BM-DCHS System Restructuring and Support Agreement (EXECUTION)

8/20/2019 BM-DCHS System Restructuring and Support Agreement (EXECUTION)

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SYSTEM RESTRUCTURING AND SUPPORT AGREEMENT

BY AND AMONG

DAUGHTERS OF CHARITY MINISTRY SERVICES CORPORATION,

A CALIFORNIA NONPROFIT RELIGIOUS CORPORATION,

DAUGHTERS OF CHARITY HEALTH SYSTEM,

A CALIFORNIA NONPROFIT RELIGIOUS CORPORATION,

CERTAIN FUNDS MANAGED BY BLUEMOUNTAIN CAPITAL MANAGEMENT,

LLC, A DELAWARE LIMITED LIABILITY COMPANY,

AND

INTEGRITY HEALTHCARE, LLCA DELAWARE LIMITED LIABILITY COMPANY

DATED: AS OF JULY 17, 2015


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TABLE OF CONTENTS

Page

DEFINITIONS ........................................................................................................... 2

ARTICLE 1

1.1

Definitions................................................................................................................2

TRANSACTION; CONSIDERATION ................................................................... 14 ARTICLE 2

2.1 Form of Transaction ...............................................................................................14 2.2 Retained Assets ......................................................................................................16 2.3 Holdback Amount ..................................................................................................17 2.5 Deposit ...................................................................................................................17 2.6 Concurrent Deliveries ............................................................................................18 2.7 Closing Date Payments. .........................................................................................19

CLOSING ................................................................................................................ 19

ARTICLE 3

3.1 Closing ...................................................................................................................19 3.2 Actions of Integrity and BlueMountain at Closing ................................................19 3.3 Actions of DOCMSC, DCHS, and the DCHS Affiliates at Closing .....................20 3.4 Casualty Loss .........................................................................................................21 3.5 Disclaimer of Warranties; Release.........................................................................22

REPRESENTATIONS AND WARRANTIES OF DCHS ...................................... 24

ARTICLE 4

4.1 Existence and Corporate Capacity .........................................................................25 4.2 Powers; Consents; Absence of Conflicts with Other Agreements .........................25

4.3

Binding Agreement ................................................................................................25

4.4 Financial Statements ..............................................................................................25 4.5

Licenses..................................................................................................................26

4.6 Medicare and Medi-Cal Participation ....................................................................26 4.7 Compliance with Laws ..........................................................................................26 4.8

Contracts ................................................................................................................27

4.9 Environmental Matters...........................................................................................27 4.10 Real Property .........................................................................................................28 4.11 Litigation or Proceedings .......................................................................................29 4.12 Medical Staff Matters ............................................................................................29 4.13 Tax Liabilities ........................................................................................................29

4.14

Employee Benefits .................................................................................................30

4.15 Personnel ................................................................................................................31 4.16 Insurance ................................................................................................................31 4.17 Accounts Receivable ..............................................................................................31 4.18

U.S. Persons ...........................................................................................................32

4.19 Cost Reports ...........................................................................................................32 4.20 Information ............................................................................................................32


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REPRESENTATION AND WARRANTIES OF INTEGRITY ANDARTICLE 5BLUEMOUNTAIN ................................................................................................. 32

5.1 Organization and Authorization of Integrity and BlueMountain ...........................32 5.2 Corporate Authority; Absence of Conflicts with Other Agreements.....................32 5.3

Binding Obligations ...............................................................................................33

5.4

Legal Proceedings ..................................................................................................33

5.5 Ability to Perform ..................................................................................................33 5.6

Required Consents .................................................................................................33

5.7 Integrity’s and BlueMountain’s Experience and Investigation .............................34 5.8 Solvency .................................................................................................................34 5.9 Health Care Compliance ........................................................................................34 5.10 No Broker’s Fees. ..................................................................................................35

COVENANTS OF DCHS ........................................................................................ 35

ARTICLE 6

6.1 Mitigation Plan and Performance Improvement Plan ............................................35

6.2

Operation................................................................................................................36

6.3 Negative Covenants ...............................................................................................37 6.4 Regulatory Approvals; Consents to Assignment ...................................................38 6.5 Tax Exempt Status. ................................................................................................40 6.6 Additional Financial Information. .........................................................................40 6.7 Exclusivity .............................................................................................................40 6.8

Supplement to Disclosure Schedules .....................................................................41

6.9 D&O Insurance ......................................................................................................41 6.10 Fiduciary Liability Insurance .................................................................................42 6.11

Retained Assets ......................................................................................................42

6.12 Transitional Consulting Services Agreement; Board Authority and

Participation. ..........................................................................................................42

6.13 Corporate Name; Grant of Limited License to Use Retained Marks .....................42 6.14 Closing Conditions.................................................................................................43 6.15 Financial Cooperation ............................................................................................43 6.16 Notification of Actions and Proceedings ...............................................................44 6.17 Management Agreement ........................................................................................44 6.18 Access ....................................................................................................................45 6.19 Charitable Purpose. ................................................................................................45

COVENANTS OF INTEGRITY ............................................................................. 45 ARTICLE 7

7.1

Regulatory Approvals ............................................................................................45 7.2 Employees ..............................................................................................................46

7.3

Pension Liabilities ..................................................................................................48

7.4 Consents to Assignment .........................................................................................50 7.5 Contact with Unions ..............................................................................................50 7.6

Charity Care; Other Related Matters .....................................................................50

7.7 Capital Commitment ..............................................................................................51


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7.8 Intellectual Property ...............................................................................................51 7.9 Actions Related to Legal Opinion from Bond Counsel. ........................................51 7.10 D&O Coverage ......................................................................................................52 7.11 Closing Conditions.................................................................................................52 7.12 Right of First Offer. ...............................................................................................52

7.13

Seton Medical Center. ............................................................................................52

7.14 DOCMSC Lease. ...................................................................................................52 7.15 Charitable Purpose. ................................................................................................53

CONDITIONS PRECEDENT TO DCHS’ OBLIGATIONS .................................. 53 ARTICLE 8

8.1 Representations and Warranties .............................................................................53 8.2 Performance of Covenants .....................................................................................53 8.3 Actions or Proceedings ..........................................................................................53 8.4

Approvals by Governmental Entities; Licenses and Permits; Third-PartyConsents .................................................................................................................54

8.5 Hart Scott Rodino Filings ......................................................................................54

8.6

Other Approvals .....................................................................................................54

8.7 Retained Assets ......................................................................................................54 8.8 Other Instruments and Documents.........................................................................54 8.9 Legal Opinion from Bond Counsel ........................................................................54 8.10 Group Ruling .........................................................................................................54

CONDITIONS PRECEDENT TO INTEGRITY’S ANDARTICLE 9BLUEMOUNTAIN’S OBLIGATIONS ................................................................. 55

9.1 Representations and Warranties .............................................................................55 9.2 Performance of Covenants .....................................................................................55

9.3

Actions or Proceedings ..........................................................................................55

9.4 Approvals by Governmental Entities; Licenses and Permits; Third-PartyConsents .................................................................................................................55

9.5 Hart Scott Rodino Filings ......................................................................................55 9.6

Title Matters ...........................................................................................................56

9.7 Church Approval ....................................................................................................56 9.8 No Material Adverse Effect ...................................................................................56 9.9

Other Instruments and Documents.........................................................................56

9.10 Bankruptcy .............................................................................................................56 9.11 Group Ruling .........................................................................................................56

TERMINATION .................................................................................................... 56

ARTICLE 10

10.1 Termination ............................................................................................................56 10.2 Effect of Termination .............................................................................................57


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TAX AND COST REPORT MATTERS ............................................................... 57 ARTICLE 11

11.1 Tax Matters ............................................................................................................57 11.2 Cost Report and Other Audits and Contests ..........................................................58

POST-CLOSING MATTERS................................................................................ 58 ARTICLE 12

12.1 Retained Assets and Excluded Liabilities ..............................................................58 12.2 Access to Records After Closing ...........................................................................58 12.3 Consents; Provision of Benefits of Certain Contracts ...........................................59

MISCELLANEOUS .............................................................................................. 60 ARTICLE 13

13.1 Enforcement Expenses ...........................................................................................60 13.2 Survival and Enforcement of Governance Provisions ...........................................60 13.3 Notice .....................................................................................................................60 13.4 Schedules and Other Instruments...........................................................................62

13.5

Governing Law; Jurisdiction..................................................................................62 13.6

Specific Performance .............................................................................................62

13.7 Amendments ..........................................................................................................63 13.8 Public Disclosure ...................................................................................................63 13.9

Assignment and Benefit .........................................................................................63

13.10 Waivers and Consents ............................................................................................63 13.11 Severability ............................................................................................................63 13.12 Counterparts ...........................................................................................................64 13.13 Entire Agreement ...................................................................................................64 13.14 Headings ................................................................................................................64 13.15 Gender and Number; Construction ........................................................................64

13.16

Confidentiality .......................................................................................................64 13.17 System Representative ...........................................................................................64

13.18 Advance Conflict Waiver ......................................................................................65 13.19

Post-Closing Dispute Resolution ...........................................................................67

LIST OF EXHIBITS:

A – Transitional Consulting Services AgreementB – Management AgreementC – Commitment LetterD – Purchase Option AgreementsE – IT AgreementF – Escrow Deposit AgreementG – Mitigation PlansH – Performance Improvement Plan

LIST OF SCHEDULES:


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Schedule Description of Schedule

1.1(b) System Office Employees

1.1(c) Collective Bargaining Agreements and Defined Church Contribution Plans

2.1(e) Third-Party Lenders and Funds Managed by Blue Mountain

2.1(k) IT Agreement

2.2(a) Retained Intellectual Property

2.2(c) Religious Artifacts and Donor-Restricted Assets

2.2(e) Retained Assets

2.6 Designated Account

2.6(c) Transaction Costs

2.6(d) Termination Costs for Nonqualified Executive Retirement Plans

4.2(b) Required Approvals

4.2(c) Mission Critical Contracts; Required Consents

4.4 Financial Statements & GAAP Exceptions

4.6 Medicare or Medi-Cal Notices & Investigations

4.7(b) Government Actions to Terminate or Decertify

4.7(c) Excluded Employees and Exclusion from Federal Health Care Programs

4.7(d) Corporate Integrity Agreements

4.9(b) Violations of Environmental Laws

4.10(a) Owned Real Property

4.10(b) Proceedings Related to Real Property

4.10(c) Real Estate Leases

4.10(f) Unsatisfied Requests for Repairs, Restorations or Improvements

4.11 Material Litigation or Proceedings


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4.12 Medical Staff Matters

4.13(a) Tax Returns

4.13(b) Taxes

4.14(a) Employee Benefits and Retirement Plans

4.14(c) Liability with Respect to Plans

4.14(e) Retiree Welfare Benefits and Retirement Plans

4.15(a) DCHS Employees

4.15(b) Grievances and Unfair Labor Practice Complaints

4.15(c) Compliance with Legal Requirements Relating to Employee Health andSafety

4.16 Insurance

4.19 Cost Reports

5.10 Broker’s Fees – Blue Mountain

6.2(g) Retention Payments

6.4(b) Regulatory Approvals – DCHS

6.9 D&O Insurance

6.10 Fiduciary Liability Insurance

6.13 Licensed Intellectual Property

7.1(a)(ii) Regulatory Approvals – Blue Mountain

7.1(a)(iii) Change of Control Applications and Notices – Blue Mountain/Integrity

7.2(b) DCHS and its Affiliates’ Severance Policies

7.12 Right of First Offer for Religious Assets

8.8 Transaction Documents


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SYSTEM RESTRUCTURING AND SUPPORT AGREEMENT

THIS SYSTEM RESTRUCTURING AND SUPPORT AGREEMENT (this“ Agreement ”) is made and entered into as of the 17th day of July, 2015 (the “ Effective Date”) byand among Daughters of Charity Ministry Services Corporation, a California nonprofitreligious corporation (“ DOCMSC ”) and Daughters of Charity Health System, a Californianonprofit religious corporation (“ DCHS ”), on the one hand, and certain funds managed byBlueMountain Capital Management, LLC, a Delaware limited liability company, as identifiedon Attachment 1 (each a “ BlueMountain Fund ” and collectively, the “ BlueMountain Funds”),and Integrity Healthcare, LLC, a Delaware limited liability company (“ Integrity”), on the otherhand. DOCMSC, DCHS, Integrity, and BlueMountain are each also referred to in thisAgreement as a “Party” and, collectively as the “Parties.”

R E C I T A L S

WHEREAS, DCHS is a California nonprofit religious corporation that is the solecorporate member of the Hospitals, as defined herein, and, in such capacity, controls, directly or

indirectly, and has the authority to commit or otherwise act on behalf of, or bind, the Hospitalsand the other DCHS Affiliates, as defined below, as necessary to implement the terms andconditions of this Agreement;

WHEREAS, DOCMSC is the sole member of DCHS;

WHEREAS, DCHS and DOCMSC have determined that it is in the best interest ofDCHS to consider strategic alternatives for the operation of the System (defined below) in orderto obtain additional management support, and needed liquidity and working capital for theSystem, all in order to better pursue the ongoing delivery of health care services in thegeographic area served by the System consistent with DCHS’s mission to operate a health care

system for charitable purposes as described in Section 501(c)(3) of the Code;

WHEREAS, Integrity is wholly owned by funds managed by BlueMountain CapitalManagement, LLC;

WHEREAS, in furtherance of the above objectives, the Parties desire to effect thefollowing System reorganization and related financing transactions: (a) simultaneously with theexecution of this Agreement, DCHS and Integrity shall enter into a Transitional ConsultingServices Agreement, in the form set forth in Exhibit A (the “Transitional Consulting ServicesAgreement”); (b) DCHS and Integrity shall enter into the Health System ManagementAgreement in the form attached hereto as Exhibit B (the “ Management Agreement ”); (c)DOCMSC, in its capacity as the sole member of DCHS, shall cause the resignation or removal ofthe existing directors of DCHS, and it shall appoint new directors of DCHS (the “Post-Transaction Directors”), who will assume office at Closing; (d) DOCMSC, in its capacity as thesole member of DCHS, shall cause the DCHS articles of incorporation and bylaws to beamended to convert DCHS to a non-member public benefit corporation, to change the name ofDCHS to Integrity Health System, Inc., and to make certain other changes (and, for theavoidance of doubt, all references in this Agreement to DCHS with respect to post-Closingmatters, covenants, and periods shall be deemed to refer to Integrity Health System, Inc., a non-


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member public benefit corporation, as the surviving and continuing entity of DCHS);(e) DOCMSC shall then resign as sole member of DCHS; (f) Lender (as defined below) andDCHS shall enter into a credit facility at Closing in the principal amount of not less than OneHundred Fifty Million Dollars ($150,000,000.00) (the “ Debt Facility”) for the benefit of theSystem, in accordance with the terms and conditions of the commitment letter in the form

attached as Exhibit C (the “Commitment Letter ”); (g) BlueMountain shall provide a capitalcommitment in the principal amount of not less than One Hundred Million Dollars($100,000,000.00) to Integrity and the Option Holders; and (h) Integrity and the Option Holdersshall make cash payments to DCHS at Closing in the combined aggregate amount of OneHundred Million Dollars ($100,000,000.00) (the “Contribution Funding”), as consideration for(i) the grant of an option or options (the “Purchase Option”) by DCHS and each of the DCHSAffiliates, to entities to be formed prior to Closing that will be managed by BlueMountainCapital Management, LLC and owned by BlueMountain Funds and/or Affiliates ofBlueMountain Funds (collectively, the “Option Holders”) to purchase substantially all of theirassets subject to all of their liabilities pursuant to the Purchase Option Agreements substantiallyin the form of Exhibit D (the “Purchase Option Agreements”), and (ii) the grant of the right,

assignment, and/or lease, license, or sublease to Integrity to use certain information technologyequipment, infrastructure, software, and licenses of the System in connection with its performance of the Management Agreement.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises and covenants contained in this Agreement, and for their mutual reliance andincorporating into this Agreement the above recitals, the parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

1.1 Definitions. When used in this Agreement, the following terms shall have the

meanings assigned to them in this Section 1.1.

“2005 Bonds” means the California Statewide Communities Development AuthorityRevenue Bonds (Daughters of Charity Health System) Series 2005A outstanding in the principalamount as of May 31, 2015 of approximately Two Hundred Fifty-Six Million One HundredSeventy Thousand Dollars ($256,170,000) and the California Statewide CommunitiesDevelopment Authority Revenue Bonds (Daughters of Charity Health System – St. FrancisMedical Center) 2005G and 2005H outstanding in the principal amount as of May 31, 2015 ofapproximately Twenty-Eight Million Three Hundred Five Thousand Dollars ($28,305,000),secured by Obligations Nos. 8, 10 and 11 issued under the Master Indenture and by the Deeds ofTrust.

“2014 Bonds” means the California Statewide Communities Development AuthorityRevenue Bonds (Daughters of Charity Health System) 2014 Series A, B and C outstanding in the principal amount of approximately One Hundred Twenty-Five Million Dollars ($125,000,000),secured by Obligations 13, 14 and 15 issued under the Master Indenture.

“ AAA” has the meaning given it in Section 13.19.


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“ Acceptable AG Conditions” shall mean those conditions that are mandated by theCalifornia Attorney General in consenting to the Transaction, considering those which have beenrequired as a part of the consent conditions for transactions of a similar nature involving nonprofit and for-profit based hospital transactions, as made applicable to the activities, programsand services of the Hospitals that are in place as of the Effective Date, subject to implementation

of the Mitigation Plans. Such conditions, as applicable to specific DCHS Affiliates, may includeminimum annual expenditure requirements for charity care and community benefit programs,which may take into consideration over time a current community needs assessment, regulatorychanges and the ability of an individual Hospital to continue the same level of fundingcommitment during periods of time when it is not generating sufficient cash flow to cover the payment of its ongoing financial obligations.

“ Actual Fraud ” means intentional or reckless conduct constituting actual fraud as definedin accordance with the laws of the State of California or the United States of America.

“ Affiliate” means an entity which, directly or indirectly, controls, is controlled by, or isunder common control with, the referenced party. For purposes of this definition, the term

“control” (including the correlative meanings of the terms “controlled by” and “under commoncontrol with”), as used with respect to any Person, means the possession, directly or indirectly, ofthe power to direct or cause the direction of management policies of such Person, or the ability toappoint or remove a majority of the members of the Board of Directors or Board of Trustees ofan entity, provided that, with respect to DCHS and BlueMountain “Affiliate” shall not includeofficers or directors of DCHS or BlueMountain and for purposes of this Agreement, Integrityshall be considered an Affiliate of BlueMountain. For avoidance of doubt, DOCMSC is anAffiliate of DCHS for all purposes in this Agreement, except for the purpose of the definition ofDCHS Affiliates, which expressly excludes DOCMSC.

“ Aggregate Damage” has the meaning given it in Section 3.4(a).

“ Agreement ” has the meaning set forth in the introductory paragraph.

“ Alternative Proposal” means any contract, proposal, offer or indication of interestrelating to any transaction or series of related transactions (other than transactions withBlueMountain, Integrity, or any of their Affiliates) (a) involving any sale, lease or disposition orreaffiliation of all (or any material portion of) the System, any DCHS Affiliate, any Hospital orany of their respective material assets, (b) involving any issuance, purchase, sale or otherdisposition of any membership or equity interests of any DCHS or any DCHS Affiliate, or anyreaffiliation, merger, consolidation, business combination, or similar transaction involvingDCHS or any DCHS Affiliate or any entity within the System or (c) the purpose or effect of

which would be reasonably expected to, or which would, prevent, or otherwise frustrate orimpede in any material respect, the transactions contemplated by this Agreement or theTransaction Documents.

“ Antitrust Filings” has the meaning given it in Section 6.4(b)(i).

“ Application” has the meaning given it in Section 6.4(a).


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“ Balance Sheet Date” has the meaning given it in Section 4.4.

“ BlueMountain” means, collectively, the BlueMountain Funds and any special purposevehicles owned by any BlueMountain Fund formed for purposes of this Agreement.

“ BlueMountain Fund(s)” has the meaning given it in the introductory paragraph and,further, the BlueMountain Funds will be severally, and not jointly, liable to the extent they areotherwise liable under any of the Transaction Documents.

“ Bond Consents” has the meaning given it in Section 6.14.

“ Bonds” means the 2005 Bonds and the 2014 Bonds.

“ Break-Up Fee” has the meaning given it in Section 6.7.

“ Business Day” means a day other than a Saturday, Sunday or other day on whichcommercial banks in New York or California are authorized or required by Law to close.

“California Attorney General Approval” means either the written consent of theCalifornia Attorney General to the Transaction, or the conditional consent of the CaliforniaAttorney General to the Transaction, which shall include only those conditions defined asAcceptable AG Conditions.

“Casualty Notice” has the meaning given it in Section 3.4(a).

“CBS ” means Caritas Business Services, a California nonprofit religious corporation ofwhich DCHS is the sole Class A Member.

“CBS Senior Directors” means the individuals set forth on Schedule 1.1(b).

“Church Approval” has the meaning given it in Section 8.6.

“Church Law” has the meaning given it in Section 8.6.

“Closing” has the meaning given it in Section 3.1.

“Closing Date” has the meaning given it in Section 3.1.

“Closing Proceeds” has the meaning given it in Section 2.3.

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

“Collective Bargaining Agreements” means the collective bargaining agreements andother labor union contracts, including any expired collective bargaining agreement with respectto which a duty to bargain still exists, all as listed on Schedule 1.1(c).

“Commitment Letter ” has the meaning given it in the recitals.


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“Confidentiality Agreement ” has the meaning given it in Section 13.16.

“Continuing Employee” has the meaning given it in Section 7.2(a).

“Contracts” means all of the contracts, operating and capital leases, Bonds, loancommitments, Real Estate Leases, agreements and commitments relating to the ownership andoperation of the System, including the physician service agreements, the Collective BargainingAgreements, and any continuing obligation imposed by Law to bargain with any union,including any liabilities arising from the results of any bargaining with the union.

“Contribution Funding” has the meaning given it in the recitals.

“Cost Reports” means all cost and other reports filed by the System for payment and/orreimbursement from Government Entity payment programs and other payors with respect to theSystem.

“CRO” has the meaning given it in the Performance Improvement Plan.

“ Debt Facility” has the meaning given it in the fourth recital to this Agreement.

“ Debt Facility Documents” has the meaning given it in Section 2.1(e).

“ DCHS ” means the legal entity described in the introductory paragraph.

“ DCHS Affiliates” means, collectively, the Hospitals, any and all Affiliates of theHospitals, and any other Affiliates of DCHS, including but not limited to, Caritas BusinessServices, a California nonprofit religious corporation of which DCHS is the sole Class Amember, DCHS Medical Foundation, a California nonprofit religious corporation of whichDCHS is the sole corporate member, St. Vincent de Paul Ethics Corporation, a California

nonprofit public benefit corporation, St. Vincent Dialysis Center, Inc., a California nonprofit public benefit corporation, Marillac Insurance Company, Ltd., a Caymans entity of which DCHSis the sole shareholder, the Philanthropic Foundations, De Paul Ventures, LLC, a Californialimited liability company of which DCHS is the sole member, De Paul Ventures – San JoseASC, LLC, a California limited liability company, and De Paul Ventures – San Jose Dialysis,LLC.

“ DCHS Affiliate Amended Articles” has the meaning given it in Section 2.1(i).

“ DCHS Affiliate Amended Bylaws” has the meaning given it in Section 2.1(h).

“ DCHS Amended Articles” has the meaning given it in Section 2.1(b).

“ DCHS Amended Bylaws” has the meaning given it in Section 2.1(b).

“ DCHS Employees” has the meaning given it in Section 4.15(a).

“ DCHS Executives” means those individuals identified on Schedule 1.1(b).


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“ DCHS Marks” is defined in Section 2.2(a).

“ DCHS Medical Foundation Chief Medical Officer ” means the individual serving fromtime to time as the chief medical officer of DCHS Medical Foundation.

“ DCHS Medical Foundation President ” means the individual serving from time to timeas the chief executive officer of DCHS Medical Foundation.

“ DCHS Names” is defined in Section 2.2(a).

“ DCHS Plans” has the meaning given it in Section 4.14(a).

“ DCHS Pre-Closing Communications” has the meaning given it in Section 13.18.

“ DCHS Related Parties” has the meaning given it in Section 13.18.

“ Deeds of Trust ” means each Deed of Trust with Fixture Filing and Security Agreement

dated as of December 1, 2001 granted by a Member of the DCHS Obligated Group to the MasterTrustee under the Master Indenture.

“ Defined Benefit Church Plan” means the Daughters of Charity Health SystemRetirement Plan, which has been consistently treated and administered by DCHS as a non-electing “church plan” as defined in Section 3(33) of ERISA and Section 414(e) of the Code.

“ Defined Contribution Church Plans” means the Daughters of Charity Health SystemRetirement Plan Account, the Daughters of Charity Health System Supplemental RetirementPlan (401(a)) and the Daughters of Charity Health System Supplemental Retirement Plan(TSA/403(b)), and any other defined contribution plan that is listed on Schedule 1.1(c) (whetheror not frozen), each of which has been consistently treated and administered by DCHS as a non-

electing “church plan” as defined in Section 3(33) of ERISA and Section 414(e) of the Code.

“ Deposit ” has the meaning given it in Section 2.4(a).

“ Deposit Escrow Agent ” has the meaning given it in Section 2.4(a).

“ Deposit Escrow Agreement ” has the meaning given it in Section 2.4(a).

“ Disclosure Schedules” has the meaning given it in Article 4.

“ DOCMSC ” means the legal entity described in the introductory paragraph.

“ D&O Insurance” has the meaning given it in Section 6.9.

“ Effect of the Transaction on the Tax Status of DCHS ” means the legal consequenceswith respect to the exclusion of interest paid or payable on the Bonds from gross income of bondholders or former bondholders for federal income tax purposes of: the execution anddelivery of the Transaction Documents, the consummation of the Transaction, the performance


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and satisfaction of each of the Transaction Documents in accordance with its terms, and theoperation of the DCHS Affiliates under the terms of the Transaction Documents, including the provisions of this Agreement prior to the Closing.

“ Effective Date” has the meaning set forth in the introductory paragraph.

“ Effective Time” has the meaning given it in Section 3.1.

“ Employee Pension Benefit Plan” has the meaning set forth in Section 3(2) of ERISA.

“ Employee Welfare Benefit Plan” has the meaning set forth in Section 3(1) of ERISA.

“ Encumbrance” means any mortgage, deed of trust, pledge, assessment, security interest,lease, sublease, lien (including mechanic’s or materialmen’s liens and judgment liens), levy,right of way, easement, covenant, charge or other encumbrance of any kind, whether imposed bycontract, Law, equity or otherwise.

“ Enforceability Exceptions” has the meaning given it in Section 4.3.

“ Environmental Laws” shall mean all Laws relating to: (i) the control of any potential pollutant or protection of the ambient air, indoor air, groundwater, drinking water, storm water,waste water, wetlands, surface or subsurface soil or land; (ii) solid, gaseous or liquid wastegeneration, handling, treatment, storage, disposal, arrangement for disposal or transportation;(iii) exposure to hazardous, toxic or other substances alleged to be harmful; and (iv) workerhealth and safety, and includes without limitation, (A) judicial, administrative, or otherregulatory decrees, judgments, and orders of any Governmental Entity, and (B) the followingstatutes and the regulations promulgated thereunder: the Clean Air Act, 42 U.S.C. § 7401 et seq.,the Clean Water Act, 33 U.S.C. § 1251 et seq., the Resource Conservation and Recovery Act, 42

U.S.C. § 6901 et seq., the Superfund Amendments and Reauthorization Act, 42 U.S.C. § 11011et seq., the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq., the Water Pollution ControlAct, 33 U.S.C. § 1251 et seq., the Safe Drinking Water Act, 42 U.S.C. § 300f et seq., CERCLA,OSHA, the Hazardous Materials Transportation Act, 49 U.S.C. § 1801 et seq., and any otherstate, county, or local regulations similar thereto.

“ Environmental Survey” has the meaning given it in Section 4.9(a).

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

“ Estimate” has the meaning given it in Section 3.4(a).

“ Excluded Liabilities” means any liabilities directly associated with, arising from, orsecured by any Retained Assets.

“Fiduciary Liability Insurance” has the meaning given it in Section 9.

“Financial Statements” has the meaning given it in Section 4.4.


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“GAAP” means United States generally accepted accounting principles as in effect fromtime to time, and applied by DCHS consistently throughout the periods indicated and inaccordance with DCHS’s prior practices and policies.

“GAAP Exceptions” has the meaning given it in Section 4.4.

“Governmental Entity” means any federal, state or local court, legislative body,governmental body, municipality, political subdivision, department, agency or authority,including the Attorney General of California and the Medicare and Medicaid programs(including their fiscal intermediaries and administrative contractors).

“Guaranties” has the meaning given it in Master Indenture.

“ Hazardous Materials” means any (i) toxic or hazardous materials or substances,including mold; (ii) solid wastes, including asbestos, polychlorinated biphenyls, mercury,chemicals, flammable or explosive materials; (iii) radioactive materials (including naturally-occurring radioactive materials); (iv) petroleum or petroleum products (including crude oil); (v)

medical waste; and (vi) any other chemical, pollutant, contaminant, substance or waste that isregulated by any Governmental Entity under any Environmental Laws.

“ Health Care Laws” means all Laws applicable to health care providers and facilities;federal and state health care program conditions of participation, standards, policies, rules, procedures and other requirements; and accreditation standards of any applicable accreditingorganization, including the federal (Title XIX of the Social Security Act) and state Medicaid programs and their implementing regulations, the Medicare Program (Title XVIII of the SocialSecurity Act) and its implementing regulations, the federal False Claims Act (31 U.S.C. §§3729et seq.), the Federal Health Care Program Anti-Kickback Statute (42 U.S.C. §1320a 7b(b)), theFederal Physician Self-Referral Law (42 U.S.C. §1395nn), the Federal Administrative False

Claims Law (42 U.S.C. §1320a 7b(a)), the Beneficiary Inducement Statute (42 U.S.C. §1320a-7a(a)(5)), the HIPAA and the HIPAA Privacy Rule, the HIPAA Security Rule and the HIPAAStandards for Transactions and Code Sets (42 U.S.C. 1320d 1329d 8; 45 CFR Parts 160 and164), the Health Information Technology for Economic and Clinical Health Act (Title XIII ofDivision A and Title IV of Division B of the American Recovery and Reinvestment Act of 2009,Pub. L. No. 111-5 (Feb. 17, 2009)), the federal Confidentiality of Alcohol and Drug AbusePatient Records Act (42 U.S.C. 290ee 3), the Rehabilitation Act, the Americans with DisabilitiesAct, the Occupational Safety and Health Administration statutes and regulations for blood borne pathogens and workplace risks, and any state and local laws and the regulations promulgated pursuant to such laws, that address the same or similar subject matter. Health Care Laws alsoinclude federal, state and local health care laws applicable to health care providers and facilities,

including, without limitation, laws related to: federal and state health care program billing, costreporting, revenue reporting, payment and reimbursement; federal and state health care programfraud, abuse, theft or embezzlement; procurement of health care services, human and socialservices, and other health related services; employee background checks and credentialing ofemployees; credentialing and licensure of facilities or providers of such services; zoning,maintenance, safety and operations of group homes, residential facilities and day programs, andother building health and safety codes and ordinances; health facility planning laws; state law


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restrictions on the corporate practice of medicine (and the corporate practice of any other healthrelated profession); eligibility for federal and state health care program contracting, includingany requirements limiting contracting to nonprofit or tax exempt entities; patient information andmedical record confidentiality, including psychotherapy and mental health records; splitting ofhealth care fees; patient brokering, patient solicitation, patient capping, and/or payment of

inducements to recommend or refer, or to arrange for the recommendation or referral of, patientsto health care providers or facilities; standards of care, quality assurance, risk management,utilization review, peer review, and/or mandated reporting of incidents, occurrences, diseasesand events; advertising or marketing of health care services; and the enforceability of restrictivecovenants on health care providers.

“ Holdback Amount ” has the meaning given it in Section 2.3.

“ Hospital CEOs” means the individuals serving from time to time as the chief executiveofficers of the Hospitals.

“ Hospital Trademarks” means the following trademarks: “St. Francis Medical Center,”

“St. Vincent Medical Center,” “Seton Medical Center,” “Seton Medical Center – Coastside,”“Saint Louise Regional Hospital,” “O’Connor Hospital,” “St. Vincent Dialysis Center,” “De PaulUrgent Care Center,” “O’Connor Urgent Care,” “O’Connor Wound Care Clinic,” “Seton ExpressCare,” “San Francisco Heart and Vascular Institute,” “St. Vincent Orthopaedic Institute,”“St. Vincent Cardiac Care Institute,” “St. Vincent Spine Institute,” and “Asian Pacific LiverCenter.”

“ Hospitals” means and includes the licensed acute care hospitals organized as nonprofitreligious corporations under California law known as O’Connor Hospital, Saint Louise RegionalHospital, St. Francis Medical Center, St. Vincent Medical Center, Seton Medical Center, and theskilled nursing home and emergency department known as Seton Medical Center – Coastside, a

division of Seton Medical Center.

“ HSR Act ” means the Hart-Scott Rodino Antitrust Improvements Act of 1976, asamended.

“ Insurance Policies” has the meaning given it in Section 4.16.

“ Integrity” has the meaning given it in the introductory paragraph.

“ Integrity Notice” has the meaning given it in Section 3.4(c).

“ Integrity Related Parties” has the meaning given it in Section 13.18.

“ Intellectual Property” means all patents, trademarks, service marks, trade names, logos,trade dress, domain names, copyrights, know-how, trade secrets, and corresponding applicationsand registrations.

“ IT Agreement ” has the meaning given it in Section 2.1(k).


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“Knowledge” means with respect to (i) DCHS, the actual then current knowledge of theChief Executive Officer, Chief Financial Officer, Chief Compliance Officer, and GeneralCounsel of DCHS, and the Hospital CEOs (whose knowledge will include information thatwould be obtained after reasonable inquiry of their Chief Financial Officer) as of the EffectiveDate and Closing; (ii) Integrity, the actual then current knowledge of its respective Chief

Executive Officer or the Chief Operating Officers as of the Effective Date and Closing; and (iii)BlueMountain or any BlueMountain Fund, the actual then current knowledge of the ManagingMember of BlueMountain Capital Management, LLC, the investment manager of eachBlueMountain Fund. No constructive or imputed knowledge shall be attributed to any suchindividual by virtue of any position held, relationship to any other Person or for any other reason,except as specifically set forth herein.

“ Law” means any constitution, law (including common law), statute, standard, ordinance,code, rule, regulation, resolution, or promulgation of any Governmental Entity or any license,franchise, permit, or similar right granted under any of the foregoing, or any similar provision orduty or obligation having the force or effect of law.

“ Lender ” has the meaning given it in Section 2.1(e).

“ License Period ” has the meaning given it in Section 6.13.

“ Licenses and Permits” means, collectively, all licenses, permits, certificates,registrations, accreditations, consents, orders, authorizations and approvals with respect to theSystem obtained from, filed with or issued by any Governmental Entity or pursuant to any Law.

“ Local 39 Pension Plan” means the Stationary Engineers Local 39 Pension Plan.

“ Loss Consultant ” has the meaning given it in Section 3.4(c).

“ Losses” has the meaning given it in Section 3.5(c).

“ Management Agreement ” has the meaning given it in the recitals.

“ Master Indenture” means the Master Indenture of Trust dated as of December 1, 2001among the Members of the DCHS Obligated Group and the Master Trustee, as amended andsupplemented.

“ Master Trustee” shall have the meaning given to such term in the Master Indenture.

“ Material Adverse Effect ” any result, occurrence, fact, change, event or effect that has a

material adverse impact on the business, assets, financial condition or results of operation of theSystem taken as a whole, except as may otherwise be set forth in this Agreement; provided,however, that none of the following shall be deemed in themselves (either individually or in theaggregate) to constitute, and none of the following shall be taken into account in determiningwhether there has been or will be, a Material Adverse Effect: (i) any change in economic or political conditions or the United States or foreign economies or securities or financial markets in


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general; (ii) any change generally affecting industries, markets or geographical areas in whichthe applicable Hospital operates; (iii) the negotiation, execution, announcement, pendency or performance of this Agreement or the Transaction, including compliance with the terms, ortaking any action required by this Agreement or any communication with DCHS or any of itsAffiliates of their plans or intentions (including in respect of employees) with respect to the

System; (iv) the consummation of the Transaction or any actions by the Parties taken pursuant tothis Agreement or in connection with the Transaction; (v) losses from operations of the Hospitalsthat are materially consistent with the historical performance of the Hospitals, including theimpact of QAF funds received during the period between the execution of this Agreement andthe Closing, provided that such losses are not the result of a failure to adhere to the terms andconditions of this Agreement, including the implementation of the Performance ImprovementPlan; (vi) any change arising in connection with natural disasters or acts of nature, hostilities,acts of war, sabotage or terrorism or military actions or any escalation or material worsening ofany such hostilities, whether or not occurring or commenced before or after the date of thisAgreement; (vii) any changes in applicable Laws, accounting rules or the interpretation thereofthat are not directed at DCHS, BlueMountain, Integrity, the System, the Hospitals, or similar

hospitals, in each instance to the exclusion of others; (viii) changes in GAAP; (ix) any laborstrike or work stoppage or interruption; (x) any actions taken by DCHS at the recommendationof Integrity, its Affiliates, the PISC or any of their directors, officers or employees; (xi) actionsrequired to be taken by DCHS under applicable Law or contracts; (xii) the retention of theRetained Assets; or (xiii) the Effect of the Transaction on the Tax Status of DCHS. For clarity,the filing of any voluntary or involuntary petition of insolvency or bankruptcy of DCHS or anyDCHS Affiliate is a Material Adverse Event.

“ Material Loss” has the meaning given it in Section 3.4(b).

“ Meet and Confer ” has the meaning given it in Section 13.19.

“ Member of the DCHS Obligated Group” means each of DCHS, O’Connor Hospital,Saint Louise Regional Hospital, Seton Medical Center, St. Francis Medical Center andSt. Vincent Medical Center.

“ Mission Critical Contracts” has the meaning given it in Section 4.2(c).

“ Mitigation Plans” has the meaning given it in Section 6.1.

“ Multiemployer Plan” or “ Multiemployer Plans” means one or both of the Local 39Pension Plan and the RPHE.

“Offer ” shall have the meaning given it in Section 7.12.

“Offer Notice” shall have the meaning given it in Section 7.12.

“Offered Assets” shall have the meaning given it in Section 7.12.

“Operating Revenue Deficiency” has the meaning given it in Section 7.3(b).


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“Option Holders” has the meaning given it in the recitals.

“Outside Date” has the meaning given it in Section 10.1(b).

“Party” and “Parties” have the meaning set forth in the introductory paragraph.

“PBGC ” has the meaning given it in Section 7.3(a).

“Performance Improvement Plan” has the meaning given it under Section 6.1.

“Permitted Exceptions” has the meaning as set forth for the defined term Permitted Liensunder the Master Indenture.

“Person” means any individual or any corporation, association, partnership, limitedliability company, joint venture, joint stock or other company, business trust, trust, organization,Governmental Entity or other entity of any kind.

“Personal Property Leases” means all arrangements by which DCHS or any DCHSAffiliate, as lessee, obtains and holds rights to use personal property, whether clarified as anoperating lease or capital lease under GAAP.

“Philanthropic Foundations” means, collectively, O’Connor Hospital Foundation, SaintLouis Regional Hospital Foundation, St. Francis Medical Center of Lynwood Foundation,St. Vincent Medical Center Foundation and Seton Medical Center Foundation, each a Californianonprofit public benefit corporation.

“PISC ” has the meaning given it in the Performance Improvement Plan.

“Post-Closing Dispute” has the meaning given it in Section 13.19.

“Post-Closing Dispute Notice” has the meaning given it in Section 13.19.

“Post-Closing Representation” has the meaning given it in Section 13.18.

“Post-Transaction Directors” has the meaning given it in the recitals to this Agreement.All Post-Transaction Directors will meet the qualifications of IRS Rev. Ruling 69-545, the IRSgovernance related requirements of IRS Rev. Procedure 97-13 and California Corporations CodeSection 5227.

“Pre-Closing Representation” has the meaning given it in Section 13.18.

“Prior Company Counsel” has the meaning given it in Section 13.18.

“Public Taking” has the meaning given it in Section 4.10(e).

“Purchase Option Agreements” has the meaning given it in the recitals to this Agreement.


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“Purchase Option” has the meaning given it in the recitals to this Agreement.

“ Real Estate Leases” has the meaning given it in Section 4.10(c).

“ Real Property” has the meaning given it in Section 4.10(a).

“ Records” means all files, data, documents, records, correspondence, work papers,operating manuals and other documents including without limitation employee records, financialrecords, equipment records, construction plans and specifications, patient records, medicalrecords and medical and administrative libraries, medical staff, peer review and physiciancredentialing records and files, and on-site regulatory compliance records, including in each caseelectronically stored files, data, documents and records.

“ Related Marks” is defined in Section 2.2(a).

“ Released Parties” has the meaning given it in Section 3.5(c).

“ Releasors” is defined in Section 3.5(c).

“ Retained Assets” has the meaning given it in Section 2.2.

“ Retained IP” has the meaning given it in Section 2.2(b).

“ Retained Marks” is defined in Section 2.2(a).

“ Retained Records” means all Records relating to the Retained Assets.

“ RPHE ” means the Retirement Plan for Hospital Employees, as Amended and RestatedEffective January 1, 2012 and as further amended.

“ Right of First Offer ” shall have the meaning given it in Section 7.12.

“Sacred Object ” are those items listed in Schedule 2.2(c).

“Schedule Supplement ” has the meaning given it in Section 6.8.

“Section 1542” has the meaning given it in Section 3.5(c).

“System” has the meaning given it in the first recital to this Agreement and, for theavoidance of doubt, specifically includes DCHS, the DCHS Affiliates, and the assets andinterests of each of DCHS and the DCHS Affiliates of any kind and type (including interests in joint ventures, partnerships, or agreements in which DCHS or any DCHS Affiliate has anyinterest), and the following medical office properties, each of which is owned in connection withone of the Hospitals: Huntington Park Medical Office Building; Maywood Medical OfficeBuilding; St. Vincent Professional Office Building; Ocean View Pavilion; Medical OfficeBuilding (O’Connor Hospital); Clarmar Building; Barclay Building Medical Office Condo;Morgan Hill Medical Office Building; Serramonte Medical Center; SMOC #1 Medical Office


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Building; and SMOC #2 Medical Office Building; and the following land, each of which isowned in connection with St. Francis Medical Center, Parking Garage #2 Land, and the landlocated at 3628 Imperial Highway, Lynwood, CA 90262, on which the St. Francis Medical Plazais located.

“System Office Employees” has the meaning given it in Section 7.2(b).

“Tax Return” means any return, declaration, report, claim for refund or informationreturn or statement relating to Taxes, including any schedule or attachment thereto, and includingany amendment thereof.

“Taxes” or “Tax” means, collectively, federal, state and local income, payroll,withholding, excise, sales, use, real and personal property, use and occupancy, business andoccupation, mercantile, real estate, capital stock and franchise or other taxes, including penaltiesand interest thereon and estimated taxes.

“Transaction” has the meaning given it in Section 2.1.

“Transaction Documents” has the meaning given it in Section 8.8.

“Transitional Consulting Services Agreement ” has the meaning given it in the recitals.

ARTICLE 2

TRANSACTION; CONSIDERATION

2.1

Form of Transaction. Subject to the terms and conditions set forth herein, atClosing, the Parties shall effect the following actions and transactions, none of which shall bedeemed to occur or be effective unless all such transactions are deemed to occur and be effective(collectively, the “Transaction”):

(a) DOCMSC, in its capacity as the sole member of DCHS, shall cause theresignation or removal of the existing directors of DCHS and it shall appoint the Post-Transaction Directors to assume office as of the Closing. BlueMountain is in the process ofidentifying candidates to be recommended to DOCMSC as the Post-Transaction Directors.Candidates will be independent and otherwise meet all applicable legal requirements, and willhave the expertise and skills appropriate to guide the System, as it undertakes a significanttransformation. The current directors of DCHS will also be solicited for recommendations forcandidates of Post-Transaction Directors. For the avoidance of doubt, the Post-TransactionDirectors shall be appointed by DOCMSC, in its sole and exclusive discretion, in accordancewith the current bylaws of DCHS and may or may not include the candidates recommended as

Post-Transaction Directors by Integrity and the current directors of DCHS;

(b) DOCMSC, in its capacity as the sole member of DCHS, shall cause DCHSto approve and adopt (i) amended and restated Articles of Incorporation of DCHS in such formas may be necessary to implement this Agreement (the “ DCHS Amended Articles”), in order tochange the name of DCHS to Verity Health System of California, Inc., convert DCHS to a non-


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member public benefit corporation, and to make certain other changes, and (ii) amended andrestated Bylaws of DCHS (the “ DCHS Amended Bylaws”) in such form as may be necessary toimplement this Agreement, and to reflect and be consistent with the terms and conditions,inclusive of the reserve powers, of the Request for Group Exemption Letter dated May 29, 2015,directed to the Internal Revenue Service, all of which shall take effect at the Effective Time;

(c)

DOCMSC shall then resign as the sole member of DCHS;

(d) Integrity and DCHS shall each execute and deliver the ManagementAgreement, which among other things, will result in Integrity providing the DCHS ChiefExecutive Officer;

(e) One or more third-party lenders secured by BlueMountain CapitalManagement, LLC or funds managed by BlueMountain Capital Management, LLC (or anAffiliate of such funds) specifically identified in Schedule 2.1(e) (collectively, the “ Lender ”) andthe Members of the DCHS Obligated Group shall enter into the Debt Facility, and as of theClosing, Lender and the Members of the DCHS Obligated Group shall execute and deliver any

credit or loan agreement, promissory notes, security agreements, mortgages, deeds of trust, andother agreements, certificates or documents as required by Lender to implement the terms of theCommitment Letter (collectively, the “ Debt Facility Documents”);

(f) DCHS, the DCHS Affiliates, and the Option Holders shall each executeand deliver the Purchase Option Agreements;

(g) DCHS shall cause the resignation or removal of the existing members ofthe board of directors or other governing bodies of the Hospitals, and it shall appoint or cause theappointment of replacement directors pursuant to the same process of selection and approvalapplicable under Section 2.1(a);

(h) DCHS and the governing bodies of the Hospitals and the other DCHSAffiliates shall cause the bylaws or other governing documents of the Hospitals and other DCHSAffiliates to be amended in order to make the changes necessary to implement this Agreement,and to reflect and be consistent with the terms and conditions, inclusive of the reserve powers,Request for Group Exemption Letter dated May 29, 2015, directed to the Internal RevenueService (collectively, the “ DCHS Affiliate Amended Bylaws”);

(i) the DCHS Amended Articles and any amended or restated articles ofincorporation of the Hospitals or DCHS Affiliates in such form as may be necessary toimplement this Agreement (collectively, the “ DCHS Affiliate Amended Articles”) shall be filedwith the California Secretary of State;

(j) the Parties acknowledge and agree that DCHS will continue to addressfunding shortfalls for Employee Pension Benefit Plans and Employee Welfare Benefit Plans afterthe Closing;


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(k) As of the Closing Date, the DCHS and DCHS Affiliates will lease,sublicense, and/or make an assignment, to the extent permissible under their respective licenseagreements and equipment leases, certain information technology infrastructure and equipmentto Integrity (including appropriate software licenses) as initially set forth on Schedule 2.1(k),upon the terms and conditions of the information technology agreement in substantially the form

attached hereto as Exhibit E (the “ IT Agreement ”) with such changes as the Parties may agree toat or prior to Closing. Integrity will use the items and equipment leased or licensed under the ITAgreement for the purpose of managing the System after the Closing and performing its dutiesand obligations under the Management Agreement; and

(l) The Option Holders and Integrity shall, collectively, pay the ContributionFunding to DCHS, as consideration for the Purchase Option Agreements and IT Agreement,respectively, with the portion of the Contribution Funding payable by the Option Holders beingequal to the purchase price under the Purchase Option Agreements and the portion of theContribution Funding payable by Integrity being equal to the one-time payment required ofIntegrity under the IT Agreement, in each case as will be determined by a health care valuationexpert prior to Closing.

2.2 Retained Assets. Notwithstanding anything to the contrary in Section 2.1, prior tothe Closing, DCHS shall, or shall cause any applicable DCHS Affiliate to, assign, transfer,convey and distribute to DOCMSC the following assets (collectively, the “ Retained Assets”):

(a) all trademarks, domain names and website content listed onSchedule 2.2(a), and any other trademark or domain name that contains, uses or references thename “Daughters,” “Daughters of Charity,” “Daughters of Charity Health System,” “DCHS,”“DOCHS,” “DCHS Medical Foundation,” or any such similar name (the “ DCHS Names”;together with any abbreviations, variations, logos or symbols associated or used in connectionwith the DCHS Names or Retained Assets, the “ DCHS Marks”), and any trademark or domain

name that contains, uses or references the name of a Person belonging to or affiliated with DCHS(together with any abbreviations, variations, logos or symbols associated or used in connectiontherewith, the “ Related Marks”). The DCHS Marks and the Related Marks are collectively, the“ Retained Marks”;

(b) all copyrights, including website content, listed on Schedule 2.2(a) (together with the Retained Marks, the “ Retained IP”), and subject to Integrity’s rights underSection 12.2, the Retained Records;

(c) any religious artifacts, including any Sacred Object, and the assets anddonor-restricted assets listed on Schedule 2.2(c);

(d)

the Lease Agreement between Daughters of Charity of St. Vincent dePaul, Province of the West and DCHS dated October 1, 2001 for the building at 26000 AltamontRoad, Los Altos Hills, California; and

(e) any asset or contract listed on Schedule 2.2(e).


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2.3 Holdback Amount.

(a) At the Closing, DCHS shall transfer funds from the Debt Facility proceedsto DOCMSC, to be deposited by DOCMSC in a segregated deposit account controlled byDOCMSC, in an amount equal to Eleven Million Five Hundred Thousand Dollars ($11,500,000),less the amount of severance and accrued paid time-off paid to those DCHS employees who donot continue their employment with DCHS as of the Effective Time, and less the amount ofseverance pay and accrued paid time-off that would have been owed to those System OfficeEmployees who execute new written employment agreements with DCHS as of the EffectiveTime (the “ Holdback Amount ”).

(b) To the extent DCHS or a DCHS Affiliate does not make a severance payment and payment for any accrued paid-time off to a terminated System Office Employee(without a new written employment agreement) between the Effective Time and the firstanniversary of the Effective Time in an amount consistent with the obligations described inSchedule 7.2(b), DOCMSC shall be entitled to make such payments directly to such SystemOffice Employee out of the Holdback Amount. DOCMSC and Integrity shall meet quarterly to

reconcile the then remaining Holdback Amount with any severance and accrued paid-time off payments made by DCHS or any DCHS Affiliate during the preceding fiscal quarter, andDOCMSC shall release to Integrity from the Holdback Account an amount not less than theseverance payments and accrued paid time-off made by DCHS or any DCHS Affiliate duringsuch preceding fiscal quarter to any terminated System Office Employees (or the entireHoldback Amount, in DOCMSC’s discretion, if DOCMSC determines that DCHS is makingtimely severance payments). In any event, in not longer than twelve (12) months from theEffective Time, any remaining Holdback Amount shall be released to DCHS.

2.4

Deposit.

(a)

Concurrently with the execution of this Agreement, Integrity shall deliverto Citibank National Association (the “ Deposit Escrow Agent ”) the sum of Forty Million Dollars($40,000,000.00) (as adjusted pursuant to Section 2.4(b), the “ Deposit ”). The Deposit shall beheld in escrow in an interest bearing account by the Deposit Escrow Agent, all as more fully setforth in that certain Deposit Escrow Agreement in the form attached hereto as Exhibit F (the“ Escrow Deposit Agreement ”), which has been executed by Integrity, DCHS, and the DepositEscrow Agent concurrently herewith, the delivery of the Deposit to the Deposit Escrow Agenthaving also occurred. At the Closing, the Deposit and the earnings thereon shall be applied to payment of the Contribution Funding.

(b) Prior to Closing, the Deposit is and shall be at all times the property of

Integrity and Integrity agrees that the Deposit shall be used and distributed to cover all costs andexpenses of DCHS arising under or in connection with the Transitional Consulting ServicesAgreement or implementation of the Performance Improvement Plan including, withoutlimitation, reimbursable expenses payable to Integrity and any fees or compensation payable tothe CRO; provided, however , that to the extent the actions of the CRO and/or Integrity under theTransitional Consulting Services Agreement result in a reduction in DCHS’ expenses relating tothe use of outside consultants during the period after the Effective Date and prior to the Closing


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Date, the amount of such expense reduction shall be credited to the Deposit and an offset to anyfurther charge against the Deposit for such expenses. In the event this Agreement is terminated,the amount of the Deposit remaining after the debits and credits described in the foregoingsentence shall be released to the Party entitled thereto as more specifically set forth in thisSection below; provided, however , that if Integrity is entitled to a return of the Deposit under

Section 2.4(d)(ii), Section 2.4(d)(iv), of Section 2.4(d)(v) there shall be no offset, charge against,or reduction to the Deposit for expenses paid or payable to DCHS arising under or in connectionwith the Transitional Consulting Services Agreement and Integrity shall be entitled to a fullrefund of the original amount of the Deposit, plus all interest accrued thereon. Other than theright to receive the Deposit in accordance with the specific provisions below, DCHS shall haveno right or interest or claim to, or in any way with respect to, the Deposit.

(c) If this Agreement is validly terminated pursuant to Section 10.1(b) (due tothe failure of BlueMountain or Integrity for any reason other than a failure of DCHS to satisfyany of the conditions of Article IX), Section 10.1(d) (for any reason other than the failure of thecondition to Closing set forth at Section 8.10 (Group Ruling)), or Section 10.1(e), then DCHSshall be entitled to a distribution of one hundred percent (100%) of the Deposit and any interestaccrued thereon from the Deposit Escrow Agent. This Section 2.4(c) shall constitute DCHS’ solemonetary remedy under this Section 2.4 and upon such acceptance hereunder will be deemed to be liquidated damages to DCHS.

(d) If this Agreement validly terminates pursuant to:

(i) Section 10.1(a);

(ii) Section 10.1(b) (except where any of the conditions of Article VIIIthat by their nature can be satisfied before Closing are not satisfied);

(iii)

Section 3.1, 3.4(b) or (c);

(iv)

An Integrity or BlueMountain Fund termination of this Agreement pursuant to Section 10.1(c) for DCHS’s failure to satisfy a condition set forth in Article 9; or

(v) A DCHS termination of this Agreement pursuant toSection 10.1(d) for failure to satisfy the condition set forth in Section 8.10 (Group Ruling);

then Integrity shall be entitled to a distribution (i.e., return) of one hundred percent (100%) of theDeposit, and any interest accrued thereon, from the Deposit Escrow Agent.

(e) This Section 2.4 shall survive termination of the Agreement.

2.5 Concurrent Deliveries. Contemporaneously with the execution and delivery ofthis Agreement, (i) Integrity and DCHS shall execute and deliver the Transitional ConsultingServices Agreement; and (ii) Lender shall execute and deliver the Commitment Letter to DCHS.


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2.6 Closing Date Payments. At the Closing, by wire transfer of immediately availablefunds to the account designated by DCHS on Schedule 2.6, Integrity, Lender, or BlueMountain,as applicable, shall pay the Contribution Funding and the proceeds under the Debt Facility and,as of the Closing, such payments shall be applied and used as follows:

(a) To redeem, prepay, or defease the 2014 Bonds as of the Effective Time infull to their first option call date in accordance with their governing documents and all fees andexpenses related to the redemption, prepayment, or defeasance and the establishment of thenecessary escrows, the release of all security for the 2014 Bonds, and all other matters incidentthereto;

(b) To pay the severance and accrued paid-time off of any DCHS Employeewho is terminated as of the Closing Date;

(c) To pay all of DCHS’s transaction costs, including without limitation thoseset forth on Schedule 2.6(c); and

(d)

To pay the termination costs for the nonqualified executive retirement plans set forth on Schedule 2.6(d).

ARTICLE 3

CLOSING

3.1 Closing. Subject to the satisfaction or waiver by the appropriate Party of all theconditions precedent to Closing specified in Article 8 and Article 9, the closing of theTransaction under this Agreement (the “Closing”) will take place at the local office of DCHS’legal counsel (or such other place as the parties may mutually agree) on the seventh BusinessDay following the satisfaction or written waiver of the last of the conditions precedent to Closing

as specified in Article 8 and Article 9 to be satisfied prior to Closing (that can be satisfied priorto Closing), or such earlier or later date as the Parties may mutually agree (the “ Closing Date”).The Parties agree that the Transaction shall be closed and made effective as of 12:01 a.m.,Pacific Time, on the Closing Date (the “ Effective Time”). The Parties agree that, absent amutually agreed extension, the Closing Date shall occur no later than the date that is nine (9)months following the Effective Date, or this Agreement and all Transaction Documents shallterminate and be of no force or effect.

3.2 Actions of Integrity and BlueMountain at Closing. At Closing, or unlessotherwise waived by DCHS in writing:

(a) Integrity and each BlueMountain Fund shall execute and deliver theagreements and documents and perform such other actions that are its obligations to execute,deliver, and perform pursuant to Section 2.1;

(b) Integrity shall deliver copies of resolutions duly adopted by its general partner(s), managers, board of directors, or governing body, authorizing and approving its performance of the Transaction contemplated hereby and its execution and delivery of this


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Agreement and other documents described herein on its part to be executed and delivered, eachcertified as true, complete and in full force and effect as of the Closing Date by its appropriateofficer;

(c) Integrity and each BlueMountain Fund shall deliver a certificate of a dulyauthorized officer certifying that each covenant and agreement on its part to be performed priorto or as of Closing pursuant to this Agreement has been performed in all material respects;

(d) Integrity shall deliver a certificate of incumbency of the officers of itexecuting this Agreement and the other documents described herein on its behalf, dated as of theClosing Date;

(e) BlueMountain Capital Management, LLC shall deliver a certificate ofincumbency of the officers or managers of it executing this Agreement and the other documentsdescribed herein on its behalf as the investment manager of each of the BlueMountain Funds,dated as of the Closing Date;

(f)

Each BlueMountain Fund and Integrity will deliver a certificate ofexistence and good standing from their respective jurisdictions of domicile, dated the most recent practical date prior to the Closing Date;

(g)

Integrity will deliver to DCHS a certificate of status from the CaliforniaSecretary of State, dated the most recent practical date prior to the Closing Date, related to itsgood standing and qualification to do business as a foreign limited liability company inCalifornia;

(h) Integrity and each BlueMountain Fund will deliver a certificate of a dulyauthorized officer of it certifying that the representations and warranties of it set forth in this

Agreement are true and correct in all material respects as of the Closing Date;

(i) Integrity will deliver a certificate of insurance evidencing thatcommercially reasonable director’s and officer’s liability coverage is in effect for the directorsand officers DCHS and all DCHS Affiliates as of the Effective Time, from a carrier that has thesame or better credit rating as DCHS’ current D&O Insurance carrier;

(j) Integrity and the Option Holders will pay the Contribution Funding andLender will pay, or cause to be paid, the proceeds under the Debt Facility, all in accordance withSection 2.6; and

(k) Integrity and each BlueMountain Fund will each execute and deliver such

other and further instruments and documents as may be reasonably required to consummate theTransaction herein contemplated in accordance with the terms and conditions hereof.

3.3

Actions of DOCMSC, DCHS, and the DCHS Affiliates at Closing. At Closing, orunless otherwise stated herein or waived by Integrity and BlueMountain in writing:


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(a) DOCMSC, DCHS, and the DCHS Affiliates shall each execute and deliverthe agreements and documents and perform the other actions that are its obligations to execute,deliver, and perform pursuant to Section 2.1;

(b) DOCMSC and DCHS shall each deliver copies of resolutions dulyadopted by its board of directors authorizing and approving its performance of the Transactioncontemplated hereby and its execution and delivery of this Agreement and other documentsdescribed herein on its part to be executed and delivered, each certified as true, complete and infull force and effect as of the Closing Date by its appropriate officer;

(c) DOCMSC shall deliver evidence, in such form as may be reasonablyacceptable to Integrity and BlueMountain, that DOCMSC has resigned and withdrawn as the solemember of DCHS in accordance with Law, as of the Effective Time;

(d) DOCMSC and DCHS shall each deliver a certificate of a duly authorizedofficer certifying that each covenant and agreement on its part to be performed by it prior to or asof Closing pursuant to this Agreement has been performed in all material respects;

(e) DOCMSC and DCHS shall each deliver a certificate of incumbency of theofficers of it executing this Agreement and the other documents described herein on its behalf,dated as of the Closing Date;

(f) DOCMSC and DCHS shall each deliver a certificate of status from theCalifornia Secretary of State, dated the most recent practical date prior to the Closing Date,relating to its good standing;

(g) DOCMSC and DCHS shall each deliver a certificate of a duly authorizedofficer of it certifying that the representations and warranties of it set forth in this Agreement are

true and correct in all material respects as of the Closing Date;

(h) an assignment and assumption agreement, in such form as may bereasonably acceptable to Integrity and DOCMSC, shall have been fully executed by DOCMSC,DCHS, and any DCHS Affiliate then holding an interest in any Retained Assets and delivered toDOCMSC, pursuant to which the Retained Assets are transferred to DOCMSC; and

(i) DCHS, DOCMSC, and the DCHS Affiliates will execute and deliver tosuch other further instruments and documents as may be reasonably required to consummate theTransaction herein contemplated in accordance with the terms and conditions hereof.

3.4 Casualty Loss.

(a) If any material part or portion of the System is damaged, condemned, lostor destroyed (whether by fire, theft, or other casualty event such as earthquake or naturaldisaster, and whether or not such damage, condemnation, loss, or destruction results in or would be defined as a Material Adverse Event) prior to the Effective Time, DCHS shall notify Integrity(“Casualty Notice”) as soon as reasonably practicable of such damage, loss or destruction. The


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Casualty Notice shall set forth DCHS’s good faith, reasonable estimate (the “ Estimate”) of thefair market value of the cost to repair, replace or restore (as applicable) such damage, loss ordestruction, net of any insurance proceeds due to DCHS for such loss (the “ Aggregate Damage”).

(b) If there is damage, loss or destruction to the System and the Estimate ofthe cost to repair, replace or restore (as applicable) such damage, loss or destruction is greaterthan Fifteen Million Dollars ($15,000,000.00), net of any insurance proceeds due DCHS for suchloss (a “ Material Loss”), then Integrity may, within ten (10) Business Days after receipt of theCasualty Notice, by written notice to DCHS, terminate this Agreement, and secure the return ofthe Deposit. The failure of Integrity to so elect in writing to terminate this Agreement withinsuch ten (10) Business Day period shall be deemed an election not to terminate this Agreement.

(c) If the Estimate is less than a Material Loss and Integrity objects to theEstimate, then Integrity shall notify DCHS of such objection (the “ Integrity Notice”) within ten(10) Business Days after receipt of the Casualty Notice. The Integrity Notice shall indicatewhether Integrity objects to the Estimate and whether Integrity believes that the value of the

Aggregate Damage is in excess of a Material Loss. If the parties are unable to resolve theirdisagreement concerning the value of the Aggregate Damage within five (5) Business Days afterDCHS’ receipt of the Integrity Notice, then they shall promptly agree upon an independentvaluation consultant (the “ Loss Consultant ”) who shall, as promptly as possible, determine theAggregate Damage and confirm in writing either that the Aggregate Damage is less than aMaterial Loss or exceeds a Material Loss. If the Loss Consultant’s report indicates a MaterialLoss, then Integrity may submit a termination notice within ten (10) Business Days after thereceipt of the Loss Consultant’s report. The failure of Integrity to so elect in writing to terminatethis Agreement within such ten (10) Business Day period shall be deemed an election not toterminate this Agreement. The Loss Consultant’s determination shall be final and binding on the parties. The fees and costs of the Loss Consultant shall be shared equally by Integrity and DCHS.

(d) If, prior to the Effective Time, any part or portion of the System isdestroyed, lost or damaged, (i) to an extent that does not result in a Material Loss, or (ii) to anextent that would be a Material Loss and Integrity fails to terminate this Agreement, then the parties shall consummate the Transaction contemplated in this Agreement, subject to the otherterms and conditions of this Agreement.

(e)

For the avoidance of doubt, this Section 3.4 shall apply regardless ofwhether the Material Loss arises or results from a Material Adverse Event.

3.5 Disclaimer of Warranties; Release.

(a)

Except as expressly provided in this Agreement, neither DOCMSC,DCHS, any DCHS Affiliate nor any DOCMSC Indemnitee (as defined below) has made or doesmake, and DOCMSC and DCHS specifically disclaim, any representations, warranties, promises,covenants, agreements or guaranties of any kind or character whatsoever, whether express orimplied, oral or written, past, present or future, of, as to, concerning or with respect to (i) the


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nature, quality, sufficiency or condition of the System; (ii) the income to be derived from theSystem; or (iii) the compliance of or by the System with any Law.

For purposes hereof, “ DOCMSC Indemnitee” means (i) any Person who is, has been or as of theClosing Date will be a corporate member, director, board committee member, fiduciary withrespect to any plan, or corporate officer of DOCMSC, or appointee of the Board of Directors ofDOCMSC or any of DCHS Affiliate, or who at any time held a similar position with respect toDCHS, any DCHS Affiliate or any DCHS Plan prior to the Closing D