HONORABLE MARY JO HESTON...The only Sponsor Proposal received by the Bid Deadline was received from Cornerstone 18 Operations, LLC (“Cornerstone 18”). No other proposals have been

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28 Foley & Lardner LLP 555 South Flower St., Suite 3300

Los Angeles, CA 90071-2418 Phone: 213-972-4500

Fax: 213-486-0065 4832-1910-1646.1

FOLEY & LARDNER LLP Ashley M. McDow (WSBA 38900) Marcus Helt (admitted Pro Hac Vice) Shane J. Moses (admitted Pro Hac Vice) 555 S. Flower St., 33rd Floor Los Angeles, CA 90071 Telephone: 213.972.4500 Email: [email protected]

[email protected] [email protected]

Attorneys for Debtors-in-Possession

HONORABLE MARY JO HESTON

HEARING DATE: October 9, 2020HEARING TIME: 10:00 A.M.

LOCATION: Telephonic

UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF WASHINGTON

In re:

PNW HEALTHCARE HOLDINGS, LLC, et al., 1

DEBTOR

Chapter 11 Lead Case No. 19-43754-MJH (Joint Administration Requested)

DEBTORS’ STATEMENT FOR STATUSCONFERENCE ON BID PROCEDURES

1 The Debtors in the above-captioned chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, are: PNW Healthcare Holdings, LLC (9801); North Auburn Health, LLC dba North Auburn Rehabilitation & Health Center (3159); Sequim Health, LLC dba Sequim Health & Rehabilitation (7737); Bremerton Health, LLC dba Bremerton Convalescent & Rehabilitation Center (3188); Crestwood Convalescent-Port Angeles, LLC dba Crestwood Health & Rehabilitation Center (6565); Fir Lane Health-Shelton, LLC dba Fir Lane Health & Rehabilitation Center (7798); Forest Ridge Health-Bremerton, LLC dba Forest Ridge Health & Rehabilitation Center (4019); Meadow Park Health-St Helen, LLC dba Meadow Park Health & Specialty Care Center (9109); Cherrywood Place-Spokane, LLC dba Cherrywood Place (7776); Riverside Nursing-Centralia, LLC dba Riverside Nursing & Rehabilitation Center (3792); PNW Master Tenant I, LLC (9824); Franklin Hills Health-Spokane, LLC dba Franklin Hills Health & Rehabilitation Center (1763); Aldercrest Health-Edmonds, LLC dba Aldercrest Health & Rehabilitation Center (3827); PNW Master Tenant II, LLC (5319); Gardens on University-Spokane Valley, LLC dba The Gardens on University (1917); Puget Sound Healthcare-Olympia, LLC dba Puget Sound Healthcare Center (4419); Care Center East Health-Portland, LLC dba Care Center East Health & Specialty Care Center (8950); LaCrosse Health-Coeur d’Alene, LLC dba LaCrosse Health & Rehabilitation Center (8594); Ivy Court-Coeur d’Alene, LLC dba Ivy Court (3197); Cornerstone Healthcare Services, LLC (1265); and CRN Pool, LLC (9083).

Case 19-43754-MJH Doc 794 Filed 10/09/20 Ent. 10/09/20 07:40:59 Pg. 1 of 4

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28 STATUS CONFERENCE STATEMENT Foley & Lardner LLP RE: BID PROCEDURES, Page 1 555 South Flower St., Suite 3300


Fax: 213-486-0065 4832-1910-1646.1

PNW Healthcare Holdings, LLC and its affiliates, as debtors and debtors in possession

(collectively, the “Debtors” or “Cornerstone Healthcare”), in the above-captioned chapter 11 cases

(collectively, the “Chapter 11 Cases”), hereby submit this status conference statement for the

October 8, 2020, status conference pursuant to the bid procedures for submission and consideration

of overbids to acquire the equity of the Debtors as sponsor of the Debtors’ Chapter 11 plan of

reorganization (the “Bid Procedures”).

On August 18, 2020, the Debtors filed their Plan of Reorganization Dated August 18, 2020

[Docket No. 703] (the “Plan”) and Disclosure Statement to Accompany Plan of Reorganization

Dated August 18, 2020 [Docket No. 704] (the “Disclosure Statement”). The Plan is to be funded

by a plan sponsor (the “Plan Sponsor”). The Plan provides for 100% of the new equity of the

reorganized Debtor parent company (PNW Healthcare Holdings, LLC) to be issued to the Plan

Sponsor. The Plan is the result of an extensive mediation process before the honorable Judge

McKittrick, and will provide a significant return to creditors. The initial Plan Sponsor is NCR

Holdings, LLC (the “Initial Sponsor”), pursuant to the terms of a term sheet dated August 18,

2020, between the Debtors and the Initial Sponsor.

On September 23, 2020, the Court entered its Order Establishing Bid Procedures for

Selection of Plan Sponsor [Docket No. 759] approving the Bid Procedures. The Bid Procedures

were the result of extensive discussions and input from the Committee, and their approval was

ultimately consensual. The Bid Procedures provide a clear process for submission and

consideration of potential higher or otherwise better offers to step into the role of Plan Sponsor in

the Debtors’ Plan. A copy of the Bid Procedures is attached hereto as Exhibit A, for convenience.

Pursuant to the Bid Procedures, the Deadline for submission of bids (defined in Bid

Procedures as a “Sponsor Proposal”) was September 30, 2020 (the “Bid Deadline”). The Bid

Procedures also provided detailed requirements for a Sponsor Proposal to be deemed a qualified

bid, set forth in paragraphs 2.a. through 2.l.

The only Sponsor Proposal received by the Bid Deadline was received from Cornerstone

18 Operations, LLC (“Cornerstone 18”). No other proposals have been received, and no other


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Fax: 213-486-0065 4832-1910-1646.1

parties have indicated an intent to submit a Sponsor Proposal.2 A copy of the Sponsor Proposal

received from Cornerstone 18 (the “Cornerstone 18 Bid”) is attached hereto as Exhibit B.

After evaluation of the Cornerstone 18 Bid, and consultation with their financial advisor,

the Debtors identified certain aspects of the Cornerstone 18 Bid that, as submitted, did not satisfy

the requirements of the Bid Procedures. After consultation with the consulting parties identified

in the Bid Procedures, and based on the request of the Committee to do so, counsel for the Debtors

sent an email to counsel for Cornerstone 18 on October 6, 2020, with detailed bullet points

identifying each of the areas of concern.3

On October 8, 2020, counsel for Cornerstone 18 sent an email responding point by point

to each of the issues raised by the Debtors, and providing Cornerstone 18’s argument that it should

be qualified. A copy of email correspondence with the Debtors’ email and Cornerstone 18’s

response is attached hereto as Exhibit C.

The Debtors promptly requested input from the consulting parties regarding the

Cornerstone 18 response. As indicated in Exhibit C, the Committee has stated that its position is

that Cornerstone 18 should be qualified.4 Canyon has also taken the position that the Cornerstone

18 Bid should be a qualified bid pursuant to the Bid Procedures. MidCap has not taken an

affirmative position, but has indicated that it does not object to qualification of Cornerstone 18.

The PCO has not indicated any position to the Debtors. The Consulting parties collectively take

the position that Cornerstone 18 should be qualified, or do not take a position.

The Debtors have been informed that the Initial Bidder takes the position that qualification

of Cornerstone 18 would be inconsistent with the Court approved Bid Procedures. The Debtors

2 Canyon has withdrawn its previous proposal, based on its agreement with Cornerstone 18.

3 The Committee also asked for updated financial information from the Initial Bidder. Although qualification of the Initial Bidder is not at issue, the Debtors have made that request of the Initial Bidder, but have not yet received a response.

4 The Committee took the position that Cornerstone 18 should be qualified based on the Cornerstone 18 Bid as originally submitted, prior to the Debtors raising the issues set forth above.


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Fax: 213-486-0065 4832-1910-1646.1

also understand that it is the Initial Bidder’s position that the Debtors affirmatively qualifying

Cornerstone 18 would be a violation of the terms of the Debtors’ contract with the Initial Bidder.

The Debtors’ position is simply that the process should be fair, that the integrity of the

process should be protected, and that the ultimate Plan Sponsor be able to fund all payments

necessary under the Plan and successfully operate the reorganized Debtors ensuring the health of

the residents. Based on the apparent dispute between the Committee and the Initial Sponsor

regarding qualification of Cornerstone 18, it appears that the Court will have to resolve the dispute

and make the final determination whether Cornerstone 18 will be qualified, as contemplated by

the Bid Procedures.

Date: October 9, 2020 Foley & Lardner LLP

BY: /s/ Ashley M. McDowAshley M. McDow, WSBA #38900

Counsel for Debtors and Debtors In Possession


EXHIBIT A

Case 19-43754-MJH Doc 794-1 Filed 10/09/20 Ent. 10/09/20 07:40:59 Pg. 1 of 8

Page 1 of 7 4845-4438-9066.8

PLAN SPONSOR BID PROCEDURES In re PNW Healthcare Holdings, et al.1

Western District of Washington Bankruptcy Court Lead Case No. 19-43754 (Jointly Administered)

On September 16, 2020, the United States Bankruptcy Court for the Western District of Washington (the “Bankruptcy Court”) entered an order (the “Bid Procedures Order”) approving the within bid procedures for determining the highest or otherwise best offer to acquire the new equity interests in PNW Healthcare Holdings, LLC and its affiliates, the debtors in the above-referenced Chapter 11 cases (collectively, the “Debtors”), through sponsorship and funding of the Debtors proposed Chapter 11 plan of reorganization.

On August 18, 2020, the Debtors filed a Plan of Reorganization Dated August 18, 2020 [Docket No. 703] (as it may be amended, the “Plan”) and Disclosure Statement to Accompany Plan of Reorganization Dated August 18, 2020 [Docket No. 704] (as it may be amended, the “Disclosure Statement”). As set forth in the Plan and Disclosure Statement, the Plan is to be funded by a plan sponsor (the “Plan Sponsor”). The Plan provides for all existing equity to be extinguished on the effective date of the Plan (the “Effective Date”), and for 100% of the new equity of the Debtor parent company (PNW Healthcare Holdings, LLC) to be issued to the Plan Sponsor.

A hearing on approval of the Disclosure Statement is set for October 27, 2020.

As described in the Plan and Disclosure Statement, the initial Plan Sponsor is NCR Holdings, LLC (the “Initial Sponsor”), pursuant to the terms of a term sheet dated August 18, 2020, between the Debtors and the Initial Sponsor (the “NCR Holdings Term Sheet”). Pursuant to the Bid Procedures Order and these Bid Procedures, the role of Plan Sponsor is subject to higher and better offers, and will be determined by the Debtors (in consultation with the Committee, MidCap, Canyon, and the PCO, each as defined below) and the Court following an auction. If there are no overbids, the Initial Sponsor will be the Plan Sponsor on the terms set forth in the NCR Holdings Term Sheet, as incorporated into the Plan.

1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, are: PNW Healthcare Holdings, LLC (9801); North Auburn Health, LLC dba North Auburn Rehabilitation & Health Center (3159); Sequim Health, LLC dba Sequim Health & Rehabilitation (7737); Bremerton Health, LLC dba Bremerton Convalescent & Rehabilitation Center (3188); Crestwood Convalescent-Port Angeles, LLC dba Crestwood Health & Rehabilitation Center (6565); Fir Lane Health-Shelton, LLC dba Fir Lane Health & Rehabilitation Center (7798); Forest Ridge Health-Bremerton, LLC dba Forest Ridge Health & Rehabilitation Center (4019); Meadow Park Health-St Helen, LLC dba Meadow Park Health & Specialty Care Center (9109); Cherrywood Place-Spokane, LLC dba Cherrywood Place (7776); Riverside Nursing-Centralia, LLC dba Riverside Nursing & Rehabilitation Center (3792); PNW Master Tenant I, LLC (9824); Franklin Hills Health-Spokane, LLC dba Franklin Hills Health & Rehabilitation Center (1763); Aldercrest Health-Edmonds, LLC dba Aldercrest Health & Rehabilitation Center (3827); PNW Master Tenant II, LLC (5319); Gardens on University-Spokane Valley, LLC dba The Gardens on University (1917); Puget Sound Healthcare-Olympia, LLC dba Puget Sound Healthcare Center (4419); Care Center East Health-Portland, LLC dba Care Center East Health & Specialty Care Center (8950); LaCrosse Health-Coeur d’Alene, LLC dba LaCrosse Health & Rehabilitation Center (8594); Ivy Court-Coeur d’Alene, LLC dba Ivy Court (3197).

Case 19-43754-MJH Doc 759 Filed 09/23/20 Ent. 09/23/20 12:05:09 Pg. 6 of 12Case 19-43754-MJH Doc 794-1 Filed 10/09/20 Ent. 10/09/20 07:40:59 Pg. 2 of 8

Page 2 of 7 4845-4438-9066.8

Procedures for Submitting Plan Sponsor Overbids

1. Any overbid proposal to act as Plan Sponsor (a “Sponsor Proposal”) must be sent so as to be actually received (including by electronic mail) by counsel for the Debtors and counsel for the Committee, not later than September 30, 2020 (the “Sponsor Proposal Deadline”). Counsel for the Debtors will promptly provide copies of all Sponsor Proposals received to counsel for Committee, MidCap Funding IV Trust (“MidCap”), Canyon NH, LLC and Canyon Z, LLC (together “Canyon”), and the Patient Care Ombudsman (the “PCO”), provided that any confidential financial information included in a Sponsor Proposal shall be shared with such parties only pursuant to a confidentiality or non-disclosure agreement between the recipient and the submitting potential sponsor (the “Proposed Sponsor”) or otherwise with the written consent of the Proposed Sponsor.

2. In order to be considered as a Qualified Bidder (as defined below), any Sponsor Proposal must comply with the following requirements:

a. Be in the form of a written term sheet and a mark-up of the Plan (“Plan Redline”) that contains all material terms and conditions of the Sponsor Proposal, that is binding on the Proposed Sponsor if accepted by the Debtors and approved by the Court at the Auction Hearing (as defined below).

b. Identify the Proposed Sponsor and an officer or other corporate representative who is fully authorized to appear and act on behalf of the Proposed Sponsor (the “Designated Representative”), including at the Auction Hearing.

c. Shall not be subject to any conditions or contingencies related to due diligence, financing, or further approval by any person or entity not present at the Auction. Permitted contingencies may only include: (i) the requirement that the Proposed Sponsor be identified as Plan Sponsor or Back-Up Bid; and (ii) confirmation of the Plan as modified pursuant to the Sponsor’s Proposal, which Plan shall have no additional contingencies for confirmation or effectiveness or otherwise beyond those stated in the Plan. The Sponsor Proposal shall provide for the Plan Effective Date to occur not later than December 31, 2020, subject only to obtaining any necessary regulatory approvals.

d. Be accompanied by a deposit in the amount of not less than $2.5 million (the “Deposit”) which shall be wired to the client trust account of Debtors’ counsel or Committee counsel not later than the Sponsor Proposal Deadline.

e. Include, on a confidential basis, financial information for the Proposed Sponsor, including but not limited to financial statements of the Proposed Sponsor sufficient to enable determination of the Proposed Sponsor’s creditworthiness and ability to consummate the transaction set forth in the Sponsor Proposal, as well as the sufficiency of available funds to fund all Effective Date and other Payments required. The determination as to whether the Proposed Sponsor has satisfied the requirements this subsection shall be subject to review and determination by the Debtors, in consultation with the Committee and their professional advisors, MidCap, Canyon, and the PCO. To


Page 3 of 7 4845-4438-9066.8

the extent of any dispute between the Debtors and any of the foregoing parties regarding the review and determination of a Proposed Sponsor’s satisfaction of the requirements in this subsection, the Court shall resolve such dispute. Moreover, to the extent the financial information of a Proposed Sponsor needs to be put on the record before the Court, the financial information shall be deemed confidential and submitted under seal to the Court.

f. Provide for Plan funding and treatment of each creditor and each class of creditors that is not less favorable than that provided in the Plan, including providing cash funding to the GUC Trust (as defined in the Plan) on the Effective Date that is not less than $8,200,000, plus additional cash of $400,000 (together, the “Initial Overbid Amount”). The Sponsor Proposal shall clearly describe all cash and non-cash components of the offer.

g. Provide for funding on the Effective Date in the amounts provided for in the Plan, plus an additional increment sufficient to fund the Initial Overbid Amount. The Initial Overbid Amount shall be used to (i) fund the $400,000 payment to the Initial Sponsor provided for in the NCR Term Sheet, whether as a substantial contribution claim or otherwise (the “NCR Payment” which shall satisfy the Break Fee provisions of the NCR Term Sheet); and (ii) as to the remainder not applied to the NCR Payment, to increase the amount of Effective Date funding to the GUC Trust.

h. Clearly identify any modification of the Plan, including any modification to any releases or change in vesting of causes of action proposed in the Plan.

i. Identify the proposed operator (including the individual person or persons) who will be responsible for the day-to-day operations of the Debtor facilities (the “Proposed Operator”), including identifying the experience and credentials of the Proposed Operator. Such Operator must be licensed or capable of being licensed in the states of Oregon, Washington, and Idaho and provide for the health, safety, and welfare of the Debtors’ residents in a manner consistent with industry norms.

j. Not modify any provisions of the Plan regarding operation and management of the Reorganized Debtors except as to the identity of the Plan Sponsor and/or the initial Operator. The Sponsor Proposal shall also incorporate the provisions of the NCR Term Sheet included in the “Operations” section of the NCR Term Sheet, provided that the “Operator” as defined therein shall be the Operator identified in the Sponsor Proposal.

k. Include a Plan Red-Line showing all proposed changes thereto. Counsel for the Debtors shall provide a Word version of the Plan on request to any Proposed Sponsor.

l. Be open and irrevocable through the conclusion of the Auction Hearing, and if selected as Plan Sponsor or Back-Up Sponsor, through confirmation of the Plan and the transactions contemplated thereunder, unless extended or modified by agreement of the parties.


Page 4 of 7 4845-4438-9066.8

Determination of Qualified Bidders/Necessity for Auction

3. A Status Conference will be held on October 9, 2020, regarding bid qualification and auction issues and process.

4. Not later than October 14, 2020, the Debtors shall file a notice (the “Plan Sponsor Notice”) with the Court identifying the Sponsor Proposals that the Debtors, after consultation with the Committee, MidCap, Canyon, and the PCO have determined to be qualified (each, a “Qualified Bidder”). The Initial Sponsor is hereby deemed a Qualified Bidder. Any disputes regarding bidder qualifications shall be resolved by the Court prior to the Auction Hearing (as defined below). To the extent that the Plan Sponsor Notice identifies Qualified Bidders in addition to the Initial Sponsor, the Plan Sponsor Notice shall include as Exhibits the term sheet and plan red-line provided in connection with each Sponsor Proposal.

5. The Plan Sponsor Notice will be served on: (i) the U.S. Trustee; (ii) MidCap; (iii) Canyon; (iv) Ziegler Financing; (v) counsel for HUD and CMS; (vi) the Committee; (vii) the PCO; and (viii) all parties that submitted Sponsor Proposals.

6. If there are multiple Qualified Bidders, an auction will be held to determine the highest and best offer (the “Auction”). The Auction will be supervised by the Court at a hearing to be held on October 16, 2020 (the “Auction Hearing”). The Debtors shall provide notice of the time and location of the Auction Hearing to all Qualified Bidders.

7. If the Initial Sponsor is the only Qualified Bidder, the Debtors will report the same to the Bankruptcy Court, and will seek approval of the Disclosure Statement with the Initial Sponsor as Plan Sponsor. Any disputes regarding the selection of a Qualified Bidder shall be resolved by the Court.

Auction, Bidding Increments, and Bids Remaining Open

8. Only the following parties and their counsel shall be entitled to participate in the Auction: the Initial Sponsor, the Debtors, Debtors’ counsel and professional advisors, chair of the Committee, the Committee’s counsel and professional advisors, the Debtors’ prepetition secured lender, MidCap and MidCap’s counsel, the PCO and her counsel, Canyon and its counsel, and all Qualified Bidders (through their Designated Representative) and their counsel. Only the Initial Sponsor and Qualified Bidders, including through their counsel, shall be entitled to make any additional bids (“Subsequent Bids”) at the Auction. The foregoing shall not be taken to limit the right of any party-in-interest to appear and be heard at the Auction Hearing, and any request by any party not identified above to participate in the Auction shall be resolved by the Court.

9. All Qualified Bidders shall be entitled to be present for all bidding through their counsel and Designated Representative, with the understanding that the true identity of each bidder shall be fully disclosed to all other bidders and that all material terms, including but not limited to the amount, of each bid will be fully disclosed to all other bidders throughout the entire Auction Hearing.

10. Prior to the start of the Auction, each Qualified Bidder shall certify the following:


Page 5 of 7 4845-4438-9066.8

a. Each bid it makes at the Auction Hearing, if accepted and approved by the Court, shall constitute a binding and legally enforceable contract of the bidder to timely confirm the Plan and transactions identified in the Plan according to the terms of the bid.

b. A bid shall not be subject to any conditions or contingencies related to due diligence, financing, or further approval by any person or entity not present at the Auction Hearing.

c. Each person acting on behalf of a Qualified Bidder at the Auction Hearing has the full power and authority to act on behalf of and legally bind the Qualified Bidder to any bids made at the Auction Hearing.

d. Each Qualified Bidder shall authorize the Debtors to conditionally accept the second-highest bid at the Auction as the Back-Up Sponsor, on the terms provided herein below.

e. Each bidder shall confirm at the conclusion of the Auction they have not engaged in any behavior, either prior to or during the Auction Hearing, that would constitute collusion or otherwise violate section 363(k) of the United States Bankruptcy Code, had the Auction been conducted pursuant to section 363

11. The Court, after consultation with the Debtors, the Committee, Canyon, and MidCap may announce at the Auction Hearing additional procedural rules that the Court determines to be reasonable under the circumstances (e.g., the amount of time allotted to make subsequent alternative bids) for conducting the Auction Hearing so long as such rules are not inconsistent with these Bidding Procedures.

12. At the Auction, bidding shall begin with the Qualified Bidder that submitted the highest and best Plan Proposal (“Initial Overbidder”). The Debtors, after consultation with the Committee, MidCap, Canyon, and the PCO, and subject to confirmation by the Court, will identify the Initial Overbidder at the beginning of the Auction Hearing. Any disputes regarding the selection of the Initial Overbidder shall be resolved by the Court. Any subsequent bids (each a “Subsequent Bid”) must exceed the total of the previous high bid by at least $200,000 (“Minimum Overbid Amount”). Any subsequent bid by the Initial Sponsor shall be subject to a credit of $400,000, in lieu of the NCR Payment, provided that Initial Sponsor shall remain entitled to receive the NCR Payment in the event it is not the successful bidder at the Auction.

13. The Auction shall continue in one or more rounds of bidding and shall conclude after each participating bidder has had the opportunity to submit an additional Subsequent Bid with full knowledge and confirmation of the then-existing highest bid, announced by the Court, and identifying the party or parties making the then highest bid.

14. At the conclusion of the bidding the Debtors, after consultation with the Committee, MidCap, and the PCO, shall announce to the Court their determination as to the bidder or bidders submitting the successful highest and best bid (“Successful Bid”) and second highest and best bid (“Back-Up Bid”). Following the Debtors announcement, and after hearing any recommendation or dispute by the Committee, MidCap, Canyon, or the PCO, the Court will make the final determination as to the Successful Bid and the Back-Up Bid. The Court shall


Page 6 of 7 4845-4438-9066.8

resolve at the Auction Hearing any disputes regarding which bid is the Successful Bid and which bid is the Back-Up Bid.

15. The bidders submitting the Successful Bid and Back-Up Bid shall be deemed parties-in-interest with standing to appear and be heard in connection with any motions, hearings, or other proceedings relating to the Plan and any Sponsor Proposals.

16. The Qualified Bidder whose final Sponsor Proposal at the Auction Hearing is approved by the Court as the Successful Bid will be designated as the Plan Sponsor.

17. The Qualified Bidder whose final Sponsor Proposal at the Auction Hearing is approved by the Court as the Back-Up Bid will be designated as the Back-Up Sponsor.

18. In determining the Successful Bid and Back-Up Bid at the Auction Hearing, the Debtors shall consult with the Committee, MidCap, Canyon, and the PCO. Factors to be considered in determining the Successful Bid and Back-Up Bid include but are not limited to ability to fund and close the transaction, ability to fund operating capital if needed, overall value of offers, the value associated with the resolution of any outstanding litigation, taking into account the reasonable risks associated therewith, other factors affecting feasibility of the proposed Plan (including likelihood of a subsequent insolvency), track record of operating care facilities, and other factors affecting continued resident care, and any other factors deemed material by the Debtors, Committee, MidCap, Canyon, and the PCO. Any disputes regarding the selection of the Successful Bid and Back-Up Bid shall be resolved by the Court. In Approving the Successful Bid and the Back-Up Bid, and in resolving any disputes relating to selection of the Successful Bid and Back-Up Bid, the Court may consider any other factors deemed material by the Court.

19. If the Plan Sponsor fails to close on the transactions identified in Successful Bid, then the Back-Up Sponsor will be deemed to be the Plan Sponsor and will be required to close on the transactions identified in the Back-Up Bid. Any disputes regarding the Plan Sponsor’s failure to to close on the transactions identified in the Successful Bid, shall be resolved by the Court. The Back-Up Bid shall remain open until the earlier of ninety (90) days following the Auction, or five (5) days following the Effective Date of a Confirmed Plan (the “Back-Up Bid Expiration Date”). All Sponsor Proposals of Qualified Bidders (other than those of the Plan Sponsor and the Back-Up Sponsor) shall be deemed rejected.

20. The Deposit of any Back-Up Sponsor shall be retained by the Debtors until the Back-Up Sponsor Expiration Date and returned to the Back-Up Sponsor within five (5) business days thereafter or, if the Back-Up Sponsor becomes the Plan Sponsor, shall be applied to the amount to be paid by the Plan Sponsor in accordance with the terms of the Back-Up Bid and these Bid Procedures.

21. The ultimate Plan Sponsor’s Deposit shall be applied by the Debtors against the cash portion of amount to be paid by the Plan Sponsor in accordance with its Plan Proposal; and, in the event the ultimate Plan Sponsor does not consummate the transaction by reason of its breach of the terms of the Sponsor Proposal, as incorporated into the Plan, such Deposit shall be retained by the Debtors.


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22. Any party that submits a Deposit but otherwise fails to qualify as a Qualified Bidder; or that submits a Deposit, qualifies as a Qualified Bidder, and is not selected as the Plan Sponsor or the Back-Up Plan Sponsor; shall receive a refund of such Deposit as soon as practicable after the conclusion of the Auction Hearing.

Plan and Disclosure Statement

23. Following determination of the Plan Sponsor at the Auction Hearing, the Plan and Disclosure Statement will be amended at or before the Disclosure Statement Hearing to reflect the Plan Sponsor and the terms of the final Sponsor Proposal selected as highest and best at the Auction Hearing. If no Qualified Bidder submits a Sponsor Proposal that is determined to be higher and better than the NCR Term Sheet, as incorporated into the Plan, then the Initial Sponsor shall be the Plan Sponsor, on the terms provided in the NCR Term Sheet, as incorporated into the Plan.

24. To the extent that a Back-Up Sponsor is selected, the Plan and Disclosure Statement may also be amended to reflect that the Back-Up Sponsor may become the Plan Sponsor if the selected Plan Sponsor is unable or unwilling to perform its obligations.

25. Any objections to the Disclosure Statement or the Plan are preserved, and are not waived or determined by these Bid Procedures or conduct of the Auction.


EXHIBIT B


















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28 Foley & Lardner LLP 555 South Flower St., Suite 3300


Fax: 213-486-0065

4849-6735-8654.5

Formatted: Spanish (Spain)

FOLEY & LARDNER LLP Ashley M. McDow (WSBA 38900) Marcus Helt (admitted Pro Hac Vice) Shane J. Moses (admitted Pro Hac Vice) 555 S. Flower St., 33rd Floor Los Angeles, CA 90071 Telephone: 213.972.4500 Email: [email protected]

[email protected] [email protected]

Attorneys for Debtors-in-Possession

HONORABLE MARY JO HESTON

UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF WASHINGTON

In re:

PNW HEALTHCARE HOLDINGS, LLC, et al., 1

DEBTOR

Chapter 11 Lead Case No. 19-43754-MJH (Jointly Administered)

PLAN OF REORGANIZATIONDATED OCTOBERAUGUST 18__, 2020

1 The Debtors in the above-captioned chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, are: PNW Healthcare Holdings, LLC (9801); North Auburn Health, LLC dba North Auburn Rehabilitation & Health Center (3159); Sequim Health, LLC dba Sequim Health & Rehabilitation (7737); Bremerton Health, LLC dba Bremerton Convalescent & Rehabilitation Center (3188); Crestwood Convalescent-Port Angeles, LLC dba Crestwood Health & Rehabilitation Center (6565); Fir Lane Health-Shelton, LLC dba Fir Lane Health & Rehabilitation Center (7798); Forest Ridge Health-Bremerton, LLC dba Forest Ridge Health & Rehabilitation Center (4019); Meadow Park Health-St Helen, LLC dba Meadow Park Health & Specialty Care Center (9109); Cherrywood Place-Spokane, LLC dba Cherrywood Place (7776); Riverside Nursing-Centralia, LLC dba Riverside Nursing & Rehabilitation Center (3792); PNW Master Tenant I, LLC (9824); Franklin Hills Health-Spokane, LLC dba Franklin Hills Health & Rehabilitation Center (1763); Aldercrest Health-Edmonds, LLC dba Aldercrest Health & Rehabilitation Center (3827); PNW Master Tenant II, LLC (5319); Gardens on University-Spokane Valley, LLC dba The Gardens on University (1917); Puget Sound Healthcare-Olympia, LLC dba Puget Sound Healthcare Center (4419); Care Center East Health-Portland, LLC dba Care Center East Health & Specialty Care Center (8950); LaCrosse Health-Coeur d’Alene, LLC dba LaCrosse Health & Rehabilitation Center (8594); Ivy Court-Coeur d’Alene, LLC dba Ivy Court (3197); Cornerstone Healthcare Services, LLC (1265); and CRN Pool, LLC (9083).


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28 PLAN OF REORGANIZATION Foley & Lardner LLP Dated October _August 18, 2020, Page i 555 South Flower St., Suite 3300


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TABLE OF CONTENTS

INTRODUCTION ............................................................................................................................ 1

ARTICLE I DEFINITIONS ...................................................................................................................... 2 1.1. Definitions................................................................................................................. 2 1.2. Construction of Terms ............................................................................................ 13

ARTICLE II DESIGNATION OF CLASSES OF CLAIMS AND EQUITY INTERESTS ................... 14 2.1. Claims Provided For Herein. .................................................................................. 14 2.2. Limitation on Inclusion in a Class. ......................................................................... 14 2.3. Summary of Classification. ..................................................................................... 14

ARTICLE III TREATMENT OF UNCLASSIFIED CLAIMS: ADMINISTRATIVE CLAIMS, PRIORITY TAX CLAIMS AND UNITED STATES TRUSTEE’S FEES ....................... 15 3.1. Administrative Expense Claims .............................................................................. 15 3.2. Priority Tax Claims. ................................................................................................ 17 3.3. United States Trustee Fees. ..................................................................................... 17

ARTICLE IV TREATMENT OF CLASSIFIED CLAIMS AND EQUITY INTERESTS ....................... 18 4.1. Class 1A (MidCap Secured Claims): ...................................................................... 18 4.2. Class 1B (Ziegler Secured Claims): ........................................................................ 20 4.3. Class 1C (Other Secured Claims): .......................................................................... 20 4.4. Class 2 (Priority Unsecured Claims): ..................................................................... 21 4.5. Class 3A (General Unsecured Claims): .................................................................. 21 4.6. Class 3B (Convenience Class Unsecured Claims): ................................................ 21 4.7. Class 3C (Intercompany Unsecured Secured Claims): ........................................... 22 4.8. Class 4A (PNW Holdings Interests): ...................................................................... 22 4.9. Class 4B (PNW Subsidiaries Interests): ................................................................. 23 4.10. Class 4C (Cornerstone Interests): ........................................................................... 23 4.11. Class 4D (CRN Interests): ...................................................................................... 24

ARTICLE V OTHER MATTERS REGARDING CLAIMS ................................................................... 24 5.1. Single Claim............................................................................................................ 24 5.2. Claims Objections. .................................................................................................. 24 5.3. Treatment of Disputed Claims. ............................................................................... 25 5.4. Late-Filed Claims.................................................................................................... 25 5.5. No Distribution to Disallowed Claims. ................................................................... 26 5.6. Timing of Distributions........................................................................................... 26 5.7. Transfers of Claims. ................................................................................................ 26 5.8. Prepayment. ............................................................................................................ 26 5.9. Unclaimed Distributions. ........................................................................................ 26


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5.10. Time Bar to Distribution Payments. ....................................................................... 27 5.11. Distributions Under Article V. ................................................................................ 27 5.12. No Interest. .............................................................................................................. 27

ARTICLE VI VOTING ............................................................................................................................. 28 6.1. Voting Classes. ....................................................................................................... 28 6.2. Elimination of Vacant Classes. ............................................................................... 28 6.3. Effect of Objections. ............................................................................................... 28

ARTICLE VII EXECUTORY CONTRACTS AND UNEXPIRED LEASES .......................................... 28 7.1. Prior Orders. ............................................................................................................ 28 7.2. Assumption of Contracts and Unexpired Leases. ................................................... 28 7.3. Assumption of Canyon Agreements. ...................................................................... 30 7.4. Rejection of Contracts............................................................................................. 31

ARTICLE VIII MEANS FOR IMPLEMENTING PLAN ........................................................................... 32 8.1. Revesting................................................................................................................. 32 8.2. Continuing Existence. ............................................................................................. 32 8.3. Plan Funding. .......................................................................................................... 32 8.4. Corporation Operations and Management. ............................................................. 34 8.5. The GUC Trust. ...................................................................................................... 36 8.6. Treatment of Actions and Causes of Action. .......................................................... 36 8.7. Treatment of the Canyon Litigation. ....................................................................... 38 8.8. Acquisition of the Formation Real Properties. ....................................................... 39 8.9. Post-Petition Deposits. ............................................................................................ 40 8.10. Cancellation of Liens. ............................................................................................. 40 8.11. De Minimis Distributions. ...................................................................................... 41 8.12. Bankruptcy Procedure and Transition. ................................................................... 41 8.13. Other Actions. ......................................................................................................... 43 8.14. General Settlement. ................................................................................................. 43 8.15. Vendor Loyalty Program. ....................................................................................... 44

ARTICLE IX THE GUC TRUST .............................................................................................................. 44 9.1. Creation of the GUC Trust and Appointment of Trustee. ...................................... 44 9.2. Powers of the GUC Trustee. ................................................................................... 44 9.3. Property and Funding of the GUC Trust................................................................. 45 9.4. GUC Trust Expenses............................................................................................... 46 9.5. Cooperation Between GUC Trustee and Reorganized Debtor. .............................. 46 9.6. Purpose of the GUC Trust....................................................................................... 46 9.7. Termination of the GUC Trust. ............................................................................... 47

ARTICLE X CONDITIONS TO CONFIRMATION AND EFFECTIVE DATE ................................... 48


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10.1. Conditions to Confirmation. ................................................................................... 48 10.2. Conditions to Effectiveness. ................................................................................... 48 10.3. Waiver of Conditions. ............................................................................................. 49 10.4. Effect of Failure of Conditions. .............................................................................. 50 10.5. Order Denying Confirmation. ................................................................................. 50 10.6. Revocation of the Plan. ........................................................................................... 51 10.7. NCR Holdings Break Fee. ...................................................................................... 51

ARTICLE XI EFFECT OF CONFIRMATION ........................................................................................ 51 11.1. Binding Effect of Confirmation. ............................................................................. 51 11.2. Discharge of Claims and Termination of Equity Interests. ..................................... 52 11.3. Injunction. ............................................................................................................... 53 11.4. Ratification. ............................................................................................................. 53 11.5. Exculpation. ............................................................................................................ 53 11.6. Injunction Related to Exculpation. ......................................................................... 54

ARTICLE XII MODIFICATION ............................................................................................................... 54 12.1. Modification. ........................................................................................................... 54 12.2. Correction of Defects. ............................................................................................. 54 12.3. Savings Clause. ....................................................................................................... 55 12.4. Remedy of Defects. ................................................................................................. 55

ARTICLE XIII MISCELLANEOUS PROVISIONS ................................................................................... 55 13.1. Enforcement. ........................................................................................................... 55 13.2. Exemption from Certain Transfer Taxes and Recording Fees. ............................... 55 13.3. Effectuating Documents.......................................................................................... 56 13.4. Governing Law. ...................................................................................................... 56 13.5. Integration. .............................................................................................................. 56 13.6. Inconsistency........................................................................................................... 56 13.7. Section Headings. ................................................................................................... 57 13.8. Severability. ............................................................................................................ 57

ARTICLE XIV RETENTION JURISDICTION .......................................................................................... 57 14.1. Retained Jurisdiction. .............................................................................................. 57

ARTICLE XV REQUEST FOR CONFIRMATION .................................................................................. 59 15.1. Confirmation Pursuant to § 1129(b). ...................................................................... 59


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28 PLAN OF REORGANIZATION Foley & Lardner LLP Dated October _August 18, 2020, Page 1 555 South Flower St., Suite 3300


Fax: 213-486-0065

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INTRODUCTION

This Plan of Reorganization Dated OctoberAugust ___18, 2020 (as amended, modified or

supplemented from time to time, the “Plan”) is proposed by the jointly administered debtors and

debtors-in-possession in the above captioned Chapter 11 cases (collectively, the “Debtors”), for

the resolution of all Claims against the Debtors, the Estates and their assets. The Debtors are the

proponents of this Plan within the meaning of section 1129 of the Bankruptcy Code. Funding for

this Plan is to be provided by the plan sponsor (the “Sponsor” as further defined and described

below) as set forth herein. All capitalized terms not defined in this Introduction or elsewhere in

the Plan have the meanings given to them in Article I hereof or as otherwise specified in that

Article.

The Disclosure Statement accompanying this Plan provides an overview of the Debtors

and their assets and liabilities. The Disclosure Statement also provides a summary of the Plan.

Pursuant to Section 1125 of the Bankruptcy Code, a vote to accept or reject a plan cannot be

solicited from holders of claims and interests until the Disclosure Statement has been approved by

the Bankruptcy Court. There also are other agreements and documents that are, or will be, filed

(as part of the Plan Supplement or otherwise) and are referenced in the Plan or the Disclosure

Statement or both. All creditors and equity holders of the Debtors are encouraged to carefully read

both this Plan and the Disclosure Statement, together with any exhibits and any supplemental

documents that may be filed, before voting to accept or reject the Plan.2

No solicitation materials other than the Disclosure Statement, any schedules and exhibits

attached thereto or referenced therein, the Plan Supplement and the other documents and materials

included with the Disclosure Statement, have been authorized by the Debtors, the Sponsor, or the

Court for use in soliciting acceptances of the Plan. The Debtors expressly reserve the right to alter,

2 In the event of any conflict between the terms of the Plan and the Disclosure Statement, the terms of the Plan shall prevail.


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amend, modify, revoke, or withdraw the Plan as set forth in section 1127 of the Bankruptcy Code,

Bankruptcy Rule 3019, and Article [XII] of the Plan.

ALL HOLDERS OF CLAIMS AND EQUITY INTERESTS ENTITLED TO VOTE

ON THE PLAN ARE ENCOURAGED TO READ THE PLAN AND THE DISCLOSURE

STATEMENT IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR REJECT THE

PLAN.

ARTICLE IDEFINITIONS

1.1. Definitions. The following Definitions apply in this Plan:

1.1.1. “Administrative Expense Claims” or “Administrative Claim” means those

Claims described in Section [3.1.1] below.

1.1.2. “Allowed,” with respect to a Claim, means an unpaid Claim against a

Debtor (i) proof of which was timely filed with the Court and as to which no objection is filed; (ii)

which was listed in Debtor’s schedules of assets and liabilities filed in the Case, as they may be

amended from time to time through the Confirmation Date, and (a) was not listed as disputed,

contingent or unliquidated and (b) as to which no objection has been filed; (iii) which has been

Allowed by a Final Order of the Court; or (iv) which is deemed Allowed by the terms of this Plan.

1.1.3. “Allowed Secured Claim” means a Claim in Class [1A, 1B, or 1C], as

described in Article [IV], that is Allowed.

1.1.4. “As soon as practicable” means a reasonable period of time, but not more

than 30 days.

1.1.5. “Ballot” means each of the ballot forms that are distributed with the Plan

and Disclosure Statement to holders of Claims and Equity Interests included in Voting Classes.

1.1.6. “Bankruptcy Code” means title 11 of the United States Code, as in effect

on the Petition Date and as thereafter amended, if such amendments are made applicable to the

Bankruptcy Cases.


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1.1.7. “Bankruptcy Court” or “Court” means the United States Bankruptcy Court

for the Western District of Washington, or the United States District Court for the Western

District of Washington, as the context requires.

1.1.8. “Bankruptcy Rules” means, collectively and as the context requires, the

Federal Rules of Bankruptcy Procedure and the Official Bankruptcy Forms, as in effect on the

Petition Date and as thereafter amended, if such amendments are made applicable to the

Bankruptcy Cases, the Federal Rules of Civil Procedure, as applicable to the Bankruptcy Cases or

proceedings therein, and the Local Rules of the Court, as applied to the Bankruptcy Cases or

proceedings therein.

1.1.9. “Bankruptcy Cases” means the Debtors’ above-captioned Chapter 11 cases,

before the Bankruptcy Court.

1.1.10. “Beneficiaries” means the holders of Allowed Class 3A Claims as

beneficiaries of the GUC Trust.

1.1.11. “Business Day” shall mean a day other than a Saturday, a Sunday, Federal

holiday, or day on which commercial banks in Seattle, Washington are generally closed.

1.1.12. “Canyon” shall mean Canyon Z, LLC, and Canyon nH, LLC.

1.1.13. “Canyon Agreements” shall mean the Canyon nH Agreement and the

Canyon Z Agreement.

“Canyon Cure Reserve” shall have the meaning provided in Section [7.3].

1.1.14. “Canyon nH Agreement” shall mean that agreement titled Master Sublease

and Security Agreement by and between Canyon nH, LLC and PNW Master Tenant II, LLC,

dated as of December 1, 2017, together with all exhibits, schedules, amendments, and

modifications thereto.

1.1.15. “Canyon Z Agreement” shall mean that agreement titled Master Sublease

and Security Agreement by and between Canyon Z, LLC and PNW Master Tenant I, LLC, dated

as of December 1, 2017, together with all exhibits, schedules, amendments, and modifications

thereto.


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1.1.16. “Canyon Litigation” shall mean all Causes of Action against Canyon

asserted in adversary proceedings filed by the Debtors, or that may be asserted in such adversary

proceedings.

1.1.17. “Canyon Litigation Costs” shall have the meaning provided in Section

[8.7.1].

1.1.18. “Canyon Litigation Reserve” shall mean a reserve of $1 million to be

funded by the Sponsor as provided in Section [8.3.6].

1.1.19.1.1.17. “Cause of Action” means any claim and/or cause of action, which

has been asserted and remains pending, or might be asserted, by any of the Debtors or the

Reorganized Debtors, including as debtor-in-possession, whether equitable or legal or arising

under Chapter 5 of the Bankruptcy Code, or under State or Federal law for the recovery of

avoidable conveyances or other transfers.

1.1.20.1.1.18. “Claim” means any right to payment from any of the Debtors,

whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent,

matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured, or any right or

equitable remedy for breach of performance if such breach gives rise to a right to payment,

whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent,

matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured. For the

avoidance of doubt, the term “Claim” shall be given the broadest meaning given to that term

under the Bankruptcy Code.

1.1.21.1.1.19. “Claims Bar Date” means the applicable deadline for filing a proof

of claim pursuant to the Court’s Order Establishing Bar Dates for Filing Claims and Approving

Form of Notice [Docket No. 357], or such other deadline as may be set by the Court as to any

Claim.

1.1.22.1.1.20. “Class” means a category of Claims or Equity Interests designated

pursuant to the Plan.


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1.1.23.1.1.21. “Class 1A Reserve Account” means the account described in

Section [4.1.2.2].

1.1.24.1.1.22. “Committee” means the Official Committee of Unsecured Creditors

appointed in these Bankruptcy Cases.

1.1.25.1.1.23. “Confirmation” means the entry of a Confirmation Order by the

Bankruptcy Court.

1.1.26.1.1.24. “Confirmation Date” means the date on which a Confirmation

Order is entered by the Bankruptcy Court.

1.1.27.1.1.25. “Confirmation Order” means the order of the Court confirming the

Plan pursuant to § 1129 of the Bankruptcy Code.

1.1.28.1.1.26. “Convenience Class Payment” shall have the meaning provided in

Section 4.6.2.

1.1.29.1.1.27. “Creditor” means any Person that has a Claim against the Debtor.

1.1.30.1.1.28. “Creditors Committee” means the official committee of unsecured

Creditors appointed in the Case.

1.1.31.1.1.29. “Cure Amount” means, with respect to any executory contract or

Real Property Estate Lease to be assumed pursuant to this Plan, the amount for such contract or

lease set forth on Schedule 7.2, unless the Cure Amount has been timely Disputed.

1.1.32.1.1.30. “Cure Demand” means a demand by a non-debtor counter-party to

an assumed executory contract or Real Estate Lease to be assumed pursuant to this Plan, for a

Cure Amount other than the amount set forth in the Schedules to the Plan.

1.1.33.1.1.31. “Debtor” means the jointly administered Debtors in these jointly-

administered Bankruptcy Cases, as set forth in footnote 1 of this Plan.

1.1.34.1.1.32. “Debtor Reserved Actions” shall mean the Causes of Action

described in Section [8.6.3].

1.1.35.1.1.33. “Disallowed Claim” means any Claim (i) proof of which was

required to be filed by the Bankruptcy Code or an order of the Court but as to which no proof of


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Claim or request for payment was timely or properly filed before the applicable Claims Bar Date,

(ii) which has been voluntarily withdrawn by the holder thereof, (iii) deemed not allowable

against the assets of the Debtors or Estates by an order of a court of competent jurisdiction or by

stipulation of the Claim holder and any party objecting to the Claim, or (iv) which the applicable

Debtor listed on its schedules of liabilities as a disputed, contingent, or unliquidated Claim and for

which the Claim holder did not file a proof of claim prior to the Claims Bar Date. If a Claim is

disallowed in part, the remainder of the Claim will be, as applicable, an Allowed Claim or a

Disputed Claim.

1.1.36.1.1.34. “Disputed” as to a Claim means a Claim which falls into one of the

following categories: (i) a Claim listed by a Debtor in its schedule of liabilities or for which a

proof of claim has been filed, as to which an objection has been filed and which objection has not

either been withdrawn or determined by a Final Order; (ii) a Claim listed by a Debtor in its

schedule of liabilities as being disputed, contingent, or unliquidated, and as to which a proof of

Claim has not been filed; or (iii) a Claim specifically stated herein to be Disputed.

1.1.37.1.1.35. “Disputed Cure” means a Cure Amount that has been timely

disputed, until it is Resolved.

1.1.38.1.1.36. “Discharged Claim” means a Claim that is discharged pursuant to

this Plan.

1.1.37. “Distribution” shall mean any payment to be made pursuant to this Plan by

the Debtors, Reorganized Debtors, or GUC Trust.

1.1.39.1.1.38.

1.1.40. “Effective Date” means Oon and after the later of a Final Order confirming

this Plan, or December 31, 2020 or such date where all regulatory approvals are obtained to

effectuate the transfer of the equity or ownership interests of the Debtors as contemplated under

this Plan means a date selected by the Debtors (on which all of the conditions set forth in

Section [10.2] have been satisfied or waived pursuant to Section [10.3]), not later than

________________November 30, 2020, on which the Plan becomes effective.


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1.1.41.1.1.39. “Employee Benefits” means the Debtors’ practices and policies for

the benefit of employees, as altered from time to time, specifically with regard to vacation pay,

sick leave, and health insurance.

1.1.42.1.1.40. “Equipment Lease” means any agreement pursuant to which a Debtor

rents or leases personal property.

1.1.43.1.1.41. “Estates” means the estate created by the commencement of the

Bankruptcy Cases pursuant to § 541 of the Bankruptcy Code or the reopening of the Case.

1.1.44.1.1.42. “Plan Exit Funding” shall mean the funding to be provided by the

Plan Sponsor as described in Section [8.3].

1.1.45.1.1.43. “Existing Credit Documents” means any and all documents existing

as of the Petition Date and evidencing the indebtedness of the Debtor to the MidCap Lenders or

related companies, or any security interests securing such indebtedness.

1.1.46.1.1.44. “Exculpated Parties” shall have the meaning provided in Section

[11.5].

1.1.47.1.1.45. “Facilities” shall mean the fourteen (14) skilled nursing facilities

and one (1) assisted living facilityies operated by the Debtors.

1.1.48.1.1.46. “Final Decree” means an order of the Court closing the Bankruptcy

Cases.

1.1.49.1.1.47. “Final Order” means an order or judgment of the Court, or other

court of competent jurisdiction, as entered on the docket in the Bankruptcy Cases or the docket of

any court of competent jurisdiction, that has not been reversed, stayed, modified or amended, and

as to which the time to appeal or seek certiorari or move for a new trial, re-argument or rehearing

has expired, and no appeal or petition for certiorari or other proceedings for a new trial, re-

argument or rehearing has been timely taken, or as to which any appeal that has been taken or any

petition for certiorari that has been timely filed has been withdrawn or resolved by the highest

court to which the order or judgment was appealed or from which certiorari was sought, or the

new trial, re-argument or rehearing has been denied or resulted in no modification of such order.,


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provided, however, that the possibility that a motion under Rule 59 or Rule 60 of the Federal

Rules of Civil Procedure, or any analogous rule under the Bankruptcy Rules or applicable state

court rules of civil procedure, may be filed with respect to such order, shall not cause such order

not to be a Final Order.

1.1.50.1.1.48. “Formation Landlords” shall mean Formation Capital; FC Domino

Acquisition; Ivy Court Re, LLC; FLT RE 2, LLC, FLT Forest Ridge RE, LLC, FLT Crestwood

RE, LLC; Puget Sound RE, LLC; Gardens on University RE, LLC; Franklin Hills RE, LLC; FCE

Bremerton, LLC; FCE Riverside, LLC; FCE Aldercrest, LLC; FCE Sequim, LLC; FCE

Cherrywood, LLC; FCE Care Center East, LLC; FCE Meadow Park, LLC; and FCE LaCrosse,

LLC, and all other affiliates of Formation Capital holding an ownership interest in the real

property on which the Facilities are operated.

1.1.51.1.1.49. “Formation Real Properties” shall mean the real properties on

which the Debtors operate the Sequim Health & Rehabilitation; Bremerton Convalescent &

Rehabilitation Center; Crestwood Health & Rehabilitation Center; Fir Lane Health &

Rehabilitation Center; Forest Ridge Health & Rehabilitation Center; Meadow Park Health &

Specialty Care Center; Cherrywood Place; Riverside Nursing & Rehabilitation Center; Franklin

Hills Health & Rehabilitation Center; Aldercrest Health & Rehabilitation Center; The Gardens on

University; Puget Sound Healthcare Center; LaCrosse Health & Rehabilitation Center; and Ivy

Court Facilities (i.e. all of the Facilities except the North Auburn Facility, which has a separate

landlord).

1.1.52. “GUC Cash Payment” shall mean the payment described in Section [8.3.4].

1.1.53.1.1.50. “GUC Designated Actions” shall mean the Causes of Action

described in Section [8.6.2].

1.1.54.1.1.51. “GUC Trust” shall mean the trust for the benefit of holders of Class

3A and 3B Claims, as described in Article [IX].

1.1.55.1.1.52. “GUC Trust Agreement” shall mean the trust agreement setting

forth the provisions of the GUC Trust, which shall be filed with the Plan Supplement.


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1.1.56.1.1.53. “GUC Trust Assets” means $11 million dollars funded by the

Sponsor on the Effective Datet. he assets of the GUC Trust, and provided herein.

1.1.57.1.1.54. “GUC Trust Note” shall mean a note in the amount of $1,800,000,

as described in Section [8.8.2].

1.1.58.1.1.55. “GUC Trustee” shall mean the trustee of the GUC Trust.

1.1.59.1.1.56. “Equity Interest” means the legal, equitable, contractual and other

rights of the holders of equity interests in a Debtor, represented by any limited liability company

membership interests or other equity interests evidencing a present or unvested ownership interest

in such Debtor prior to the Effective Date, whether or not transferable, together with all rights

pertinent thereto, as provided in the Operating Agreement of such Debtor.

1.1.60.1.1.57. “Management Incentive Plan” shall have the meaning provided in

Section [8.4.5].

1.1.61.1.1.58. “Manager” means the manager of a Debtor as provided in that

Debtor’s Operating Agreement.

1.1.62.1.1.59. “MidCap Lenders” shall mean MidCap Funding IV Trust, as

successor to MidCap Financial Trust, and all affiliated lenders under the MidCap Prepetition

Non-HUD Credit Agreement and the MidCap Prepetition HUD Credit Agreement, and related

loan documents.

1.1.63.1.1.60. “MidCap Allowed Amount” shall have the meaning provided in

Section [4.1.2.1].

1.1.64.1.1.61. “MidCap Prepetition HUD Credit Agreement” shall mean the that

certain Credit and Security Agreement, dated as of December 1, 2017 (as amended, restated,

supplemented, or otherwise modified from time to time, by and among the MidCap Prepetition

HUD Borrowers, MidCap Funding IV Trust, as successor-by-assignment to MidCap Financial

Trust, as agent and as a lender, and the additional lenders from time to time party thereto.

1.1.65.1.1.62. “MidCap Prepetition HUD Borrowers” shall mean Forest Ridge

Health-Bremerton, LLC; Puget Sound Healthcare-Olympia, LLC; Fir Lane Health-Shelton, LLC;


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Franklin Hills Health-Spokane, LLC; Gardens on University-Spokane Valley, LLC; Ivy Court,

Coeur d’Alene, LLC; Crestwood Convalescent-Port Angeles, LLC; and PNW Master Tenant I,

LLC.

1.1.66.1.1.63. “MidCap Prepetition non-HUD Credit Agreement” shall mean the

that certain Credit and Security Agreement, dated as of December 1, 2017 (as amended, restated,

supplemented, or otherwise modified from time to time, by and among the MidCap Prepetition

Non-HUD Borrowers, MidCap Funding IV Trust, as successor-by-assignment to MidCap

Financial Trust, as agent and as a lender, and the additional lenders from time to time party

thereto.

1.1.67.1.1.64. “MidCap Prepetition non-HUD Borrowers” shall mean Aldercrest

Health-Edmonds, LLC; Bremerton Health, LLC; Cherrywood Place-Spokane, LLC; North

Auburn Health, LLC; Riverside Nursing Centralia, LLC; Sequim Health, LLC; Lacrosse Health-

Coeur D’Alene, LLC; Care Center East Health-Portland, LLC; Meadow Park Health-St Helen,

LLC; and PNW Master Tenant II, LLC.

1.1.68.1.1.65. “New Equity Interests” shall mean the limited liability company

membership interests in the Reorganized Debtors from and after the Effective Date, to be issued

pursuant to the Plan.

1.1.69.1.1.66. “New Equity Holders” means the holders of the New Equity

Interests.

1.1.70.1.1.67. “New Governance Documents” shall have the meaning provided in

Section [8.4.2].

1.1.71.1.1.68. “Operating Agreement” means, as to each Debtor, the limited

liability company operating agreement of that Debtor, including all amendments thereto.

1.1.72.1.1.69. “Ordinary Course Administrative Expense” means an obligation in

favor of trade creditors and governmental and quasi-governmental agencies incurred by the

Debtors following Petition Date, related to goods and services provided to or by the Debtors after

the Petition Date.


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1.1.73.1.1.70. “Patient Care Ombudsman” means the patient care ombudsman

appointed in the Bankruptcy Cases pursuant to 11 U.S.C. § 333, pursuant to the Court’s order

entered on November 27, 2019, as Docket No. 67.

1.1.74.1.1.71. “Person” means an individual, partnership, corporation, trust,

unincorporated association, or other entity or association.

1.1.75.1.1.72. “Petition Date” means the date on which each of the Debtors filed

their respective petitions for relief in the Court commencing these Bankruptcy Cases. As to

Debtors Cornerstone Healthcare Services, LLC, and CRN Pool, LLC, the Petition Date is January

20, 2020. As to all other Debtors, the Petition Date is November 22, 2019.

1.1.76.1.1.73. “Plan” means this Chapter 11 plan of reorganization, as it may be

amended or modified.

1.1.77.1.1.74. “Plan Supplement” means the compilation of documents and forms

of documents, schedules and exhibits, including but not limited to the GUC Trust Agreement to

be filed in connection with the Plan, as they may thereafter be altered, amended, modified, or

supplemented in accordance with the terms of this Plan, and after the Effective Date as they may

be altered, amended, modified, or supplemented in accordance with their terms, all as approved

by the Sponsor.

1.1.78.1.1.75. “Priority Claims” means Claims classified in Class 2 and Priority

Tax Claims.

1.1.79.1.1.76. “Priority Claims Reserve” shall mean a reserve established to fund

Allowed Priority Claims.

1.1.80.1.1.77. “Priority Tax Claims” means the Claims described in Section [3.2]

of the Plan.

1.1.81.1.1.78. “Professional” means a Person in relation to any of the Chapter 11

Cases: (a) employed in accordance with an order of the Bankruptcy Court under Sections 327 or

1103 of the Bankruptcy Code and to be compensated for services under Sections 327, 328, 329,

330, 331 and 504 of the Bankruptcy Code, or (b) for which compensation or reimbursement is


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requested under Section 503(b)(2)-(b)(6) of the Bankruptcy Code, including the Patient Care

Ombudsman.

1.1.82.1.1.79. “Professional Fees” means a Claim by a Professional in connection

with the Chapter 11 Cases for compensation for services rendered and reimbursement for

expenses submitted in accordance with Sections 330, 331, or 503(b) of the Bankruptcy Code for

fees and expenses incurred after the Petition Date and prior to and including the Confirmation

Date.

1.1.83.1.1.80. “Professional Fees Bar Date” means the date fixed under the

Confirmation Order, which is expected to be approximately sixty (60) days following entry of the

Confirmation Order or such earlier date as may be set by the Court either in the Confirmation

Order or otherwise.

1.1.84.1.1.81. “Professional Fees Reserve” shall mean a reserve established to

fund Allowed Administrative Claims for Professional Fees.

1.1.85.1.1.82. “Real Property Lease” means any agreement pursuant to which (a)

any Debtor leases real property on which the Debtors operate a Facility or (b) Cornerstone

Healthcare Services, LLC leases real property for the Debtors’ corporate headquarters.

1.1.86.1.1.83. “Rejection Claim” shall mean any Claim arising from the rejection

of an executory contract or unexpired lease of real property.

1.1.87.1.1.84. “Reorganized Debtor” means a Debtor, on and after the Confirmation

Date.

1.1.88.1.1.85. “Retained Professional” means each of the attorneys, accountants,

financial advisors and other professionals retained by the Debtors, the Creditors Committee, or

the Patient Care Ombudsman whose employment has been approved by the Court.

1.1.89.1.1.86. “Secured Claim” means a Claim secured by a lien on any property

of the Estate, to the extent of the value of the interest of the holder of such Claim in the Estate’s

interest in such property.


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1.1.90.1.1.87. “Sponsor” or “Plan Sponsor” shall mean Cornerstone 18 Operations

LLCNCR Holdings, LLC, or such affiliate of the other Sponsor as is identified in the

Confirmation Order.

1.1.91.1.1.88. “Sponsor Affiliate” shall mean any affiliate of the Sponsor as

affiliate is defined in § 101 of the Bankruptcy Code.

1.1.92.1.1.89. “Sponsor Deposit” shall mean the deposit in the amount of $2.5

million provided by the Sponsor to the Debtors (or Committee Counsel), pursuant to the Sponsor

Term Sheet.

1.1.93.1.1.90. “Sponsor Term Sheet” shall mean the mean either (i) the term sheet

dated August 18, 2020, executed by the Debtors and the NCR Holdings, LLC, or (ii) any

subsequent binding term sheet executed by the Sponsor regarding the terms of this Plan. The

terms of the Sponsor Term sheet annexed hereto are incorporated herein by reference and made

part of the Plan. In case of any discrepancy, the terms of the Sponsor Term Sheet shall control .

1.1.94.1.1.91. “Unsecured Claim” means a Claim to the extent that it is not a

Secured Claim.

1.1.95.1.1.92. “US Trustee” means the Office of the United States Trustee.

1.1.96.1.1.93. “Voting Classes” means classes of Claims that are entitled to vote

on the Plan, as set forth in Article VI.

1.1.97.1.1.94. “Ziegler” means Ziegler Financing Corporation, as real estate

lender to the owners of the real estate on which the Debtor Facilities are operated.

1.2. Construction of Terms

1.2.1. The singular of any of the foregoing definitions includes the plural and vice

versa where the context so requires, “includes” and “including” are not limiting, “may not” is

prohibitive and not permissive, and “or” is not exclusive.

1.2.2. A term used in the Plan, whether or not capitalized, that is not defined in

the Plan but that is used in the Bankruptcy Code or the Bankruptcy Rules has the meaning

assigned to the term in the Bankruptcy Code or Bankruptcy Rules, as applicable.


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ARTICLE IIDESIGNATION OF CLASSES OF CLAIMS AND EQUITY INTERESTS

2.1. Claims Provided For Herein. Various types of Claims and Equity Interests are

defined or described in this Plan. This Plan is intended to deal with all Claims and Equity

Interests against or in the Debtors or property of the Debtors or the Debtors’ Estates of whatever

character, whether or not with recourse, whether or not contingent or unliquidated, and whether or

not previously Allowed by the Bankruptcy Court pursuant to Bankruptcy Code § 502, which arise

in any manner or from any event or circumstance. However, only those Claims Allowed pursuant

to Bankruptcy Code § 502 will receive any distribution under this Plan. All Claims against the

Debtors will be discharged without any distribution, recovery, recourse, or residual interest or

right to the extent not expressly included in any Class or otherwise provided any treatment

hereunder.

2.2. Limitation on Inclusion in a Class. A Claim shall be deemed classified in a

particular Class only to the extent that the Claim qualifies within the description of that Class, and

shall be deemed classified in a different Class to the extent the Claim qualifies within the

description of that Class. A Claim shall be included in a particular Class only to the extent that

the Claim is an Allowed Claim in that Class.

2.3. Summary of Classification. For purposes of this Plan, the Classes of Claims

against or Equity Interests in the Debtors shall be as follows:

///

///

///


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Class Description Status Voting Status

Class 1A The allowed Secured Claims of the MidCap Lenders

Impaired Voting

Class 1B The allowed Secured Claims of Ziegler, if any Impaired Voting Class 1C All allowed Secured Claims not included in

Class 1A or Class 1B Impaired Voting

Class 2 Allowed Unsecured Priority Claims, other than non-classified claims treated in Article III

Unimpaired Non-voting Deemed to accept

Class 3A Allowed General Unsecured Claims Impaired Voting Class 3B Allowed Convenience Class Unsecured Claims Impaired Voting Class 3C Allowed Debtor intercompany claims Impaired Non-voting

Deemed to reject Class 4A Allowed equity interests in PNW Holdings Impaired Non-voting

Deemed to reject Class 4B Allowed equity interests in subsidiaries of PNW

Holdings Impaired Non-voting

Deemed to reject Class 4C Allowed equity interests in Cornerstone

Healthcare Services, LLC Impaired Non-voting

Deemed to reject Class 4D Allowed equity interests in CRN Pool, LLC Impaired Non-voting

Deemed to reject

ARTICLE IIITREATMENT OF UNCLASSIFIED CLAIMS: ADMINISTRATIVE CLAIMS, PRIORITY

TAX CLAIMS AND UNITED STATES TRUSTEE’S FEES

The following Claims shall not be classified hereunder but shall be entitled to the

treatment set forth in this Article.

3.1. Administrative Expense Claims

3.1.1. Description. All administrative expenses and any other Claims that may be

Allowed pursuant to § 503(b) of the Bankruptcy Code and entitled to priority pursuant to

§ 507(a)(2) of the Bankruptcy Code (except such Claims for US Trustee quarterly fees as are

described in Section 3.3.3 herein). Such administrative expense claims will include the allowed

unpaid compensation of Estate professionals for fees and expenses incurred prior to the

Confirmation Date, and Ordinary Course Administrative Expenses.

3.1.2. Treatment of Administrative Claims other than Professional Fees. With

respect to an Allowed Claim described in Section 3.1.1 (except for Professional Fees, which shall


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be treated as set forth in Section 3.1.3 below), to the extent that the holder of such Claim has not

previously been paid, the holder of such Claim shall receive from its respective Debtor (i) cash

equal to the Allowed amount of such Claim on or as soon as practicable after the later of the

Effective Date or the date the Claim becomes an Allowed Claim; (ii) payment in the ordinary

course of business as and when due; or (iii) such other treatment as is consistent with the

provisions of § 1129(a)(9) of the Bankruptcy Code as determined by the Debtors and acceptable

to the Sponsor, subject to Sponsor’s right to review and, if appropriate, object to such claim(s).

For the avoidance of doubt, Ordinary Course Administrative Expenses will be paid in the ordinary

course of business as they come due pursuant to any applicable agreement(s), subject to the right

of the Debtors, Reorganized Debtors, or Plan Sponsor to object. Any and all obligations of the

Debtors to employees (including payroll, PTO, and other benefits) outstanding on the Effective

Date shall be paid or honored (as appropriate) in the ordinary course of business. If an

Administrative Expense Claim is a Disputed on the Effective Date, the obligation to pay such

Claim shall accrue upon entry of a Final Order allowing the Claim, in whole or in part, and

requiring payment thereof pursuant to the treatment options set forth in this Section 3.1.2.

3.1.3. Treatment of Administrative Claims for Professional Fees. Each

Professional seeking an award by the Bankruptcy Court of Professional Fees must file its final

application for allowance of compensation for services rendered and reimbursement of expenses

incurred through the Effective Date on or before the Professional Fees Bar Date. All final

applications for allowance and disbursement of Professional Fees must be in compliance with all

of the terms and provisions of any applicable order of the Bankruptcy Court, including the

Confirmation Order. Allowed Administrative Expenses Claims for Professional Fees not

previously paid will be paid in full in cash on or as soon as practicable after the later of the (i) the

Effective Date; (ii) the date of entry of the order approving such Professional Fees on a final

basis; or (iii) any later date on which the holder of such Professional Fee Claim agrees to accept

payment.


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3.2. Priority Tax Claims.

3.2.1. Description. All Allowed Claims of governmental units based on any

demand for payment of a tax entitled to priority pursuant to § 507(a)(8) of the Bankruptcy Code,

including all allowable interest and penalties thereon that are entitled to priority (“Priority Tax

Claims”).

3.2.2. Treatment. With respect to a Claim described in Section 3.23.1, to the

extent that the holder of such Claim has not previously been paid, such holder shall receive (i) as

soon as practicable after the later of the Effective Date or the date the Claim becomes an Allowed

Claim, cash equal to the Allowed amount of such Claim together with interest at the rate provided

under § 511 of the Bankruptcy Code; (ii) such other treatment as is consistent with the provisions

of § 1129(a)(9) of the Bankruptcy Code and acceptable to the Sponsor; or (iii) pursuant to the

terms of any payment agreement reached between the Debtors, or Reorganized Debtors, the

Sponsor and the holder of such claims.3

3.3. United States Trustee Fees.

3.3.1. Description. Any fees payable to the US Trustee entitled to treatment

pursuant to § 1129(a)(12) of the Bankruptcy Code.

3.3.2. Treatment. With respect to fees of the US Trustee described in Section

3.34.1, to the extent, if any, that such fees have become due prior to the Confirmation Date and

have not previously been paid, then such fees shall be paid pursuant to 11 U.S.C. § 1129(a)(12)

and 28 U.S.C. § 1930. Any such fees relating to the period from and after the Confirmation Date

shall be paid by the Reorganized Debtor or GUC Trustee out of the GUC Trust as applicable

under this Plan pursuant to 28 U.S.C. § 1930.

3 The Debtors have entered into a number of payment agreements with the Washington State Department of Labor & Industries. Allowed Priority Tax Claims owed to the Department of Labor & Industries that are subject to payment agreements will be paid according to the terms of such agreements.


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ARTICLE IVTREATMENT OF CLASSIFIED CLAIMS AND EQUITY INTERESTS

4.1. Class 1A (MidCap Secured Claims):

4.1.1. Description. Class 1A shall consist of the Secured Claims of the MidCap

Lenders against the Debtors. The Class 1A Claims are impaired.

4.1.2. Treatment. In full and complete satisfaction, the holder of the Allowed

Class 1A Claims shall receive the following treatment:

4.1.2.1. If MidCap votes in favor of the Plan, the Class 1A Claims will

receive the following treatment in full and final satisfaction, settlement, release, and discharge:

(a) The Class 1A Claims will be Allowed in the amount

of $8.7 million (the “MidCap Allowed Amount”), which amount is intended to pay in full

principal, interest at the non-default contract rate, and attorney fees. The holder of the

Class 1A Claims shall receive, in full and final satisfaction and settlement, payment of the

MidCap Allowed Amount on or as soon as practicable after the Effective Date, unless

otherwise agreed by MidCap and the Reorganized Debtors.

(b) Payment of the MidCap Allowed Amount will be

paid from replacement secured financing the Plan Exit Funding as described in Section

[8.3].

4.1.2.2. If MidCap votes against the Plan, the Class 1A Claims will receive

the following treatment in full and final satisfaction, settlement, release, and discharge:

(a) The Class 1A Claims will be treated as Disputed.

The amount, validity, extent, value, and priority of the Class 1A Claims under § 506 of the

Bankruptcy Code will be determined by the Bankruptcy Court after the Effective Date, or

pursuant to an agreement between the Reorganized Debtor and the holder of the Class 1A

Claims.

(b) The Class 1A Claims will accrue payment-in-kind

interest at the rate of six and one half percent (6.5%) per annum, until paid.


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(c) The Allowed amount, if any, of the Class 1A

Secured Claims will be paid to the holder of such Claims on the later of (i) 30 days after

the Class 1A Claims are Allowed, or (ii) July 31, 2022, unless otherwise agreed by the

Reorganized Debtors and the holder of the Class 1A Claims.

(d) In order to secure the Class 1A Claims, the sum of

$8.7 million, or such other amount as the Court deems necessary to secure the Class 1A

Claims, shall be funded from the replacement secured funding Exit Funding In thinto a

reserve account (the “Class 1A Reserve Account”) not later than the Effective Date. All

liens and security interests of the holders of the Class 1A Claims, or that otherwise secure

the Class 1A Claims (the “Class 1A Security Interests”), if any, shall attach on the

Effective Date to the funds held in the Class 1A Reserve Account, in the same priority,

validity, and amount as such liens and security interests existed on the petition date,

subject to determination of the priority, validity and amount of such liens by the Court.

All such liens and security interests in the Class 1A Reserve Account shall be deemed

perfected on entry of the Confirmation Order being a Final Order. In the event of a dispute

as to the amount owed the undisputed portion shall be paid to the Class 1A Claims and the

balance held in escrow pending Court determination as to the disputed amount. The

Sponsor shall have the right to settle such claim and any amount not used shall be returned

to the Sponsor.

(e) On transfer of the Class 1A Security Interests to the

funds in the Class 1A Reserve Account on the Effective Date, the Class 1A Security

Interests shall be released and terminated as to all property of the Estates, the Reorganized

Debtors, and the GUCCreditors Trust other than the funds in the Class 1A Reserve

Account.

(f) Any deficiency claim or other unsecured claim of the

holder of the Class 1A Claim shall be included in Class [3A GUC] and treated as a general

unsecured claim.


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4.2. Class 1B (Ziegler Secured Claims):

4.2.1. Description. Class 1B shall consist of the Secured Claims of Ziegler.

Class 1B is impaired.

4.2.2. Treatment. The Class 1B Claims are Disputed. The Zeigler claim will be

eliminated or expunged as part of the purchase of the real properties on which y from the Debtors’

Facilities are operated (“Real Properties”). In full and complete satisfaction, the holders of

Allowed Class 1B Claims shall receive the following treatment Following Resolution of the

Allowed amount of Each Class 1B Claim, the holder thereof shall, in the discretion of the

Reorganized Debtors: (a) receive a cure and reinstatement consistent with section 1124, (b) retain

its lien and receive payments over time pursuant to a schedule identified by the Reorganized

Debtors which shall have a value, as of the Effective Date, at least equal to the Allowed amount

of the Claim, (c) receive the collateral securing its Claim (which collateral shall be surrendered by

the applicable Reorganized Debtors) as soon as practicable after the Effective Date or the

determination of the Allowed Amount of such Claim, or (d) shall otherwise receive the

indubitable equivalent of such Claim.

4.3. Class 1C (Other Secured Claims):

4.3.1. Description. Class 1C shall consist of every Allowed Secured Claim, other

than those classified in Class 1A or 1B. At this time, the Debtors are unaware of claims that

would be deemed to be Allowed Class 1C claims. Class 1C is impaired.

4.3.2. Treatment. In full and complete satisfaction, the holders of Allowed Class

1C Claims shall receive the following treatment. Following a determinationResolution of the

Allowed amount of Each Class 1C Claim, the holder thereof shall, in the discretion of the

Reorganized Debtors: (a) receive a cure and reinstatement consistent with section 1124, (b) retain

its lien and receive payments over time pursuant to a schedule identified by the Reorganized

Debtors which shall have a value, as of the Effective Date, at least equal to the Allowed amount

of the Claim, (c) receive the collateral securing its Claim (which collateral shall be surrendered by

the applicable Reorganized Debtors) as soon as practicable after the Effective Date or the


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determination of the Allowed Amount of such Claim, or (d) shall otherwise receive the

indubitable equivalent of such Claim.

4.4. Class 2 (Priority Unsecured Claims):

4.4.1. Description. Class 2 shall consist of all Allowed Claims entitled to priority

under § 507 of the Bankruptcy Code, other than those unclassified claims described in Article III,

above. Class 2 is unimpaired.

4.4.2. Treatment. In full and complete satisfaction, the holders of Allowed Class

2 Claims shall receive the following treatment. To the extent the holder of any Allowed Class 2

Claim has not previously been paid, then such the holder of such Claim shall receive from its

respective Debtor either (i) cash equal to the full Allowed amount of such Claim on or as soon as

practicable after the later of the Effective Date or the date the Claim becomes an Allowed Claim;

(ii) such other treatment as is consistent with the provisions of § 1129(a)(9) of the Bankruptcy

Code and acceptable to the Sponsor; or (iii) such other treatment as is agreed by the Reorganized

Debtors and the holder of the Allowed Class 2 Claim.

4.5. Class 3A (General Unsecured Claims):

4.5.1. Description. Class 3A shall consist of all Allowed Unsecured Claims,

other than (i) Claims included in Class [2], (ii) unclassified Claims described in Article 3, above,

and (iii) Claims described in Sections [4.6] and [4.7], below. Class 3A is impaired.

4.5.2. Treatment. In full and complete satisfaction, the holders of the Allowed

Class 3A Claims shall receive the following treatment. Except to the extentd the holder of such a

claim agrees to different treatment of such claim, the holders of Allowed Class 3A General

Unsecured Claims shall receive free and clear of any claims, liens, rights or security interests, a

pro rata beneficial interest in and distribution from the proceeds of the GUC Trust. Such interests

in and distribution from the GUC Trust shall be pro rata based on the Allowed amount of each

such Claim relative to the total Allowed amount of Class 3A Claims and amounts reserved for

Disputed Class 3A Claims.

4.6. Class 3B (Convenience Class Unsecured Claims):


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4.6.1. Description. Class 3B shall consist of all Allowed Unsecured Claims,

other than (i) Claims included in Class [2], (ii) unclassified Claims described in Article 3, above,

and (iii) Claims described in Section [4.7], below, that are less than or equal to $3,000 in amount.

Class 3B is impaired.


Class 3B Claims shall receive the following treatment. The holders of Allowed Class 3B General

Unsecured Claims shall receive payment of 40% of the Allowed amount of their Class 3B Claim,

from the GUC Trust, within 30 days of the later of the Effective Date or such claim becoming an

Allowed Claim (the “Convenience Class Payment”). Following the Convenience Class Payment,

the holders of Class 3B Claims shall not have any further interest in the GUC Trust, and shall not

receive any further distributions. .

4.7. Class 3C (Intercompany Unsecured Secured Claims):

4.7.1. Description. Class 3C shall consist of all Allowed Unsecured Claims as to

which the holder is a Debtor. Class 3C is impaired, is deemed to reject the Plan, and shall not be

entitled to vote.


Class 3C Claims shall receive the following treatment. Upon the Effective Date of the Plan, all

intercompany claims shall at the discretion of the Sponsor either be extinguished or continued to

be carried on the books of the Reorganized Debtors, but shall not receive any interest in or

distribution from the GUC Trust..

4.8. Class 4A (PNW Holdings Interests):

4.8.1. Description. Class 4A shall consist of Allowed eEquity Interests in the

PNW Healthcare Holdings, LLC. Class 4A is impaired. Class 4A is deemed to reject the Plan,

and holders thereof shall not be entitled to vote to assume or reject the Plan.


Class 4A Equity Interests shall receive the following treatment. On the Effective Date, the Class

4A InterestsEquity Interests shall be deemed cancelled, and the holders of such InterestsEquity


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Interests shall not receive or retain any property under the Plan on account of such InterestsEquity

Interests. On the Effective Date, new Membership Interests in PNW Healthcare Holdings, LLC

shall be issued to the Sponsor as provided in Section [8.4.1].

4.9. Class 4B (PNW Subsidiaries Interests):

4.9.1. Description. Class 4B shall consist of Allowed eEquity Interests in the

Debtor subsidiaries of PNW Healthcare Holdings, LLC, which are: North Auburn Health, LLC;

Sequim Health, LLC; Bremerton Health, LLC; Crestwood Convalescent-Port Angeles, LLC; Fir

Lane Health-Shelton, LLC; Forest Ridge Health-Bremerton, LLC; Meadow Park Health-St Helen,

LLC; Cherrywood Place-Spokane, LLC; Riverside Nursing-Centralia, LLC; PNW Master Tenant

I, LLC; Franklin Hills Health-Spokane, LLC; Aldercrest Health-Edmonds, LLC; PNW Master

Tenant II, LLC; Gardens on University-Spokane Valley, LLC; Puget Sound Healthcare-Olympia,

LLC; Care Center East Health-Portland, LLC; LaCrosse Health-Coeur d’Alene, LLC; and Ivy

Court-Coeur d’Alene, LLC (the “PNW Subsidiaries”). Class 4B is impaired. Class 4B is deemed

to reject the Plan, and holders thereof shall not be entitled to vote to assume or reject the Plan.


Class 4B InterestsEquity Interests shall receive the following treatment. On the Effective Date,

the Class 4B InterestsEquity Interests shall be deemed cancelled, and the holders of such

InterestsEquity Interests shall not receive or retain any property under the Plan on account of such

InterestsEquity Interests. On the Effective Date, new Membership Interests in the PNW

Subsidiaries shall be issued to PNW Healthcare Holdings, LLC as provided in Section [8.4.1].

4.10. Class 4C (Cornerstone Interests):

4.10.1. Description. Class 4C shall consist of Allowed eEquity Interests in

Cornerstone Healthcare Services, LLC. Class 4C is impaired. Class 4C is deemed to reject the

Plan, and holders thereof shall not be entitled to vote to assume or reject the Plan.


Class 4C InterestsEquity Interests shall receive the following treatment. On the Effective Date,

the Class 4C InterestsEquity Interests shall be deemed cancelled, and the holders of such


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InterestsEquity Interests. On the Effective Date, new Membership Interests in Cornerstone

Healthcare Services, LLC shall be issued to PNW Healthcare Holdings, LLC as provided in

Section [8.4.1].

4.11. Class 4D (CRN Interests):

4.11.1. Description. Class 4D shall consist of Allowed Eequity Interests in CRN

Pool, LLC. Class 4D is impaired. Class 4D is deemed to reject the Plan, and holders thereof shall

not be entitled to vote to assume or reject the Plan.


Class 4D InterestsEquity Interests shall receive the following treatment. On the Effective Date,

the Class 4D InterestsEquity Interests shall be deemed cancelled, and the holders of such


InterestsEquity Interests. On the Effective Date, new Membership Interests in CRN Pool, LLC

shall be issued to PNW Healthcare Holdings, LLC as provided in Section [8.4.1].

ARTICLE VOTHER MATTERS REGARDING CLAIMS

5.1. Single Claim. Except as otherwise provided by this Plan, a Person that holds

multiple Claims based on the same indebtedness or obligation, shall be deemed to have only one

Allowed Claim against the Estates in an amount equal to the largest of all such similar Claims for

the purposes of voting and distributions under the Plan.

5.2. Claims Objections. Any Person that has standing, other than the Debtors,

Reorganized Debtors, or the GUC Trustee, may object to any Claim or Interest by filing an

objection with the Court and serving it upon the claimant and the Debtors not later than the 10th

day before the first day set for the Confirmation Hearing. The Debtors or Reorganized Debtors as

applicable, and the GUC Trust, shall be entitled to file an objection to any Claim or Interest at any

time except that upon the entry of a Confirmation oOrder only the GUC Trustee may prosecute


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objections to the unsecured Class 3A (General Unsecured Claims). Upon the filing of an

objection, the respondent Claim or Interest shall be a Disputed Claim. If both the GUC Trustee

Debtors and another Person objects to the same unsecured Class 3A Claim, the GUC Trustee’s

Claim or Interest, the Debtors’ objection shall proceed and any other objections based on the

same ground or grounds as the other Person’s Debtors’ objection shall be suspended and deferred.

All objections to unsecured Class 3A Claims if filed previously will be taken over by the GUC

Trustee All other objections to cClaims, if not resolved prior to the Confirmation Order will be

taken over by the Reorganized Debtors and their new counsel. Any other party objecting to a

Claim to which the Debtors have also objected shall be permitted to prosecute its objection

concurrently with the Debtors’ objection, so long as the basis for such objection is not the same

ground or grounds on which the Debtors’ objection was based. Upon the entry of an order

disallowing a Claim in its entirety, all other objections relating to that Claim shall be dismissed

with prejudice. The Reorganized Debtors may object to any Claim or interest at any time other

than a Class 3A (General Unsecured Claims) creditor..

5.3. Treatment of Disputed Claims. No distribution shall be made on account of any

Disputed Claim, unless and until it becomes any Allowed Claim. In the event that Disputed

Claims in Class 2 are pending at the time of a distribution under the Plan, the Reorganized

Debtors shall maintain a reasonable reserve for such Disputed Claims. In the event that Disputed

Claims in Classes 3A or 3B are pending at the time of a distribution under the Plan, the GUC

Trust shall maintain a reasonable reserve for such Disputed Claims. No distribution of such

reserved funds for a Disputed Claim shall be made until such Disputed Claim has been resolved

by order of the Court or compromise consistent with the terms of the Plan and the Bankruptcy

Code.

5.4. Late-Filed Claims. Proofs of Claim that are not filed on or before the applicable

Claims Bar Date shall receive no distribution under this Plan. The submission of a ballot to vote

on the Plan shall not constitute an amendable informal proof of Claim or an amendment to a


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previously filed proof of Claim or scheduled Claim. Any amendment to an otherwise timely filed

proof of Claim must be filed on or before the Confirmation Date.

5.5. No Distribution to Disallowed Claims. Notwithstanding any provision herein to

the contrary, no distribution shall be made on account of any Claim determined to be a

Disallowed Claim.

5.6. Timing of Distributions.

5.6.1. Whenever any Distribution to be made pursuant to the Plan would

otherwise be due on a day other than a Business Day, such Distribution shall instead be due on the

immediately succeeding Business Day.

5.6.2. Any Distribution to be made by the Debtors, Reorganized Debtors, or the

GUC Trust pursuant to the Plan or agreements entered into pursuant to the Plan shall be deemed

to have been timely made if made within 15 days after the time therefor specified in the Plan or

such other agreements. No interest shall accrue or be paid with respect to any Distribution as a

consequence of such Distribution not having been made on the date specified therefor herein.

5.7. Transfers of Claims. As of the close of business on the Confirmation Date, there

shall be no further changes in the record holders of the Claims for purposes of Distributions under

the Plan. The Reorganized Debtors and the GUC Trustee shall have no obligation to recognize

any transfer of Claims occurring after the Confirmation Date.

5.8. Prepayment. Notwithstanding anything to the contrary, the Debtors or the

Reorganized Debtors, however the case may be, may prepay all or any portion of an Allowed

Claim or a note issued in payment of an Allowed Claim at any time without charge or penalty.

5.9. Unclaimed Distributions. Distributions to holders of Allowed Claims will be sent

to the last known address set forth on such holder’s proof of Claim filed with the Court, or on the

schedules, if no proof of Claim was timely filed. If a holder of an Allowed Claim cannot be

located after a reasonably diligent effort, fails to deposit a distribution, or otherwise fails to accept

a distribution within 90 days following the date of such distribution, then the distribution to such


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holder shall be canceled and there shall be no further distributions required with respect to such

Claim.

5.10. Time Bar to Distribution Payments. Checks issued by the Debtors, Reorganized

Debtors, or GUC Trust in respect of Allowed Claims shall be null and void if not negotiated

within 60 days after the date of issuance thereof. Requests for reissuance of any distribution

check shall be in writing to the issuer of the check by the holder of the Allowed Claim to whom

such check originally was issued. Any such written request claim in respect of such a voided

check must be received by the issuer on or before 60 days after the original check becomes null

and void. Thereafter, the funds amount represented by such voided check shall irrevocably revert

to the issuer of the check. Any Claim in respect of such voided check shall be discharged and

forever barred from assertion against the Debtors, the Estate, the Reorganized Debtors, the

Sponsor, or the GUC Trust.

5.11. Distributions Under Article V. Except as set forth herein, all Claims shall be

treated the same under Article V of this Plan, regardless of the identity of the Debtor that incurred

any specific Claim., provided, however, that under no circumstances shall the assets of a HUD

Debtor be used to satisfy the Claims of a Non-HUD Debtor.

5.12. No Interest. Unless otherwise specifically provided for in the Plan, by applicable

law (including, without limitation, § 506(b)), or agreed to by, as applicable, the Debtors or the

Reorganized Debtors, interest shall not accrue or be paid on any Claim, and no holder of any

Claim shall be entitled to interest accruing on and after the Petition Date on account of any Claim.

Without limiting the foregoing, interest shall not accrue or be paid on any Claim after the

Effective Date to the extent the final distribution paid on account of such Claim occurs after the

Effective Date.


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ARTICLE VIVOTING

6.1. Voting Classes. Only Class 1A, 1B, 1C, 3A, and 3B Claims are Impaired and

entitled to vote to accept or reject the Plan. Class 2 Claims are unimpaired and are presumed to

accept the Plan. Class 3C Claims and Class 4A, 4B, 4C, and 4D InterestsEquity Interests are

Impaired and are presumed to reject the Plan.

6.2. Elimination of Vacant Classes. Any Class of Claims or InterestsEquity Interests

that does not have a holder of an Allowed Claim or Allowed Interest or a Claim or Interest

temporarily Allowed by the Bankruptcy Court as of the date of the Confirmation Hearing, shall be

deemed eliminated from the Plan for purposes of voting to accept or reject the Plan and for

purposes of determining acceptance or rejection of the Plan by such Class pursuant to section

1129(a)(8) of the Bankruptcy Code.

6.3. Effect of Objections. If an objection to a Claim is filed before the deadline

established for voting on the Plan, the holder of such Claim cannot vote and any Ballot submitted

by such holder shall not be counted unless the Court, after notice and hearing, either overrules the

objection, or orders that the Claim be Allowed for voting purposes.

ARTICLE VIIEXECUTORY CONTRACTS AND UNEXPIRED LEASES

7.1. Prior Orders. All orders of the Court entered in the Bankruptcy Cases authorizing

the assumption or rejection of executory contracts and Real Property Leases, are hereby ratified

and any contracts or leases assumed pursuant to such orders shall remain in full force and effect

after entry of the Confirmation Order and the Effective Date.

7.2. Assumption of Contracts and Unexpired Leases. The following contracts shall be

assumed as of the Effective Date, pursuant to § 365 of the Bankruptcy Code, by confirmation of

this Plan. Entry of the Confirmation Order shall constitute approval, pursuant to § 365(a) of the


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Bankruptcy Code, for the assumption of the executory contracts assumed pursuant to the

provisions of this Section.

7.2.1. Contracts to be Assumed:

7.2.1.1. Unexpired Leases of Real Property. The prior orders of the Court

providing for assumption of executory contracts Leases are hereby ratified, and no further cure

payment is required. The Canyon Agreements are treated as set forth in Section 7.3.

7.2.1.2. Equipment Leases. Subject to approval by discussions with the

Sponsor, at any time prior to Confirmation, the Debtor shall designate Equipment Leases to be

assumed, which shall be set forth in Schedule 7.2 or an amendment thereto.

7.2.1.3. Other Contracts. Subject to approval by discussions with the

Sponsor, at any time prior to Confirmation, the Debtor shall designate all other contracts

identified in Schedule 7.2 to be assumed.

7.2.1.4. Employee Benefits. All Employee Benefits plans, programs and

policies shall be assumed, except as set forth on Schedule 7.4, and as amended or modified by this

Plan. Such assumption shall have the effect of curing and reinstating the rights of the employee

beneficiaries pursuant to section 1124, leaving them unimpaired. Employee beneficiaries shall

receive no other or further distribution on account of their Claims, and their Claims shall be

deemed Disallowed Claims upon Confirmation.

7.2.2. As to each of the above-listed contracts, unless a Cure Demand is presented

in writing at or before Confirmation, the Cure Amounts specified in Schedules 7.2 shall govern.

Unless a Cure Amount is specified in Schedule 7.2, the Debtors contend that no cure payment is

required in order to assume the contract. If a counter-party asserts that a cure amount other than

the amount set forth therein is required, it must assert the right to a cure payment by presenting a

Cure Demand not later the date first set for hearing on Confirmation. The Sponsor shall fund any

cure payments required pursuant to § 365 for such assumed contracts, on the Effective Date or

such other date as the cure payments may be due (subject to the specific provisions provided in

Section 7.34 regarding the Canyon Agreements).


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7.2.3. Schedules 7.2, and 7.4 shall be filed with the Plan Supplement, and may be

amended by the Debtors, with the consent of the Sponsor, at any time prior to Confirmation.

7.3. Assumption of Canyon Agreements. The Canyon Agreements are Assumed, The

Sponsor, through an affiliate has a contract to purchase the real properties on which the Debtors’

Facilities operate, and as part of Sponsor’s it proposal , will settle the adversary proceedings,

release the Canyon Landlords and will reduce the rent to a market rent of $700,000 per month

base rent plus annual 3% rent increases beginning in the 37th month. In the event the Sponsor

purchases of the Formation Real Properties then the Canyon Litigation shall be deemed settled

in exchange for the reduction of the rent as provided for in this paragraph. except as provided in

Section 7.3.3, provided that the Debtors expressly reserve all rights and causes of action asserted

in the Canyon Litigation.

7.3.1. The Cure Amount for assumption of the Canyon Agreements (the “Canyon Cure

Amount”) shall be as determined through the Canyon Litigation. Pending the resolution of the

Canyon Litigation, the Sponsor shall set aside the sum $2,500,000, which shall be reserved for

payment of the Canyon Cure Amount (the “Canyon Cure Reserve”).

7.3.2. If the Canyon Cure Amount is determined to be less than $2,500,000, either by

court order, stipulation, or other agreement, the funds in the Canyon Cure Reserve in excess of the

Canyon Cure Amount shall be disbursed as follows:

7.3.2.1. First, to reimbursement of all specific and allocable professional fees and other

costs and expenses associated with litigation regarding the Canyon Cure Amount paid by the

Debtors or Reorganized Debtors, or the Sponsor.

7.3.2.2. Second, 50% of such amounts to the GUC Trust for the benefit of general

unsecured creditors, as Canyon Litigation Recoveries, but only to the extent that the GUC Trust

Note does not become payable.

7.3.2.3. Third, refunded to the Plan Sponsor.

7.3.3.7.3.1. To extent that the Sponsor or any Sponsor Affiliate acquires all of

the Formation Real Properties prior to the Effective Date: (i) the Canyon Agreements may

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rejected at the election of the Debtors, and such Sponsor or Sponsor Affiliate shall enter into new

or amended leases for the Facilities; and (ii) the Canyon Cure Reserve will not be funded.

7.4. Rejection of Contracts

7.4.1. Rejected Contracts. All of the contracts identified in Schedule 7.4, and all

other executory contracts not specified in Section 7.2, including without limitation any and all

guarantees by any of the Debtors of contracts as to which a non-Debtor is the primary obligor to

the extent that any such guarantees are executory contracts, shall be rejected as of the

Confirmation Date (unless a different date is specified in Schedule 7.4) unless a supplement is

filed prior to Confirmation designating such contracts, or any of them, to be assumed. Entry of

the Confirmation Order shall constitute the approval, pursuant to § 365(a) of the Bankruptcy

Code, for the rejection of such executory contracts rejected pursuant to the provisions of this

Section.

7.4.2. Bar Date for Rejection Claims. Any Claim arising out of the rejection of

an executory contract or unexpired lease shall be forever barred and shall not be enforceable

against the Debtors, the Reorganized Debtors, the Sponsor, the GUC Trust, or the Estates, and

shall not be entitled to any distribution under the Plan, unless a proof of Claim for such Rejection

Claim is filed and served on the Reorganized Debtors within 21 days after the later of (a) the

entry of order of the Court approving the rejection of the executory contract or unexpired lease or

(b) the Confirmation Date; provided that nothing contained in this Plan shall extend any deadline

or bar date previously approved by the Court for a Person to file a proof of Claim with respect to

any executory contract or Real Property Lease that has been previously rejected in the Bankruptcy

Cases.

7.4.3. Treatment of Rejection Claims. Any Claim arising from the rejection of

executory contracts shall be classified and treated as a general unsecured claim against the Debtor

that was a party to the executory contract. Any Claim associated with rejection of a contract

pursuant to this Plan shall be Disallowed, unless it is (i) the subject of a proof of Claim timely

filed pursuant to Section [7.4.2], and (ii) subsequently is Allowed.


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ARTICLE VIIIMEANS FOR IMPLEMENTING PLAN

8.1. Revesting.

8.1.1. On the Confirmation Date, all cash on hand shall vest in the applicable

Reorganized Debtor. Such cash may thereafter be used freely, in the Reorganized Debtors’

discretion, but subject to the requirements of this Plan.

8.1.2. On the Effective Date, all of the property of the Estates including such

property as defined in Section 541 of the Bankruptcy Code shall revest in the applicable

Reorganized Debtor, free and clear of all liens and encumbrances and all Creditor Claims, rights,

interests, and entitlements., except for any liens or other rights expressly granted or preserved

under this Plan. Thereafter, the Reorganized Debtors may use, sell, transfer or exchange the

property in their discretion, subject to the rights of Creditors hereunder and any restriction or

limitation set forth herein.

8.1.3. At any time after the Effective Date the Reorganized Debtors may (i)

obtain credit in their unfettered discretion; or (ii) raise capital in the form of debt or equity.

8.2. Continuing Existence. From and after the Effective Date, the Debtors shall

continue in existence as the Reorganized Debtors in accordance with the applicable laws of the

respective jurisdictions in which they are organized or incorporated for all purposes, including,

among other things, (a) enforcing and prosecuting claims, interests, rights, and privileges of the

Debtors including, without limitation, prosecuting Causes of Action, (b) resolving Disputed

Claims, (c) administering the Plan, (d) filing appropriate tax returns and refund requests, and (e)

performing all such other acts and conditions required by and consistent with consummation of

the Plan.

8.3. Plan Funding. The Plan shall be funded by the Sponsor, as more specifically set

forth below:


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8.3.1. Professional Fees Reserve. On or before the Effective Date, the Sponsor

shall fund the Professional Fees Reserve in an amount sufficient to satisfy the estimated unpaid

amount of Professional Fees [estimated to be $2,000,000]. To the extent that the Allowed

Amount of Professional Fees exceeds the Professional Fees Reserve, the Sponsor shall replenish

the Professional Fees Reserve. Any amounts remaining in the Professional Fees Claims Reserve

after payment in full of the Allowed Amount of the Professional Fees pursuant to the Plan shall be

refunded to the Sponsor. Sponsor Term Sheet provisions incorporated herein.

8.3.2. MidCap Payment. Unless otherwise agreed to with MidCap, on or before

the Effective Date, the Sponsor shall fund an amount sufficient to pay the Allowed Amount of the

Class 1A Claims as provided herein. To the extent the Class 1A Claims are not Allowed Claims

as of the Effective Date, the foregoing amount shall be funded into the Class 1A Claims Reserve.

Any amounts remaining in the Class 1A Claims Reserve after payment in full of the Allowed

Amount of the Class 1A Claims pursuant to the Plan shall be refunded to the Sponsor. Sponsor

Term Sheet provisions incorporated herein, see also Section 4.1 herein

8.3.3. Priority Claims Funding. On or before the Effective Date, the Sponsor

shall fund an amount sufficient (i) to pay the Allowed Amount of the Class 2 Claims as of the

Effective Date , and (ii) to fund the Priority Claims Reserve up to the estimated amount sufficient

to pay all Disputed Priority Claims when and to the extend such Disputed Priority Claims become

Allowed Priority Claims. To the extent that the Allowed Amount of unpaid Priority Claims

exceeds the funds remaining in the Priority Claims Reserve, the Sponsor shall replenish the

Priority Claims Reserve. Any amounts remaining in the Priority Claims Reserve after payment in

full of the Allowed Amount of the Class 2 Claims pursuant to the Plan shall be refunded to the

Sponsor. Sponsor Term Sheet provisions incorporated herein.

8.3.4. Funding of the GUC Cash Payment. On the Effective Date, the Sponsor

shall fund to the GUC Trust for the benefit of the Class [3A and 3B] Claims, the sum of

[$118,000,000] (the “GUC Cash Payment”). The GUC Cash Payment shall be made by wire


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transfer to either (at the direction of the GUC Trustee) the GUC Trustee, as trustee of the GUC

Trust, or the client trust account of counsel for the GUC Trustee.

8.3.5. Executory Contract Cures. On or before the Effective Date, the Sponsor

shall fund the Canyon Cure Reserve in the amount of [$2,500,000], as described in Section [7.3

Conditional Assumption]. The Sponsor shall also fund cure costs, if any, for other leases or

executory contracts assumed pursuant to the Plan.

8.3.6. Lease Litigation Funding. On the Effective Date, the Sponsor shall assume

the obligation to fund the Canyon Litigation Costs, and shall fund the Canyon Litigation Reserve

in the amount of $1 million, which shall be funded to the client trust account of Debtors’ counsel,

as set forth in Section [8.7.1], provided, however, that to the extent the Sponsor acquires the

Formation Real Properties, the Sponsor will not fund the Canyon Litigation Reserve.

8.3.7.8.3.5. Assumption of Ordinary Course Trade Administrative

ExpensesClaims. On the Effective Date, the Sponsor shall assume the obligation for payment of

Administrative Expense Claims, other than Professional Fees, as set forth in Section 3.1.1.

8.3.8.8.3.6. Application of the Sponsor Deposit. The Sponsor Deposit shall be

applied towards the Plan Effective Date fFunding described in this section.

8.4. Corporation Operations and Management.

8.4.1. Issuance of New Equity. On the Effective Date, the Reorganized Debtors

shall be deemed to issue the New Equity Interests as follows:

8.4.1.1. 100% of the New Equity Interests in PNW Healthcare Holdings,

LLC shall be issued to the Sponsor or to such entity orn entities as shall be designated by the

Sponsor prior to the Confirmation Date, subject to the Management Incentive Plan.

8.4.1.2. 100% of the New Equity Interests in the PNW Subsidiaries,

Cornerstone Healthcare Services, LLC, and CRN Pool, LLC shall be issued to PNW Healthcare

Holdings, LLC, as the designee of the Sponsor.

8.4.1.3. To the extent that the New Equity Interests are or could be

considered “securities” as defined in § 2(a)(1) of the Securities Act of 1933, they shall be exempt

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from registration under U.S. state and federal securities laws pursuant to § 1145 of the

Bankruptcy Code.

8.4.2. New Governance Documents. On the Effective Date, or as soon thereafter

as is reasonably practicable, the Reorganized Debtors’ articles of organization, operating

agreements (and other formation and constituent documents relating to limited liability

companies) (collectively, the “New Governance Documents”) shall be amended or amended and

restated, as applicable, as may be required to be consistent with the provisions of the Plan, and the

Bankruptcy Code, and specifically to reflect the New Equity Interests and Managers.

8.4.3. Management. The Manager or Managers of the Reorganized Debtors shall

be as determined and specified by the Sponsor prior to the Confirmation Date, and provided in the

New Governance Documents.

8.4.4. Operations.

8.4.4.1. Subject to his consent, Will Masterson shall be the initial operator

(the “Operator”) of the Facilities, on terms to be agreed upon and memorialized between the

Operator and the Sponsor (on behalf of the Reorganized Debtors). For the avoidance of doubt, to

the extent that Will Masterson is not the Operator of the Facilities at any point, because he does

not consent to become the Operator, or ceases to serve in that role, references to Operator herein

shall refer to the position of operator of the Facilities.

8.4.4.2. The New Governance Documents shall expressly provide that

there shall be no distributions to any equity holder unless and until certain operational thresholds

agreed to between the Operator and the Sponsor prior to confirmation of the Plan have been met,

provided that to the extent provided by law, there shall be no reductions in such operational

thresholds without express written consent of the Operator. Sponsor Term Sheet provisions

incorporated herein.

8.4.4.3. In no event shall Sponsor, or the members or manager of the

Reorganized Debtors, or any designee or nominee thereof, be permitted to modify any of the

terms of this Plan, whether by and through a modification to one or more Governance Documents


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or otherwise, except pre-confirmation with the written consent of the Debtors, or with the

approval of the Bankruptcy Court following a duly noticed motion.

8.4.5. Management Incentive Plan. On the Effective Date, the Reorganized

Debtors will implement a new management equity incentive plan (the “Management Incentive

Plan”) that shall provide for grants of options and/or restricted units/equity reserved for

management, directors, and employees. Not less than 10% of the New Equity Interests shall be

reserved for the Management Incentive Plan. The primary participants of the Management

Incentive Plan, including the amount, form, exercise price, allocation and vesting of such equity-

based awards with respect to such primary participants, shall set forth in the amended and restated

operating agreements of the Reorganized Debtors.

8.5. The GUC Trust. On the Effective Date, the GUC Trust shall be created, as

provided in Article [IX] of Plan.

8.6. Treatment of Actions and Causes of Action.

8.6.1. Preservation of Actions. On the Effective Date, all Causes of Action held

by the Estates or the Debtors, shall be deemed fully vested in the GUC Trust or the applicable

Reorganized Debtor(s) (as provided herein), under this Plan. Pursuant to § 1123(b)(3) of the

Bankruptcy Code, the GUC Trust (as the Debtors’/Estates’ representative) or the Reorganized

Debtors (as appropriate) shall retain and have the exclusive authority and standing to prosecute,

enforce, pursue, sue on, settle or compromise any and all Causes of Action (including Avoidance

Actions), arising before the Effective Date, including all Causes of Action of a trustee and debtor-

in-possession under the Bankruptcy Code, other than those expressly released or compromised as

part of or pursuant to the Plan or by other order of the Bankruptcy Court entered prior to the

Effective Date. The GUC Trust or the Reorganized Debtors shall also retain and may prosecute

and enforce all defenses, counterclaims, and rights that have been asserted or could be asserted by

the Debtors against or with respect to all Claims asserted against the Debtors or property of the

Estates. No claim, right, Cause of Action, or other property Asset of the Estates shall be deemed

waived or otherwise forfeited by the Debtors’ failure to identify such property in the Debtors’


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Schedules or the Disclosure Statement accompanying the Plan. Failure to specifically identify

potential Causes of Aactions in the Plan shall not be deemed a waiver of any such Cause of

aAction by the Debtors, Reorganized Debtors, or the GUC Trust.

8.6.2. The GUC Designated Actions. The GUC Designated Actions shall be all

Causes of Action except for the Debtor Reserved Actions, as described in Section [8.6.3]. On the

Effective Date, the GUC Designated Actions shall become property of the GUC Trust, and the

GUC Trustee shall have the sole right and authority to assert, prosecute, settle, or otherwise

maximize the value of the GUC Designated Actions.

8.6.3. The Debtor Reserved Actions. The Debtor Reserved Actions include all

Ccauses of aAction which the Debtors may have against any parties with the exception of

objection to claims to Class 3A (General Unsecured Claims, shall be as follows:which vests in the

GUC Trustee.

8.6.3.1. The vendors, trade creditors, and other Persons that the Reorganized

Debtors in good faith anticipate continuing to transact with in the operation of the Facilities shall

be listed on Schedule 8.6, which shall be filed with the Plan Supplement. All Causes of Action

against Persons listed on Schedule 8.6 shall be deemed to vest solely in the applicable

Reorganized Debtor(s), and shall be preserved for the benefit of the Reorganized Debtors as

provided in Section [8.6.1].

8.6.3.2. The Canyon Litigation, which shall be treated as set forth in Section [8.7].

8.6.3.3. All Causes of Action against the Plan Sponsor; Jerry Shapiro and entities

in which Jerry Shapiro is a shareholder, manager, officer, or director; YCE Holdings, LLC, and/or

any of their affiliates.

8.6.3.4. The Reorganized Debtors shall also retain and may prosecute and enforce

all defenses, counterclaims, rights of setoff or recoupment, and rights that have been asserted or

could be asserted by the Debtors against or with respect to all Claims, other than Class [3A and

3B GUC] Claims, asserted against the Debtors or property of the Estates.

Formatted: Heading 3,h3


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8.6.3.5. 8.6.2. All intercompany claims, claims against direct or indirect holders of

pre-petition equity, and officers or managers of the Debtors.

8.7. Treatment of the Canyon Litigation.

The Sponsor, through an affiliate has a contract to purchase the rReal pProperties, and as

part of its proposal, will settle the Canyon Litigationadversary proceedings, release the Canyon

Landlords and will reduce the rent to a market rent of $700,000 per month base rent, plus annual

3% rent increases beginning in the 37th month. see Section 7.3 herein

8.7.1. From and after the Confirmation Date, the Sponsor will fund the costs of

professional fees and other expenses of litigation (the “Canyon Litigation Costs”), which are

estimated to be up to approximately $1 million, provided that the Sponsor shall be entitled to

repayment of such Canyon Litigation Costs as the first payment from any recoveries obtained in

the Canyon Litigation. The Canyon Ligation Reserve shall be funded on the Effective Date, and

all Canyon Litigation Costs from and after the Confirmation Date shall be paid from the Canyon

Litigation Reserve until the Canyon Litigation Reserve is exhausted. The Canyon Litigation

Reserve shall be funded to the client trust account of Debtors’ counsel, and shall be held as a

retainer by counsel for the Reorganized Debtors in the Canyon Litigation.

8.7.2. After the Effective Date, the Reorganized Debtors shall have the sole and

exclusive right to proceed with the Canyon Litigation, including, without limitation, settling,

dismissing or otherwise resolving the Canyon Litigation in its sole and absolute discretion without

the need to consult with or obtain the consent of the GUC Trust.

8.7.3. To the extent that there is a Resolution of the Canyon Litigation, resulting

in an economic benefit to the Debtors, including savings from reduced rent during the 24-month

period following the Resolution, or cash amounts recovered, or savings from the Canyon Cure

Reserve as described in section 7.3.2 (the “Canyon Litigation Recovery”), such Canyon Litigation

Recovery shall be treated as follows:

8.7.3.1. First, all specific and allocable professional fees, costs, and other

expenses associated with litigation or negotiation paid by the Debtors or Reorganized Debtors, or


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the Sponsor, will be reimbursed from any Canyon Litigation Recovery.

8.7.3.2. Next, fifty percent (50%) of any remaining amount of Canyon

Litigation Recovery (net of reimbursement of all associated fees, costs, and expenses) will be paid

to the GUC Trust (see below) for the benefit of General Unsecured Creditors.

8.8. Acquisition of the Formation Real Properties.

8.8.1. In the event that the Sponsor or a Sponsor Affiliate acquires the Formation

Real Properties, the new owner of the real properties shall modify the terms of the Canyon

Agreements, or enter into new agreements, effective as of the earlier of the Effective Date or the

date on which the Sponsor or Sponsor Affiliate acquires the Formation Real Properties (the

“Modification Date”) in a manner such that rent is commensurate with market terms for the

remainder of the term of such agreements, and further provided that: (i) during the first thirty-six

(36) months following the Modification Date shall in no event exceed six hundred thirty-five

thousand dollars and zero cents ($635,000) per month; and (ii) from and after the thirty-seventh

(37th) month after the Modification Date shall not increase more than 5% annually for the

remainder of the term of such agreements.

8.8.2. In the event that the Sponsor, a Sponsor Affiliate, or the Reorganized

Debtors acquire the Formation Real Properties, the Sponsor will execute a promissory notice in

favor of the GUC Trust in the amount of one million, eight hundred thousand $1,800,000 (the

“GUC Trust Note”). The GUC Trust Note shall be payable as follows: (1) $600,000.00 on the

365th day following the Effective Date (the “Initial Payment Date”); (2) $600,000.00 on the

365th day following the Initial Payment Date (the “Second Payment Date”); and (3) $600,000.00

on the 365th day following the Second Payment Date, with no prepayment penalty. To the extent

permitted by law and in accordance with any and all requirements imposed by any and all parties

holding a valid and enforceable security interest in some or all of the relevant assets as of the

Effective Date, the Creditors’ Trust Note shall be secured by substantially all assets of the

Reorganized Debtors.


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8.8.3.8.8.1. In no event shall any funds of the Debtors or the Reorganized

Debtors be used to purchase one or more of the Formation Real Properties, and in no event shall

any property or assets of the Debtors or the Reorganized Debtors be used as collateral to secure

any obligation relating to the purchase or refinance of one or more of the Formation Real

Properties, save and except as such collateralization may be required by the lender financing

acquisition of the Formation Real Properties and/or governmental entities, such as the Department

of Housing and Urban Development, and in no event shall any funds belonging to, generated by

or earmarked to be utilized by any of the Debtors or Reorganized Debtors be utilized to pay any

obligation(s) relating to the Formation Real Properties (excepting payment of lease obligations

and obligations under the Canyon Agreements).

8.9. Post-Petition Deposits.

8.9.1. Closing of Utility Deposit Account. As of the Effective Date, the

Reorganized Debtors shall be authorized to close the Adequate Assurance Account (as defined in

the Order Approving Adequate Assurance to Utilities [Docket No. 240]), and retain return all

funds held therein to the applicable Reorganized Debtors.

8.9.2. Other Deposits. From and after the Effective Date, the Reorganized

Debtors may, at their election, demand the refund of any deposit provided to a Person other than a

utility after the Petition Date or may offset the amount of such deposit, at the Reorganized

Debtors’ election, against either post-Effective Date billings or against distributions to the holder

of such deposit on account of its Allowed Class [3A GUC] Claims, or otherwise take any actions

permitted by law to obtain recovery of such deposit; for the avoidance of any doubt, the foregoing

supersedes any pre- or post-petition agreement between the holder of such deposit and any of the

Debtors.

8.10. Cancellation of Liens. Except as otherwise specifically provided herein, upon the

payment of a Secured Claim in accordance with the Plan, or upon any Secured Claim being

Disallowed, any lLien securing such Secured Claim shall be deemed released, and the holder of

such Secured Claim shall be authorized and directed to release any collateral or other property of


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the Debtors held by such holder and to take such actions as may be requested by the Reorganized

Debtors, to evidence the release of such Lien, including the execution, delivery, and filing or

recording of such releases as may be requested by the Reorganized Debtors.

8.11. De Minimis Distributions. If, pursuant to the Plan, the Reorganized Debtors

would otherwise be required to make a distribution to any person of less than $100, the

Reorganized Debtors may choose to forego making such distribution and instead (a) add the

amount to the next distribution to such person, or (b) if no further distribution to such claimant is

otherwise required by the Plan, make no distribution to such person.

8.12. Bankruptcy Procedure and Transition.

8.12.1. Notice Required Post-Confirmation. Except as otherwise specifically

provided in this Plan, notice of matters that arise after the Confirmation Date, including fee

applications, shall be required to be given only to (a) the Reorganized Debtors; (b) the Office of

the United States Trustee; (c) Persons against whom relief is sought; and (d) Persons who request

notice of such matters through a written request that is filed with the Court and served on the

Debtor not earlier than the Confirmation Date (the “Post-Confirmation List”). Consistent with the

Local Rules of the Court, no other form of service shall be required on parties receiving service

through ECF.

8.12.2. Post-Confirmation Matters. Except as otherwise specified herein, matters

arising after the Confirmation Date and subject to the Court’s retained jurisdiction may be

initiated in the same manner and with the same effect as if the Chapter 11 Cases were pending

before the Court and the Plan had not been confirmed. Subject to the provisions of the Plan and

the Bankruptcy Code governing compensation of Retained Professionals, and except as provided

in Section [132.1 ENFORCEMENT], every party to such a matter shall bear its own attorneys’

fees and costs in connection therewith.

8.12.3. Dissolution of the Committee. On the Effective Date, the Committee shall

be dissolved and the Committee and its members, as of the Effective Date, shall be discharged of

and from all further authority, duties, responsibilities, and obligations related to, arising from and


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in connection with the Chapter 11 Cases. As of the Effective Date, the members, employees,

agents, advisors, affiliates, and representatives of the Committee (including, without limitation,

attorneys, financial advisors, and other Professionals) shall be released from any and all liabilities,

damages, claims, causes of action, and rights incurred in their role as Committee members, by or

from any party-in-interest, holder of a Claim, holder of an Equity Interest, the Debtors and their

current and former officers, directors, employees and agents, and the Reorganized Debtors

expressly excluding fraud, gross negligence, and willful misconduct.

Administration of the Cases.

The Reorganized Debtors, with the exception of PNW Healthcare Holdings, LLC, shall

upon the funding of the Plan on the Effective Date file an application for entry of a Final Decree,

together with a proposed Final Decree based upon substantial consummation of the Plan.

8.12.4. The Reorganized Debtors shall endeavor to conclude the administration of

the cases within a reasonable period of time. After the Effective Date, the Reorganized Debtors

shall evaluate, and if they determine appropriate prosecute, Causes of Action and objections to

Claims. As soon as reasonably practicable, consistent with the provisions of this Plan and the

Bankruptcy Code, including 11 U.S.C. § 350, PNW Healthcare Holdings, LLC the each

Reorganized Debtor shall file and serve an application for entry of a Final Decree, together with a

proposed Final Decree.

8.12.4.1. A final decree may be entered before the GUC Trust is fully

administered, and the expectation that the GUC Trust may receive further assets or make further

distributions shall not be a basis for delaying entry of a Final Decree. To the extent that

Bankruptcy Court jurisdiction is needed in connection with administration of the GUC Trust,

including for purposes of prosecution of objections to general unsecured claims against any

Debtor, only the lead case (Case No. 19-43574) need be kept open for this purpose.

8.12.4.2. To the extent appropriate, a final decree may be entered in the

case of a Debtor regardless of whether it is deemed necessary or appropriate for a final decree to


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be entered in the cases of the other Debtors at the same time.

8.12.5. Quarterly Fees. Each Reorganized Debtor or the GUC Trust (as provided

below) shall continue to pay quarterly fees to the US Trustee, pursuant to 28 U.S.C. § 1930(a)(6),

until each respective Bankruptcy Case is closed. Such fees shall be paid at the rate in effect at the

time the fees are due, and as soon as practicable after the fees are ordinarily due.

8.12.5.1. For the first two quarters due after the Effective Date, the

Debtors shall pay all quarterly fees due to the US Trustee, except as to amounts due on account of

distributions from the GUC Trust.

8.12.5.2. 8.12.5.1. Quarterly fees due on account of distributions from the

GUC Trust shall be considered distributions from PNW Healthcare Holdings, LLC for purposes

of post-Effective Date reporting and calculation of the fee amount due to the US Trustee, and

shall be paid by the GUC Trust.

8.12.5.3. Quarterly fees for the third quarter due after the Effective Date

and all succeeding quarters shall be paid by the GUC Trust.

8.12.6. Post-Confirmation Professionals. From and after the Confirmation Date,

the Reorganized Debtors may employ new professional persons as they determine appropriate in

their discretion, without the requirement for approval by the Court or any other party.

Professionals employed by the Reorganized Debtors may be paid in the ordinary course, and need

not submit fee applications, with respect to services performed after the Confirmation Date.

8.13. Other Actions. On and after the Effective Date, the Reorganized Debtors shall be

authorized to take such actions as reasonably necessary to complete and effectuate the terms of

this Plan, subject only to the specific limitations contained in this Plan, the Bankruptcy Code or

Bankruptcy Rules, and any order of the Court.

8.14. General Settlement. Pursuant to section 1123 of the Bankruptcy Code and

Bankruptcy Rule 9019, and in consideration for the classification, distributions, releases, and

other benefits provided under the Plan, on the Effective Date, the provisions of the Plan shall


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constitute a good-faith compromise and settlement of all Claims, Equity Interests, and

controversies resolved pursuant to the Plan.

8.15. Vendor Loyalty Program. The Reorganized Debtors shall use reasonable efforts

to continue to purchase goods and services from approved vendors at levels consistent with the

twelve-month period prior to the Petition Date from current holders of general unsecured claims,

provided such goods and services are of equal or better quality and offered on terms and

conditions reasonably equivalent to other such goods and services generally available in the

marketplace.

ARTICLE IXTHE GUC TRUST

9.1. Creation of the GUC Trust and Appointment of Trustee.

9.1.1. Establishment. On the Effective Date, the GUC Trust will be created

pursuant to the GUC Trust Agreement. The GUC Trust Agreement shall be filed with the Plan

Supplement.

9.1.2. The GUC Trustee. The GUC Trust shall be administered by the GUC

Trustee, who shall be selected by the Committee, subject to approval of the Debtors, and

identified in the Plan Supplement. The appointment of the GUC Trustee shall be subject to the

approval of the Bankruptcy Court at the Confirmation Hearing. If the Committee and the Debtors

are unable to reach agreement on selection of the GUC Trustee, the Court shall select the GUC

Trustee at the Confirmation hearing from the nominees provided by the Debtors and the

Committee.

9.1.3. Compensation of GUC Trustee. Compensation of the GUC Trustee shall

be on the terms set forth in the Plan Supplement, with the source of payment to be the GUC Trust

Assets.

9.2. Powers of the GUC Trustee. The GUC Trustee shall have the power to administer

the GUC Trust Assets in a manner consistent with the GUC Trust Agreement and shall be granted


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and vested with the rights and powers set forth in the GUC Trust. The GUC Trustee shall step

into the shoes of the Reorganized Debtors under the Plan when making distributions to the

Beneficiaries pursuant to the GUC Trust Agreement or objecting to claims .

9.2.1. Without limiting the generality of the foregoing, the GUC Trustee shall: (a)

hold, administer, and prosecute the GUC Trust Assets and any proceeds thereof; (b) have the

power and authority to retain, as an expense of the GUC Trust, attorneys, accountants, advisors,

other professionals and employees as may be appropriate to perform the duties required of the

GUC Trustee hereunder or in the GUC Trust Agreement; (c) make distributions to holders of

Allowed Class [3A GUC] Claims, as provided in the Plan and GUC Trust Agreement; and (d)

provide periodic reports and updates regarding the status of the administration of the GUC Trust.

9.2.2. As to the GUC Designated Actions, the GUC Trustee shall be the estate

representative pursuant to 11 U.S.C. § 1123(b) with all requisite authority and standing to assert,

prosecute, and resolve all GUC Designated Actions. Notwithstanding the foregoing, nothing in

this Plan or the GUC Trust shall grant, or be construed to grant, the GUC Trustee with authority

regarding any Causes of Actions, only other than objections to claims the GUC Designated

Actions. To the extent an ambiguity or dispute exists, the GUC Trustee shall consult in good

faith with the Reorganized Debtors and, if not successful, seek adjudication from this Court.

9.3. Property and Funding of the GUC Trust.

9.3.1. The GUC Trust Assets. The GUC Trusts Assets shall be the $11 million

dollars funded by the Sponsor on the Effective Date as any and all rights, benefits, entitlements,

property, assets, and Actions to be possessed by or delivered to the GUC Trust under this Plan or

otherwise for the benefit of Allowed Unsecured Claims, including: (i) the GUC Cash Payment;

(ii) the GUC Trust Note (if applicable); (iii) any Canyon Litigation Recoveries payable to the

GUC Trust (if applicable); and (iv) the GUC Designated Actions.

9.3.2. Vesting of GUC Trust Assets. On the Effective Date, (i) the Debtors shall

be deemed to have automatically transferred to the GUC Trust all of their right, title, and interest

in and to the GUC Trust Assets, notwithstanding any prohibition of assignability under applicable


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law; and (ii) all of the GUC Trust Assets shall automatically transfer to and vest in the GUC Trust

free and clear of all Claims, Liens, interests, rights, and encumbrances without the need for any

additional action by the Debtors or the Bankruptcy Court. The Debtors and Reorganized Debtors,

as applicable, shall take all actions as necessary, including executing such instruments and

documents as may be reasonably necessary, to cause the GUC Trust Assets to be transferred to

the GUC Trust, including forwarding any portion of the GUC Cash Payment received funds

received by the Debtors or the Reorganized Debtors which is to placed in the GUC Trust to the

GUC Trustee. On the Effective Date, the GUC Trust shall have all rights to and shall have the

sole authority on behalf of the GUC Beneficiaries to investigate, pursue, prosecute, try, settle and

otherwise resolve Class 3A (General Unsecured Claimsand. maximize the value of all GUC

Designated Actions.

9.4. GUC Trust Expenses. The expenses, fees and other expenditures by the GUC

Trustee or of the GUC Trust, including the GUC Trustee's compensation, compensation and

expenses of any professionals retained by the GUC Trust, costs associated with distributions to

Allowed Unsecured Creditors, and other expenses incurred in the administration of the GUC

Trust shall be paid exclusively from the GUC Trust Assets.

9.5. Cooperation Between GUC Trustee and Reorganized Debtor. The GUC Trustee

and the Reorganized Debtors shall consult and cooperate reasonably in the performance of their

duties under the Plan. The Reorganized Debtors shall provide to the GUC Trustee such

reasonable information, documents, and aid necessary to pursue the GUC Designated Actions and

otherwise maximize the GUC Trust Assets for the Beneficiaries. The Reorganized Debtors shall

provide the GUC Trustee with the Class [3A GUC] Claim Schedule and any related information.

If GUC Trustee needs reasonable clarification of the information received from the Reorganized

Debtors pursuant to this Section, the GUC Trustee is allowed to meet with an officer of the

Reorganized Debtors.

9.6. Purpose of the GUC Trust. On the Effective Date, the GUC Trust will be

established and become effective for the benefit of the GUC Trust Beneficiaries and for the


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primary purpose of liquidating its assets in accordance with Treas. Reg. § 301.7701-4(d) with no

objective to continue or engage in the conduct of a trade or business, except to the extent

reasonably necessary to, and consistent with, the liquidating purpose of the GUC Trust. The

Debtors, all holders of claims and Equity Interests shall be deemed to have adopted and approved

the GUC Trust Agreement. The purpose of the GUC Trust is to (a) liquidate all GUC Trust

Assets, (b) resolve object to Class 3A (General Unsecured Claims and (c) including the

investigation and prosecution of the Actions conveyed to the GUC Trust under the Plan, and (b)

distribute the proceeds of the GUC Trust Assets to the Beneficiaries. The GUC Trust shall not be

deemed a successor-in-interest of the Debtors or Reorganized Debtors for any purpose other than

as specifically set forth herein or in the GUC Trust Agreement. The GUC Trust is intended to

qualify as a “grantor trust” for federal income tax purposes, with the Beneficiaries Holders of the

GUC Trust Interests treated as grantors and owners of the GUC Trust. As soon as practicable after

the Effective Date, the GUC Trustee (to the extent that the GUC Trustee deems it necessary or

appropriate in his or her sole discretion) shall value the assets of the GUC Trust based on the

good faith determination of the GUC Trustee. The valuation shall be used consistently by all

parties for all federal income tax purposes. The Bankruptcy Court shall resolve any dispute

regarding such valuation.

9.7. Termination of the GUC Trust.

9.7.1. The GUC Trust shall continue to exist until such time as the GUC Trustee

has:

(a) administered all GUC Trust Assets and made a final

distribution to holders of Allowed Class [3A] Claims in accordance with the terms of the

Plan, Confirmation Order and GUC Trust Agreement; and

(b) performed all other duties required by the Plan,

Confirmation Order and the GUC Trust Agreement.

9.7.2. As soon as reasonably practicable after the final distribution, the GUC

Trustee shall dissolve the GUC Trust pursuant to the GUC Trust Agreement.


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9.7.3. Upon dissolution, the GUC Trustee's duties under the GUC Trust

Agreement and the Plan shall terminate and the GUC Trustee shall be discharged.

ARTICLE XCONDITIONS TO CONFIRMATION AND EFFECTIVE DATE

10.1. Conditions to Confirmation. The following are conditions precedent to

Confirmation of this Plan that must be (i) satisfied, or (ii) waived in accordance with

Section [10.3] below:

10.1.2. The Court shall have approved the Disclosure Statement with respect to

this Plan in form and substance that is acceptable to the Debtors and the Sponsor.

10.1.3. The Confirmation Order shall be in form and substance acceptable to the

Debtors and the Sponsor, shall have been signed by the Court, and shall have been entered on the

docket of the Case, and shall include, among other things, a finding of fact that the Debtors, the

Reorganized Debtors, the Sponsor, and their respective present and former members, officers,

directors, employees, advisors, attorneys, and agents acted in good faith within the meaning of

and with respect to all of the actions described in section 1125(e) of the Code and are, therefore,

not liable for the violation of any applicable law, rule, or regulation governing such actions.

10.1.4. The terms and provisions of the Sponsor Term Sheet, as may be modified

only in a writing duly executed by the Sponsor and the Debtors, shall remain in full force and

effect.

10.2. Conditions to Effectiveness. The following are conditions precedent to the

Effective Date that must be (i) satisfied, or (ii) waived in accordance with Section [109.3] below:

10.2.2. The Confirmation Order shall have been entered and shall be a Final Order

(with no modification or amendment thereof) in form reasonably acceptable to Debtors and

Sponsor, and there shall be no stay or injunction that would prevent the occurrence of the

Effective Date.


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10.2.3. The Court shall have entered an order (contemplated to be part of the

Confirmation Order) authorizing and directing the Debtors and Reorganized Debtors to take all

actions necessary or appropriate to enter into, implement, and consummate the documents

created, amended, supplemented, modified or adopted in connection with the Plan.

10.2.4. All other actions, authorizations, filings, consents, and regulatory approvals

required (if any) shall have been obtained, effected or executed in a manner acceptable to the

Debtors and Sponsor and remain in full force and effect or, if waivable, waived by the Person or

Persons entitled to the benefit thereof.

10.2.5. The Debtors and the Sponsor shall have executed all documents and

entered into all agreements as may be necessary and appropriate in connection with the Plan

Funding.

10.2.6. The Sponsor shall have funded all of the Plan Funding Amount that is

required herein to be funded on or before the Effective Date, in an amount sufficient for payment

of all Effective Date Payments.

10.2.7. The Debtors and the GUC Trustee shall have executed all documents

necessary for formation of the GUC Trust.

10.2.8. The statutory fees owing to the United States Trustee shall have been paid

in full.

10.3. Waiver of Conditions. The conditions to Confirmation set forth in Section [10.1]

or the Effective Date set forth in Section [10.2] may be waived, in whole or in part, by the

Debtors, with the consent of the Sponsor, without any notice to any other parties in interest or the

Court and without leave or order of the Court, and without any formal action other than

proceeding to confirm or consummate the Plan. The failure to satisfy any condition to

Confirmation or the Effective Date may be asserted by the Debtors in their sole discretion so long

as such failure was not primarily caused by any action or inaction by the Debtors, and the failure

to satisfy any condition to Confirmation or the Effective Date may be asserted by the Sponsor in

its sole discretion so long as such failure was not primarily caused by the Sponsor’s failure to


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satisfy any of its obligations under this Plan. The failure of the Debtors or the Sponsor, as

applicable, to exercise any of the foregoing rights shall not be deemed a waiver of any other

rights, and each such right shall be deemed an ongoing right, which may be asserted at any time.

10.4. Effect of Failure of Conditions. In the event that all of the conditions to the

Effective Date are not satisfied or waived by [___________, 2020]4 (or such longer period as is

agreed to by the Debtors and the Sponsor): (a) any party-in-interest may request that the Court

vacate the Confirmation Order; (b) no distributions under the Plan shall be made; (c) the Debtors

and all holders of Claims and Equity Interests shall be restored to the status quo ante as of the day

immediately preceding the date on which the Confirmation Order was entered as though such

order had never been entered; (d) all settlements included in the Plan or incorporated into the

Plan, including without limitation settlements implicit in the terms of the Plan, shall be deemed

revoked; and (e) the Debtors’ obligations with respect to the Claims and Equity Interests shall

remain unchanged (except to the extent of any payments made after entry of the Confirmation

Order but prior to the Effective Date) and nothing contained in the Plan shall constitute or be

deemed a waiver or release of any Claims or InterestsEquity Interests against the Debtors or any

claims or causes of action against any other Person or to prejudice in any manner the rights of the

Debtors or any Person in any further proceedings involving the Debtors. Sponsor Term Sheet

provisions incorporated herein.

10.5. Order Denying Confirmation. If an order denying Confirmation is entered by the

Court, then the Plan shall be null and void in all respects, and nothing contained in the Plan shall

(a) constitute a waiver or release of any Claims against or InterestsEquity Interests in the Debtors,

(b) prejudice in any manner the rights of the holder of any Claim against, or Equity Interest in, the

Debtors, (c) prejudice in any manner any right, remedy, claim or cause of action of the Debtors,

(d) be deemed an admission against interest by the Debtors, the Sponsor the Agent and/or the

Secured Lenders, or (e) constitute a settlement, implicit or otherwise, of any kind whatsoever.

4 [Date to be completed prior to solicitation of votes]

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10.6. Revocation of the Plan. The Debtors reserve the right to revoke or withdraw the

Plan prior to the Confirmation Date. If the Debtors revoke or withdraw the Plan, or if

Confirmation does not occur or if the Plan does not become effective, then the Plan shall be null

and void, and nothing contained in the Plan or Disclosure Statement shall: (a) constitute a waiver

or release of any Claims against, or any Interests in, the Debtors; (b) constitute a waiver or release

of any right, claim or cause of action of the Debtors, (c) constitute an admission of any fact or

legal conclusion by the Debtors or any other Person, including without limitation the Agent or the

Sponsor; or (c) prejudice in any manner the rights of the Debtors or any other party, the Creditors’

Committee, in any related or further proceedings.

10.7.10.5. NCR Holdings Break Fee. NCR Holdings has been awarded $400,000

Break Fee pursuant to Court Order dated September __, 2020 The NCR Holdings, LLC Term

Sheet dated August 18, 2020, provides that a Break Fee of $400,000 is payable to NCR Holdings,

LLC, in certain circumstances, including but not limited to entry of a Final Order confirming a

plan of reorganization or liquidation other than the plan as contemplated by the NCR Holdings,

LLC term sheet. To the extent that the Debtors, in an exercise of their fiduciary duty, modify this

plan to provide for a plan Sponsor other than NCR Holdings, LLC, without the written consent of

NCR Holdings, this Break Fee may be payable as an Administrative Expense Claim.5 Sponsor

Term Sheet provisions incorporated herein.

ARTICLE XIEFFECT OF CONFIRMATION

11.1. Binding Effect of Confirmation. As of the Confirmation Date, the provisions of

this Plan shall be binding on the Debtors, the Estates, all holders of Claims against or

InterestsEquity Interests in the Debtors, and all other Persons whether or not such Persons have

5 These provisions of the NCR Holdings, LLC term sheet are subject to approval of the Bankruptcy Court. Payment of the Break Fee will occur only if the Break Fee provisions are expressly approved by the Court.


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accepted this Plan. The rights, benefits, and obligations of any Person named or referred to in the

Plan will be binding on, and will inure to the benefit of, the executors, administrators, successors

and assigns of each Person, whether or not they have accepted the Plan.

11.2. Discharge of Claims and Termination of InterestsEquity Interests. Except as

otherwise provided in the Plan or the Confirmation Order and to the maximum extent permitted

by the Bankruptcy Code and any other applicable law:

11.2.1. Upon the occurrence of the Effective Date, the Confirmation Order shall

act as a discharge of any and all Claims against and all debts and liabilities of the Debtors and

Reorganized Debtors, as provided in §§ 524 and 1141 of the Bankruptcy Code, and such

discharge shall void any judgment against the Reorganized Debtors at any time obtained to the

extent that such judgment relates to a Discharged Claim.

11.2.2. On the Effective Date, the Reorganized Debtors shall be deemed

discharged and released from all Claims and InterestsEquity Interests, including demands,

liabilities, Claims and InterestsEquity Interests that arose before the Effective Date and all debts

of the kind specified in §§ 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not: (a) a

proof of Claim or proof of Equity Interest based on such debt or Equity Interest is filed or deemed

filed pursuant to § 501 of the Bankruptcy Code, (b) a Claim or Equity Interest based on such debt

or Equity Interest is Allowed pursuant to § 502 of the Bankruptcy Code, (c) the holder of a Claim

or Equity Interest based on such debt or Equity Interest has accepted the Plan, or (d) such Claim is

listed in the Debtors’ schedules of assets and liabilities.

11.2.3. As of the Effective Date all Persons (including governmental entities) shall

be precluded from asserting against the Reorganized Debtors, their successors, or their assets any

other or further Claims or InterestsEquity Interests based upon any act or omission, transaction or

other activity of any kind or nature that occurred prior to the Effective Date. For the avoidance of

doubt, this Section [11.2.3] shall not enjoin, release, or bar any claims against any non-debtor

party


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11.3. Injunction. Entry of the Confirmation Order will permanently enjoin the

commencement or prosecution by any Person, whether directly, derivatively or otherwise, of any

Claims discharged or modified pursuant to the Plan. Any act in violation of this injunction shall

be void. The Reorganized Debtors shall be entitled to costs, including reasonable attorneys’ fees

and costs, for any action necessary to enforce this injunction. Notwithstanding anything to the

contrary, the foregoing injunction shall not impede or impair enforcement of the terms of the

Plan.

11.4. Ratification. Subject to all of the terms of this Plan, the Confirmation Order shall

be deemed to ratify all transactions effectuated by the Debtors during the pendency of the

Bankruptcy Cases to the extent occurring pursuant to an order of the Court.

11.5. Exculpation. Subject to the occurrence of the Effective Date, neither the

Debtors, the Reorganized Debtors, the GUC Trustee, or the Committee (including its

individual members), or any of their respective members, officers, directors, agents,

financial advisors, attorneys, employees, equity holders, partners, affiliates, and

representatives (the “Exculpated Parties”) shall have or incur any liability to any holder of

a Claim or Equity Interest for any act or omission in connection with, related to, or arising

out of, the Cases, the Plan, the pursuit of confirmation of the Plan, the negotiation and

consummation of the Plan, or the administration of the Cases and the Plan, the property to

be distributed under the Plan, the administration of the GUC Assets and the GUC Trust by

the GUC Trustee; provided, however, that the foregoing shall not operate as an exculpation,

waiver or release for (i) any express contractual obligation owing by any such Person, (ii)

willful misconduct or gross negligence, and (iii) with respect to professionals, liability

arising from claims of professional negligence which shall be governed by the standard of

care otherwise applicable to professional negligence claims under applicable non-

bankruptcy law, and, in all respects, the Exculpated Parties shall be entitled to rely upon the

advice of counsel with respect to their duties and responsibilities under the Plan; provided

further that nothing in the Plan shall, or shall be deemed to, release the Exculpated Parties,


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or exculpate the Exculpated Parties with respect to, their respective obligations or covenants

arising pursuant to the Plan; provided further that the foregoing shall not operate as a

waiver or release of Claims by governmental entities arising under environmental laws.

11.6. Injunction Related to Exculpation. The Confirmation Order will contain an

injunction, effective on the Effective Date, permanently enjoining the commencement or

prosecution by the Debtors, the Reorganized Debtors, the GUC Trust, and any other

Person, whether derivatively or otherwise, of any Action or cCauses of aAction exculpated,

released, or discharged pursuant to this Plan against the Exculpated Parties.

ARTICLE XIIMODIFICATION

12.1. Modification.

12.1.1. To the fullest extent permitted under § 1127 of the Bankruptcy Code, the

Plan may be altered, amended or modified by the Debtors with the agreement of the Sponsor at

any time prior to its substantial consummation. To the fullest extent permitted under § 1127 of

the Bankruptcy Code, the Plan may be altered, amended or modified by the Debtors at any time

prior to its substantial consummation. To the extent that the Debtors determine that the another

plan sponsorship offer is in fact higher and better than the NCR Holdings, LLC sponsorship, the

Debtors reserve the right to modify this Plan to provide for a different sponsor, to the extent that

such modification does not adversely affect the treatment of any class of creditor.

12.1.2. In the event of any modification, alteration or amendment on or before

Confirmation, any votes to accept or reject this Plan shall be deemed to be votes to accept or

reject this Plan as modified, unless the Court finds that the modification, alteration or amendment

materially and adversely affects the rights of parties in interest which have cast said votes.

12.2. Correction of Defects. Following the Effective Date, the Reorganized Debtors

may initiate a proceeding or motion in the Court in order to remedy any defects or omissions, or

to reconcile any inconsistencies, in the Plan or the Confirmation Order, upon notice of such


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proceedings or motion served on all parties listed in the Post-Confirmation List and any other

parties who may be materially and adversely affected.

12.3. Savings Clause. Any minor defect or inconsistency in the Plan may be corrected

or amended by the Confirmation Order.

12.4. Remedy of Defects. After the Effective Date, the Reorganized Debtors may, with

approval of the Court, and so long as it does not materially and adversely affect the interests of

Creditors, remedy any defect or omission or reconcile any inconsistencies in the Plan or in the

Confirmation Order in such manner as may be necessary to carry out the purposes and effect of

the Plan and in form and substance satisfactory to the Reorganized Debtors.

ARTICLE XIIIMISCELLANEOUS PROVISIONS

13.1. Enforcement. The Reorganized Debtors may take such actions, including the

initiation of proceedings or the prosecution of a motion, as may be reasonably necessary in order

to interpret or enforce the purposes and intent of the Plan.

13.1.1. Jurisdiction. Subject to the retained jurisdiction of the Bankruptcy Court,

and such motion or proceeding to enforce the Plan may be brought before the Bankruptcy Court

or any other court of competent jurisdiction.

13.1.2. Expenses of Enforcement. In the event that any action, motion, contested

matter, complaint, answer, counterclaim, cross-claim or other action is filed or taken by the

Reorganized Debtors either in the Bankruptcy Court or otherwise, in order to enforce or interpret

any terms of the Plan or the Confirmation Order, or any order or agreement made in

implementation of the Plan, the prevailing party in such matter (as determined by a court of

competent jurisdiction) shall be entitled to recover from any opposing party its expenses,

including reasonable attorneys’ fees and costs, incurred in such matter.

13.2. Exemption from Certain Transfer Taxes and Recording Fees. Pursuant to

Bankruptcy Code § 1146(c), the issuance, transfer, or exchange of a security, or the making or


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delivery of an instrument of transfer under the Plan may not be taxed under any law imposing a

stamp tax or similar tax. The taxes from which such transfers are exempt include stamp taxes,

recording taxes, sales and use taxes, transfer taxes, and other similar taxes.

13.3. Effectuating Documents. The Debtors or the Reorganized Debtors, as the case

may be, are authorized to execute, deliver, file, or record such contracts, instruments, releases,

and other agreements or documents and take such actions as may be necessary or appropriate to

implement, effectuate, and further evidence the terms and conditions of the Plan and any notes or

interests issued pursuant to the Plan.

13.4. Governing Law. Unless a rule of law or procedure is supplied by federal law,

including the Bankruptcy Code and the Bankruptcy Rules, the laws of the State of Washington

(without reference to its conflict of law rules) will govern the construction and implementation of

the Plan and any agreement, documents, and instruments executed in connection with the Plan

unless otherwise specifically provided in such agreements, documents, or instruments.

13.5. Integration. The provisions of this Plan and the Confirmation Order shall

supersede any and all prior agreements, documents, understandings, written or otherwise, in

respect of any Claim, and the treatment or satisfaction thereof, except as provided in any order of

the Court. All such prior agreements, documents or understandings are merged herein, and no

Person may thereafter pursue or prosecute any Claim or demand arising out of or pertaining to

such superseded agreements, documents or understandings as against the Debtors or Reorganized

Debtors the Post-Confirmation Estates.

13.6. Inconsistency. In the event of any inconsistency between the Plan and any Exhibit to the

Plan or any other instrument or document created or executed pursuant to the Plan, including the

GUC Trust Documents, then with the exception of the Sponsor Term Sheet ,the Plan shall govern.

In the event of any inconsistency between the Plan or any other document and the Confirmation

Order, then with the exception of the Sponsor Term Sheet the Confirmation Order shall govern.

The Sponsor Term Sheet shall govern with respect to any inconsistency with any other document

or order.

Formatted: Body Text, Justified, Right: 0.06"


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13.7.13.6. Section Headings. Headings are used in the Plan for convenience and

reference only, and shall not affect in any way the meaning or interpretation of the Plan or

constitute a part of the Plan for any other purpose.

13.8.13.7. Severability. If any provision in the Plan is determined to be

unenforceable, the determination will in no way limit or affect the enforceability and operative

effect of any other provision of the Plan.

ARTICLE XIVRETENTION JURISDICTION

14.1. Retained Jurisdiction. The Bankruptcy Court shall retain and have jurisdiction

over the Bankruptcy Cases for all purposes provided by the Bankruptcy Code, including for the

following purposes:

14.1.1. To hear and determine motions for the assumption or rejection of executory

contracts or unexpired leases, if any are pending on the Effective Date and not otherwise

determined by Confirmation, and the allowance of Claims resulting therefrom.

14.1.2. To grant full and complete relief upon the request of the Reorganized

Debtors.

14.1.3. To determine any and all objections to the allowance of Claims and to

allow, disallow, estimate, liquidate or determine any Claim.

14.1.4. To determine any and all motions for compensation and reimbursement of

expenses and any other fees and expenses authorized to be paid or reimbursed under the

Bankruptcy Code or the Plan which accrued on or prior to the Confirmation Date.

14.1.5. To determine any and all applications, adversary proceedings and contested

or litigated matters (a) that may be pending on the Effective Date, except as provided in the

Confirmation Order; or (b) which shall be commenced on or after the Effective Date and be

properly before the Bankruptcy Court.


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14.1.6. To consider any modifications of the Plan, any defect or omission, or

reconcile any inconsistency in any order of the Bankruptcy Court, including the Confirmation

Order, to the extent authorized by the Bankruptcy Code.

14.1.7. To implement the provisions of the Plan and to issue orders in aid of

execution of the Plan to the extent authorized by § 1142 of the Bankruptcy Code.

14.1.8. To hear and determine disputes arising in connection with the

interpretation, implementation or enforcement of the Plan.

14.1.9. To resolve any disputes and otherwise hear such additional matters brought

by the GUC Trustee or otherwise related to the GUC Trust Assets and impacting the Beneficiaries

towards the fulfillment of the GUC Trustee’s duties pursuant to the Plan and the GUC Trust

Agreement.

14.1.10. To enter a final decree and orders reopening the any of the

Bankruptcy Cases as appropriate.

///

///

///


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ARTICLE XVREQUEST FOR CONFIRMATION

15.1. Confirmation Pursuant to § 1129(b). If necessary, the Debtors request

Confirmation of the Plan pursuant to § 1129(b) of the Bankruptcy Code.

DATED: __________August 18, 2020 PNW HEALTHCARE HOLDINGS, LLC, et al.,

By:

Dov Jacobs Responsible Individual Manager

Presented by: FOLEY & LARDNER, LLP

BY: /s/ Ashley M. McDowAshley M. McDow, WSBA #38900

BY: /s/ Shane J. MosesShane J. Moses, admitted pro hoc vice

Counsel for Debtors and Debtors In Possession


EXHIBIT C


1

Moses, Shane J.

From: Moses, Shane J.

Sent: Thursday, October 8, 2020 1:21 PM

To: [email protected]; [email protected]; [email protected];

[email protected]; [email protected]; Amy Freeman; [email protected];

[email protected]; Detweiler, Donald J.; 'Lawall, Francis'; Christine Tobin-Presser

([email protected]); 'David B. Golubchik'; Monica Y. Kim

Cc: Helt, Marcus Alan; McDow, Ashley M.; [email protected]

Subject: RE: Response - PNW Healthcare - Cornerstone 18 bid

Good afternoon. We wanted to make sure all of the consulting parties and the Initial Bidder are aware of the current status, in advance of the status conference tomorrow. Today the Debtors received the email below from Mr. Backenroth in response to the bullet point issues raised in the Debtors’ October 8, 2020, email. The Debtors are reviewing the response from Mr. Backenroth as to each of the bullet points raised.

From Mr. Lawall’s email below, it appears that the Committee has determined that all issues are resolved from their perspective. If any of the other consulting parties have any comment or would like to discuss further, please let us know.

Best,

-Shane

Shane J. Moses

Foley & Lardner LLP 555 California Street | Suite 1700 San Francisco, CA 94104-1520 Tel: 415.438.6404 Mobile: 415.706.3179

Visit Foley.com

From: "Lawall, Francis" <[email protected]> Date: October 8, 2020 at 10:59:15 AM PDT To: Abraham Backenroth <[email protected]>, "McDow, Ashley M." <[email protected]>, "Helt, Marcus Alan" <[email protected]>, Dan Polsky <[email protected]> Cc: "Detweiler, Donald J." <[email protected]>, "[email protected]" <[email protected]> Subject: RE: Response - PNW Healthcare - Cornerstone 18 bid

** EXTERNAL EMAIL MESSAGE **Thank you for your submission.


2

The Committee is happy to get on the phone today to discuss any remaining issues regarding qualification with the consultation parties and the Debtors, but we believe Cornerstone has satisfied the necessary requirements to be deemed a qualified bidder. Please advise if a call works for the group and we will send out a conference number.

Francis J. LawallPartner

troutman pepperDirect: 215.981.4481 | Mobile: 215.837.1600 | Internal: [email protected]

From: Abraham Backenroth <[email protected]> Sent: Thursday, October 8, 2020 12:06 PM To: [email protected]; [email protected]; Dan Polsky <[email protected]> Cc: Detweiler, Donald J. <[email protected]>; Lawall, Francis <[email protected]>; [email protected]: Response - PNW Healthcare - Cornerstone 18 bid

EXTERNAL SENDER

See responses below in red.

From: [email protected] <[email protected]> Sent: Tuesday, October 6, 2020 2:04 PM To: Abraham Backenroth <[email protected]> Cc: [email protected]; [email protected]; Dan Polsky <[email protected]> Subject: PNW Healthcare - Cornerstone 18 bid

Mr. Backenroth:

Thank you for providing the submission of Cornerstone 18 Operations, LLC (the “Cornerstone 18 Bid”), pursuant to the Bid Procedures approved by the Bankruptcy Court in the PNW Healthcare Holdings, LLC, et al., Bankruptcy Cases. We appreciate Cornerstone 18’s commitment to this process.

As you know, the Bid Procedures, which were the result of extensive negotiation with the Committee, and were approved by the Court, set forth the requirements for qualified bids in Paragraph 2.a through 2.l. There are certain requirements of the Court approved Bid Procedures that that Cornerstone 18 bid, as submitted, does not satisfy. The following bullet points identify the requirements that the Cornerstone 18 Bid, as submitted, does not satisfy, with reference to the specific applicable sub-paragraph of the Bid Procedures:

2.c. “Shall not be subject to any conditions or contingencies related to due diligence, financing, or further approval by any person or entity not present at the Auction.” The Cornerstone 18 Bid requires financing to satisfy the MidCap debt, creating a financing contingency.

Ans. You misunderstand the term sheet. We intend to get financing to take out MidCap but have not made our proposal which has 2.5 million non refundable deposit , contingent on taking out MidCap – that is our responsibility backed up by the 2.5 million non refundable deposit if we fail to meet our commitments.


3

Indeed, I don’t understand the double standard being applied here. NCR Holdings, LLC (“NCR”) contemplates “Exist Financing” which is also coming from outside financing. Were that not the case, NCR would have had to show available funds necessary to fund the 30.3 million “Exit Financing” provided for in their term sheet. Why is finding “Exist Financing” not a “contingency” for them but for my client’s finding financing to take out MidCap – which I have not stated is a contingency - constitutes a “contingency”?

2.e. “Include, on a confidential basis, financial information for the Proposed Sponsor, including but not limited to financial statements of the Proposed Sponsor sufficient to enable determination of the Proposed Sponsor’s creditworthiness and ability to consummate the transaction set forth in the Sponsor Proposal, as well as the sufficiency of available funds to fund all Effective Date and other Payments required.” Cornerstone 18 has provided financial information for Mr. Handler, who has been identified as the principal of the company, but has not provided anything showing that Cornerstone 18 has been funded, or a commitment from Mr. Handler to fund Cornerstone 18.

Ans. Handler is fully committed to fund the term sheet as shown by his willingness to put 2.5 million at risk if he doesn’t do what he has committed to do . Moreover Handler is going to be the sole shareholder and has also shown you proof of funds and a personal financial statement of net worth of over 200 million dollars.As another example of anther double standard employed here, have you asked and received a person statement from Shapiro showing any ability to support this operation should there be a problem in the future?I think not. My understanding is that Shapiro has no substantial assets to support a deal of this nature. Why isn’t that something of concern to you – as it was a concern to the Creditors Committee who asked and received my client’s personal financial statement after agreeing to an NDA – something you refused to do initially.

2.f. “Provide for Plan funding and treatment of each creditor and each class of creditors that is not less favorable than that provided in the Plan.” While the treatment appears to be qualifying, the funding is less favorable than provided in the Plan (as defined in the Bid Procedures), as discussed with regard to 2.g. below.

Ans. We are prepared to fund legal fees not out of existing assets so that will not be an issue.

2.g. “Provide for funding on the Effective Date in the amounts provided for in the Plan, plus an additional increment sufficient to fund the Initial Overbid Amount.” The Effective Date funding to be provided in the Cornerstone 18 Bid is substantially less than provided pursuant to the Plan. Principally this is because the Cornerstone 18 Bid proposes to use operating cash of the Debtors to pay a portion of the Effective Date payments. This is contrary to the express requirement of the Bid Procedures that the funding to be provided by the proposed sponsor be in the amounts provided in the Plan, and is a material issue to the Debtors because it creates the possibility of substantial use of the Debtor’s cash to satisfy Effective Date payment requirements, leaving open a potential to deplete the reorganized Debtors. The Cornerstone 18 Bid also does not provide for funding of either the $2.5 million cure reserve or the $1 million litigation reserve. While this is presumably based on Cornerstone 18’s representation that it has an agreement with Canyon, the Debtors have not been provided a copy of that agreement, and the Cornerstone 18 Bid acknowledges that a transaction with Canyon might not occur until after the Effective Date.


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Ans. The agreement with Canyon is presently being drafted and will be provided prior to the auction. That can be confirmed with Canyon’s counsel.

2.j. “Not modify any provisions of the Plan regarding operation and management of the Reorganized Debtors except as to the identity of the Plan Sponsor and/or the initial Operator. The Sponsor Proposal shall also incorporate the provisions of the NCR Term Sheet included in the ‘Operations’ section of the NCR Term Sheet, provided that the ‘Operator’ as defined therein shall be the Operator identified in the Sponsor Proposal.” The Cornerstone 18 Bid modifies the term sheet language, to add the italicized language as follows: “The Governance Documents shall, at a minimum: (1) … and (2) expressly provide that there shall be no distributions to any equity holder unless in accordance with Corporate Governance or under certain operational thresholds agreed to between the Operator and the Sponsor….” This negates the effect of the requirement to agree to operational thresholds, something the Court clearly recognized the importance of, and which was the subject of extensive negotiation prior to approval of the Bid Procedures.

Ans. Don’t understand this objection. The term sheet specifically provides that together with the operator there will be corporate governance restricting removal of capital which is consistent with the plan and the bidding procedures order. We don’t see any discrepancy with the provisions you site. In any event we are prepared to live with the corporate governance to be set up between the Plan Sponsor and the operator which is all that is required as to this provision.

2.l. “Be open and irrevocable through the conclusion of the Auction Hearing, and if selected as Plan Sponsor or Back-Up Sponsor, through confirmation of the Plan and the transactions contemplated thereunder, unless extended or modified by agreement of the parties.” The term sheet provided by Cornerstone 18 arguably makes the Deposit irrevocable only after the term sheet is signed by the Debtors. Since execution of the term sheet by the Debtors would occur only after approval of the successful bid by the Court, there does not appear to be any binding agreement by Cornerstone 18 that their deposit and bid are irrevocable through the auction.

Ans. The Term sheet will be irrevocable through the term as provided in the Bidding Procedures Order which was its intent.

If you believe that any of the above bullet points are based on a misunderstanding of the Cornerstone 18 Bid, please let us know. The Debtors’ goal is not to disqualify any bids, but we have clear, Court-approved Bid Procedures, and it is important that all submissions pursuant to those Bid Procedures comply with their requirements in order to qualify.

Also, as you know the Bid Procedures provide for the Debtors to consult with the Committee, MidCap, and the Patient Care Ombudsman regarding various aspects of the process, including qualification of bids. We have begun that process, but MidCap and other consulting parties have indicated that they are reviewing may have further comments. We are sending you the above bullet points now, in order to get back to you as soon as possible, but this is subject to further input from the consulting parties.

Best,

-Shane


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Shane J. Moses

Foley & Lardner LLP 555 California Street | Suite 1700 San Francisco, CA 94104-1520 Tel: 415.438.6404 Mobile: 415.706.3179

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