such additional
benefit services shall be deemed Benefit Services pursuant to this Agreement.

	 	3.	 	Cancellation or Addition to Payroll and Benefit Services.
	 
	 	 	 	In the event that ALC determines that it does not need or plans to add, and EHSI has
agreed to add, certain specific Payroll and/or Benefit Services, ALC shall provide a
Notice, as hereafter defined, to EHSI at least ninety (90) days in advance of the date
the specific Payroll and/or Benefit Services are no longer needed by ALC; and, in

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	 	 	 	such event, an adjustment shall be made by the parties in the Per Check Fee and the
Annual and Monthly Fee, as hereafter defined, payable to EHSI by ALC for the Payroll and
Benefit Services.
	 
	 	4.	 	Standard for Performance. The Payroll and Benefit Services shall be provided
to all of ALC’s current employees and any future employees hired by ALC during the Term in
the same manner and quality as are currently provided to ALC employees and to the employees
of EHSI.
	 
	 	5.	 	Term of the Agreement; Termination.

	 	5.1	 	Initial Term. The initial term (the “Term”) of this
Agreement shall be five (5) years commencing on the date ALC becomes an
independent, public company (the “Commencement Date) and expiring, unless sooner
terminated or extended pursuant to the provisions of this Agreement, on the last
day preceding the fifth (5th) anniversary of such Commencement Date
(the “Expiration Date”). The parties shall record the Commencement Date and the
Expiration Date at such time as the Commencement Date has been established on
Exhibit 5.1, which is incorporated herein by reference (the “Term Commencement and
Expiration Date”). In the event the Commencement Date is not the first day of
the month, the Monthly Fee for the first month of payment shall include the
prorated portion of the Monthly Fee from the Commencement Date to the end of the
month in which the Commencement Date occurs.
	 
	 	5.2	 	Renewal Term. ALC shall have the absolute right, exercisable
within its sole discretion, to extend the Term of this Agreement for one (1)
additional period of two (2) years (the “Renewal Term”) on the same terms,
covenants, and conditions as are set forth in this Agreement, except there shall
be no further options to extend the Term or the Renewal Term. The option to extend
shall be exercised by a written Notice from ALC to EHSI at least six (6) months
prior to the Expiration Date of the Term. The Notice shall be give pursuant to
the Notice provisions of this Agreement.
	 
	 	5.3	 	Termination Rights. ALC shall have the absolute right to
terminate this Agreement (a) in the event of an uncured default as provided in
this Agreement and, further, (b) at anytime and for any reason, during the Term or
the Renewal Term upon ninety (90) days prior written Notice . EHSI shall have the
right to terminate this Agreement during the Term or the Renewal Term, solely in
the event of an uncured default as provided in this Agreement. The right of
termination provided to the parties in this Section shall be in addition to any
other rights and remedies available to the parties in the event of a default and
shall not be the exclusive remedy for an uncured default.

	 	6.	 	Fee for Payroll and Benefit Services.

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	 	6.1	 	The Per-Check Fee. 

	 	6.1.1.	 	Per-Check Fee and Fee Annual Procedure and Monthly Payment.
	 
	 	 	 	ALC shall pay to EHSI, during the Term of this Agreement including any
renewal term, an annual fee based upon the number of checks processed by
ALC pursuant to this Agreement (the “Annual Per-Check Fee”). The Annual
Per-Check Fee shall be paid by ALC in equal, consecutive monthly
installments (the “Monthly Per-Check Fee Payment”) based upon the parties
estimate of the number of checks to be processed with a annual audit and
“true up” of the actual number of checks processed as described below.
The monthly payment shall be made on or prior to the fifteenth
(15th) day of each month based upon the estimate of the number
of checks to be processed. The first Monthly Payment shall be made on the
fifteenth (15th) day of the first month following the
Commencement Date. If the Commencement Date does not occur on the first
(1st) day of the Month the first Monthly Payment shall include
both the Monthly Payment due and any prorated portion of the Monthly
Payment for the month in which the Commencement Date occurred.
	 
	 	6.1.2	 	Annual Per-Check Fee Estimate. Monthly Fee Payment.
Annual Increase.
	 
	 	 	 	The parties agree that the estimated number of checks to be processed for
the first (1st) year of the Term is 113,480 and the Per-Check
fee (the “Per-Check Fee”) for the first (1st) year of the Term
shall be Two and 80/100 Dollars ($2.80). The Monthly Per-Check Fee
Payment, based on the above estimate, shall be Twenty Six Thousand, Four
Hundred Seventy Eight and no/100 Dollars ($26,478.00). The Annual
Per-Check Fee of $2.80 shall be increased on the first anniversary of the
Commencement Date and each anniversary date thereafter during the Term
and any renewal term by three percent (3%) per annum. The Monthly
Per-Check Fee Payment shall be increased on the first anniversary of the
Commencement Date and each anniversary date thereafter during the Term
and any renewal term based upon the prior years’ annual check volume and
the revised annual per-check fee.

	 	6.2	 	Fixed Costs Fee and Payment.

	 	6.2.1	 	EV3 License Fee.
	 
	 	 	 	In addition to the Annual Per-Check Fee, ALC shall pay to EHSI a EV3
License Fee of Thirteen Thousand, Six Hundred and Eighty 00/100 Dollars
($13,680.00) for the first (1st) year of the Term (the “EV3
Annual License Fee”), based upon the percentage of ALC

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	 	 	 	employees listed on the EV3 master file to the total number of employees
(including all ALC and EHSI and other non-ALC and non-EHSI employees) on
the master file. The EV3 Annual License Fee shall be paid in equal,
consecutive monthly installments of One Thousand, One Hundred Fifty Five
and 00/100 Dollars ($1,155.00) at the same time as the payment of the
Monthly Per-Check Payment Fee with an adjustment and “True up” made on an
annual basis at the same time as the “true up” as provided below. The
EV3 Annual License Fee shall be adjusted annually based the current EV3
Annual License Fee multiplied by 1.25 and then multiplied by the
percentage of ALC employees listed on the EV3 master file to the total
number of employees (including all ALC and EHSI and other non-ALC and
non-EHSI employees) on the master file upon the anniversary date. There
shall be no annual increase in the EV3 License Fee except for the annual
maintenance cost increases for the EV3 software.
	 
	 	6.2.2.	 	Other Fixed Services Costs Paid by ALC.
	 
	 	 	 	In addition to the Annual Per-Check Fee and the EV3 License Fee, ALC
shall pay to EHSI a fixed charge of Twenty One Thousand, Two Hundred and
no/100 Dollars ($21,200.00) (the “Other Fixed Services Costs”) in equal,
consecutive monthly installments of One Thousand, Seven Hundred Sixty Six
and 67/100 Dollars ($1,766.67) at the same times as the payment of the
Monthly Per-Check Payment Fee. The Other Fixed Services Costs shall be
subject to an increase on an annual basis of three percent (3%) on the
first anniversary date of the Commencement Date and each anniversary date
thereafter during the Term and any renewal term.
	 
	 	 	 	The Other Fixed Services Costs shall not be subject to any adjustment
based upon the number of checks actually processed by EHSI for ALC.

	 	6.3	 	Costs To Be Paid Directly By ALC To Vendors.

	 	6.3.1	 	The following costs and expenses associated with the
performance of the Payroll and Employee Benefit Services are not included
in the payments described above and shall be paid by ALC directly to the
specific vendor providing such services or, if such costs and expenses are
advanced by EHSI , shall be separately reimbursed to EHSI upon submission
of an invoice setting for the such costs and expenses. EHSI shall arrange,
wherever possible, to have these costs and expenses, billed directly to
ALC. The costs and expenses shall be the following:

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	 	 	 	(a) All E-Time service fees including without limitation license and
maintenance fees; and

	 	 	 	
(b) All ADP fees for payroll processing, set-up costs for new facilities,
year end processing and garnishment services.

	 	 	 	
(c) Courier costs associated with the delivery of checks from ADP or from
EHSI.

	 	6.4	 	Annual True-up of Payment. EHSI covenants to provide ALC with
a summary of the quarterly volume of checks issued, within thirty (30) days of each
quarter end to monitor the final Annual Per-Check Fee fees due pursuant to the
Agreement for the preceding twelve (12) month period. Within 30 days prior to each
anniversary date of the Commencement Date, EHSI agrees to provide ALC with a
summary of the total volume of checks for the preceding twelve (12) months. ALC
covenants to reimburse EHSI for any excess of fees due in excess of the installment
payments made to EHSI during the year and EHSI covenants to reimburse ALC for any
excess of installments paid in excess of fees due upon 30 days of receipt of the
true-up information from EHSI.

	 	7.	 	Default and Remedies.

	 	7.1	 	Event of Default: Payment. An event of default shall occur in
the event that ALC fails to pay to EHSI the Fees, costs or expenses provided for
herein and such default in payment extends for a period of five (5) business days
from the date EHSI delivers Notice of such Payment Default to ALC (“Payment
Default”); provided, that in the event of a dispute, ALC shall not be required to
pay in full within five (5) business days of receipt of a Payment Default Notice
any disputed amounts. If ALC disputes in good faith any portion of the Fees, costs
or expenses, ALC shall notify EHSI in writing of the nature and basis of the
dispute within five (5) days of receipt of the Payment Default Notice, and ALC
shall be entitled to withhold from payment all or a portion of such disputed
amounts. Each of the parties hereto shall use commercially reasonable efforts to
resolve any such dispute as soon as reasonably possible, and if such dispute is not
resolved or if any disputed amounts are not paid on or before the next payment due
date, any of the parties to such dispute may deliver Notice of the existence of a
dispute and refer the matter to arbitration pursuant to dispute resolution
provisions in the Separation Agreement, on the effective date of the Separation
Agreement between Extendicare Real Estate Investment Trust and ALC (the
“Separation Agreement”). ALC shall pay any disputed amounts within five (5) days
after resolution of any disputed items, if such dispute is resolved in EHSI’s favor
after the original payment due date. Without prejudice to the rights of EHSI, in
the event payment of any undisputed amount is not received by EHSI on or prior to
the applicable payment due date, such amount shall be subject to a late payment
charge equal to one and one-half percent (1.5%) per month (or the maximum rate
permissible by law, if less), based on a thirty (30) day month, of the amount

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	 	 	 	overdue for the actual number of calendar days such payment is overdue
(including the date payment is actually made).
	 
	 	7.2	 	Event of Default: Non-Payment. An event of default shall occur
in the event that either party fails to perform any of its obligations provided for
herein (other than the Payment Default which shall be governed by the provisions of
Section 4.1 hereof) and such failure continues for a period of fifteen (15)
business days following the receipt of a Notice of such failure (a “Non–Payment
Default”); provided however, in the event the Non-Payment Default is unable to be
cured within such fifteen (15) business day period there shall not be a default if
the defaulting party has commenced good faith actions to cure such default and
continues to exercise such good faith efforts. (Hereafter, both the Payment
Default and the Non-Payment Default shall be collectively referred to as an “Event
of Default”).
	 
	 	7.3	 	Remedies. In the event of the occurrence of an Event of
Default, the parties shall have the right to exercise all remedies available to
them at law or in equity resulting from such Event of Default, including without
limitation the Termination rights referred to in Section 5.3 above.
	 
	 	7.3	 	Limitation of Liability. None of the parties hereto shall, nor
shall their subsidiaries, employees or agents, be liable to another party hereto
for any claims, liabilities, actions, suits, judgments, fines, losses, injuries,
damages, costs or expenses (all of the foregoing collectively “Losses”) arising out
of or connected to the provision of the Payroll and Benefit Services under this
Agreement, other than any Losses caused by the gross negligence or willful
misconduct of such party, its subsidiaries, employees, or agents arising out of or
in connection with the provision of the Services under this Agreement. Each party
hereto waives all rights to recover against any other party for any Losses to its
respective tangible personal property (whether owned or leased) from any cause
which is covered by insurance maintained by such party or should have been covered
by insurance required to be maintained under this Agreement, including respective
deductibles or self-insured retentions, and agrees to obtain any necessary consent
from its insurers with respect to such waiver.
	 
	 	7.5	 	Amount of Damages. Notwithstanding anything to the contrary in
this Agreement, the maximum liability of EHSI and its subsidiaries and their
employees and agents, and the sole remedy of ALC for any losses under this
Agreement or otherwise arising with respect to the matters addressed herein,
regardless of the form of action that imposes liability, whether in contract,
equity, negligence, intended conduct, tort or otherwise, shall be a refund of the
aggregate annual fee paid to EHSI by ALC for the Payroll and Benefit Services in
the year such liability occurred and a termination of the provision of the services
related to such liability, and none of the parties hereto or their subsidiaries or
their respective employees or agents shall be liable to any other

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	 	 	 	party hereto for loss of profits or consequential, incidental, special, indirect
or punitive damages.
	 
	 	7.6	 	Additional Representations. EHSI does not make any
representations or warranties, express or implied, regarding the merchantability,
suitability, originality, fitness for a particular use or purpose, or results to be
derived from the use of any materials, deliverables or services provided under this
Agreement. EHSI does not guarantee that any work product or deliverable will be
error free.

	 	8.	 	Independent Contractor.
	 
	 	 	 	The parties acknowledge and agree that EHSI is being retained by ALC solely as a third
party independent contractor. Neither this Agreement nor the relationship created
between the parties pursuant to this Agreement is intended to, and shall not be
interpreted or construed to, create the relationship of agent, servant, employee,
partnership, joint venture or association between the parties for any purpose.
	 
	 	9.	 	Confidential Information.
	 
	 	 	 	As a result of the performance of this Agreement, EHSI shall have access to and the use
of confidential and proprietary information and documents of ALC (the “Confidential
Information”). EHSI hereby agrees that any and all information and documentation
disclosed to EHSI by ALC in the performance of EHSI’s Payroll and Benefit Services shall
be Confidential Information. EHSI covenants to maintain the confidentiality of such
Confidential Information and shall not use or disclose such Confidential Information to
any person except as is required in the performance of the Payroll and Benefit Services.
EHSI shall not disclose, except as required by law, any such Confidential Information
and EHSI shall not copy, reproduce, retain or in any manner appropriate such
Confidential lnformation without the prior written consent of ALC. EHSI agrees that the
remedy at law for any breach of this Confidentiality provision will be inadequate and
that upon a breach hereof, ALC shall be entitled as a matter of right to injunctive
relief in any court having jurisdiction to enforce the provisions hereof by specific
performance without the necessity of proving actual damages or the inadequacy of a legal
remedy. The rights conferred on ALC by this section shall not be exclusive of any other
right or remedy which ALC might have at law, or in equity, upon a breach of this
Confidentiality provision.
	 
	 	10.	 	Restrictive Covenant.
	 
	 	 	 	During the Term and any Renewal Term of this Agreement and for a period of one (1) year
following the expiration or earlier termination of this Agreement, neither party shall,
without the prior written consent of the other party, knowingly employ, engage for hire,
solicit for hire, or otherwise contract with or employ, directly or indirectly, through
any subsidiary or affiliate, any employee of the other party who was involved in the
performance of the Payroll and Benefit Services.

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	 	11.	 	Compliance with Governmental Directives

	 	11.1	 	Disqualified Individuals. The parties represent that they are
not excluded or debarred from participation in the Medicare, Medicaid, or other
Federal health care programs, and agree not to employ, contract with, or obtain
goods or services from any person or entity so excluded or debarred in violation of
the Health Insurance Portability and Accountability Act of 1996, Pub. L. No.
104-191, the Balanced Budget Act of 1997, Pub. L. No. 105-33, or the Office of
Inspector General Special Advisory Bulletin 9925427, 9/29/99, or other applicable
laws. The parties shall verify compliance with this paragraph by reviewing the
Website maintained by the US Department of Health and Social Services Office of
Inspector General (http://www.dhhs.gov/oig), and the U.S. General Services
Administration (http://epls.arnet.gov). In the event a party employs, contracts
with, or obtains goods or services from an excluded or debarred person or entity,
the party shall immediately notify the other parties in writing and the other
parties shall have the right to immediately terminate this Agreement,
notwithstanding any other provisions of this Agreement, without penalty or costs
except those incurred prior to the date of termination.
	 
	 	11.2	 	Governmental Agency Access. Until the expiration of five (5)
years after the furnishing of all Payroll Services pursuant to this Agreement, EHSI
shall make available, upon written request to any governmental agency having
jurisdiction, this Agreement, and the books, documents and records of EHSI that are
necessary to certify the nature and extent of the costs incurred by EHSI in the
performance of this Agreement, and, if EHSI carries out any of the duties of the
Agreement through a subcontract, with a value or cost of $10,000 or more over a
twelve-month period, with a related organization (as that term is defined by
regulation), such subcontract shall contain a clause to the effect that until the
expiration of five (5) years after the furnishing of such subcontracted services,
the related organization shall make available, upon written request to such
governmental agency, such subcontract, and any books, documents and records of such
organization that are necessary to verify the nature and extent of such costs.
	 
	 	11.3.	 	SOX Compliance. The parties covenant and agree to take any and
all actions deemed reasonably required in order to enable ALC to comply the
requirements of the (INSERT NAME OF SOX LAW) including without limitation the
actions set forth on Exhibit 11.3 attached hereto (the “SOX Compliance
Requirements”).

	 	12.	 	Hardware and Software Compatibility with EHSI’s Payroll and Benefit System
	 
	 	 	 	ALC agrees to maintain hardware at its facilities and software compatible to EHSI’s
system and to upgrade such hardware and software to be consistent to the hardware and
software systems deployed by EHSI, including when EHSI may choose to upgrade or replace
such hardware or software. EHSI agrees to provide ALC with a

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	 	 	 	minimum notice of ninety (90) days before deployment of any changes to or upgrade of
its hardware or software that may require ALC to upgrade its hardware and software at
its facilities.
	 
	 	 	 	EHSI shall utilize software programs to detect errors made by ALC as it normally does
for EHSI. ALC acknowledges that guidelines and regulations for payment are subject to
interpretation by the applicable governmental agency(ies). EHSI does not represent or
guarantee that a governmental agency will not interpret a guideline or regulation in a
manner inconsistent with the software programs used by EHSI. EHSI sole obligation is to
maintain and to utilize its usual and customary software, and the currently available
updates of the software programs. ALC is obligated to ensure that its facilities
maintains hardware, equipment and software that is consistent and compatible with EHSI’s
software systems, hardware and other equipment, so that EHSI may perform the Payroll and
Benefit Services in an efficient, cost-effective manner, without requiring significant
modification to EHSI’s standard systems, software and programs. In the event EHSI
identifies any changes to be made to the ALC’s hardware, equipment, systems or software,
EHSI agrees to provide ninety (90) days advanced notice to ALC including the associated
cost, and ALC agrees that it shall bear the associated cost of any change. ALC hereby
acknowledges and agrees that EHSI is not responsible and shall bear no liability for the
nature or accuracy of the information provided by or used in conjunction with the
software programs or the form and substance of the underlying transactions thereto.
EHSI shall not be responsible for any ALC provided information that is inaccurate or for
any transaction to which such information related that violates or breaches any
applicable Laws. EHSI shall not be responsible and shall bear no liability for data
entry errors or other actions or omissions made by ALC personnel.

	 	13.	 	Notices.

	 	13.1	 	Form of Notice. Delivery Methods. Each party giving any
notice or making any request, demand or other communication (each a “Notice”)
pursuant to this Agreement shall give the Notice in writing and shall use one or
more of the following methods of delivery, each of which for purposes of this
Agreement is a writing: (a) personal delivery with proof thereof by affidavit from
the person who has personally delivered the Notice; or (b) registered or certified
mail, in each case, return receipt requested and postage prepaid; or (c) a
nationally (or internationally) recognized overnight courier, with all fees prepaid
and with a written proof of delivery provided by such courier; or (d) facsimile
along with proof of receipt by the party intending to be bound or such party’s
designated agent by an acknowledgement of transmission report generated from the
machine from which the facsimile was sent.
	 
	 	13.2	 	Persons to Whom Notice Must be Delivered. Each party giving a
Notice shall address the Notice to the appropriate person at the receiving party
(the “Addressee”) at the address listed below or to another or additional Addressee

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	 	 	 	or at another address designated below or by the party in a Notice pursuant to
this Section:

	 	13.2.1	 	If to EHSI:
	 
	 	 	 	Extendicare Health Services, Inc.
	 
	 	 	 	111 West Michigan Street
	 
	 	 	 	Milwaukee, WI 53203
	 
	 	 	 	Attention: President
	 
	 	 	 	With a copy to:
	 
	 	 	 	Extendicare Health Services, Inc.
	 
	 	 	 	111 West Michigan Street
	 
	 	 	 	Milwaukee, WI 53203
	 
	 	 	 	Attention: Vice President and General Counsel
	 
	 	13.2.2	 	If to ALC:
	 
	 	 	 	Assisted Living Concepts, Inc.
	 
	 	 	 	111 West Michigan Street
	 
	 	 	 	Milwaukee, WI 53203
	 
	 	 	 	Attention: President
	 
	 	 	 	With a copy to:
	 
	 	 	 	Assisted Living Concepts, Inc.
	 
	 	 	 	111 West Michigan Street
	 
	 	 	 	Milwaukee, WI 53203
	 
	 	 	 	Attention: Corporate Legal Counsel

	 	13.3	 	Effective Date of Notice. A notice to the Addressee is
effective only when each person required to receive a copy of the Notice has
received the copy. Despite the other clauses of this Section, if any Notice is
received after 5:00 p.m. on a business day where the Addressee is located, or on a
day that is not a business day where the Addressee is located, then the Notice is
deemed received at 9:00 am on the next business day where the Address is located.
For purposes hereof a business day shall mean Monday through Friday excluding any
national holidays.

	 	14.	 	Cooperation and Further Assurances.
	 
	 	 	 	Each party and its officers and representatives shall use all reasonable efforts to
take, or cause to be taken, all actions necessary or desirable to consummate and make
effective the performance of this Agreement. If at anytime after the Commencement Date
any action is necessary or desirable to carry out the purposes of this Agreement, each
party and its officers and representatives shall use all commercially reasonable efforts
to take, or cause to be taken, all such action.

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	 	15.	 	Successors and Assigns.
	 
	 	 	 	15.1 Assignment Prohibited. Neither party shall have the right to assign this
Agreement nor its rights and interest hereunder except with the other party’s prior
written consent, which consent shall not be unreasonably withheld or delayed.
	 
	 	 	 	15.2 Successors and Assigns. This Agreement is for the sole benefit of the
parties and their permitted successors and assigns, and shall be binding upon the
permitted successors and assigns of the parties.
	 
	 	 	 	15.3 Delegation of Responsibility. EHSI shall have the right to employ, retain,
or subcontract with other third party persons, firms, or corporations to perform all or
any part of the Payroll and Benefit Services to be performed hereunder with the prior
written consent of ALC, which consent shall not be unreasonably withheld or delayed, but
such delegation shall not relieve EHSI from its obligations hereunder.
	 
	 	16.	 	Governing Law
	 
	 	 	 	The laws of the State of Wisconsin (without giving effect to its conflict of laws
principles) govern all matters arising out of or relating to this Agreement and the
transactions it contemplates, including, without limitation, its interpretation,
construction, performance, and enforcement.
	 
	 	17.	 	Force Majeure.
	 
	 	 	 	The parties to this Agreement shall not be liable to each other for any delay or failure
to perform any of the terms of this Agreement if such delay or failure is due to or
cause by acts of God, war, rebellion, riot, strike of labor dispute, fire, flood, or
laws or demands of the United States or any State thereof or any governmental agency or
any other such cause which is beyond the control of the parties and for which the
parties have expended every reasonable effort to circumvent or prevent.
	 
	 	18.	 	Severability.
	 
	 	 	 	If any part of this Agreement is declared invalid or unenforceable, the remaining
provisions shall remain valid and enforceable.
	 
	 	19.	 	Construction.
	 
	 	 	 	The use of the singular or masculine pronoun in this Agreement shall include, wherever
appropriate, the plural and feminine. The language used in this Agreement will 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 by virtue of its
counsel having drafted this Agreement or otherwise. The captions preceding the sections
of this Agreement are solely for the convenience of the parties in the use of

12

 

	 	 	 	this Agreement and shall not be used nor are they intended to be used in the
interpretation or construction of the substantive portions of the sections to which they
relate.
	 
	 	20.	 	Entire Agreement. Modifications. Exhibits Incorporated.

	 	19.1	 	Entire Agreement. This Agreement and the Separation Agreement
constitute the entire agreement of the parties relating to its subject matter. Any
and all prior understandings, agreements or courses of conduct, whether in writing
or verbal, are hereby rescinded in full with respect to any and all terms,
covenants and conditions thereof and neither party shall have any liability of any
nature or kind whatsoever with respect thereto. The relationship between the
parties with respect to the subject matter of this Agreement shall be governed
solely in accordance with the terms, covenants and conditions of this Agreement.
	 
	 	19.2	 	Modifications. Any change or modification of this Agreement
must be in writing and signed by both parties.
	 
	 	19.3	 	Exhibits. All exhibits referred to herein shall be an integral
part of this Agreement and shall be deemed incorporated herein.

	 	21.	 	Waivers and Compliance.
	 
	 	 	 	Any failure of the parties to comply with any obligation, covenant, agreement or
condition herein may be expressly waived in writing by the other party, but such waiver
or failure to insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any subsequent
or other failure.
	 
	 	22.	 	Counterparts and Facsimiles
	 
	 	 	 	This Agreement may be executed in one or more counterparts, each of which will be deemed
an original and all of which, when taken together will be deemed to constitute one and
the same Agreement. The parties agree that facsimile signatures of the parties shall be
binding and enforceable.

13

 

In Witness whereof the parties have executed this Agreement, being fully authorized to do so and
intending to fully bind their respective corporations to the full and faithful performance of the
terms, covenants and conditions set forth herein and in any Exhibits attached hereto or referred to
herein.

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	Extendicare Health Services, Inc.

	 	 	 	Assisted Living Concepts, Inc.	 	 
	a Delaware corporation

	 	 	 	a Nevada corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	Philip W. Small, President

	 	 	 	Laurie A. Bebo, President	 	 

14

 

EXHIBIT 1.1

PAYROLL SERVICES

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Variable	 	 	 	 	 	 	 	 	 	 	 	 	 	Cost	 	Cost
	 	 	Cost	 	Fixed Cost	 	Total Monthly	 	 	 	 	 	Associated	 	Associated
	 	 	Component	 	Component	 	Salary & Wage	 	 	 	 	 	with the	 	with the
	 	 	Monthly	 	Monthly	 	Cost plus	 	 	 	 	 	Fixed	 	Variable
	Payroll Staff Functions	 	Hours	 	Hours	 	Benefits	 	Annual Cost	 	Component	 	Component
	ALC Checkmate Checks

	 	 	10.0	 	 	 	—	 	 	$	174.00	 	 	$	2,088.00	 	 	 	 -	 	 	$	2,088.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Payroll Maintenance for Salaried field staff

	 	 	55.0	 	 	 	—	 	 	 	957.00	 	 	 	11,484.00	 	 	 	—	 	 	 	11,484.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Semi-monthly Payroll Processing of Salaried
field Staff

	 	 	16.0	 	 	 	—	 	 	 	278.40	 	 	 	3,340.80	 	 	 	—	 	 	 	3,340.80	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Customer service for Salaried field staff

	 	 	63.0	 	 	 	—	 	 	 	1,096.20	 	 	 	13,154.40	 	 	 	—	 	 	 	13,154.40	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Miscellaneous Projects — (Employee Status
Reports, W-2 Replacements, etc)

	 	 	16.0	 	 	 	—	 	 	 	278.40	 	 	 	3,340.80	 	 	 	—	 	 	 	3,340.80	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Payroll Tax General Support Functions

	 	 	15.0	 	 	 	—	 	 	 	343.80	 	 	 	4,125.60	 	 	 	—	 	 	 	4,125.60	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Year End W-2 Processing and W-2 Reprints

	 	 	4.0	 	 	 	—	 	 	 	91.68	 	 	 	1,100.16	 	 	 	—	 	 	 	1,100.16	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Processing Washington Worker’s Compensation
Reports and Payments

	 	 	 	 	 	 	1.0	 	 	 	22.92	 	 	 	275.04	 	 	 	275.04	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Wage Verifications

	 	 	12.0	 	 	 	—	 	 	 	230.98	 	 	 	2,771.71	 	 	 	—	 	 	 	2,771.71	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Wage Verifications

	 	 	12.0	 	 	 	—	 	 	 	259.34	 	 	 	3,112.13	 	 	 	—	 	 	 	3,112.13	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Garnishment Processing and Administration

	 	 	20.0	 	 	 	—	 	 	 	398.40	 	 	 	4,780.80	 	 	 	—	 	 	 	4,780.80	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Receive and process payroll information from
ADP ( ADP Packages)

	 	 	4.0	 	 	 	—	 	 	 	76.75	 	 	 	921.02	 	 	 	—	 	 	 	921.02	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	E-mail Payroll Register, Payroll Summary,
Statistical Summary Reports to Managed
Accounting following the distribution list

	 	 	 	 	 	 	1.0	 	 	 	19.19	 	 	 	230.26	 	 	 	230.26	 	 	—

	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Post Statistical Summaries to Excel and Payroll
Register Control Totals in EV3

	 	 	 	 	 	 	1.0	 	 	 	19.19	 	 	 	230.26	 	 	 	230.26	 	 	—
	 

15

 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Variable	 	 	 	 	 	 	 	 	 	 	 	 	 	Cost	 	Cost
	 	 	Cost	 	Fixed Cost	 	Total Monthly	 	 	 	 	 	Associated	 	Associated
	 	 	Component	 	Component	 	Salary & Wage	 	 	 	 	 	with the	 	with the
	 	 	Monthly	 	Monthly	 	Cost plus	 	 	 	 	 	Fixed	 	Variable
	Payroll Staff Functions	 	Hours	 	Hours	 	Benefits	 	Annual Cost	 	Component	 	Component
	Bi-Weekly Payroll Processing of E-Time Files to
ADP

	 	 	24.0	 	 	 	—	 	 	 	906.91	 	 	 	10,882.94	 	 	 	—	 	 	 	10,882.94	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Payroll & HR General Mgmt and Customer Service

	 	 	30.0	 	 	 	—	 	 	 	1,133.64	 	 	 	13,603.68	 	 	 	—	 	 	 	13,603.68	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Receiving and Loading Payrolls

	 	 	 	 	 	 	1.0	 	 	 	37.79	 	 	 	453.46	 	 	 	453.46	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Manual Check Requests for Supplemental Payrolls

	 	 	2.0	 	 	 	—	 	 	 	44.52	 	 	 	534.24	 	 	 	—	 	 	 	534.24	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Payroll Maintenance for Salaried Corporate staff

	 	 	2.0	 	 	 	—	 	 	 	55.61	 	 	 	667.30	 	 	 	—	 	 	 	667.30	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Semi-monthly Payroll Processing of Salaried
Corporate staff

	 	 	 	 	 	 	10.0	 	 	 	278.04	 	 	 	3,336.48	 	 	 	3,336.48	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Payroll Maintenance for Hourly Corporate staff

	 	 	 	 	 	 	2.0	 	 	 	41.40	 	 	 	496.80	 	 	 	496.80	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Bi-weekly Payroll Processing of Hourly
Corporate staff

	 	 	 	 	 	 	4.0	 	 	 	82.80	 	 	 	993.60	 	 	 	993.60	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Payroll Maintenance for Hourly field staff

	 	 	100.0	 	 	 	—	 	 	 	1,836.00	 	 	 	22,032.00	 	 	 	—	 	 	 	22,032.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Customer service for Hourly field staff

	 	 	60.0	 	 	 	—	 	 	 	1,101.60	 	 	 	13,219.20	 	 	 	—	 	 	 	13,219.20	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Payroll & HR General Management, Consulting,
and Customer Service

	 	 	30.0	 	 	 	—	 	 	 	1,851.84	 	 	 	22,222.08	 	 	 	—	 	 	 	22,222.08	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Auto Allowances

	 	 	 	 	 	 	2.5	 	 	 	81.06	 	 	 	972.72	 	 	 	972.72	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	3rd Party Workman’s Compensation — Salary
Continuation

	 	 	1.5	 	 	 	—	 	 	 	48.64	 	 	 	583.63	 	 	 	—	 	 	 	583.63	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	ADP Invoices

	 	 	 	 	 	 	1.5	 	 	 	48.64	 	 	 	583.63	 	 	 	583.63	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Partnership Bonus Program

	 	 	20.0	 	 	 	—	 	 	 	648.48	 	 	 	7,781.76	 	 	 	—	 	 	 	7,781.76	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Move-In Bonus Program

	 	 	4.0	 	 	 	—	 	 	 	129.70	 	 	 	1,556.35	 	 	 	—	 	 	 	1,556.35	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Rate Increases

	 	 	8.0	 	 	 	—	 	 	 	259.39	 	 	 	3,112.70	 	 	 	—	 	 	 	3,112.70	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Quarterly Bonus Programs

	 	 	6.0	 	 	 	—	 	 	 	194.54	 	 	 	2,334.53	 	 	 	—	 	 	 	2,334.53	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Customer Service and follow-up (phone calls and
emails)

	 	 	25.0	 	 	 	—	 	 	 	810.60	 	 	 	9,727.20	 	 	 	—	 	 	 	9,727.20	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	GL Account Recons: 2200-01, 2200-03, 2200-04,

2200-05

	 	 	 	 	 	 	0.5	 	 	 	19.70	 	 	 	236.45	 	 	 	236.45	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Insurance: Monthly JE Process

	 	 	 	 	 	 	3.0	 	 	 	118.22	 	 	 	1,418.69	 	 	 	1,418.69	 	 	—
	 

16

 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Variable	 	 	 	 	 	 	 	 	 	 	 	 	 	Cost	 	Cost
	 	 	Cost	 	Fixed Cost	 	Total Monthly	 	 	 	 	 	Associated	 	Associated
	 	 	Component	 	Component	 	Salary & Wage	 	 	 	 	 	with the	 	with the
	 	 	Monthly	 	Monthly	 	Cost plus	 	 	 	 	 	Fixed	 	Variable
	Payroll Staff Functions	 	Hours	 	Hours	 	Benefits	 	Annual Cost	 	Component	 	Component
	Insurance: Maintenance to Monthly INSURANCE Pay
Process

	 	 	 	 	 	 	0.5	 	 	 	19.70	 	 	 	236.45	 	 	 	236.45	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Insurance: Create/Distribute Monthly Insurance Arrears

	 	 	 	 	 	 	0.5	 	 	 	19.70	 	 	 	236.45	 	 	 	236.45	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	ALC Deferred Compensation Processing

	 	 	 	 	 	 	1.0	 	 	 	39.41	 	 	 	472.90	 	 	 	472.90	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	ALC Deferred Compensation Accounting

	 	 	 	 	 	 	1.5	 	 	 	59.11	 	 	 	709.34	 	 	 	709.34	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	ALC Deferred Compensation Reporting

	 	 	 	 	 	 	1.0	 	 	 	39.41	 	 	 	472.90	 	 	 	472.90	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	ALC Employee Status Verification

	 	 	1.0	 	 	 	—	 	 	 	39.41	 	 	 	472.90	 	 	 	—	 	 	 	472.90	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	AD HOC Query Reporting/Standard Reports

	 	 	10.0	 	 	 	—	 	 	 	394.08	 	 	 	4,728.96	 	 	 	—	 	 	 	4,728.96	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	ALC Net Cash Recon File Create

	 	 	 	 	 	 	0.5	 	 	 	19.70	 	 	 	236.45	 	 	 	236.45	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	BLS-CES File Create

	 	 	 	 	 	 	0.5	 	 	 	19.70	 	 	 	236.45	 	 	 	236.45	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	BLS-OES File Create

	 	 	 	 	 	 	0.5	 	 	 	19.70	 	 	 	236.45	 	 	 	236.45	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	ALC-TX Worker’s Compensation File Create

	 	 	 	 	 	 	0.5	 	 	 	19.70	 	 	 	236.45	 	 	 	236.45	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Annual EEO-1 Process

	 	 	 	 	 	 	0.3	 	 	 	9.85	 	 	 	118.22	 	 	 	118.22	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	SSA-EVS File Create & Send/Load Receive File

	 	 	 	 	 	 	0.3	 	 	 	9.85	 	 	 	118.22	 	 	 	118.22	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	WOTC [Work Opportunity Tax Credit] File Create/Send

	 	 	 	 	 	 	0.5	 	 	 	19.70	 	 	 	236.45	 	 	 	236.45	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	TALX UC Detail [wage and termination reporting]

	 	 	 	 	 	 	2.0	 	 	 	78.82	 	 	 	945.79	 	 	 	945.79	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Treasury-Create/Distribute Paid Checks File

	 	 	 	 	 	 	1.0	 	 	 	39.41	 	 	 	472.90	 	 	 	472.90	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	GL-Create/Correct/Transmit monthly PP, PR, IN
and PB entries

	 	 	 	 	 	 	4.5	 	 	 	177.34	 	 	 	2,128.03	 	 	 	2,128.03	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	ALC-EV3 Security/System Support — includes file
maintenance

	 	 	 	 	 	 	5.0	 	 	 	197.04	 	 	 	2,364.48	 	 	 	2,364.48	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Labor Reporting

	 	 	1.0	 	 	 	—	 	 	 	21.60	 	 	 	259.20	 	 	 	—	 	 	 	259.20	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Stop Payment Requests and Banking Issues

	 	 	6.0	 	 	 	—	 	 	 	129.60	 	 	 	1,555.20	 	 	 	—	 	 	 	1,555.20	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	401(k) Disbursements

	 	 	3.0	 	 	 	—	 	 	 	64.80	 	 	 	777.60	 	 	 	—	 	 	 	777.60	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Garnishment Processing and Administration

	 	 	5.0	 	 	 	—	 	 	 	127.50	 	 	 	1,530.00	 	 	 	—	 	 	 	1,530.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 
	Subtotal for Payroll

	 	 	565.5	 	 	 	47.6	 	 	$	15,540.52	 	 	$	186,486.19	 	 	$	18,685.30	 	 	$	167,800.90	 
	 	 	 

17

 

EXHIBIT 2.1

EMPLOYEE BENEFITS SERVICES

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Variable	 	 	 	 	 	 	 	 	 	 	 	 	 	Cost	Cost	 
	 	 	Cost	 	Fixed Cost	 	Total Monthly	 	 	 	 	 	Associated	Associated	 
	 	 	Component	 	Component	 	Salary &	 	 	 	 	 	with the	with the	 
	 	 	Monthly	 	Monthly	 	Wage Cost	 	 	 	 	 	Fixed	Variable	 
	Benefit Staff Functions	 	Hours	 	Hours	 	plus Benefits	 	Annual Cost	 	Component	Component	 
	Data Entry — Insurance Adds,
Changes & Deletes

	 	 	172.0	 	 	 	—	 	 	$	3,080.32	 	 	$	36,963.80	 	 	 	—	 	 	$	36,963.80	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Customer Service to Houses and
Staff
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Leave of Absence Monitoring
Some 401(k) processing (ALC plan)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Claim Resolution/Assistance

	 	 	25.8	 	 	 	—	 	 	 	863.73	 	 	 	10,364.71	 	 	 	—	 	 	 	10,364.71	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Anthem and Basic 10 Vendor
Coordination
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	COBRA Mailings/Recordkeeping

	 	 	 	 	 	 	8.6	 	 	 	208.46	 	 	 	2,501.54	 	 	 	2,501.54	 	 	—
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	HIPAA Certificates of Coverage
401(k) processing (EHSI plan)
PTO review/adjust during payroll
processing

	 	 	8.6	 	 	 	—	 	 	 	190.51	 	 	 	2,286.13	 	 	 	—	 	 	 	2,286.13	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Package changes

Short Term Disability

Processing/Coordination

	 	 	8.6	 	 	 	—	 	 	 	315.70	 	 	 	3,788.44	 	 	 	—	 	 	 	3,788.44	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Employee Assistance Program &

Life Insurance Bills
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Reports/interfaces

	 	 	8.6	 	 	 	—	 	 	 	314.55	 	 	 	3,774.54	 	 	 	—	 	 	 	3,774.54	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	401(k) Testing info
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	401(k) compliance

	 	 	25.8	 	 	 	—	 	 	 	2,388.62	 	 	 	28,663.46	 	 	 	—	 	 	 	28,663.46	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	ERISA Compliance:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	5500’s/SPD’s/Plan Audits
Plan Docs
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Oversee Short Term Disability

Consult/design
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	Subtotal for Benefits

	 	 	249.4	 	 	 	8.6	 	 	$	7,361.88	 	 	$	88,342.62	 	 	$	2,501.54	 	 	$	85,841.08	 

18

 

EXHIBIT 3.1

SUMMARY OF PAYROLL AND EMPLOYEE BENEFITS SERVICES CONTRACT COSTS

	 	 	 	 	 
	Total Payroll Department Variable Costs
	 	 	167,800.90	 
	Total Benefit Department Variable Costs
	 	 	85,841.08	 
	 
	 	 	 	 
	Sub-Total Variable Costs
	 	 	253,641.98	 
	EHSI Margin and Other Costs @ 25%
	 	 	63,410.49	 
	 
	 	 	 	 
	Total Contract Variable Cost Proposed
	 	 	317,052.47	 
	 
	 	 	 	 
	Number of ALC Annual Paychecks
	 	 	113,480	 
	 
	 	 	 	 
	Variable Cost Price per Check
	 	 	2.79391	 
	 
	 	 	 	 
	 
	 	 	 	 
	Amount per Check Processed
	 	 	2.80	 
	 
	 	 	 	 
	Annual Fixed Service Costs
	 	 	 	 
	Payroll
	 	 	18,700	 
	Benefits
	 	 	2,500	 
	 
	 	 	 	 
	Total Fixed Cost
	 	 	21,200	 
	 
	 	 	 	 
	 
	 	 	 	 
	Estimated Annual EV3 Licensing Fee based on Actual usage allocation to ALC:
	 	 	 	 
	Estimate of Annual EV3 License Allocation @14% of $79,200
	 	 	11,088	 
	EHSI Margin
	 	 	25	%
	 
	 	 	 	 
	Total Estimated Annual ALC License Fee
	 	 	13,860	 
	 
	 	 	 	 
	 
	 	 	 	 
	Estimated 1st Year ALC Costs
	 	 	 	 
	Variable Costs:
	 	 	 	 
	Est # of paychecks
	 	 	113,480	 
	Amount per Check Processed
	 	 	317,744.00	 
	 
	 	 	2.80	 
	Fixed Cost
	 	 	21,200	 
	Estimated EV3 Fee
	 	 	13,860	 
	 
	 	 	 	 
	Total Estimated ALC 1st year cost for Payroll & Benefit Processing
	 	 	352,804.00	 
	 
	 	 	 	 

19

 

EXHIBIT 5.1

TERM COMMENCEMENT DATE

	 	 	 	 	 
	1
	 	Commencement Date:	 	                                        , 2006
	 
	 	 	 	 
	2
	 	Expiration Date – Initial Term:	 	                                        , 2011
	 
	 	 	 	 
	3
	 	Renewal Term:	 	 
	 
	 	 	 	 
	 
	 	3.1  Notice of Renewal must be given no later than:	 	                                        , 2011
	 
	 	     (6 months prior to Expiration Date)	 	 
	 
	 	 	 	 
	 
	 	3.2  Commencement Date of Renewal Term:	 	                                        , 2011
	 
	 	 	 	 
	 
	 	3.3  Expiration Date of Renewal Term:	 	                                        , 2011
	 
	 	 	 	 
	4
	 	There is only one Renewal Option.	 	 

20exv10w4

 

July ____, 2006

Assisted Living Concepts, Inc.

111 West Michigan Street

Milwaukee, WI 53203

Attention: Laurie A. Bebo, President

Re: Agreement for Reimbursement Services

Dear Ms. Bebo:

This letter shall serve as the agreement (the “Agreement”) between Extendicare Health Services,
Inc., a Delaware corporation, Milwaukee, Wisconsin (“EHSI”) and Assisted Living Concepts, Inc., a
Nevada corporation, Milwaukee, Wisconsin (“ALC”) relating to the provision of certain specific
reimbursement services to ALC by EHSI.

	 	1.	 	EHSI, through its Reimbursement Services Department, shall provide to ALC the specific
reimbursement services described on Exhibit A, attached hereto and incorporated herein by
reference (the “Reimbursement Services” or “Services”). Additional Reimbursement Services
shall be provided at the request of ALC at the hourly rates set forth in Exhibit A. These
Reimbursement Services do not include the actual preparation of the Texas or other cost
reports. The Reimbursement Services only provide that EHSI shall provide advice to ALC to
enable ALC personnel to prepare the cost reports, to review the cost reports for accuracy,
to co-sign the report (as a authorized), and to respond to questions on cost reports for
those specific cost reports years for which ALC has engaged EHSI to perform the Services.
	 
	 	2.	 	ALC will engage EHSI to perform the Services for a defined cost report year. For
example, ALC will engage EHSI to provide services for the Texas 2006 Cost Reports that have
a fiscal year end of August 31, 2006. The term of this Agreement shall commence on the
date ALC becomes an independent, public company (the “Commencement Date”) and expire prior
to the commencement of the next cost report year being August 31, 2007, unless extended or
terminated pursuant hereto...
	 
	 	3.	 	ALC shall not have the right to terminate this Agreement.
	 
	 	4.	 	ALC shall have the option to extend the Term of this Agreement for one additional
period of twelve months upon written notice provided no later than three (3) months prior
to the commencement of the next cost report year, being August 31st. The
extended term shall be on the same terms, covenants and conditions except the Annual Fee
shall be $20,600.00 for the one year renewal term.

 

 

	 	5.	 	ALC shall pay EHSI the total amount of Twenty Thousand and 00/100 Dollars ($20,000.00)
(the “Fee”) for the Reimbursement Services for the Initial Term. The payment shall be paid
no later than 30 days after filing of the Texas Cost reports. The payment of the Fee shall
be made without notice, demand or setoff to EHSI by wire transfer or delivery on such
dates, time being of the essence.
	 
	 	6.	 	The parties acknowledge EHSI is acting solely as an independent contractor in the
performance of the Services. EHSI shall keep any and all information and documentation
provided to EHSI by ALC in the performance of this Agreement confidential. EHSI shall
comply with any and all laws and regulations in the performance of the Services and shall
indemnify and hold ALC harmless from any liability resulting from the delivery of the
Services.
	 
	 	7.	 	Until the expiration of five (5) years after the furnishing of all Services pursuant to
this Agreement, upon written request EHSI shall make available, to any governmental agency
having jurisdiction, this Agreement, and the books, documents and records of EHSI that are
necessary to certify the nature and extent of the costs incurred by EHSI in the performance
of this Agreement; and, if EHSI carries out any of the duties of the Agreement through a
subcontract, with a value or cost of Ten Thousand and 00/100 Dollars ($10,000.00)or more
over a twelve-(12) month period, with a Related Organization (as that term is defined by
regulation), such subcontract shall contain a clause to the effect that until the
expiration of five (5) years after the furnishing of such subcontracted services, the
Related Organization shall make available, upon written request to such governmental
agency, such subcontract, and any books, documents and records of such organization that
are necessary to verify the nature and extent of such costs.
	 
	 	8.	 	The parties shall each execute an original of the Business Associate Agreement attached
hereto as Exhibit B (the “Business Associate Agreement”), which is required pursuant to the
Health Insurance Portability and Accountability Act of 1996, Public Law Number 104-191
(“HIPAA”) and the regulations promulgated by the U.S. Department of Health and Human
Services.
	 
	 	9.	 	Any notices required or given pursuant to this agreement shall be personally delivered
or sent by certified or registered mail, return receipt requested or by a nationally
recognized courier with proof of delivery, and shall be sent to the individuals executing
this Agreement at the address set forth above with copies to the Legal Counsel for each
party.
	 
	 	10.	 	This Agreement may not be assigned by either party without the prior written consent of
the other party, which consent shall not be unreasonably withheld or delayed. This
Agreement shall be governed by the laws of the State of Wisconsin. This Agreement
constitutes the entire agreement and understanding between the parties relating to its
subject matter. This Agreement may not be modified or changed except by a written document
executed by both parties. This Agreement may be executed in one or more

2

 

	 	 	 	counterparts, each of which shall be deemed an original and all of which, when taken
together, will be deemed to constitute one and the same document.

If you are in agreement with the terms, covenants and conditions of this Agreement please indicate
your acceptance and intent to be bound thereto by executing the enclosed copy and returning it to
the undersigned.

	 	 	 	 	 
	Very Truly Yours,	 	 
	 
	 	 	 	 
	Extendicare Health Services, Inc.	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 	 	 
	Philip W. Small, President	 	 

The undersigned, Laurie A. Bebo, President of Assisted Living Concepts, Inc. hereby accepts the
terms, covenants and conditions of this Agreement on behalf of ALC this ___day of July, 2006.

	 	 	 	 	 
	Assisted Living Concepts, Inc.	 	 
	 
	 	 	 	 
	By:

	 	 	 	 
	 

	 	 	 	 
	Laurie A. Bebo, President	 	 

3

 

EXHIBIT A TO

LETTER AGREEMENT DATED JULY ___, 2006

EXTENDICARE HEALTH SERVICES, INC.

ASSISTED LIVING CONCEPTS, INC.

REIMBURSEMENT SERVICES

COST REPORT GENERAL ASSISTANCE

	 	1.	 	Prepare a work plan for cost report completion by ALC.

	 	1.1	 	Provide interim deadlines for review of report.
	 
	 	1.2	 	Provide guidance for work paper format.

	 	2.	 	Review and analyze chart of accounts and general ledger coding (during the year) for
ease in cost report preparation.
	 
	 	3.	 	Obtain electronic cost report program for ALC’s use.
	 
	 	4.	 	Review completed cost report program for ALC’s use.
	 
	 	5.	 	Sign the methodology certification form as required by the State of Texas.

The above services are limited to an assignment of 200 hours, which is the estimated amount of time
to complete the 41 Texas facilities. However, additional services can be provided. All other
contracted services in excess of 200 hours will be performed on a fee for service basis at a rate
of $40.00 per hour, which may include assistance with cost report audit appeals, rate appeals,
position papers and Medicaid rate enhancement strategies.

 

 

Exhibit B

Business Associate Agreement 

Privacy and Security of Protected Health Information

This Business Associate Agreement (“Agreement”) is made and entered into by and between Assisted
Living Concepts, Inc., Covered Entity (“CE”), and Extendicare Health Services, Inc., Business
Associate (“BA”), on                      and is effective as of                     
(“Agreement Effective Date”).

RECITALS

	A.	 	CE wishes to disclose certain information to BA in conjunction with services that are being
provided by BA to CE, some of which may constitute Protected Health Information (“PHI”) and/or
electronic Protected Health Information (“e-PHI”).
	 
	B.	 	CE and BA intend to protect the privacy of PHI and e-PHI disclosed to or created or received
by BA pursuant to the Agreement in compliance with applicable provisions of the Health
Insurance Portability and Accountability Act of 1996, Public Law 104-191 (“HIPAA”) and
regulations promulgated thereunder by the U.S. Department of Health and Human Services and
other applicable laws.
	 
	C.	 	The purpose of this Agreement is to satisfy certain standards and requirements of the Privacy
Rule, including, but not limited to, Title 45 Sections 164.502(e) and 164.504(e) of the Code
of Federal Regulations (“CFR”), and the Security Rule, including but not limited to, Title 45
CFR Sections 164.308(b) and 164.314(a), as the same may be amended from time to time.

In consideration of the mutual promises below and the exchange of information pursuant to this
Agreement, the parties agree as follows:

I. DEFINITIONS

Terms used, but not otherwise defined, in this Agreement shall have the same meaning as those terms
in the Privacy Rule and the Security Rule. In the event of a conflict between the definitions in
this Agreement and the definitions in the Privacy Rule and the Security Rule, the definitions in
the Privacy Rule and the Security Rule shall be applied.

Protected Health Information (“PHI”) includes Electronic Protected Health Information and
means any information, whether oral or recorded in any form or medium that

	 	(1)	 	Relates to the past, present or future physical or mental health or condition
of an individual, the provision of health care to an individual, or the past, present
or future payment for the provision of health care to an individual; and,
	 
	 	(2)	 	Identifies the individual or with respect to which there is a reasonable basis
to believe the information can be used to identify the individual; and,
	 
	 	(3)	 	Is limited to the information created or received by BA from or on behalf of
CE.

Electronic Protected Health Information (“e-PHI”) is a subset of Protected Health
Information and means PHI that is transmitted by or maintained in any electronic media.

Disclose means the release, transfer, provision of access to, or divulging in any other
manner of PHI to parties outside the BA’s organization.

Use means the sharing, employment, application, utilization, examination, or analysis of
PHI within the BA’s organization.

5

 

Secretary means the Secretary of Health and Human Services or any other officer or employee
of HHS to whom the authority involved has been delegated.

Data aggregation means, with respect to PHI created or received by an BA in its capacity as
a Business Associate of a CE, the combining of such PHI by the BA with the PHI received by the BA
in its capacity as a Business Associate of another covered entity, to permit data analyses that
relate to the health care operations of the respective covered entities.

Individual means the person who is the subject of PHI and shall include a person who
qualifies as a personal representative in accordance with 45 CFR 164.502(g).

Privacy Rule means the Standards for Privacy of Individually Identifiable Health
Information at 45 CFR part 160 and part 164, subparts A and E.

Required By Law means a mandate contained in law that compels a covered entity to make a
use or disclosure of PHI and that is enforceable in a court of law.

Security Rule means the Security Standards for the Protection of Electronic Protected
Health Information at 45 CFR part 160 and part 164, subparts A and C.

Availability means that data or information is accessible and useable upon demand by an
authorized person.

Confidentiality means that data or information is not made available or disclosed to
unauthorized persons or processes.

Integrity means that data or information have not been altered or destroyed in an
unauthorized manner.

Security Incident means the attempted or successful unauthorized access, use, disclosure,
modification, or destruction of information or interference with system operations in an
information system.

II. OBLIGATIONS AND ACTIVITIES OF BUSINESS ASSOCIATE

	1.	 	Nondisclosure. BA shall not use or disclose CE’s PHI otherwise than as permitted or
required by this Agreement or as Required By Law.

	2.	 	Minimum Necessary. BA shall use or further disclose PHI only in the minimum amount
and to the minimum number of individuals necessary to achieve the purpose of the services
being rendered to or on behalf of CE.

	3.	 	Safeguards. BA shall use appropriate safeguards to prevent use or disclosure of CE’s
PHI otherwise than as provided for by this Agreement.

	4.	 	Reporting of Unauthorized Disclosures. BA shall report to CE any use or disclosure of
CE’s PHI not provided for by this Agreement of which BA becomes aware.

	5.	 	Mitigation. BA shall mitigate, to the extent practicable, any harmful effect that is
known to BA of a use or disclosure of PHI by BA in violation of the requirements of this
Agreement.

	6.	 	BA’s Agents. BA shall ensure that any agents, including subcontractors, to whom it
provides PHI received from, or created or received by BA on behalf of, CE agree to the same
restrictions and conditions that apply to BA through this Agreement with respect to such PHI.

	7.	 	Access to PHI. BA shall provide access, at the request of CE, and in the time and
manner designated by CE, to PHI to CE or, as directed by CE, to an Individual in order to meet
the requirements under 45 CFR 164.524. This provision applies only to PHI received or created
by BA pursuant to this Agreement, if BA possesses such PHI.

6

 

	8.	 	Documentation of Disclosures. BA shall document such disclosures of PHI and
information related to such disclosures as would be required for CE to respond to a request by
an Individual for an accounting of disclosures of PHI in accordance with 45 CFR 164.528.

	9.	 	Accounting of Disclosures. BA shall provide to CE or an individual, in time and
manner designated by CE, information collected in accordance with Section 8 of this Agreement,
to permit CE to respond to a request by an individual for an accounting of disclosures of PHI
in accordance with 45 CFR 164.528.

	10.	 	Amendment of PHI. BA shall make any amendment(s) to PHI that the CE directs or agrees
to pursuant to 45 CFR 164.526 at the request of CE or an Individual, and in the time and
manner designated by CE. This provision applies only to PHI received or created by BA
pursuant to this Agreement, if BA possesses such PHI.

	11.	 	Internal Practices. BA shall make its internal practices, books and records relating
to the use and disclosure of PHI received from CE, or created or received by BA on behalf of
CE, available to the CE, or to the Secretary, for purposes of the Secretary determining CE’s
compliance with the Privacy Rule.

	12.	 	Security of e-PHI. If BA creates, receives, maintains or transmits e-PHI at any time
during the term of this agreement, BA agrees to appropriately safeguard the e-PHI as follows:

	 	a.	 	Safeguards. BA will develop, implement, maintain, and use
administrative, technical, and physical safeguards that reasonably and
appropriately protect the confidentiality, integrity, and availability of e-PHI
that BA creates, receives, maintains, or transmits on CE’s behalf as required by
the Security Rule;
	 
	 	b.	 	Agents. BA will ensure that any agent, including a subcontractor, to
whom it provides e-PHI agrees to implement reasonable and appropriate safeguards to
protect it; and,
	 
	 	c.	 	Reporting. BA will report to CE any Security Incident, of which BA
becomes aware.

	13.	 	BA’s Insurance. BA shall procure and maintain such policies of general and
professional liability insurance as are necessary to insure the parties hereto and their
respective employees and agents against any and all claims arising, directly or indirectly,
from breach of this Agreement. BA shall furnish evidence of such coverage to CE upon
execution of this Agreement and annually thereafter (upon renewal hereof) and furthermore
shall require its insurer to give CE reasonable written notice of any cancellation,
non-renewal, or termination of such coverage.

III. PERMITTED USES AND DISCLOSURES BY BUSINESS ASSOCIATE

	1.	 	Permitted Uses and Disclosures. Except as otherwise limited in this Agreement, BA
may use or disclose PHI to perform functions, activities, or services for, or on behalf of CE
for the provision of RUG refinement review, provided such use or disclosure would not violate
the Privacy Rule if done by the CE.

	2.	 	Use for Management and Administration. Except as otherwise limited in this
Agreement, BA may use PHI for the proper management and administration of the BA or to carry
out the legal responsibilities of the BA.

	3.	 	Disclosure for Management and Administration. Except as otherwise limited in this
Agreement, BA may disclose PHI for the proper management and administration of the BA or to
carry out the legal responsibilities of the BA, provided that:

	 	a.	 	Disclosures are required by law; or

7

 

	 	b.	 	BA obtains reasonable assurances from the person to whom the information is
disclosed that it will remain confidential and will be used or further disclosed only
as required by law or for the purpose for which it was disclosed to the person, and
	 
	 	c.	 	The person notifies the BA of any instances of which it is aware in which the
confidentiality of the information has been breached.

	4.	 	Data Aggregation. Except as otherwise limited in this Agreement, BA may use PHI to
provide Data Aggregation services to CE relating to the health care operations of the CE.

	5.	 	Report Violations of Law. Except as otherwise limited in this Agreement, BA may use
PHI to report violations of law appropriate to Federal and State authorities consistent with
45 CFR §164.502(j)(1).

IV. OBLIGATIONS OF COVERED ENTITY

	1.	 	Notice of Privacy Practices. Upon execution of the Agreement, CE shall provide BA
with the notice of privacy practices that CE produces in accordance with 45 CFR 164.520. Upon
request, CE shall provide BA with a revised Notice, if any, at the time the Notice becomes
effective.

	2.	 	Changes in permission. CE shall notify BA of any changes in, or revocation of,
permission by Individual to use or disclose PHI, to the extent that such changes may affect
BA’s use or disclosure of PHI.

	3.	 	Notification of Restrictions. CE shall notify BA of any restriction to the use or
disclosure of PHI that CE has agreed to in accordance with 45 CFR 164.522, to the extent that
such restriction may affect BA’s use or disclosure of PHI.

V. PERMISSIBLE REQUESTS BY COVERED ENTITY

	1.	 	Requests by Covered Entity. CE shall not request BA to use or disclose PHI in any
manner that would not be permissible under the Privacy Rule if done by CE.

	2.	 	Audits, Inspection and Enforcement. From time to time upon reasonable notice, CE may
inspect the facilities, systems, books and records of BA to monitor compliance with this
Agreement. BA shall promptly remedy any violation of any term of this Agreement and shall
certify the same to CE in writing. The fact that CE inspects, or fails to inspect, or has the
right to inspect, BA’s facilities, systems and procedures does not relieve BA of its
responsibility to comply with this Agreement, nor does CE’s (i) failure to detect or (ii)
detection.

VI. TERM AND TERMINATION

	1.	 	Term. The Term of this Agreement shall be effective as of the Agreement Effective
Date, and shall terminate when all of the PHI provided by CE to BA, or created or received by
BA on behalf of CE, is destroyed or returned to the CE, or if it is infeasible to return or
destroy PHI, protections are extended to such information, in accordance the termination
provisions in this Section.

	2.	 	Termination for Cause. Upon CE’s knowledge of a material breach by BA, CE shall
either:

	 	a.	 	provide an opportunity for BA to cure the breach or end the violation and if BA
does not cure the breach or end the violation within the time specified by CE,
terminate this Agreement; 
	 
	 	b.	 	immediately terminate this Agreement if BA has breached a material term of this
Agreement and cure is not possible; or,
	 
	 	c.	 	report the violation to the Secretary if neither cure of the breach nor
termination of this Agreement are feasible.

8

 

	3.	 	Effect of Termination. Except as provided in paragraph (4) of this section, upon
termination of this Agreement, for any reason, BA shall return or destroy all PHI received
from CE, or created or received by BA on behalf of CE. This provision shall apply to PHI that
is in the possession of subcontractors or agents of BA. BA shall retain no copies of the PHI.

	4.	 	Return or Destruction of PHI Not Feasible. In the event that BA determines that
returning or destroying PHI is not feasible, BA shall notify CE in writing of the conditions
that make return or destruction infeasible. If return or destruction of the PHI is
infeasible, BA shall extend the protections of this Agreement to such PHI and limit further
uses and disclosures of such PHI to those purposes that make the return or destruction
infeasible, for so long as BA maintains such PHI.

VII. MISCELLANEOUS

	1.	 	Regulatory References. A reference in this Agreement to a section in the Privacy Rule
or the Security Rule means the section as in effect or as amended, and for which compliance is
required.

	2.	 	Amendment. The Parties agree to take such action as is necessary to amend this
Agreement from time to time for CE to comply with the requirements of the Privacy Rule and the
Security Rule.

	3.	 	Survival. The respective rights and obligations of BA under Section VI.3. and VI.4.of
this Agreement shall survive the termination of this Agreement.

	4.	 	Interpretation. This Agreement shall be interpreted as broadly as necessary to
implement and comply with the Privacy Rule, the Security Rule and applicable state laws. The
parties agree that any ambiguity in this Agreement shall be resolved in favor of a meaning
that permits CE to comply with the Privacy Rule and applicable state laws.

	5.	 	Indemnification. BA will indemnify, hold harmless and defend CE from and against
any and all claims, losses, liabilities, costs and other expenses incurred as a result of, or
arising directly or indirectly out of or in connection with: (i) any misrepresentation, breach
of warranty or non-fulfillment of any undertaking on the part of BA under this Agreement; and
(ii) any claims, demands, awards, judgments, actions and proceedings made by any person or
organization arising out of or in any way connected with BA’s performance under this
Agreement.

	6.	 	Assistance in Litigation or Administrative Proceedings. BA shall make itself, and any
subcontractors, employees or agents assisting BA in the performance of its obligations under
this Agreement, available to CE, at no cost to CE, to testify as witnesses, or otherwise, in
the event of litigation or administrative proceedings being commenced against CE, its
directors, officers or employees based upon claimed violation of the Privacy Rule, except
where BA or its subcontractor, employee or agent is a named adverse party.

9

 

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the Agreement
Effective Date.

	 	 	 	 	 	 	 
	COVERED ENTITY
	 	BUSINESS ASSOCIATE

	 
	 	 	 	 	 	 
	Extendicare Health Services, Inc.	 	Assisted Living Concepts, Inc.
	 
	 	 	 	 	 	 
	By:

	 	 	 	By:	 	 
	 

	 	 
	 	 	 	 
	 
	 	 	 	 	 	 
	Print Name: Philip W. Small	 	Print Name: Laurie Bebo
	 
	 	 	 	 	 	 
	Title:

	 	President
	 	Title:
	 	President
	 
	 	 	 	 	 	 
	Date:

	 	 	 	Date:	 	 
	 

	 	 
	 	 	 	 

10

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