-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ub9YxzIGNieeQz/tcupiR5HEjHC/1kGKftcHjWLlVOXmeoe0CZcSKUFLeyvpwBha TXY0tvmelgZT1ITGR8DaRQ== 0000950116-96-000827.txt : 19960816 0000950116-96-000827.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950116-96-000827 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENESIS HEALTH VENTURES INC /PA CENTRAL INDEX KEY: 0000874265 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 061132947 STATE OF INCORPORATION: PA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11666 FILM NUMBER: 96614855 BUSINESS ADDRESS: STREET 1: 148 W STATE ST STE 100 CITY: KENNETT SQUARE STATE: PA ZIP: 19348 BUSINESS PHONE: 6104446350 MAIL ADDRESS: STREET 1: 148 W STATE STREET CITY: KENNETT SQUARE STATE: PA ZIP: 19348 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to ___________________ Commission File Number: 1-11666 GENESIS HEALTH VENTURES, INC. (Exact name of registrant as specified in its charter) Pennsylvania 06-1132947 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 148 West State Street Kennett Square, Pennsylvania 19348 (Address, including zip code, of principal executive offices) (610) 444-6350 (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES [ x ] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of August 12, 1996: 31,939,939 TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION....................................... 1 Item 1. Financial Statements................................... 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 7 PART II. OTHER INFORMATION.......................................... 12 Item 1. Legal Proceedings...................................... 12 Item 2. Changes in Securities.................................. 12 Item 3. Defaults Upon Senior Securities........................ 12 Item 4. Submission of Matters to a Vote of Security Holders.... 12 Item 5. Other Information...................................... 12 Item 6. Exhibits and Reports on Form 8-K....................... 12-15 SIGNATURES........................................................... 16 PART I. FINANCIAL INFORMATION Item 1. Financial Statements GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
June 30, September 30, 1996 1995 ---- ---- (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 70,626 $ 10,387 Accounts receivable, net of allowance for doubtful accounts of $9,674 at June 30, 1996 and $6,179 at September 30, 1995 144,036 101,124 Cost report receivables 31,413 26,271 Inventory 16,872 9,601 Other current assets 34,062 43,674 --------- --------- Total current assets 297,009 191,057 --------- --------- Property, plant and equipment 375,628 294,769 Accumulated depreciation (62,240) (51,108) --------- --------- 313,388 243,661 Goodwill and other intangibles, net 196,119 114,947 Other assets 71,832 50,724 --------- --------- TOTAL ASSETS $ 878,348 $ 600,389 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses $ 64,163 $ 52,522 Current installments of long-term debt 2,512 2,539 Income taxes payable 2,735 1,882 --------- --------- Total current liabilities 69,410 56,943 --------- --------- Long-term debt 295,897 308,052 Deferred income taxes 6,586 8,698 Deferred gain and other liabilities 6,217 5,149 Shareholders' Equity: Common stock, par value $.02, authorized 60,000,000 shares, issued and outstanding, 31,981,680 and 31,936,079 at June 30, 1996; 22,081,267 and 22,035,666 at September 30, 1995 476 294 Additional paid-in capital 411,677 155,927 Retained earnings 88,328 65,569 --------- --------- 500,481 221,790 Less treasury stock, at cost (243) (243) --------- --------- Total shareholders' equity 500,238 221,547 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 878,348 $ 600,389 ========= =========
See accompanying notes to condensed consolidated financial statements. -1- GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data)
(Unaudited) ----------- Three Months Ended June 30, 1996 1995 ---- ---- Net revenues: Basic healthcare services $ 85,846 $ 69,701 Specialty medical services 78,347 48,188 Management services and other, net 8,643 8,070 -------------- -------------- Total net revenues 172,836 125,959 Operating expenses: Salaries, wages and benefits 80,919 62,009 Other operating expenses 52,786 34,978 General corporate expense 6,515 4,449 Debenture conversion expense 155 --- Depreciation and amortization 6,648 5,003 Lease expense 4,086 3,657 Interest expense, net 6,125 4,976 -------------- -------------- Earnings before income taxes and extraordinary item 15,602 10,887 Income taxes 5,511 4,002 -------------- -------------- Earnings before extraordinary item 10,091 6,885 Extraordinary item, net of tax --- (1,923) -------------- -------------- Net income $ 10,091 $ 4,962 ============== ============== Per common share data: Primary Earnings excluding debenture conversion expense and extraordinary item, net of tax $ .37 $ .30 Debenture conversion expense --- --- Extraordinary item, net of tax --- (.08) Net income $ .37 $ .22 Weighted average shares of Common Stock and equivalents 27,507,276 22,635,350 Fully diluted Earnings excluding ebenture conversion expense and extraordinary item, net of tax $ .35 $ .28 Debenture conversion expense --- --- Extraordinary item, net of tax --- (.07) Net income $ .35 $ .21 Weighted average shares of Common Stock and equivalents 31,108,391 28,387,825
See accompanying notes to condensed consolidated financial statements. -2- GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data)
(Unaudited) ----------- Nine Months Ended June 30, -------- 1996 1995 ---- ---- Net revenues: Basic healthcare services $ 241,107 $ 206,073 Specialty medical services 193,347 128,333 Management services and other, net 25,900 20,059 --------------- --------------- Total net revenues 460,354 354,465 Operating expenses: Salaries, wages and benefits 223,244 175,612 Other operating expenses 132,180 99,778 General corporate expense 17,617 12,730 Debenture conversion expense 1,245 --- Depreciation and amortization 17,883 13,987 Lease expense 11,948 10,388 Interest expense, net 19,104 14,369 --------------- --------------- Earnings before income taxes and extraordinary item 37,133 27,601 Income taxes 13,374 10,093 --------------- --------------- Earnings before extraordinary item 23,759 17,508 Extraordinary item, net of tax --- (1,923) --------------- --------------- Net income $ 23,759 $ 15,585 ================ =============== Per common share data: Primary Earnings excluding debenture conversion expense and extraordinary item, net of tax $ .96 $ .78 Debenture conversion expense (.03) --- Extraordinary item, net of tax --- (.09) Net income $ .93 $ .69 Weighted average shares of Common Stock and equivalents 25,438,335 22,556,985 Fully diluted Earnings excluding debenture conversion expense and extraordinary item $ .91 $ .72 Debenture conversion expense (.03) --- Extraordinary item, net of tax --- (.06) Net income $ .88 $ .66 Weighted average shares of Common Stock and equivalents 29,358,861 28,284,792
See accompanying notes to condensed consolidated financial statements. -3- GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
(Unaudited) ----------- Nine Months Ended June 30, -------- 1996 1995 ---- ---- Cash flows from operating activities: Net income $ 23,759 15,585 Adjustments to reconcile net income to net cash provided by operating activities: Charges (credits) included in operations not requiring funds: Provision for deferred taxes 3,343 2,902 Depreciation and amortization 17,883 13,987 Amortization of deferred gain (345) (345) Debenture conversion expense 1,245 --- Extraordinary item, net of tax --- 1,923 Changes in assets and liabilities excluding effects of acquisitions: Increase in accounts receivable (16,348) (16,425) Increase in cost report receivables (6,418) (8,000) Increase in inventory (2,207) (492) (Increase) decrease in other current assets (9,012) 1,562 Increase (decrease) in accounts payable and accrued expenses 3,144 (4,265) Increase (decrease) in income taxes payable (816) 759 -------------- ------------ Total adjustments (9,531) (8,394) -------------- ------------ Net cash provided by operating activities 14,228 7,191 -------------- ------------ Cash flows from investing activities: Capital expenditures (26,151) (19,681) Cash paid, net-- acquisitions (140,816) (8,194) Deferred and other long-term asset additions, net (8,856) (10,376) Increase in trustee-held funds (50) (490) -------------- ------------ Net cash used in investing activities (175,873) (38,741) -------------- ------------ Cash flows from financing activities: Proceeds from issuance of Common Stock 211,250 --- Stock issuance costs (9,248) --- Net borrowings under bank credit facility 20,300 19,600 Repayment of long-term debt (1,673) (101,353) Proceeds from issuance of long-term debt --- 119,700 Debenture conversion expense (1,245) --- Proceeds from exercise of common stock options 2,500 981 Debt issuance costs --- (3,600) -------------- ------------ Net cash provided by financing activities $ 221,884 35,328 -------------- ------------ Net increase in cash and cash equivalents $ 60,239 3,778 -------------- ------------ Cash and cash equivalents: Beginning of the period 10,387 3,817 End of the period $ 70,626 7,595 -------------- ------------ Supplemental disclosure of cash flow information: Interest paid $ 22,755 15,818 -------------- ------------ Income taxes paid $ 12,451 9,509 ============== ============
See accompanying notes to condensed consolidated financial statements. -4- GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. General The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's annual report for the fiscal year ended September 30, 1995. The information furnished is unaudited but reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial information for the periods shown. Such adjustments are of a normal recurring nature. Interim results are not necessarily indicative of results expected for the full year. 2. Earnings Per Share Primary and fully-diluted earnings per share are based on the weighted average number of common shares outstanding and the dilutive effect of stock options, convertible debentures and other common stock equivalents. 3. Pro Forma Financial Information In July 1996, the Company and Geriatric and Medical Companies, Inc. ("GEMC") entered into an agreement providing for the merger of GEMC into a wholly-owned subsidiary of Genesis. The merger, and a related transaction with an affiliate of GEMC, will add 19 long-term care facilities and eight residential care and independent living facilities with approximately 3,500 beds and certain ancillary businesses to Genesis. Under the terms of the merger agreement, unanimously approved by the board of directors of both companies, GEMC shareholders would receive $5.75 per share in cash for each GEMC share. The purchase price of GEMC stock is approximately $91,000,000 and the total value of the transaction, including approximately $132,000,000 of assumed debt, is approximately $223,000,000. The Company expects to fund the cash portion of the transaction through its bank credit facility. Consummation of the transaction is expected in the fourth quarter of calendar 1996, and is subject to normal closing conditions, regulatory approvals and GEMC shareholder approval. In July 1996, the Company acquired the outstanding stock of National Health Care Affiliates, Inc., Oak Hill Center, Inc., Derby Nursing Center Corporation, EIDOS, Inc. and Versalink, Inc. (collectively, "National Health"). Prior to the closing of the stock acquisitions, an affiliate of a financial institution purchased nine of the eldercare centers for $67,700,000 and subsequently leased the centers to a subsidiary of Genesis under operating lease agreements. The balance of the total consideration paid to National Health was funded with available cash ($51,800,000) and assumed debt ($7,900,000). National Health owns six eldercare centers in Florida with 863 beds, leases four eldercare centers in Florida with 368 beds, owns five eldercare centers in Virginia with 851 beds, and leases one eldercare center in Connecticut with 120 beds. National Health also provides enteral nutrition and rehabilitation therapy services to the eldercare centers which it owns and leases. In addition, National Health manages four eldercare centers in Colorado with 283 beds pursuant to an agreement which expires in October 1997. In June 1996, the Company acquired the outstanding stock of NeighborCare Pharmacies, Inc. ("NeighborCare"), a privately held institutional pharmacy, infusion therapy and retail pharmacy business based in Baltimore, Maryland. Total consideration was approximately $57,250,000, -5- comprised of approximately $47,250,000 in cash and 312,744 shares of Genesis common stock. On November 30, 1995, the Company acquired all of the issued and outstanding stock and partnership interests of McKerley Health Care Centers, Inc., McKerley Health Care Center - Concord, Inc., McKerley Health Facilities and McKerley Health Care Center - Concord, L.P. (collectively, the "McKerley Entities"). The Company acquired the outstanding stock and partnership interests of the McKerley Entities for approximately $68,700,000, including assumed debt and after giving effect to the funds placed in escrow by the principals as described below. An additional $6,000,000 of purchase price is payable if certain financial objectives are achieved through October 1997. The transaction was financed with borrowings under the Company's bank credit facility. Pursuant to certain agreements executed on November 30, 1995, the Company directly or through one or more subsidiaries, agreed to provide certain services to the principals during the period ending November 30, 1998, and the principals agreed to make certain lease payments on behalf of the Company with respect to certain lease obligations of the McKerley Entities. As security for the principals' or their affiliates' obligation to make the required payments as they become due, the principals placed approximately $6,500,000 in an account with a third party escrow agent. The following unaudited pro forma statement of operations information gives effect to the GEMC, National Health, NeighborCare and McKerley transactions described above as though they had occurred at the beginning of the periods presented, after giving effect to certain adjustments, including amortization of goodwill, additional depreciation expense, increased interest expense on debt related to the acquisitions and related income tax effects. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had the acquisitions occurred at the beginning of the periods presented.
(In thousands, except per share data) Nine Months Ended June 30, June 30, Pro Forma Statement of Operations Information: 1996 1995 ---- ---- Total net revenues $ 710,790 $ 654,092 Net income before extraordinary item and debenture conversion expense 26,433 19,115 Primary earnings per share before extraordinary item and debenture conversion expense 1.03 .83 Fully diluted earnings per share before extraordinary item and debenture conversion expense .96 .77
-6- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General Since the Company began operations in July 1985, it has focused its efforts on providing an expanding array of specialty medical services to elderly customers. The delivery of these services was originally concentrated in the eldercare centers owned and leased by the Company, but now also includes managed eldercare centers, independent healthcare facilities, outpatient clinics and home health care. The Company generates revenues from three sources: basic healthcare services, specialty medical services and management services. The Company includes in basic healthcare services revenues all room and board charges from its customers at its owned and leased eldercare centers. Specialty medical services include all revenues from providing rehabilitation therapies, institutional pharmacy and medical supply services, subacute care programs, home health care, physician services, and other specialized services. Management services include fees earned for management of eldercare centers, development of life care communities and revenues from the group purchasing, staff replacement and vending businesses. Genesis delivers its services through three divisions. The largest, in terms of revenues, is Genesis ElderCare Centers, which at June 30, 1996 included 68 owned and leased eldercare centers. The second, Genesis ElderCare Services, provides specialty medical services to all centers owned, leased or managed by Genesis as well as to over 500 independent healthcare providers. The third, Genesis ElderCare Network Services, manages 39 eldercare centers. Certain Transactions In July 1996, the Company and Geriatric and Medical Companies, Inc. ("GEMC") entered into an agreement providing for the merger of GEMC into a wholly-owned subsidiary of Genesis. The merger, and a related transaction with an affiliate of GEMC, will add 19 long-term care facilities and eight residential care and independent living facilities with approximately 3,500 beds and certain ancillary businesses to Genesis. Under the terms of the merger agreement, unanimously approved by the board of directors of both companies, GEMC shareholders would receive $5.75 per share in cash for each GEMC share. The purchase price of GEMC stock is approximately $91,000,000 and the total value of the transaction, including approximately $132,000,000 of assumed debt, is approximately $223,000,000. The Company expects to fund the cash portion of the transaction through its bank credit facility. Consummation of the transaction is expected in the fourth quarter of calendar 1996, and is subject to normal closing conditions, regulatory approvals and GEMC shareholder approval. In August 1996, the Company acquired the outstanding stock of Diane Morgan & Associates and an affiliate. The purchase price was $3,820,000 of which $3,300,000 was paid from available cash at closing and the balance of the consideration was in the form of notes issued to the principals. In July 1996, the Company acquired the outstanding stock of National Health Care Affiliates, Inc., Oak Hill Center, Inc., Derby Nursing Center Corporation, EIDOS, Inc. and Versalink, Inc. (collectively, "National Health"). Prior to the closing of the stock acquisitions, an affiliate of a financial institution purchased nine of the eldercare centers for $67,700,000 and subsequently leased the centers to a subsidiary of Genesis under operating lease agreements. The balance of the total consideration paid to National -7- Health was funded with available cash ($51,800,000) and assumed debt ($7,900,000). National Health owns six eldercare centers in Florida with 863 beds, leases four eldercare centers in Florida with 368 beds, owns five eldercare centers in Virginia with 851 beds, and leases one eldercare center in Connecticut with 120 beds. National Health also provides enteral nutrition and rehabilitation therapy services to the eldercare centers which it owns and leases. In addition, National Health manages four eldercare centers in Colorado with 283 beds pursuant to an agreement which expires in October 1997. In June 1996, the Company acquired the outstanding stock of NeighborCare, a privately held institutional pharmacy, infusion therapy and retail pharmacy business based in Baltimore, Maryland. Total consideration was approximately $57,250,000, comprised of approximately $47,250,000 in cash and 312,744 shares of Genesis common stock. In March 1996, the Company sold four eldercare centers and a pharmacy in Indiana for approximately $22,250,000. In March 1996, the Company acquired for total consideration of approximately $31,900,000, including the payment of assumed debt, the remaining approximately 71% joint venture interests of four eldercare centers in Maryland and the remaining 50% joint venture interest of an eldercare center in Florida which had been acquired as part of the Meridian Transaction (the "Partnership Interest Purchase"). In March 1996, the Company entered into a strategic alliance with Doctors Community Hospital, a 250-bed acute care hospital in Maryland, pursuant to which the Company sold to an affiliate of the hospital a 51% interest in Magnolia Gardens Center, a 104-bed eldercare center for approximately $2,900,000. As part of this transaction, the Company entered into a long-term agreement to manage the center. In January 1996, the Company acquired the speech therapy, occupational therapy and physical therapy services businesses of Medical and Rehab Support Services, Inc., Professional Rehabilitation Network, Inc. and Health Services Network, Inc. (collectively, "Therapy Companies") for approximately $9,300,000. The Therapy Companies provide these services in the Company's Baltimore, Maryland/ Washington, D.C. market. The acquisition was financed with borrowings under the Company's bank credit facilities. Prior to January 1, 1996, the Company provided management, development and marketing services to life care communities operated by Adult Community Total Services, Inc. ("ACTS"), a Pennsylvania non-profit corporation, pursuant to a management agreement which was to expire in April 1998. Effective January 1, 1996, Genesis restructured its relationship with ACTS. Under the revised arrangement, Genesis was paid a $2,000,000 restructuring fee and will no longer manage the ACTS life care communities. Genesis will continue to provide development services for a fee in an amount equal to five percent of the total cost of developing and completing facilities developed by ACTS. The development portion of the contract has been extended to December 2002 and Genesis is guaranteed a minimum annual development fee of approximately $1,500,000 per year. Genesis also continues to provide certain ancillary services to the ACTS communities. -8- In November 1995, the Company acquired McKerley Health Care Centers, Inc. and certain related entities (collectively, "McKerley") for total consideration of approximately $68,700,000. The transaction also provides for up to an additional $6,000,000 of contingent consideration payable upon the achievement of certain financial objectives through October 1997. McKerley owns or leases 15 eldercare centers in New Hampshire and Vermont with a total of 1,535 beds and operates a home healthcare company. The acquisition was financed with borrowings under the Company's bank credit facilities. Results of Operations Three months ended June 30, 1996 compared to three months ended June 30, 1995. The Company's total net revenues for the quarter ended June 30, 1996 were $172,836,000 compared to $125,959,000 for the quarter ended June 30, 1995, an increase of $46,877,000, or 37%. Basic healthcare services increased $16,145,000, or 23% due principally to the acquisition of the McKerley Entities, the purchase of the remaining partnership interests of five eldercare centers in March 1996 (which was partially offset by the sale of four eldercare centers in Indiana), a shift in payor mix from Medicaid to Medicare and rate increases. Specialty medical services increased $30,159,000, or 63%, of which approximately $17,222,000 is due primarily to the acquisitions of NeighborCare and the Therapy Companies, with the remainder due to volume growth in the institutional pharmacy, medical supply and contract therapy divisions, and an increase in the relative acuity levels of patients in our owned and leased eldercare centers. Specialty medical service revenue per patient day in the health centers division increased 17% to $30.99 in the quarter ended June 30, 1996 as compared to $26.55 for the same quarter in the prior year due primarily to treatment of higher acuity patients. Management services and other income increased $573,000, or 7%. Service related business revenues (group purchasing and staff replacement services) increased approximately $600,000 in the three months ended June 30, 1996 as compared to the corresponding period in the prior year. Transactional and other net revenues, including a gain on the sale of an investment, in the three months ended June 30, 1996, increased approximately $900,000 as compared to the corresponding period in the prior year while management fees recognized from the management of facilities owned by others decreased $900,000 in the three months ended June 30, 1996 as compared to the corresponding period in the prior year. The Company's operating expenses before debenture conversion expense, depreciation, amortization and lease expense were $140,220,000 in the quarter ended June 30, 1996 compared to $101,436,000 in the comparable prior period, an increase of $38,784,000, or 38%, which was due primarily to the acquisitions of the McKerley Entities and NeighborCare, an increase in cost of goods sold related to increased sales of specialty medical services and inflationary wage and benefit increases. In the quarter ended June 30, 1996, the Company converted approximately $8,800,000 of Debentures. In connection with the early conversion of the Debentures, the Company paid approximately $155,000 representing the prepayment of interest to converting debenture holders. The non-recurring cash payment is presented as debenture conversion expense in the result of operations for the three months ended June 30, 1996. The conversion of a portion of the outstanding Debentures improves the Company's leverage and provides the Company with the ability to borrow under its revolving credit facilities at lower rates. Interest expense increased $1,149,000 or 23%. This increase reflects increased debt levels used to fund acquisitions and operations and a higher average prevailing interest rate due to the issuance of $120,000,000 of 9.75% Senior Subordinated Debentures due 2005 partially offset by the repayment of approximately $115,480,000 of indebtedness in June 1996 from a part of the net proceeds of the Company's equity offering and interest income generated from investment of the remaining net proceeds. Nine months ended June 30, 1996 compared to Nine months ended June 30, 1995. The Company's total net revenues for the nine months ended June 30, 1996 were $460,354,000 compared to $354,465,000 for the nine months ended June 30, 1995, an increase of $105,889,000 or 30%. Basic healthcare services increased $35,034,000 or 17%, which is primarily due to the acquisition of the McKerley Entities and the purchase of the remaining partnership interests of five eldercare centers in March 1996 (which was partially offset by the sale of five eldercare centers in Massachusetts in September 1995), and -9- the sale of four eldercare centers in Indiana in March 1996, along with a shift in payor mix from Medicaid to Medicare and rate increases. Specialty medical service revenue increased $65,014,000 or 51%, of which approximately $30,005,000 is due to acquisitions, with the remainder due to other volume growth in the institutional pharmacy, medical supply and contract therapy divisions. Specialty medical service revenue per patient day in the health centers division increased 21% to $29.38 in the nine months ended June 30, 1996 as compared to $24.31 for the same period in the prior year due primarily to treatment of higher acuity patients. Management services and other income increased $5,841,000 or 29% primarily due to an increase in service related business revenues (group purchasing and staff replacement services) of approximately $1,700,000 and an increase in transactional gains of approximately $3,700,000. Transactional and other activity in the nine months ended June 30, 1996 included gains recognized in connection with the sale of an investment, the sale of four eldercare centers and a pharmacy in Indiana and the sale of a majority interest in one eldercare center in Maryland. The Company's operating expenses before debenture conversion expense, depreciation, amortization and lease expense were $373,041,000 compared to $288,120,000 in the comparable prior period, an increase of $84,921 or 29%, which was due to the acquisition of the McKerley Entities, the NeighborCare transaction, an increase in cost of goods sold related to increased specialty medical service revenues, and inflationary wage and benefit increases. In the nine months ended June 30, 1996 the Company converted approximately $42,300,000 of its 6% Convertible Senior Subordinated Debentures (the Debentures) due 2003. In connection with the early conversion of the Debentures, the Company paid approximately $1,245,000 representing the prepayment of interest to converting debenture holders. The non-recurring cash payment is presented as debenture conversion expense in the results of operations for the nine months ended June 30, 1996. Interest expense increased $4,735,000 or 33%. This increase reflects increased debt levels used to fund acquisitions and a higher average prevailing interest rate due to the issuance of $120,000,000 of 9.75% Senior Subordinated Debentures due 2005 partially offset by the repayment of approximately $115,480,000 of indebtedness in June 1996 from a part of the net proceeds of the Company's equity offering and interest income generated from investment of the remaining net proceeds. Liquidity and Capital Resources Working capital increased to $227,599,000 at June 30, 1996 from $134,114,000 at September 30, 1995 due primarily to cash raised in the May 1996 equity offering which was not used to repay indebtedness. Accounts receivable increased to $144,036,000 at June 30, 1996 from $101,124,000 at September 30, 1995. Approximately $14,300,000 of this increase relates to accounts receivables purchased as a part of the NeighborCare acquisition, approximately $4,800,000 of this increase relates to accounts receivables purchased as part of the acquisition of the McKerley Entities, approximately $3,000,000 relates to accounts receivables purchased as part of the acquisition of the Therapy Companies in January 1996, approximately $3,800,000 relates to the Partnership Interest Purchase, and the remaining $17,012,000 relates primarily to the continuing shift in business mix to specialty medical services including the specialty medical businesses acquired during fiscal 1995. Days of revenue in accounts receivable increased to 75 from 72 during this period. In May 1996, the Company completed an offering of 6,500,000 shares of Common Stock at $32.50 per share, resulting in net proceeds of $202,280,000. The Company used the net proceeds from the offering to repay a portion of amounts outstanding under its bank credit facilities and for working capital purposes. In March 1996, the Company sold four eldercare centers and a pharmacy in Indiana for approximately $22,250,000. The Company used the net proceeds from the sale to repay a portion of its revolving credit facility. -10- In November 1995, the Company received in cash approximately $18,000,000 in connection with the September 1995 sale of five facilities in Massachusetts. The Company used the proceeds from the sale to repay a portion of the revolving credit facility. The Company's cash flow from operations for the nine months ended June 30, 1996 was $14,228,000 compared to $7,191,000 for the nine months ended June 30, 1995. In August 1996, the Company amended and restructured its credit facility to provide for the termination of its $100,000,000 acquisition credit facility and to create an $85,000,000 lease financing facility. The lease financing facility bears interest of a floating into equal, at the Company's option, to prime rate or LIBOR plus 1.09% and the Company's $200,000,000 revolving credit facility bears interest at a floating rate equal, at the Company's option, to prime rate or LIBOR plus 1.25%. Amounts outstanding under the revolving credit facility in September 1998 convert to a term loan that provides for equal annual amortization payable quarterly. At June 30, 1996, $86,800,000 was outstanding under the revolving credit facility and there were no amounts outstanding under the acquisition credit facility. The Company used the borrowings under the acquisition credit facility to fund the acquisition of the McKerley Entities, the Partnership Interest Purchase, and the Therapy Companies. The credit facilities are secured by the stock of the Company's subsidiaries and first priority liens on the Company's accounts receivable, inventory and all other personal property. In June 1995, the Company completed an offering of $120,000,000 of 9 3/4% Senior Subordinated Notes due 2005 resulting in net proceeds of approximately $115,800,000. The Company used $100,000,000 of the net proceeds from the offering to repay in full the term loan component of the credit facility and the remaining net proceeds to repay a part of the revolving portion of the credit facility. The Company believes that its liquidity needs can be met by expected operating cash flow and availability of borrowings under its bank credit facilities. At August 10, 1996, $86,600,000 was outstanding under the credit facility, and $13,200,000 was outstanding under letters of credit issued under the credit facilities resulting in $100,200,000 of availability under the revolving credit facility. Seasonality The Company's earnings generally fluctuate from quarter to quarter. This seasonality is related to a combination of factors which include the timing of Medicaid rate increases, seasonal census cycles, and the number of calendar days in a given quarter. Impact of Inflation The healthcare industry is labor intensive. Wages and other labor costs are especially sensitive to inflation and resulting marketplace labor shortages. To date, the Company has offset its increased operating costs by increasing charges for its services and expanding its services. Genesis has also implemented cost control measures to limit increases in operating costs and expenses but cannot predict its ability to control such operating cost increases in the future. -11- PART II: OTHER INFORMATION Item 1. Legal Proceedings. Not Applicable Item 2. Changes in Securities. Not Applicable Item 3. Defaults Upon Senior Securities. Not Applicable Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable Item 5. Other Information. Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Number Description 3.1 Amendment to Bylaws 10.1(1) Stock Purchase Agreement, dated April 21, 1996, by and among Genesis Health Ventures, Inc., a Pennsylvania corporation and NeighborCare Pharmacies, Inc., a Maryland corporation, Professional Pharmacy Services, Inc., a Maryland corporation, Medical Services Group, Inc., a Maryland corporation, CareCard, Inc., a Maryland corporation, Transport Services, Inc., a Maryland corporation, Michael G. Bronfein, Jessica Bronfein, Stanton G. Ades, Renee Ades, The Chase Manhattan Bank, N.A. and PPS Acquisition Corp., a Maryland corporation and a wholly-owned subsidiary of Genesis Health Ventures, Inc. 10.2(2) Purchase Agreement, dated May 3, 1996, by and among Mark E. Hamister, Oliver C. Hamister, George E. Hamister, Julia L. Hamister, The George E. Hamister Trust, The Oliver C. Hamister Trust, National Health Care Affiliates, Inc., Oak Hill Health Care Center, Inc., Derby Nursing Center Corporation, Delaware Avenue Partnership, EIDOS, Inc., VersaLink Inc., certain other individuals and Genesis Health Ventures, Inc. - --------------------------------- (1) Incorporated by reference to Form 8-K of Genesis dated April 21, 1996 (2) Incorporated by reference to Form 8-K of Genesis dated May 3, 1996 -12- 10.3(3) Purchase Agreement Addendum, dated July 24, 1996, by and among Mark E. Hamister, Oliver C. Hamister, George E. Hamister, Julia L. Hamister, The George E. Hamister Trust, The Oliver C. Hamister Trust, National Health Care Affiliates, Inc., Oak Hill Health Care Center, Inc., Derby Nursing Center Corporation, Delaware Avenue Partnership, EIDOS, Inc., VersaLink Inc., certain other individuals and Genesis Health Ventures, Inc. 10.4 Second Amendment and Waiver to Loan Documents by and among Genesis Health Ventures, Inc. and certain of its Subsidiaries and Mellon Bank, N.A., as agent 10.5 Letter dated July 24, 1996 from Genesis Health Ventures, Inc. and certain of its Subsidiaries to Mellon Bank, N.A., as agent, Terminating Acquisition Credit Agreement 10.6 Guaranty and Agreement of Suretyship Regarding Obligations of Lessee and Affiliates from Genesis Health Ventures, Inc. and its Material Subsidiaries, Dated as of July 24, 1996 10.7 Guaranty and Agreement of Suretyship from Genesis Health Ventures, Inc. and its Material Subsidiaries, Dated as of July 24, 1996 10.8 Lease and Agreement, Dated as of July 24, 1996, between Mellon Financial Services Corporation #4, as Lessor, and Genesis Eldercare Properties, Inc., as Lessee 10.9 Participation Agreement, Dated as of July 24, 1996, among Genesis Eldercare Properties, Inc., as Lessee, Mellon Financial Services Corporation #4, as Lessor, Persons Named on Schedule I, as Lenders, and Mellon Bank, N.A. not in its individual capacity except as expressly stated therein, but solely as Agent 11. Computation of Earnings per Share 27. Financial Data Schedule - --------------------------------- (3) Incorporated by reference to Form 8-K of Genesis dated July 26, 1996 -13- (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K, dated April 21, 1996, reporting an agreement by the Company to acquire the outstanding stock of NeighborCare for consideration of approximately $57,250,000, including assigned debt. The Company filed a Current Report on Form 8-K, dated May 3, 1995, reporting the agreement of the Company to acquire National Health Care Affiliates, Inc. and related entities which included the following financial statements: Audited Combined Financial Statements as of and for the year ended December 31, 1995. On May 21, 1996, the Company filed a Current Report on Form 8-K/A Number 3, dated November 30, 1995, amending the Company's report of its acquisition of McKerley Health Care Centers, Inc. and related entities to include the following financial information of businesses acquired: Consolidating Balance Sheet of McKerley Entities as of December 31, 1994. Consolidating Income Statement of McKerley Entities for the year ended December 31, 1994. Financial Statements and Other Financial Information (Audited) McKerley Health Care Centers, Inc. Years ended December 31, 1994 and 1993. Financial Statements and Other Financial Information (Audited) McKerley Health Facilities for the period from March 11, 1994 (date of initial occupancy) to December 31, 1994. Financial Statements and Other Financial Information (Audited) McKerley Health Care Center-Concord Limited Partnership Years ended December 31, 1994 and 1993. Financial Statements and Other Financial Information (Reviewed) McKerley Pleasant View, Inc. Years ended December 31, 1994 and 1993. -14- Consolidated Balance Sheet of McKerley Entities as of November 30, 1995. Consolidated Income Statement of McKerley Entities for the eleven months ended November 30, 1995. Consolidating Balance Sheet of McKerley Entities as of November 30, 1995. Consolidating Income Statement of McKerley Entities for the eleven months ended November 30, 1995. Balance Sheet and Income Statement (Unaudited) McKerley Health Care Centers, Inc. Eleven months ended November 30, 1995. Balance Sheet and Income Statement (Unaudited) McKerley Health Facilities Eleven months ended November 30, 1995. Balance Sheet and Income Statement (Unaudited) McKerley Health Care Center-Concord Limited Partnership Eleven months ended November 30, 1995. Balance Sheet and Income Statement (Unaudited) McKerley Pleasant View, Inc. Eleven months ended November 30, 1995. Pro Forma Financial Information. Pro Forma Condensed Consolidated Income Statement for the year ended September 30, 1995 and six months ended March 31, 1996. Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1995. The Company filed a Current Report on Form 8-K, dated June 5, 1996, reporting the Company's acquisition of NeighborCare Pharmacies, Inc. and related entities for consideration of approximately $57,250,000. The Company filed a Current Report on Form 8-K, dated July 26, 1996, reporting the Company's acquisition of National Health Care Affiliates, Inc. and related entities for consideration of approximately $59,800,000. Prior to the acquisition, an affiliate of a financial institution purchased nine eldercare centers owned by National Health for approximately $67,700,000 and subsequently leased the centers to a subsidiary of Genesis under the terms of operating lease agreements. -15- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereto duly authorized. GENESIS HEALTH VENTURES, INC. Date: August 14, 1996 /s/ George V. Hager, Jr. ------------------------ George V. Hager, Jr. Senior Vice President and Chief Financial Officer -16- EX-3.1 2 AMENDMENT TO BYLAWS Exhibit 3.1 Section 103.2 of the Bylaws of the Company is hereby amended and restated in its entirety as follows: "Section 102.3. Number of Directors. The Board of Directors shall consist of at least eight (8) directors and be divided into three classes in accordance with the Corporation's Amended and Restated Articles of Incorporation." EX-10.4 3 SECOND AMENDMENT AND WAIVER TO LOAN DOCUMENTS Exhibit 10.4 SECOND AMENDMENT AND WAIVER TO LOAN DOCUMENTS THIS SECOND AMENDMENT AND WAIVER TO LOAN DOCUMENTS (this "Amendment and Waiver"), dated as of July 19, 1996, by and among GENESIS HEALTH VENTURES, INC., a Pennsylvania corporation (together with its successors, "Genesis"), the Subsidiaries of Genesis which are parties to the Revolving Credit Agreement (as defined below) or the Acquisition Credit Agreement (as defined below) (such Subsidiaries referred to collectively with Genesis as the "Borrowers"), MELLON BANK, N.A., a national banking association, as agent for the Lenders and the Issuer under and as defined in the Revolving Credit Agreement and under the other Loan Documents (as defined in the Revolving Credit Agreement) (in such capacity, together with its successors in such capacity, the "RCA Agent") and as Agent for the Lenders under and as defined in the Acquisition Credit Agreement and under the other Loan Documents (as defined in the Acquisition Credit Agreement) (in such capacity, together with its successors in such capacity, the "ACA Agent" and collectively with the RCA Agent, the "Agent") and MELLON BANK, N.A. a national banking association, as Collateral Agent for the Secured Parties (as defined in the Collateral Agency Agreement referred to in the Revolving Credit Agreement and the Acquisition Credit Agreement) (in such capacity, together with its successors in such capacity, the "Collateral Agent"); WITNESSETH THAT WHEREAS, certain of the Borrowers, the Lenders party thereto, the Issuer party thereto, the RCA Agent and the Co-Agent named therein executed and delivered that certain Amended and Restated Credit Agreement dated as of September 29, 1995, as previously amended as of April 12, 1996 (the "Existing Revolving Credit Agreement"); and WHEREAS, certain of the Borrowers, the Lenders party thereto, the ACA Agent and the Co-Agent named therein executed and delivered that certain Acquisition Credit Agreement dated as of September 29, 1995, as amended as of April 12, 1996 (the "Existing Acquisition Credit Agreement"); and WHEREAS, the Borrowers wish to enter into a certain Synthetic Lease, which Lease would replace the Acquisition Credit Agreement; and WHEREAS, the terms of the Existing Revolving Credit Agreement and the Existing Acquisition Credit Agreement would not permit the Borrowers to enter into such a Synthetic Lease; and WHEREAS, the Borrowers have requested that the Existing Revolving Credit Agreement, the Existing Acquisition Credit Agreement and -2- certain Loan Documents be amended and certain waivers thereto be granted to allow for the Synthetic Lease transaction; and WHEREAS, the Lenders are willing to amend the Existing Revolving Credit Agreement, the Existing Acquisition Credit Agreement and certain Loan Documents and enter into certain waivers in the manner set forth in this Amendment and Waiver. The Existing Revolving Credit Agreement as previously supplemented and as amended and modified by this Amendment and Waiver is herein referred to as the "Revolving Credit Agreement"; the Existing Acquisition Credit Agreement as previously supplemented and as amended and modified by this Amendment and Waiver is referred to herein as the "Acquisition Credit Agreement". Capitalized terms used but not defined in this Amendment and Waiver have the meanings assigned to them in, or by reference in, the Revolving Credit Agreement, or in the Acquisition Credit Agreement as the context requires. NOW, THEREFORE, in consideration of the foregoing premises and other valuable consideration and intending to be legally bound, the parties hereto agree as follows: -3- I. Amendments and Waivers to Existing Revolving Credit Agreement ------------------------------------------------------------- and Existing Acquisition Credit Agreement ----------------------------------------- 1.1 Definition of Indebtedness. The definition of "Indebtedness" in Section 1.1 of the Existing Revolving Credit Agreement and Section 1.1 of the Existing Acquisition Credit Agreement is amended in each of the following respects: 1.1.1 by deleting the word "and" at the end of clause (g) thereof; 1.1.2 by replacing the period at the end of clause (h) thereof with a semicolon and the word "and"; and 1.1.3 by adding the following new clause (i) at the end of said definition following clause (h): "(i) without duplication, all obligations of Genesis or any of its Subsidiaries under, or in respect of, the Synthetic Lease." 1.2 Definition of Synthetic Lease. The following new definition shall be added in its correct alphabetical location in Section 1.1 of the Existing Revolving Credit Agreement and the Existing Acquisition Credit Agreement: -4- "Synthetic Lease" shall mean a synthetic lease facility entered, or to be entered, into by Genesis and/or one or more of its Subsidiaries on substantially the terms set forth in the Outline of Terms of the Synthetic Lease (Summary of Principal Terms and Conditions) thereof dated 6/19/96 with such modifications thereto as the parties to such facility may determine so long as such modifications would not be reasonably likely to have a material adverse effect on the Lender Parties together with all agreements, instruments and documents delivered thereunder or in connection therewith, and any amendment, supplement, modification, refinancing, restatement thereto or thereof. 1.3 Permitted Liens. Section 7.02 of the Existing Revolving Credit Agreement and 6.02 of the Acquisition Credit Agreement are amended in each of the following respects: 1.3.1 by deleting the word "and" in clause (g) thereof; 1.3.2 by adding the word "and" after the semicolon in clause (h) thereof; and 1.3.3 by adding the following new clause (i) immediately following clause (h) thereof: "(i) the Synthetic Lease and the Liens substantially as described in the Outline of Terms of the Synthetic Lease (Summary of Principal Terms and Conditions) dated 6/19/96 which secure obligations in respect of the Synthetic Lease;" -5- 1.4 Indebtedness Covenant. Section 7.03 of the Existing Revolving Credit Agreement and Section 6.03 of the Existing Acquisition Credit Agreement are amended in each of the following respects: 1.4.1 by deleting the word "and" at the end of clause (h) thereof; 1.4.2 by replacing the period at the end of clause (i) thereof with a semicolon and the word "and"; and 1.4.3 by adding a new clause (j) immediately following clause (i) thereof as follows: " (j) Indebtedness in a principal amount not to exceed One Hundred Eleven Million Dollars ($111,000,000) pursuant to the Synthetic Lease." 1.5 Lease Covenant. Section 7.08 of the Existing Revolving Credit Agreement and Section 6.08 of the Existing Acquisition Credit Agreement are amended in each of the following respects: 1.5.1 by deleting the word "and" at the end of clause (c) thereof; 1.5.2 by adding a new clause (d) immediately following clause (c) thereof as follows: "(d) the Synthetic Lease (including, without limitation, any subleases and ground leases entered into in connection therewith); and"; and -6- 1.5.3 by redesignating the existing clause (d) as clause (e). 1.6 Assets of Lessee as Collateral. Section 10.16 of the Existing Revolving Credit Agreement and Section 9.16 of the Existing Acquisition Credit Agreement are amended by adding a new paragraph (i) immediately following paragraph (h) thereof as follows: (i) Lessee Assets. Notwithstanding anything to the contrary set forth herein, if a Subsidiary shall become a Joining Subsidiary hereunder in connection with the transactions described in the Outline of Terms of the Synthetic Lease (Summary of Principal Terms and Conditions) dated 6/19/96, then this Section shall not require the grant of a security interest in the assets of the Joining Subsidiary (other than stock of other Joining Subsidiaries) and any joinders or other documents required hereunder to be delivered by the Joining Subsidiary shall be modified accordingly. 1.7 Certain Waivers. In addition to the foregoing amendments, in order to facilitate the Synthetic Lease transaction, each of the Lender Parties hereby waives provisions of the Existing Revolving Credit Agreement and the Existing Acquisition Credit Agreement to the extent necessary to permit Genesis and/or one or more of its Subsidiaries to enter into, and perform its obligations under, the Synthetic Lease as set forth in the Outline of Terms of -7- the Synthetic Lease (Summary of Principal Terms and Conditions) dated 6/19/96 including, without limitation, the following: 1.7.1 Section 7.04 of Existing Revolving Credit Agreement and Section 6.04 of the Existing Acquisition Credit Agreement (respecting limitations on certain guarantees); 1.7.2 Section 7.16 of the Existing Revolving Credit Agreement and Section 6.16 of the Existing Acquisition Credit Agreement (respecting limitations on entering into agreements restricting the creation of Liens); and 1.7.3 Section 7.10 of the Existing Revolving Credit Agreement and Section 6.10 of the Existing Acquisition Agreement (respecting limitations on dispositions). II. Amendments and Waivers to Other Loan Documents 2.1 Synthetic Lease Collateral. It is understood that the Synthetic Lease obligations are expected to be secured by, among other things, a security interest in certain assets of the lessee or lessees and any sublessees and a pledge of the stock or other ownership interests of certain or substantially all of the Subsidiaries of Genesis. Notwithstanding anything set forth in the Collateral Agency Agreement or any Shared Security Document to the contrary, -8- each of the Shared Obligors may pledge any such collateral, including the stock or other ownership interests, to secure its obligations (including, without limitation, any guaranty obligations) under the Synthetic Lease and any such provisions to the contrary are hereby waived. 2.2 Sharing of Stock Collateral. To the extent that the stock and other ownership interests (together with proceeds) so pledged to the lessor and Persons funding with debt or equity the acquisition of the facilities subject to the Synthetic Lease (collectively, the "Lease Obligees") constitutes Shared Collateral previously pledged to the Secured Parties, such collateral (the "Joint Stock Collateral") shall be held by the Collateral Agent as agent for both the Secured Parties and the Lease Obligees on an equal and ratable basis and any distributions of the Joint Stock Collateral (but not other Collateral) after an Event of Default shall be made by the Collateral Agent on a pro rata basis to both the Secured Parties and the Lease Obligees based on the then outstanding amount of the obligations secured thereby. It is understood that no credit enhancement under or respecting the Synthetic Lease other than the pledge of the stock and the other ownership interests (together with proceeds thereof) shall be shared with the Secured Parties. 2.3 Amendments and Waivers. The undersigned recognize that the Collateral Agency Agreement and certain Shared Security Documents must be modified to provide for the sharing of the Joint Stock Collateral with the Lease Obligees. Accordingly, the Collateral Agent, the ACA Agent and the RCA Agent are hereby authorized and directed by each of the undersigned Secured Parties to -9- enter into such amendments, waivers, and modifications to the Collateral Agency Agreement and any Shared Security Documents and any supplemental instruments and agreements as may be consistent with the purposes set forth in the preceding Section 2.2 including, without limitation, an amendment to Section 4.04 of the Collateral Agency Agreement to provide for the pro rata distributions with respect to the Joint Stock Collateral (based on the then outstanding amount of the obligations secured thereby) and an amendment to Section 6.01 of the Collateral Agency Agreement to provide that an agent or representative of the Lease Obligees shall be entitled to similar voting rights as the ACA Agent and the RCA Agent under the Shared Security Documents on matters affecting the Joint Stock Collateral. It shall not be necessary for the consent of the Secured Parties under this Section 2.3 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. III. Conditions and Effectiveness ---------------------------- 3.1 Conditions Precedent to Effectiveness. The amendments and waivers set forth above shall become effective, as of the date first above written, upon the satisfaction of the following conditions precedent: -10- 3.1.1 Execution of Amendment and Waiver. The Borrowers, the Collateral Agent and the Agent shall have executed and delivered this Amendment and Waiver and the necessary Lenders shall have executed the Consent set forth below following the signature lines of the Borrowers and Agent. 3.1.2 Additional Matters. The Agent shall have received such other certificates, opinions, documents and instruments as may be reasonably requested by the Agent. All corporate and other proceedings, and all documents, instruments and other matters in connection with the transactions contemplated by this Amendment, the other Loan Documents (as defined in the Revolving Credit Agreement) or the other Loan Documents (as defined in the Acquisition Credit Agreement) shall be satisfactory in form and substance to the Agent. IV. Miscellaneous ------------- 4.1 Representations and Warranties. The Borrowers hereby represent and warrant to each Lender Party that all of the representations and warranties contained in Article 4 of the Revolving Credit Agreement, all of the representations and warranties contained in Article 3 of the Acquisition Credit Agreement and all of the representations and warranties contained in Article 4 of the Security Agreement, in each case after giving effect to the supplementation previously made pursuant to Section 5.01(a) of the Security Agreement and after giving effect to the amendments and waivers to be made hereby, are true in all material respects on and as of the date hereof with the -11- same effect as though made on and as of the date hereof. Further, the Borrowers hereby represent and warrant to each Lender Party that, both before and after giving effect to the amendments and waivers set forth above, no condition or event which constitutes an Event of Default or Potential Default (as such terms are defined in the Revolving Credit Agreement) or an Event of Default or Potential Default (as such terms are defined in the Acquisition Credit Agreement) exists or has occurred and is continuing. 4.2 Effect of Amendments. The Existing Revolving Credit Agreement, the Existing Acquisition Credit Agreement and each Loan Document, in each case as previously supplemented and as amended or modified by this Amendment and Waiver, are in all respects ratified, approved and confirmed and shall, as so supplemented and amended, remain in full force and effect. From and after the effective date hereof, all references in any document or instrument to the Revolving Credit Agreement, the Acquisition Credit Agreement or the Collateral Agency Agreement or any other Loan Document, as the case may be, shall mean the Existing Revolving Credit Agreement as previously supplemented and as amended by this Amendment and Waiver, the Existing Acquisition Credit Agreement as previously supplemented and as amended by this Amendment and Waiver or the existing Collateral Agency Agreement or other Loan Document as previously supplemented and as amended by this Amendment and Waiver, respectively (unless the context clearly requires otherwise). -12- 4.3 Governing Law. This Amendment and Waiver shall be governed by and shall be interpreted and enforced in accordance with the laws of the Commonwealth of Pennsylvania, without regard to choice of law principles. 4.4 Headings. The section and other headings contained in this Amendment and Waiver are for reference purposes only and shall not control or affect the construction or interpretation of this Amendment and Waiver in any respect. 4.5 Counterparts. This Amendment and Waiver may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original, and all of which counterparts, taken together, shall constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto, by their duly authorized officers thereunto duly authorized, have executed and delivered this Agreement as of the date first above written. ATTEST: GENESIS HEALTH VENTURES, INC. a Pennsylvania corporation By By --------------------------------- -------------------------------------- Title: Secretary Title: Senior Vice President and Chief Financial Officer -13- PROFESSIONAL PHARMACY SERVICES, INC., a Maryland Corporation MEDICAL SERVICES GROUP, INC., a Maryland Corporation CARECARD, INC., a Maryland Corporation TRANSPORT SERVICES, INC., a Maryland Corporation NEIGHBORCARE PHARMACIES, INC., a Maryland Corporation GENESIS HEALTH VENTURES, INC., a Pennsylvania corporation BREVARD MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Health, Inc., a Pennsylvania corporation, its sole general partners CATONSVILLE MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Health, Inc., a Pennsylvania corporation, one of its general partners EASTON MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Health, Inc., a Pennsylvania corporation, its sole general partner EDELLA STREET ASSOCIATES, a Pennsylvania limited partnership By: Genesis Health Ventures of Clarks Summit, Inc., its sole general partner GENESIS HEALTH VENTURES OF ARLINGTON, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF BLOOMFIELD, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF CLARKS SUMMIT, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF INDIANA, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF MASSACHUSETTS, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF NAUGATUCK, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF SALISBURY, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF WAYNE, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF WEST VIRGINIA, INC., a Pennsylvania corporation -14- GENESIS HEALTH VENTURES OF WINDSOR, INC., a Pennsylvania corporation GENESIS IMMEDIATE MED CENTER, INC., a Pennsylvania corporation GENESIS MANAGEMENT RESOURCES, INC., a Pennsylvania corporation GENESIS ELDERCARE HOME CARE SERVICES, INC., a Pennsylvania corporation GENESIS ELDERCARE PHYSICIANS SERVICES, INC., a Pennsylvania corporation GENESIS PROPERTIES LIMITED PARTNERSHIP, a Pennsylvania limited partnership By: Genesis Health Ventures of Arlington, Inc., its sole general partner GREENSPRING MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Healthcare, Inc., a Pennsylvania corporation, its sole general partner HALLMARK HEALTHCARE LIMITED PARTNERSHIP, a Maryland limited partnership By: Pharmacy Equities, Inc., a Pennsylvania corporation, its sole general partner HAMMONDS LANE MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Healthcare, Inc., a Pennsylvania corporation, one of its general partners HEALTHCARE RESOURCES CORP., a Pennsylvania corporation KNOLLWOOD MANOR, INC., a Pennsylvania corporation MERIDIAN/CONSTELLATION LIMITED PARTNERSHIP By: Meridian Healthcare, Inc., general partner MERIDIAN EDGEWOOD LIMITED PARTNERSHIP By: Meridian Healthcare, Inc., a general partner MERIDIAN HEALTH, INC., a Pennsylvania corporation MERIDIAN HEALTHCARE, INC., a Pennsylvania corporation MERIDIAN PERRING LIMITED PARTNERSHIP By: Meridian Healthcare, Inc., a general partner MERIDIAN VALLEY LIMITED PARTNERSHIP By: Meridian Healthcare, Inc., a general partner -15- MERIDIAN VALLEY VIEW LIMITED PARTNERSHIP By: Meridian Healthcare, Inc., a general partner MILLVILLE MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Healthcare, Inc., a Pennsylvania corporation, its sole general partner PHARMACY EQUITIES, INC., a Pennsylvania corporation PHILADELPHIA AVENUE ASSOCIATES, a Pennsylvania limited partnership By: Philadelphia Avenue Corp., its sole general partner PHILADELPHIA AVENUE CORPORATION, a Pennsylvania corporation RIVER STREET ASSOCIATES, a Pennsylvania limited partnership By: Genesis Health Ventures of Wilkes-Barre, Inc., its sole general partner SEMINOLE MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Health, Inc., a Pennsylvania corporation, its sole general partner GENESIS ELDERCARE STAFFING SERVICES INC. a Pennsylvania corporation STATE STREET ASSOCIATES, L.P., a Pennsylvania limited partnership By: Genesis Health Ventures, Inc., its sole general partner STATE STREET ASSOCIATES, INC., a Pennsylvania corporation SUBURBAN MEDICAL SERVICES, INC. a Pennsylvania corporation GENESIS ELDERCARE REHABILITATION SERVICES, INC., a Pennsylvania corporation THERAPY CARE INC., a Pennsylvania corporation THERAPY CARE SYSTEMS, L.P. a Pennsylvania limited partnership By: Team Rehabilitation, Inc., its sole general partner THE TIDEWATER HEALTHCARE SHARED SERVICES GROUP, INC., a Pennsylvania corporation VOLUSIA MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Health, Inc., a Pennsylvania corporation, its sole general partner WYNCOTE HEALTHCARE CORP., a Pennsylvania corporation ASCO HEALTHCARE, INC., a Maryland corporation -16- BRINTON MANOR, INC., a Delaware corporation CONCORD HEALTHCARE CORPORATION, a Delaware corporation CRYSTAL CITY NURSING CENTER, INC., a Maryland corporation EASTERN MEDICAL SUPPLIES, INC., a Maryland corporation EASTERN REHAB SERVICES, INC., a Maryland corporation GENESIS HEALTH SERVICES CORPORATION, a Delaware corporation GENESIS HEALTHCARE CENTERS HOLDINGS, INC., a Delaware corporation GENESIS HOLDINGS, INC., a Delaware corporation GENESIS PROPERTIES OF DELAWARE CORPORATION, a Delaware corporation GENESIS PROPERTIES OF DELAWARE LTD PARTNERSHIP, L.P., a Delaware limited partnership By: Genesis Properties of Delaware Corporation, a general partner GOVERNOR'S HOUSE NURSING HOME, INC., a Delaware corporation HEALTH CONCEPTS AND SERVICES, INC., a Maryland corporation HILLTOP HEALTH CARE CENTER, INC., a Delaware corporation KEYSTONE NURSING HOME, INC., a Delaware corporation LINCOLN NURSING HOME, INC., a Delaware corporation McKERLEY HEALTH CARE CENTERS, INC., a New Hampshire corporation McKERLEY HEALTH CARE CENTER- CONCORD, INC., a New Hampshire corporation McKERLEY HEALTH CARE CENTER- CONCORD LIMITED PARTNERSHIP, a New Hampshire limited partnership By: McKerley Health Care Center- Concord, Inc., a New Hampshire corporation, its general partner McKERLEY HEALTH FACILITIES, a New Hampshire general partnership By: Meridian Health, Inc., a Pennsylvania corporation, and Meridian Healthcare, Inc., a Pennsylvania corporation, its general partners -17- WAYSIDE NURSING HOME, INC., a Delaware corporation ATTEST: By: By: ---------------------------------- -------------------------------- On behalf of each of the foregoing as Title: Secretary Senior Vice President and Chief Financial Officer -18- MELLON BANK, N.A., as RCA Agent, as ACA Agent and as Collateral Agent By --------------------------------- Title: Vice President AS OF THE DATE FIRST ABOVE WRITTEN, THE FOLLOWING INSTITUTIONS, AS THE LENDERS UNDER THE REVOLVING CREDIT AGREEMENT REFERENCED ABOVE, AND AS THE LENDERS UNDER THE ACQUISITION CREDIT AGREEMENT REFERENCED ABOVE, CONSENT TO THE FOREGOING SECOND AMENDMENT WAIVER TO LOAN DOCUMENTS AND DIRECT THE AGENT TO ENTER INTO THE SAME: MELLON BANK, N.A., as a Lender FLEET NATIONAL BANK (formerly under the Revolving Credit Agreement known as FLEET BANK OF and as a Lender under the Acquisition MASSACHUSETTS, N.A.) Credit Agreement By By ------------------------------------- --------------------------------- Title: Vice President Title CITIBANK, N.A. MERIDIAN BANK By By -------------------------------------- --------------------------------- Title: Title: FIRST UNION NATIONAL BANK OF FLEET BANK, N.A. (formerly known as NORTH CAROLINA NATWEST BANK N.A.) By By -------------------------------------- --------------------------------- Title: Title: NATIONSBANK, N.A. LTCB TRUST COMPANY By By -------------------------------------- --------------------------------- Title: Title: -19- CREDITANSTALT-BANKVEREIN By -------------------------------------- Title: Gregory F. Mathis Vice President By -------------------------------------- Title: Stacy Harmon Senior Associate SIGNET BANK/MARYLAND By -------------------------------------- Title: PNC BANK, NATIONAL ASSOCIATION By -------------------------------------- Title: TORONTO DOMINION (NEW YORK), INC. By -------------------------------------- Title: THE FIRST NATIONAL BANK OF MARYLAND By -------------------------------------- Title: -20- EX-10.5 4 LETTER TERMINATING ACQUISITION CREDIT AGREEMENT Exhibit 10.5 July 16, 1996 Mellon Bank, N.A., as Agent AIM 199-5220 P.O. Box 7899 Philadelphia, PA 19101-7899 Attention: Linda Sigler, Loan Administration Dear Ms. Sigler: The undersigned, Borrowers under the Amended and Restated Credit Agreement dated as of September 29, 1995, as previously amended as of April 12, 1996 (the "Revolving Credit Agreement") and the Acquisition Credit Agreement dated as September 29, 1995, as amended as of April 12, 1996 (the "Acquisition Credit Agreement") have requested that the Revolving Credit Agreement, the Acquisition Credit Agreement and certain Loan Documents be amended and certain waivers thereto be granted, all as set forth in the form of Second Amendment and Waiver to Loan Documents (the "Amendment") forwarded to Lenders thereunder on or about June 29, 1996. In order to induce the Lenders and you, as ACA Agent and Lender, to execute the Amendment, the undersigned are agreeing as set forth herein with the intent to be legally bound hereby. Capitalized terms used but not defined in this letter have the meanings assigned to them in, or by reference in, the Revolving Credit Agreement, the Acquisition Credit Agreement or the Amendment, as the context requires. Each of the undersigned hereby agrees that, except as provided in the penultimate paragraph of this letter or unless and until otherwise consented to in writing by the Agent and all of the Lenders (the "Reborrowing Consent"), it shall not request any loan under the Acquisition Credit Agreement, as the same may be amended by the Amendment or otherwise. In furtherance of the foregoing agreement, each of the undersigned represents that there are no outstanding loan requests and agrees that, prior to the effectiveness of the Reborrowing Consent, no Lender shall have any obligation to make any Revolving Credit Loan under the Acquisition Credit Agreement and that any Standard Notice or other request for such Loan prior to the effectiveness of the Reborrowing Consent will be given no effect by the Lenders or by the ACA Agent. Each of the undersigned hereby waives any right which it may have that is inconsistent with this letter and waives any Mellon Bank, N.A. July 16, 1996 Page 2 claim of any nature whatsoever that it may otherwise have against any Lender or the ACA Agent for refusing to make such Revolving Credit Loans prior the effectiveness of a Reborrowing Consent. Each of the undersigned further agrees that the granting of a Reborrowing Consent shall be within the sole discretion of each Lender and the ACA Agent and represents that it has received no assurances that a Reborrowing Consent will be executed by the ACA Agent and all or any of the Lenders or that no conditions may be imposed under any such Reborrowing Consent. The undersigned agrees that, notwithstanding this letter, it shall continue to pay the commitment fee as provided under the Acquisition Credit Facility and that such fee shall accrue through the date of the commitment reduction referred to in the following paragraph. Pursuant to Section 2.02 of the Acquisition Credit Agreement, Genesis, on behalf of all Borrowers, hereby reduces to zero, effective upon closing under the Synthetic Lease referred to in the Amendment (the "Synthetic Lease"), the Revolving Credit Committed Amounts of the Lenders (and each thereof) under the Acquisition Credit Facility. Except as provided in the following paragraph, such reduction is irrevocable and permanent and shall occur automatically without the need for further action, although Genesis agrees to confirm the same in writing immediately following such closing. The undersigned acknowledge and confirm that, as provided in the Acquisition Credit Agreement, certain of their obligations thereunder shall survive the permanent termination of borrowing rights. This letter and the agreements respecting borrowing right and commitment reductions herein are made in anticipation of a closing under the Synthetic Lease. If the Borrowers shall confirm in writing to the ACA Agent that (a) the Synthetic Lease has not closed, (b) the Synthetic Lease transaction has been abandoned and (c) the Amendment shall be deemed void and ineffective and if the prospective Lessor under the Synthetic Lease shall confirm (a) and (b) above in writing to the ACA Agent, the reduction of the commitments and the restrictions on the right to borrow under the Acquisition Credit Agreement herein contained shall cease to be effective and shall be deemed withdrawn. Mellon Bank, N.A. July 16, 1996 Page 3 A copy of this letter may be forwarded by you to each of the Lenders. Sincerely, GENESIS HEALTH VENTURES, INC., a Pennsylvania corporation BREVARD MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Health, Inc., a Pennsylvania corporation, its sole general partners CATONSVILLE MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Health, Inc., a Pennsylvania corporation, one of its general partners EASTON MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Health, Inc., a Pennsylvania corporation, its sole general partner EDELLA STREET ASSOCIATES, a Pennsylvania limited partnership By: Genesis Health Ventures of Clarks Summit, Inc., its sole general partner GENESIS HEALTH VENTURES OF ARLINGTON, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF BLOOMFIELD, INC., a Pennsylvania corporation Mellon Bank, N.A. July 16, 1996 Page 4 GENESIS HEALTH VENTURES OF CLARKS SUMMIT, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF INDIANA, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF MASSACHUSETTS, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF NAUGATUCK, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF SALISBURY, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF WAYNE, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF WEST VIRGINIA, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF WINDSOR, INC., a Pennsylvania corporation GENESIS IMMEDIATE MED CENTER, INC., a Pennsylvania corporation GENESIS MANAGEMENT RESOURCES, INC., a Pennsylvania corporation GENESIS ELDERCARE HOME CARE SERVICES, INC., a Pennsylvania corporation Mellon Bank, N.A. July 16, 1996 Page 5 GENESIS ELDERCARE PHYSICIANS SERVICES, INC., a Pennsylvania corporation GENESIS PROPERTIES LIMITED PARTNERSHIP, a Pennsylvania limited partnership By: Genesis Health Ventures of Arlington, Inc., its sole general partner GREENSPRING MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Healthcare, Inc., a Pennsylvania corporation, its sole general partner HALLMARK HEALTHCARE LIMITED PARTNERSHIP, a Maryland limited partnership By: Pharmacy Equities, Inc., a Pennsylvania corporation, its sole general partner HAMMONDS LANE MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Healthcare, Inc., a Pennsylvania corporation, one of its general partners HEALTHCARE RESOURCES CORP., a Pennsylvania corporation KNOLLWOOD MANOR, INC., a Pennsylvania corporation MERIDIAN/CONSTELLATION LIMITED PARTNERSHIP By: Meridian Healthcare, Inc., general partner Mellon Bank, N.A. July 16, 1996 Page 6 MERIDIAN EDGEWOOD LIMITED PARTNERSHIP By: Meridian Healthcare, Inc., a general partner MERIDIAN HEALTH, INC., a Pennsylvania corporation MERIDIAN HEALTHCARE, INC., a Pennsylvania corporation MERIDIAN PERRING LIMITED PARTNERSHIP By: Meridian Healthcare, Inc., a general partner MERIDIAN VALLEY LIMITED PARTNERSHIP By: Meridian Healthcare, Inc., a general partner MERIDIAN VALLEY VIEW LIMITED PARTNERSHIP By: Meridian Healthcare, Inc., a general partner MILLVILLE MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Healthcare, Inc., a Pennsylvania corporation, its sole general partner PHARMACY EQUITIES, INC., a Pennsylvania corporation PHILADELPHIA AVENUE ASSOCIATES, a Pennsylvania limited partnership By: Philadelphia Avenue Corp., its sole general partner PHILADELPHIA AVENUE CORPORATION, a Pennsylvania corporation Mellon Bank, N.A. July 16, 1996 Page 7 RIVER STREET ASSOCIATES, a Pennsylvania limited partnership By: Genesis Health Ventures of Wilkes-Barre, Inc., its sole general partner SEMINOLE MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Health, Inc., a Pennsylvania corporation, its sole general partner GENESIS ELDERCARE STAFFING SERVICES INC. a Pennsylvania corporation STATE STREET ASSOCIATES, L.P., a Pennsylvania limited partnership By: Genesis Health Ventures, Inc., its sole general partner STATE STREET ASSOCIATES, INC., a Pennsylvania corporation SUBURBAN MEDICAL SERVICES, INC. a Pennsylvania corporation GENESIS ELDERCARE REHABILITATION SERVICES, INC., a Pennsylvania corporation THERAPY CARE INC., a Pennsylvania corporation THERAPY CARE SYSTEMS, L.P. a Pennsylvania limited partnership By: Team Rehabilitation, Inc., its sole general partner THE TIDEWATER HEALTHCARE SHARED SERVICES GROUP, INC., a Pennsylvania corporation Mellon Bank, N.A. July 16, 1996 Page 8 VOLUSIA MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Health, Inc., a Pennsylvania corporation, its sole general partner WYNCOTE HEALTHCARE CORP., a Pennsylvania corporation ASCO HEALTHCARE, INC., a Maryland corporation BRINTON MANOR, INC., a Delaware corporation CONCORD HEALTHCARE CORPORATION, a Delaware corporation CRYSTAL CITY NURSING CENTER, INC., a Maryland corporation EASTERN MEDICAL SUPPLIES, INC., a Maryland corporation EASTERN REHAB SERVICES, INC., a Maryland corporation GENESIS HEALTH SERVICES CORPORATION, a Delaware corporation GENESIS HEALTHCARE CENTERS HOLDINGS, INC., a Delaware corporation GENESIS HOLDINGS, INC., a Delaware corporation GENESIS PROPERTIES OF DELAWARE CORPORATION, a Delaware corporation Mellon Bank, N.A. July 16, 1996 Page 9 GENESIS PROPERTIES OF DELAWARE LTD PARTNERSHIP, L.P., a Delaware limited partnership By: Genesis Properties of Delaware Corporation, a general partner GOVERNOR'S HOUSE NURSING HOME, INC., a Delaware corporation HEALTH CONCEPTS AND SERVICES, INC., a Maryland corporation HILLTOP HEALTH CARE CENTER, INC., a Delaware corporation KEYSTONE NURSING HOME, INC., a Delaware corporation LINCOLN NURSING HOME, INC., a Delaware corporation McKERLEY HEALTH CARE CENTERS, INC., a New Hampshire corporation McKERLEY HEALTH CARE CENTER- CONCORD, INC., a New Hampshire corporation McKERLEY HEALTH CARE CENTER-CONCORD LIMITED PARTNERSHIP, a New Hampshire limited partnership By: McKerley Health Care Center- Concord, Inc., a New Hampshire corporation, its general partner McKERLEY HEALTH FACILITIES, a New Hampshire general partnership By: Meridian Health, Inc., a Pennsylvania corporation, and Meridian Healthcare, Inc., a Pennsylvania corporation, its general partners Mellon Bank, N.A. July 16, 1996 Page 1 WAYSIDE NURSING HOME, INC., a Delaware corporation PROFESSIONAL PHARMACY SERVICES, INC., a Maryland Corporation MEDICAL SERVICES GROUP, INC., a Maryland Corporation CARECARD, INC., a Maryland Corporation TRANSPORT SERVICES, INC., a Maryland Corporation NEIGHBORCARE PHARMACIES, INC., a Maryland Corporation By: ----------------------------------- On behalf of each of the foregoing as Senior Vice President and Chief Financial Officer EX-10.6 5 GUARANTY AND AGREEMENT OF SURETYSHIP Exhibit 10.6 =============================================================================== GUARANTY AND AGREEMENT OF SURETYSHIP REGARDING OBLIGATIONS OF LESSEE AND AFFILIATES from GENESIS HEALTH VENTURES, INC. and its MATERIAL SUBSIDIARIES Dated as of July 24, 1996 =============================================================================== GUARANTY AND AGREEMENT OF SURETYSHIP REGARDING OBLIGATIONS OF LESSEE AND AFFILIATES THIS GUARANTY AND AGREEMENT OF SURETYSHIP REGARDING OBLIGATIONS OF LESSEE AND AFFILIATES, dated as of July 24, 1996, is made by GENESIS HEALTH VENTURES, INC., a Pennsylvania corporation ("Genesis") and the Material Subsidiaries set forth on Schedule 1 (the "Material Subsidiaries") (Genesis and each of the Material Subsidiaries are individually a "Guarantor" and collectively referred to herein, in their capacity as guarantors hereunder, as the "Guarantors") in favor of the Beneficiaries (as hereinafter defined). W I T N E S S E T H: WHEREAS, contemporaneously herewith, Genesis Eldercare Properties, Inc. ("Lessee"), as Lessee, Mellon Financial Services Corporation #4 ("Lessor"), as Lessor, the Persons named on Schedule 2 attached hereto, as Lenders and Mellon Bank, N.A., as Agent have entered into that certain Participation Agreement, and Lessee and Lessor have entered into that certain Lease and Agreement, each dated as of July 24, 1996. The Participation Agreement and the Lease and Agreement, as they each may be modified, amended or restated from time to time as and to the extent permitted thereby, are hereinafter referred to as the "Participation Agreement" and "Lease" respectively. Unless otherwise defined herein or the context hereof otherwise requires, terms which are defined or defined by reference in the Participation Agreement or Lease shall have the same meanings when used herein as such terms have therein; and WHEREAS, Lessor has entered into a Loan Agreement dated as of even date herewith (as amended or otherwise modified from time to time, the "Loan Agreement" by and among Lessor, Lenders and Agent, pursuant to which the Lenders have agreed to make a loan to Lessor, as evidenced by those certain non-recourse promissory notes (the "Notes") from Lessor to Agent and secured by those certain Mortgages and Deeds of Trust (the "Mortgages") made by Lessor to Agent, as agent for the Lenders and those certain Assignments of Lease from Lessor to Agent, as agent for the Lenders (the "Assignments of Lease"). WHEREAS, Lessee is a wholly-owned subsidiary of Genesis and each of the Material Subsidiaries are Subsidiaries of Genesis; and -1- Guaranty WHEREAS, it is a covenant in the Participation Agreement that Lessee shall cause the Guarantors to execute and deliver this Guaranty; and WHEREAS, it is in the best interests of Guarantors that the Overall Transaction and the Document Closing Date occur; and WHEREAS, this Guaranty, and the execution, delivery and performance hereof, have been duly authorized by all necessary corporate action of Guarantors; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Guarantors, Guarantors hereby agree as follows: SECTION I. Guarantee and Agreement of Suretyship. Guarantors hereby jointly and severally, irrevocably and unconditionally guarantee to the Beneficiaries and agree to act as surety to the Beneficiaries for (a) the full and prompt payment when due, whether by acceleration or otherwise, and at all times thereafter, and (b) the full and prompt performance, of all of the Liabilities (as hereinafter defined), including interest and Yield on any such Liabilities, whether accruing before or after any bankruptcy or insolvency case or proceeding involving Lessee or any other Person, and, if interest or Yield on any portion of such obligations ceases to accrue by operation of law by reason of the commencement of such case or proceeding, including such interest and Yield as would have accrued on any such portion of such obligations if such case or proceeding had not commenced, and further agree to pay all expenses (including attorneys' fees and legal expenses) paid or incurred by Lessor, Agent or any of the Lenders (each a "Beneficiary") in endeavoring to collect the Liabilities, or any part thereof, and in enforcing this Guaranty. The term "Liabilities", as used herein, shall mean all of the following, in each case howsoever created, arising or evidenced, whether direct or indirect, joint or several, absolute or contingent, or now or hereafter existing, or due or to become due: all amounts payable by Lessee or any Affiliate (now or hereafter) of Genesis, all obligations to be performed by Lessee or any such Affiliate and all representations, warranties, covenants, undertakings and agreements of Lessee or any such Affiliate, under the Lease, the Participation Agreement and any other Operative Document (whether or not Lessee, any such Affiliate or any other Person shall be released or relieved from any or all liability or obligation under any thereof). -2- Guaranty In any action or proceeding involving any state corporate law, or any state or federal bankruptcy, insolvency, reorganization or any other law affecting the rights of creditors generally, if the obligations of Guarantor under this Guaranty would otherwise be held or determined by a final and non-appealable order of a court of competent jurisdiction to be void, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability under this Guaranty, then, notwithstanding any other provision hereof to the contrary, the amount of such liability shall, without any further action by Guarantor or any other Person, be automatically limited and reduced to the highest amount which is valid and enforceable as determined in such action or proceeding pursuant to such final and non-appealable order. Guarantors agree that, in the event of the dissolution, bankruptcy or insolvency of Lessee, or the inability or failure of Lessee to pay debts as they become due, or an assignment by Lessee for the benefit of creditors, or the commencement of any case or proceeding in respect of Lessee under any bankruptcy, insolvency or similar laws, and if such event shall occur at a time when any of the Liabilities may not then be due and payable, Guarantors will pay to the Beneficiaries forthwith the full amount which would be payable hereunder by Guarantors as if all Liabilities were then due and payable. Guarantors agree that, in the event of the dissolution, bankruptcy or insolvency of Lessor, or the inability or failure of Lessor to pay debts as they become due, or an assignment by Lessor for the benefit of creditors, or the commencement of any case or proceeding in respect of Lessor under any bankruptcy, insolvency or similar laws, and if such event (a "Lessor Bankruptcy Event") shall occur at a time when any of the Liabilities may not then be due and payable, Guarantors will pay to the Beneficiaries from time to time all Liabilities then or thereafter due under the Operative Documents pursuant to their terms or if the provisions of the immediately preceding paragraph are applicable, at the time specified in the immediately preceding paragraph, all as if such Lessor Bankruptcy Event shall not have occurred. To secure all obligations of Guarantors hereunder, each Beneficiary shall have a lien upon and security interest in (and may, without demand or notice of any kind, at any time and from time to time when any amount shall be due and payable by Guarantors hereunder, appropriate and apply toward the payment of such amount, in such order of application as the Agent may elect) any and all balances, credits, deposits, accounts or moneys of or in the name of Guarantors or any of its Affiliates now or -3- Guaranty hereafter, for any reason or purpose whatsoever, in the possession or control of, or in transit to Lessor or any Beneficiary or any agent or bailee for Lessor or any Beneficiary. Each Beneficiary shall provide prompt written notice to the Agent of the exercise by such Beneficiary of its rights under this paragraph, which notice shall set forth in reasonable detail the amount of such application and shall remit such amount to Agent or as Agent may direct. The obligations of the Guarantors hereunder are secured by the Joint Stock Collateral as set forth in that certain Amended and Restated Security Agreement dated as of September 29, 1995, as amended, among Genesis and certain of its subsidiaries and Mellon Bank, N.A. as Collateral Agent, subject to the terms and provisions of that certain Amended and Restated Collateral Agency Agreement dated as of September 29, 1995, as amended, among Genesis, such subsidiaries and Mellon Bank, N.A., as RCA Agent, ACA Agent and Collateral Agent. This Agreement shall constitute an agreement of suretyship as well as of guaranty and shall constitute an absolute and unconditional guaranty of payment and performance (and not of collection) and an absolute and unconditional undertaking by each Guarantor with respect to the payment and performance of the Liabilities. This Guaranty shall remain in full force and effect (notwithstanding, without limitation, the dissolution of any of the Guarantors). The liability of the Guarantors hereunder shall be direct, joint and several, and may be enforced without the Beneficiaries being required to resort to any other right, remedy or security. Agent on behalf of itself and the other Beneficiaries, may, from time to time at its discretion and without notice to Guarantors, but subject to the provisions of the Participation Agreement, take or cause any of the other Beneficiaries to take, any or all of the following actions, subject to the terms of the Credit Agreement as in effect on the date hereof as such Credit Agreement may be amended with the consent of Agent under the Participation Agreement (on behalf of the Participants) and subject to the provisions of the Collateral Agency Agreement with respect to the Joint Stock Collateral: (a) retain or obtain a lien upon or a security interest in any property to secure any of the Liabilities or any obligation hereunder; (b) retain or obtain the primary or secondary obligation of any obligor or obligors, in addition to Guarantors, with respect to any of the Liabilities; (c) extend or renew for one or more periods (regardless of whether longer than the original period), alter or exchange any of the Liabilities, or release or compromise any obligation of Guarantors hereunder or any obligation of any -4- Guaranty nature of any other obligor with respect to any of the Liabilities; (d) release or fail to perfect its lien upon or security interest in, or impair, surrender, release or permit any substitution or exchange for, all or any part of any property securing any of the Liabilities or any obligation hereunder, or extend or renew for one or more periods (regardless of whether longer than the original period) or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such property; and (e) resort to Guarantors, or any one or more of them, for payment of any of the Liabilities, regardless of whether Agent or any other Beneficiary shall have resorted to any other Person any property securing any of the Liabilities or any obligation hereunder or shall have proceeded against any other obligor primarily or secondarily obligated with respect to any of the Liabilities (all of the actions referred to in this paragraph being hereby expressly waived by Guarantors). SECTION II. Guarantors' Obligations Unconditional. Guarantors' obligations hereunder are independent in respect of any other Person, and each Beneficiary may enforce any of its rights hereunder independently of any other right or remedy that it may at any time hold with respect to the Liabilities or any security or other guaranty therefor; provided that no double recovery of the same amount shall be permitted. Such obligations shall be absolute and unconditional, shall not be subject to any counterclaim, setoff, deduction, diminution, abatement, recoupment, suspension, deferment, reduction or defense (other than full and strict compliance by Guarantors with their obligations hereunder), whether based upon any claim that Lessor, Lessee, Agent, any Beneficiary or any other Person may have against any Beneficiary or any other Person or otherwise, and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected by, any circumstance or condition whatsoever (whether or not Guarantors or any other Person shall have any knowledge or notice thereof) including, without limitation: A. any amendment, modification, addition, deletion, supplement or renewal to or of or other change in the Liabilities or any Operative Document or any of the agreements referred to in any thereof, or any other instrument or agreement applicable to any Operative Document or any of the parties to such agreements, or to the Sites, or any assignment, mortgage or transfer thereof or of any interest therein, or any furnishing or acceptance of additional security for, guaranty of or right of offset with respect to, any of the Liabilities; or the failure of any security or the -5- Guaranty failure of any Beneficiary to perfect or insure any interest in any collateral; B. any failure, omission or delay on the part of Lessor or any Beneficiary to conform or comply with any term of any instrument or agreement referred to in clause (A) above; C. any waiver, consent, extension, indulgence, compromise, release or other action or inaction under or in respect of any instrument, agreement, guaranty, right of offset or security referred to in clause (A) above or any obligation or liability of Lessor or any Beneficiary, or any exercise or non-exercise by any Beneficiary of any right, remedy, power or privilege under or in respect of any such instrument, agreement, guaranty, right of offset or security or any such obligation or liability; D. any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or similar proceeding with respect to Lessor or any Beneficiary or any other Person or any of their respective properties or creditors, or any action taken by any trustee, receiver or court in any such proceeding; E. any limitation on the liability or obligations of any Person under any Operative Document, the Liabilities, any collateral security for the Liabilities, any other guaranty of the Liabilities or any discharge, termination, cancellation, frustration, irregularity, invalidity or unenforceability, in whole or in part, of any of the foregoing or any other agreement, instrument, guaranty or security referred to in clause (A) above or any term of any thereof; F. any defect in the title, compliance with specifications, condition, design, operation or fitness for use of, or any damage to or loss or destruction of, or any interruption or cessation in the use of the Sites by Lessee or any other Person for any reason whatsoever (including, without limitation, any governmental prohibition or restriction, condemnation, requisition, seizure or any other act on the part of any governmental or military authority, or any act of God or of the public enemy) regardless of the duration thereof (even though such duration would otherwise constitute a frustration of a lease), whether or not -6- Guaranty resulting from accident and whether or not without fault on the part of Lessee or any other Person; G. any merger or consolidation of Lessor, Lessee or Guarantors into or with any other Person, or any sale, lease or transfer of any of the assets of Lessor, Lessee or Guarantors to any other Person; H. any change in the ownership of any shares of capital stock of Lessor, Lessee or Guarantors or any corporate change in Lessor, Lessee or Guarantors; I. any loan to or other transaction between the Beneficiaries, or any of them, and Lessee or Lessor; J. any assignment or consummation of assignment of the Lease pursuant to Section 12.1 of the Lease; or K. any other occurrence or circumstance whatsoever, whether similar or dissimilar to the foregoing, and any other circumstance that might otherwise constitute a legal or equitable defense or discharge of the liabilities of a guarantor or surety or that might otherwise limit recourse against Guarantors. The obligations of Guarantors set forth herein constitute the full recourse obligations of Guarantors enforceable against them to the full extent of all of their assets and properties, notwithstanding any provision in the Lease or any other Operative Document or any other document or agreement to the contrary. Guarantors waive any and all notice of the creation, renewal, extension or accrual of any of the Liabilities and notice of or proof of reliance by any Beneficiary upon this Guaranty or acceptance of this Guaranty, and the Liabilities, and any of them, shall conclusively be deemed to have been created, contracted or incurred in reliance upon this Guaranty. Guarantors unconditionally waive, to the extent permitted by law: (a) acceptance of this Guaranty and proof of reliance by any Beneficiary hereon; (b) notice of any of the matters referred to in clauses A through K above, or any right to consent or assent to any thereof; (c) all notices that may be required by statute, rule of law or otherwise, now or hereafter in effect, to preserve intact any rights against Guarantors, including, without limitation, any demand, presentment, protest, proof or notice of nonpayment under any Operative Document, and notice of default or any failure on the part of Lessor to perform and comply with any covenant, agreement, term or condition of any Operative Document; (d) any right to the enforcement, assertion or exercise against -7- Guaranty Lessor of any right, power, privilege or remedy conferred in any Operative Document or otherwise; (e) any requirement of diligence on the part of any Person; (f) any requirement of any Beneficiary to take any action whatsoever, to exhaust any remedies or to mitigate the damages resulting from a default by any Person under any Operative Document; (g) any notice of any sale, transfer or other disposition by any Person of any right under, title to or interest in any Operative Document or the Sites; and (h) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge, release or defense of a guarantor or surety, or that might otherwise limit recourse against Guarantors. Guarantors agree that this Guaranty shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of itself or Lessor is rescinded or must be otherwise restored by any Beneficiary whether as a result of any proceedings in bankruptcy or reorganization or otherwise. Guarantors further agree that, without limiting the generality of this Guaranty, if an Event of Default shall have occurred and be continuing and any Beneficiary is prevented by applicable law from exercising its remedies under the Operative Documents, such Beneficiary shall be entitled to receive hereunder from Guarantors, upon demand therefor, the sums which would have otherwise been due from Lessee had such remedies been exercised. Section III. Incorporated Financial Covenants. Genesis hereby covenants and agrees that it shall at all times comply with the Financial Covenants, which covenants are incorporated herein by this reference, provided that compliance hereunder with the Financial Covenants shall be waived to the extent that compliance with such Financial Covenants may be waived from time to time under and in accordance with the Credit Agreement, exclusive of waivers made in contemplation of the termination of the Credit Agreement. Section IV. Waiver of Subrogation. Guarantors hereby irrevocably waive any claim or other rights which they may now or hereafter acquire against Lessor. Section V. Reasonableness and Effect of Waivers. Guarantors warrant and agree that each of the waivers set forth in this Guaranty is made with full knowledge of its significance and consequences and that, under the circumstances, the waivers are reasonable and not contrary to public policy or law. If any of such waivers are determined to be contrary to any applicable -8- Guaranty law or public policy, such waivers shall be effective only to the maximum extent permitted by law. Section VI. Representations and Warranties of Guarantors. As of the date hereof, each of the Guarantors makes the representations and warranties set forth in this Section 6 to each of the Beneficiaries. A. Due Organization, etc. It is a corporation or partnership duly organized, validly existing and in good standing under the laws of the state of its organization and it has full corporate power and authority to conduct its business as presently and presently proposed to be conducted, to own or hold under lease its properties, to enter into and perform its obligations under each of the Operative Documents to which it is or is to be a party and each other agreement, instrument and document to be executed and delivered by it on or before the Document Closing Date in connection with or as contemplated by each such Operative Document to which it is or is to be a party, and it is duly qualified as a foreign corporation authorized to do business and is in good standing in every jurisdiction in which its failure to be so qualified would have a Material Adverse Effect. The information set forth on Schedule 1 hereto with respect to it is true and correct. B. Authorization; No Conflict. The execution and delivery by it of each of the Operative Documents to which it is or is to be a party, and the performance by it of its obligations under such Operative Documents, have been duly authorized by all necessary corporate action (including any necessary stockholder action) on its part, and do not and will not: (i) contravene any Applicable Laws and Regulations currently in effect applicable to or binding on it or the Sites; (ii) violate any provision of its charter or bylaws; (iii) result in a breach of or constitute a default under any indenture, loan or credit agreement, or any other agreement or instrument to which it is a party or by which it or its properties may be bound or affected, which breaches or defaults would have, individually or in the aggregate, a Material Adverse Effect; (iv) result in, or require, the creation or imposition of any Lien of any nature upon or with respect to any of the properties now owned or hereafter acquired by it (other than the security interests created pursuant to the Operative Documents); or (v) require any Governmental Action by any Authority, except for (A) the filings and recordings listed on Schedule 4.1B to the Participation Agreement to perfect the rights of Lessor, the Lenders and Agent intended to be created by the Operative Documents, and (B) those Governmental Actions required with respect to Lessee or any of its Affiliates listed on Schedule 4.1A to the Participation Agreement, each of which -9- Guaranty have been duly effected and are, or on the initial Advance Date will be, in full force and effect; and it is not in default under or in violation of its charter or bylaws. Attached as Schedule 4.1C to the Participation Agreement are correct and complete computations demonstrating compliance by Genesis with Section 5.9 of the Indenture after giving effect as Indebtedness under such Indenture to the obligations of Lessee and Guarantors under or in connection with the Operative Documents. C. Enforceability, etc. Each Operative Document to which it is or is to be a party constitutes its legal, valid and binding obligation, enforceable against it in accordance with the terms thereof, except as such enforceability may be limited by applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and by general equitable principles. D. Litigation. There is no action, proceeding or investigation pending or threatened which questions the validity of the Operative Documents to which it is or is to be a party or any action taken or to be taken pursuant to the Operative Documents to which it is or is to be a party, and there is no action, proceeding or investigation pending or threatened which, if adversely determined, would have a Material Adverse Effect. E. Taxes. It has filed or caused to be filed all United States Federal and all other material tax returns that are required to be filed by it, and has paid or caused to be paid all taxes shown to be due and payable on such returns or on any assessment received by it to the extent that such taxes have become due and payable except to the extent that taxes due, but unpaid, are being contested in good faith by it by appropriate action or proceeding and, to the extent (if any) that such taxes are not due and payable, it has established or caused to be established reserves that are adequate for the payment thereof in accordance with GAAP. F. Investment Company Act. It is not an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. G. Public Utility Holding Company. It is not subject to regulation as a "holding company," an "affiliate" of a "holding company", or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. H. Solvency. The consummation by Lessee and the Guarantors of the transactions contemplated by the Operative -10- Guaranty Documents does not and will not render it insolvent, nor was it made in contemplation of its insolvency; the value of its assets and properties at fair valuation and at their then present fair salable value is and, after such transactions, will be greater than its total liabilities, including contingent liabilities, as they become due; the property remaining in its hands was not and will not be an unreasonably small amount of capital. Section VII. Covenants of Guarantors. A. Consolidation, Merger, Sale, etc. No Guarantor shall consolidate with any Person, merge with or into any Person or convey, transfer or lease to any Person all or substantially all of its assets in any single transaction (or series of related transactions), unless, immediately after giving effect to such transaction, the conditions set forth in clauses (i) through (v) shall have been satisfied: 1. the conditions of Section 7.09 or 7.10, as applicable, of the Credit Agreement shall have been satisfied with respect to such transaction; provided, that for purposes of this clause (i), (a) all references in said Sections 7.09 and 7.10 to an Event of Default or Potential Default shall include (x) a Lease Event of Default or Lease Default, respectively, and (y) a default under this Guaranty, (b) all notices, certificates and other documents required to be delivered under said Section 7.09 shall also be delivered to Agent, on behalf of the Participants, (c) all references in said Sections 7.09 and 7.10 to Lender Party or Agent shall include Agent, on behalf of the Participants, (d) all references in said Sections 7.09 and 7.10 to Borrower or Borrowers shall be references to Guarantor or Guarantors, respectively, and (e) all references in said Sections 7.09 and 7.10 to Loan Obligations shall be references to the obligations of the applicable parties under the Operative Documents and (f) all references in said Sections 7.09 and 7.10 to Loan Documents shall be references to the Operative Documents; 2. (x) the Person formed by such consolidation with or into which such Guarantor shall be merged or (y) the Person which shall acquire by conveyance, transfer or lease all or substantially all of the assets of such Guarantor, if in the case of this clause (y), such Person is obligated under the terms of the Credit Agreement to become a party thereto (in the case of clause (x) or clause (y), as applicable, the "Surviving Company"), if other than such Guarantor immediately prior to such transaction, shall execute and deliver to each of the parties hereto an agreement, in form -11- Guaranty and substance reasonably satisfactory to Agent, containing the assumption by the Surviving Company of the due and punctual payment, performance and observation of each obligation, covenant and agreement of such Guarantor under this Guaranty; 3. if the applicable Guarantor is Genesis and the Surviving Company is not Genesis, such Surviving Company shall be a corporation that is organized under the laws of the United States of America, a state thereof or the District of Columbia; 4. the title of Lessor to the Sites and Lessor's rights under this Guaranty and the other Operative Documents and the first and prior Lien of the Mortgage on the Collateral shall not be adversely affected; and 5. Lessee shall have delivered to Agent, on behalf of Lessor and the Lenders, an Officer's Certificate and an opinion of counsel reasonably satisfactory to each such Person stating that such transaction complies with this Section 7, that all conditions to the consummation of such transaction have been fulfilled and that all Governmental Actions required in connection with such transaction have been obtained, given or made. Upon the consummation of such transaction, the Surviving Company, if other than the applicable Guarantor immediately prior thereto, shall succeed to, and be substituted for, and may exercise every right and power of, such Guarantor immediately prior to such transaction under this Guaranty and each other Operative Document to which such Guarantor was a party immediately prior to such transaction, with the same effect as if the Surviving Company had been named herein and therein. Notwithstanding the foregoing provisions of this Section 7, no conveyance, transfer or lease of all or substantially all of the assets of any Guarantor shall release Guarantor from its payment or other obligations under this Guaranty or any other Operative Document without the written consent of Lessor and Agent. B. Existence. Subject to Section 7(A), each Guarantor shall at all times maintain its existence as a corporation or partnership in good standing under the laws of the state of its organization and shall use commercially reasonable efforts to preserve and keep in full force and effect its franchises material to its business. C. Senior Indebtedness. This Guaranty is an obligation of the Guarantors under and in respect of the Lease, -12- Guaranty which lease refunded, refinanced and replaced that certain Acquisition Credit Agreement, dated as of September 29, 1995, as amended, among Genesis, certain of its Subsidiaries, Mellon Bank, N.A. ("Mellon") as Agent, Citibank, N.A. ("Citibank") as Co-Agent and the Lenders named therein, which agreement supplemented that certain Amended and Restated Credit Agreement, dated as of September 29, 1995, as amended, among Genesis, certain of its Subsidiaries, Mellon as Issuer of Letters of Credit, Mellon as Agent and Citibank as Co-Agent, which agreement refunded, refinanced and replaced that certain Credit Agreement, dated as of November 22, 1993, among Genesis, certain of its Subsidiaries, Mellon as Agent and the Lenders named therein. The obligations hereunder are secured and superior in right of payment to the obligations under those certain debentures issued pursuant to the 1993 Indenture and the 1995 Indenture (each as hereinafter defined). The obligations hereunder constitute "Indebtedness" as such term is defined in the 1995 Indenture (as hereinafter defined) and this guarantee is a "Credit Facility", "Senior Indebtedness" and "Designated Senior Indebtedness" within the meaning of that certain Indenture, dated as of June 15, 1995, between Genesis and Delaware Trust Company as Trustee (the "1995 Indenture") and is "Senior Indebtedness" within the meaning of that certain Indenture, dated as of November 30, 1993, between Genesis and First Fidelity Bank, N.A., Pennsylvania as Trustee (the "1993 Indenture"). Section VIII. Transfers by Beneficiaries. Each Beneficiary may, from time to time, whether before or after any discontinuance of this Guaranty, at its sole discretion (subject to the requirements of the Participation Agreement) and without notice to or consent of Guarantors, assign or transfer any or all of its portion of the Liabilities or any interest therein; and, notwithstanding any such assignment or transfer or any subsequent assignment or transfer thereof, such Liabilities shall be and remain Liabilities for the purposes of this Guaranty, and each and every immediate and successive assignee or transferee of any of the Liabilities or of any interest therein shall, to the extent of such assignee's or transferee's interest in the Liabilities, be entitled to the benefits of this Guaranty to the same extent as if such assignee or transferee were such Beneficiary. Section IX. No Waiver by Beneficiaries. No delay in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy; nor shall any modification or waiver of any of the provisions of this Guaranty be binding upon any Beneficiary except as expressly set forth in a writing duly -13- Guaranty signed and delivered on its behalf. No action permitted hereunder shall in any way affect or impair any Beneficiary's rights or Guarantors' obligations under this Guaranty. For the purposes of this Guaranty, Liabilities shall include all of the obligations described in the definition thereof, notwithstanding any right or power of Guarantors or anyone else to assert any claim or defense as to the invalidity or unenforceability of any such obligation, and no such claim or defense shall affect or impair the obligations of Guarantors hereunder. Guarantors' obligations under this Guaranty shall be absolute and unconditional irrespective of any circumstance whatsoever which might constitute a legal or equitable discharge or defense of Guarantors. Guarantors hereby acknowledge that there are no conditions to the effectiveness of this Guaranty. Section X. Joint and Several Obligations; Successors and Assigns. All obligations under this Guaranty are joint and several to each of the Guarantors and any other party which hereafter guarantees any portion of the Liabilities, and shall be binding upon them and upon their successors and assigns. All references herein to Guarantors shall be deemed to include any successor or successors, whether immediate or remote, to such Person. Section XI. Severability. Wherever possible, each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under Applicable Laws and Regulations, but if any provision of this Guaranty shall be prohibited by or invalid thereunder, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. Section XII. Submission to Jurisdiction; Waivers. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY: (A) AGREES THAT ANY ACTION, SUIT OR PROCEEDING BY ANY PERSON ARISING FROM OR RELATING TO THIS AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT OR ANY STATEMENT, COURSE OF CONDUCT, ACT OR OMISSION, OR EVENT OCCURRING IN CONNECTION HEREWITH OR THEREWITH (COLLECTIVELY, "RELATED LITIGATION") MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN ALLEGHENY COUNTY OR PHILADELPHIA COUNTY, PENNSYLVANIA, SUBMITS TO THE JURISDICTION OF SUCH COURTS, AND TO THE FULLEST EXTENT PERMITTED BY LAW AGREES THAT, TO THE EXTENT THAT ANY SUCH COURT HAS OR IS ABLE TO OBTAIN PERSONAL JURISDICTION OVER THE PARTY AGAINST WHICH SUCH PARTY IS SEEKING TO BRING RELATED LITIGATION, IT WILL NOT BRING ANY RELATED LITIGATION IN ANY OTHER FORUM (BUT NOTHING -14- Guaranty HEREIN SHALL AFFECT THE RIGHT OF ANY LENDER TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM); (B) WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY RELATED LITIGATION BROUGHT IN ANY SUCH COURT, WAIVES ANY CLAIM THAT ANY SUCH RELATED LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, AND WAIVES ANY RIGHT TO OBJECT, WITH RESPECT TO ANY RELATED LITIGATION BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY; (C) CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS IN ANY RELATED LITIGATION BY REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO SUCH PARTY'S ADDRESS FOR NOTICES DESCRIBED IN SCHEDULE II HEREOF, AND CONSENTS AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY LAW); AND (D) WAIVES THE RIGHT TO TRIAL BY JURY IN ANY RELATED LITIGATION. Section XIII. Notices. All notices, demands, declarations, consents, directions, approvals, instructions, requests and other communications required or permitted by this Guaranty shall be in writing and shall be deemed to have been duly given when addressed to the appropriate Person and delivered in the manner specified in Section 21.3 of the Lease. The initial address for notices to each of the Guarantors is set forth on Schedule 3 hereto. -15- Guaranty SECTION XIV. GOVERNING LAW. THIS GUARANTY HAS BEEN DELIVERED TO AGENT AT PENNSYLVANIA AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. Section XV. Joinder; Release. Genesis covenants that upon each and every addition or deletion of a Subsidiary as a party to the Credit Agreement, it will (i) promptly notify Agent thereof and (ii) cause to be executed and delivered to Agent, on behalf of the Beneficiaries, a joinder or release in the form of Exhibit A-1 or Exhibit A-2, respectively, attached hereto evidencing such addition or deletion of a Material Subsidiary hereunder. Each Guaranty and each Beneficiary hereby agree that no such joinder shall require the consent of Agent, any other Beneficiary or any Guarantor. Each of the Beneficiaries hereby authorizes Agent to execute and deliver any such release from time to time, but no such release shall require the consent of any other Beneficiary or any Guarantor. Each Guarantor agrees that no such joinder or release shall affect the obligations of any Guarantor (other than the Guarantor which shall have executed and delivered such joinder or release). [SIGNATURE PAGES FOLLOW] -16- Guaranty IN WITNESS WHEREOF, Guarantors have caused this Guaranty and Agreement of Suretyship Regarding Obligations of Lessee and Affiliates to be executed and delivered as of the date first above written. GENESIS HEALTH VENTURES, INC., a Pennsylvania corporation By:________________________________ Title: Senior Vice President and Chief Financial Officer BREVARD MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Healthcare, Inc., a Pennsylvania corporation, its sole general partner CATONSVILLE MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Health, Inc., a Pennsylvania corporation, one of its sole general partners EASTON MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Healthcare, Inc., a Pennsylvania corporation, its sole general partner EDELLA STREET ASSOCIATES, a Pennsylvania limited partnership By: Genesis Health Ventures of Clarks Summit, Inc., its sole general partner GENESIS HEALTH VENTURES OF ARLINGTON, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF BLOOMFIELD, INC., a Pennsylvania corporation Guaranty GENESIS HEALTH VENTURES OF CLARKS SUMMIT, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF INDIANA, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF MASSACHUSETTS, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF NAUGATUCK, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF SALISBURY, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF WAYNE, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF WEST VIRGINIA, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF WINDSOR, INC., a Pennsylvania corporation GENESIS IMMEDIATE MED CENTER, INC., a Pennsylvania corporation GENESIS ELDERCARE NETWORK SERVICES, INC. f/k/a GENESIS MANAGEMENT RESOURCES, INC., a Pennsylvania corporation GENESIS ELDERCARE PHYSICAL SERVICES, INC. f/k/a GENESIS PHYSICIAN SERVICES, INC., a Pennsylvania corporation GENESIS PROPERTIES LIMITED PARTNERSHIP, a Pennsylvania limited partnership By: Genesis Health Ventures of Arlington, Inc., its sole general partner GREENSPRING MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Healthcare, Inc., a Pennsylvania corporation, its sole general partner Guaranty HALLMARK HEALTHCARE LIMITED PARTNERSHIP, a Maryland limited partnership By: Pharmacy Equities, Inc., a Pennsylvania corporation, its sole general partner HAMMONDS LANE MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Health, Inc., a Pennsylvania corporation, one of its general partner HEALTHCARE RESOURCES CORP., a Pennsylvania corporation HEALTHCARE SERVICES NETWORK, INC., a Pennsylvania corporation KNOLLWOOD MANOR, INC., a Pennsylvania corporation MERIDIAN HEALTH, INC. a Pennsylvania corporation MERIDIAN HEALTHCARE, INC. a Pennsylvania corporation MILLVILLE MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Healthcare, Inc., a Pennsylvania corporation, its sole general partner PHARMACY EQUITIES, INC., a Pennsylvania corporation PHILADELPHIA AVENUE ASSOCIATES, a Pennsylvania limited partnership By: Philadelphia Avenue Corp., its sole general partner PHILADELPHIA AVENUE CORPORATION, a Pennsylvania corporation RIVER STREET ASSOCIATES, a Pennsylvania limited partnership By: Genesis Health Ventures of Wilkes-Barre, Inc., its sole general partner Guaranty SEMINOLE MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Health, Inc., a Pennsylvania corporation, its sole general partner STAFF REPLACEMENT SERVICES, INC., a Pennsylvania corporation STATE STREET ASSOCIATES, L.P., a Pennsylvania limited partnership By: Genesis Health Ventures, Inc., its sole general partner STATE STREET ASSOCIATES, INC., a Pennsylvania corporation SUBURBAN MEDICAL SERVICES, INC. a Pennsylvania corporation GENESIS ELDERCARE REHABILITATION SERVICES, INC. f/k/a TEAM REHABILITATION, INC. a Pennsylvania corporation THERAPY CARE SYSTEMS, L.P., a Pennsylvania limited partnership By: Team Rehabilitation, Inc., its sole general partner THE TIDEWATER HEALTHCARE SHARED SERVICES GROUP, INC., a Pennsylvania corporation VOLUSIA MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Health, Inc., a Pennsylvania corporation, its sole general partner WYNCOTE HEALTHCARE CORP., a Pennsylvania corporation By: Title (as to each of the foregoing Subsidiaries): Guaranty ASCO HEALTHCARE, INC., a Maryland corporation By:______________________________ Title: Senior Vice President and Chief Financial Officer BRINTON MANOR, INC., a Delaware corporation By:______________________________ Title: Senior Vice President and Chief Financial Officer CONCORD HEALTHCARE CORPORATION, a Delaware corporation By:______________________________ Title: Senior Vice President and Chief Financial Officer CRYSTAL CITY NURSING CENTER, INC., a Maryland corporation By:______________________________ Title: Senior Vice President and Chief Financial Officer EASTERN MEDICAL SUPPLIES, INC., a Maryland corporation By:______________________________ Title: Senior Vice President and Chief Financial Officer Guaranty EASTERN REHAB SERVICES, INC., a Maryland corporation By:______________________________ Title: Senior Vice President and Chief Financial Officer GENESIS HEALTH SERVICES CORPORATION, a Delaware corporation By:______________________________ Title: Senior Vice President and Chief Financial Officer GENESIS HEALTHCARE CENTERS HOLDINGS, INC., a Delaware corporation By:______________________________ Title: Senior Vice President and Chief Financial Officer GENESIS HOLDINGS, INC. a Delaware corporation By:______________________________ Title: Senior Vice President and Chief Financial Officer GENESIS PROPERTIES OF DELAWARE CORPORATION, a Delaware corporation By:______________________________ Title: Senior Vice President and Chief Financial Officer Guaranty GENESIS PROPERTIES OF DELAWARE LTD PARTNERSHIP, L.P., a Delaware limited partnership By: Genesis Properties of Delaware Corporation, a general partner By:______________________________ Title: Senior Vice President and Chief Financial Officer GOVERNOR'S HOUSE NURSING HOME, INC., a Delaware corporation By:______________________________ Title: Senior Vice President and Chief Financial Officer HEALTH CONCEPTS AND SERVICES, INC., a Maryland corporation By:______________________________ Title: Senior Vice President and Chief Financial Officer HILLTOP HEALTH CARE CENTER, INC., a Delaware corporation By:______________________________ Title: Senior Vice President and Chief Financial Officer Guaranty KEYSTONE NURSING HOME, INC., a Delaware corporation By:______________________________ Title: Senior Vice President and Chief Financial Officer LINCOLN NURSING HOME, INC., a Delaware corporation By:______________________________ Title: Senior Vice President and Chief Financial Officer WAYSIDE NURSING HOME, INC., a Delaware corporation By:______________________________ Title: Senior Vice President and Chief Financial Officer Guaranty y SCHEDULE 1 Material Subsidiaries State of Name Type of Entity Organization - ---- -------------- ------------ Guaranty SCHEDULE 2 Lenders Mellon Bank, N.A. Guaranty SCHEDULE 3 Addresses for Notices Suite 100 148 West State Street Kennett Square, PA 19348 Attention: Senior Vice President and Chief Financial Officer Telephone: 610-444-6350 Facsimile: 610-444-3365 Guaranty EXHIBIT A-1 FORM OF JOINDER JOINDER AGREEMENT THIS JOINDER AGREEMENT, dated as of July 25, 1996 (this "Joinder"), is executed by National Health Care Affiliates, Inc., a Florida corporation (the "Additional Guarantor"), with its principal place of business located at 651 Delaware Avenue, Buffalo, New York 14202. BACKGROUND 1. Genesis Eldercare Properties, Inc. ("Lessee"), Mellon Financial Services Corporation #4 ("Lessor"), the Lenders party thereto, and Mellon Bank, N.A., as Agent, entered into a Participation Agreement, dated as of July 24, 1996 (as heretofore amended, the "Participation Agreement") pursuant to which Lessee has made a covenant that it shall cause the Guarantors to execute and deliver the Guaranty and Agreement of Suretyship Regarding Obligations of Lessee and Affiliates (the "Guaranty"). 2. The Guaranty and Agreement of Suretyship provides that upon each and every addition of a Subsidiary as a party to the Credit Agreement, Genesis will cause this Joinder to be executed and delivered by such Subsidiary to Agent. 2. The Additional Guarantor desires to become a Guarantor pursuant to Section 15 of the Guaranty. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Additional Guarantor hereby agrees as follows: Section 1. Definitions. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned thereto in the Participation Agreement. Section 2. Operative Documents. The Additional Guarantor hereby agrees that it shall be bound by all the terms and provisions of, and shall be deemed to be a party to (as if it were an original signatory to), the Guaranty; from and after the date hereof, the Additional Guaranty Guarantor shall be a Guarantor of the Liabilities (as defined in the Guaranty). The Additional Guarantor hereby acknowledges that it has received copies of the Participation Agreement, the Guaranty and the other Operative Documents. Section 3. Miscellaneous. This Joinder shall be governed by, and construed in accordance with, the internal laws of the Commonwealth of Pennsylvania. This Joinder is hereby executed by the Additional Guarantor for the benefit of Lessor, the Agent and the Lenders, and each of the foregoing parties may rely hereon. This Joinder shall be binding upon, and shall inure to the benefit of, the Additional Guarantor and its successors and permitted assigns. IN WITNESS WHEREOF, the undersigned has caused this Joinder to be executed by its duly authorized officer as of the date and year first above written. National Health Care Affiliates, Inc. By:___________________________ Name: Ira C. Gubernick Its: Secretary Guaranty EXHIBIT A-2 Form of Release RELEASE OF GUARANTY Reference is made to the Guaranty and Agreement of Suretyship Regarding Obligations of Lessee and Affiliates (the "Guaranty") dated as of July 24, 1996 made by Genesis Health Ventures, Inc. and its Material Subsidiaries for the benefit of the Beneficiaries. Unless otherwise defined herein, terms used herein have the meanings assigned to them in Appendix 1 to the Participation Agreement. _____________________________ is no longer a party to the Credit Agreement and thus, pursuant to Section 15 of the Guaranty, Agent hereby releases _____________________ as a Guarantor under the Guaranty. Dated: _______ __, ____ MELLON BANK N.A., as Agent By:_______________________________ Title:____________________________ EX-10.7 6 GUARANTY AND AGREEMENT OF SURETYSHIP Exhibit 10.7 Structural Guaranty =============================================================================== GUARANTY AND AGREEMENT OF SURETYSHIP from GENESIS HEALTH VENTURES, INC. and its MATERIAL SUBSIDIARIES Dated as of July 24, 1996 =============================================================================== GUARANTY AND AGREEMENT OF SURETYSHIP THIS GUARANTY AND AGREEMENT OF SURETYSHIP, dated as of July 24, 1996, is made by GENESIS HEALTH VENTURES, INC., a Pennsylvania corporation ("Genesis") and the Material Subsidiaries set forth on Schedule 1 (the "Material Subsidiaries") (Genesis and each of the Material Subsidiaries are individually a "Guarantor" and collectively referred to herein, in their capacity as guarantors hereunder, as the "Guarantors") in favor of the Beneficiaries (as hereinafter defined). W I T N E S S E T H: WHEREAS, contemporaneously herewith, Genesis Eldercare Properties, Inc. ("Lessee"), as Lessee, Mellon Financial Services Corporation #4 ("Lessor"), as Lessor, the Persons named on Schedule 2 attached hereto, as Lenders and Mellon Bank, N.A., as Agent have entered into that certain Participation Agreement, and Lessee and Lessor have entered into that certain Lease and Agreement, each dated as of July 24, 1996. The Participation Agreement and the Lease and Agreement, as they each may be modified, amended or restated from time to time as and to the extent permitted thereby, are hereinafter referred to as the "Participation Agreement" and "Lease" respectively. Unless otherwise defined herein or the context hereof otherwise requires, terms which are defined or defined by reference in the Participation Agreement or Lease shall have the same meanings when used herein as such terms have therein; and WHEREAS, Lessor has entered into a Loan Agreement dated as of even date herewith (as amended or otherwise modified from time to time, the "Loan Agreement" by and among Lessor, Lenders and Agent, pursuant to which the Lenders have agreed to make a loan to Lessor, as evidenced by those certain non-recourse promissory notes (the "Notes") from Lessor to Agent and secured by those certain Mortgages and Deeds of Trust (the "Mortgages") made by Lessor to Agent, as agent for the Lenders and those certain Assignments of Lease from Lessor to Agent, as agent for the Lenders (the "Assignments of Lease"). WHEREAS, Lessee is a wholly-owned subsidiary of Genesis and each of the Material Subsidiaries are Subsidiaries of Genesis; and WHEREAS, it is a covenant in the Participation Agreement that Lessee shall cause the Guarantors to execute and deliver this Guaranty; and Structural Guaranty WHEREAS, it is in the best interests of Guarantors that the Overall Transaction and the Document Closing Date occur; and WHEREAS, this Guaranty, and the execution, delivery and performance hereof, have been duly authorized by all necessary corporate action of Guarantors; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Guarantors, Guarantors hereby agree as follows: SECTION 1. Guarantee and Agreement of Suretyship. Guarantors hereby jointly and severally, irrevocably and unconditionally guarantee to the Beneficiaries and agree to act as surety to the Beneficiaries for (a) the full and prompt payment when due, whether by acceleration or otherwise, and at all times thereafter, and (b) the full and prompt performance, of all of the Liabilities (as hereinafter defined), including interest and Yield on any such Liabilities, whether accruing before or after any bankruptcy or insolvency case or proceeding involving Lessee or any other Person, and, if interest or Yield on any portion of such obligations ceases to accrue by operation of law by reason of the commencement of such case or proceeding, including such interest and Yield as would have accrued on any such portion of such obligations if such case or proceeding had not commenced, and further agree to pay all expenses (including attorneys' fees and legal expenses) paid or incurred by Lessor, Agent or any of the Lenders (each a "Beneficiary") in endeavoring to collect the Liabilities, or any part thereof, and in enforcing this Guaranty. The term "Liabilities", as used herein, shall mean all of the following, in each case howsoever created, arising or evidenced, whether direct or indirect, joint or several, absolute or contingent, or now or hereafter existing, or due or to become due: (i) all of the Equity Amount and Yield accrued thereon; (ii) all principal of the Notes and any interest accrued thereon; and (iii) all additional amounts and other sums (other than Basic Rent) at any time due and owing, and required to be paid, to Lessor and/or the Beneficiaries under the terms of the Lease, the Participation Agreement or any other Operative Document (whether or not Lessee or any other Person shall be released or relieved from any or all liability or obligation under any thereof); provided, however, that if Lessee duly and timely exercises and consummates the Sale Option pursuant to Sections 6.3, 6.4 and 6.6 of the Lease, the amount guaranteed under clauses (i) and (ii) hereof shall not exceed the aggregate amounts required to be paid by Lessee pursuant to the Lease in connection with such exercise. If Lessee does not duly and timely exercise and consummate the Sale Option pursuant to -2- Structural Guaranty Section 6.6, then Guarantors shall be liable for the full amounts due under clauses (i) through (iii) without limitation. In any action or proceeding involving any state corporate law, or any state or federal bankruptcy, insolvency, reorganization or any other law affecting the rights of creditors generally, if the obligations of Guarantor under this Guaranty would otherwise be held or determined by a final and non-appealable order of a court of competent jurisdiction to be void, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability under this Guaranty, then, notwithstanding any other provision hereof to the contrary, the amount of such liability shall, without any further action by Guarantor or any other Person, be automatically limited and reduced to the highest amount which is valid and enforceable as determined in such action or proceeding pursuant to such final and non-appealable order. Guarantors agree that, in the event of the dissolution, bankruptcy or insolvency of Lessee, or the inability or failure of Lessee to pay debts as they become due, or an assignment by Lessee for the benefit of creditors, or the commencement of any case or proceeding in respect of Lessee under any bankruptcy, insolvency or similar laws, and if such event shall occur at a time when any of the Liabilities may not then be due and payable, Guarantors will pay to the Beneficiaries forthwith the full amount which would be payable hereunder by Guarantors as if all Liabilities were then due and payable. Guarantors agree that, in the event of the dissolution, bankruptcy or insolvency of Lessor, or the inability or failure of Lessor to pay debts as they become due, or an assignment by Lessor for the benefit of creditors, or the commencement of any case or proceeding in respect of Lessor under any bankruptcy, insolvency or similar laws, and if such event (a "Lessor Bankruptcy Event") shall occur at a time when any of the Liabilities may not then be due and payable, Guarantors will pay to the Beneficiaries from time to time all Liabilities then or thereafter due under the Operative Documents pursuant to their terms or if the provisions of the immediately preceding paragraph are applicable, at the time specified in the immediately preceding paragraph, all as if such Lessor Bankruptcy Event shall not have occurred. To secure all obligations of Guarantors hereunder, each Beneficiary shall have a lien upon and security interest in (and may, without demand or notice of any kind, at any time and from time to time when any amount shall be due and payable by Guarantors hereunder, appropriate and apply toward the payment of -3- Structural Guaranty such amount, in such order of application as the Agent may elect) any and all balances, credits, deposits, accounts or moneys of or in the name of Guarantors or any of its Affiliates now or hereafter, for any reason or purpose whatsoever, in the possession or control of, or in transit to Lessor or any Beneficiary or any agent or bailee for Lessor or any Beneficiary. Each Beneficiary shall provide prompt written notice to the Agent of the exercise by such Beneficiary of its rights under this paragraph, which notice shall set forth in reasonable detail the amount of such application and shall remit such amount to Agent or as Agent may direct. The obligations of the Guarantors hereunder are secured by the Joint Stock Collateral as set forth in the Amended and Restated Security Agreement dated as of September 29, 1995, as amended, among Genesis and certain of its subsidiaries and Mellon Bank, N.A. as Collateral Agent, subject to the terms and provisions of that certain Amended and Restated Collateral Agency Agreement dated as of September 29, 1995, as amended, among Genesis, such subsidiaries and Mellon Bank, N.A., as RCA Agent, ACA Agent and Collateral Agent. This Agreement shall constitute an agreement of suretyship as well as of guaranty and shall constitute an absolute and unconditional guaranty of payment and performance (and not of collection) and an absolute and unconditional undertaking by each Guarantor with respect to the payment and performance of the Liabilities. This Guaranty shall remain in full force and effect (notwithstanding, without limitation, the dissolution of any of the Guarantors). The liability of the Guarantors hereunder shall be direct, joint and several, and may be enforced without the Beneficiaries being required to resort to any other right, remedy or security. Agent on behalf of itself and the other Beneficiaries, may, from time to time at its discretion and without notice to Guarantors, but subject to the provisions of the Participation Agreement, take or cause any of the other Beneficiaries to take, any or all of the following actions, subject to the terms of the Credit Agreement as in effect on the date hereof as such Credit Agreement may be amended under the Participation Agreement with the consent of Agent (on behalf of the Participants) and subject to the provisions of the Collateral Agency Agreement with respect to the Joint Stock Collateral: (a) retain or obtain a lien upon or a security interest in any property to secure any of the Liabilities or any obligation hereunder; (b) retain or obtain the primary or secondary obligation of any obligor or obligors, in addition to Guarantors, with respect to any of the Liabilities; (c) extend or renew for one or more periods (regardless of -4- Structural Guaranty whether longer than the original period), alter or exchange any of the Liabilities, or release or compromise any obligation of Guarantors hereunder or any obligation of any nature of any other obligor with respect to any of the Liabilities; (d) release or fail to perfect its lien upon or security interest in, or impair, surrender, release or permit any substitution or exchange for, all or any part of any property securing any of the Liabilities or any obligation hereunder, or extend or renew for one or more periods (regardless of whether longer than the original period) or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such property; and (e) resort to Guarantors, or any one or more of them, for payment of any of the Liabilities, regardless of whether Agent or any other Beneficiary shall have resorted to any other Person any property securing any of the Liabilities or any obligation hereunder or shall have proceeded against any other obligor primarily or secondarily obligated with respect to any of the Liabilities (all of the actions referred to in this paragraph being hereby expressly waived by Guarantors). SECTION 2. Guarantors' Obligations Unconditional. Guarantors' obligations hereunder are independent in respect of any other Person, and each Beneficiary may enforce any of its rights hereunder independently of any other right or remedy that it may at any time hold with respect to the Liabilities or any security or other guaranty therefor; provided that no double recovery of the same amount shall be permitted. Such obligations shall be absolute and unconditional, shall not be subject to any counterclaim, setoff, deduction, diminution, abatement, recoupment, suspension, deferment, reduction or defense (other than full and strict compliance by Guarantors with their obligations hereunder), whether based upon any claim that Lessor, Lessee, Agent, any Beneficiary or any other Person may have against any Beneficiary or any other Person or otherwise, and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected by, any circumstance or condition whatsoever (whether or not Guarantors or any other Person shall have any knowledge or notice thereof) including, without limitation: (A) any amendment, modification, addition, deletion, supplement or renewal to or of or other change in the Liabilities or any Operative Document or any of the agreements referred to in any thereof, or any other instrument or agreement applicable to any Operative Document or any of the parties to such agreements, or to the Sites, or any assignment, mortgage or transfer thereof or of any interest therein, or any furnishing or acceptance of additional security for, guaranty of -5- Structural Guaranty or right of offset with respect to, any of the Liabilities; or the failure of any security or the failure of any Beneficiary to perfect or insure any interest in any collateral; (B) any failure, omission or delay on the part of Lessor or any Beneficiary to conform or comply with any term of any instrument or agreement referred to in clause (A) above; (C) any waiver, consent, extension, indulgence, compromise, release or other action or inaction under or in respect of any instrument, agreement, guaranty, right of offset or security referred to in clause (A) above or any obligation or liability of Lessor or any Beneficiary, or any exercise or non-exercise by any Beneficiary of any right, remedy, power or privilege under or in respect of any such instrument, agreement, guaranty, right of offset or security or any such obligation or liability; (D) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or similar proceeding with respect to Lessor or any Beneficiary or any other Person or any of their respective properties or creditors, or any action taken by any trustee, receiver or court in any such proceeding; (E) any limitation on the liability or obligations of any Person under any Operative Document, the Liabilities, any collateral security for the Liabilities, any other guaranty of the Liabilities or any discharge, termination, cancellation, frustration, irregularity, invalidity or unenforceability, in whole or in part, of any of the foregoing or any other agreement, instrument, guaranty or security referred to in clause (A) above or any term of any thereof; (F) any defect in the title, compliance with specifications, condition, design, operation or fitness for use of, or any damage to or loss or destruction of, or any interruption or cessation in the use of the Sites by Lessee or any other Person for any reason whatsoever (including, without limitation, any governmental prohibition or restriction, condemnation, requisition, seizure or any other act on the part of any governmental or military authority, or any act of God or of the public enemy) regardless of the duration -6- Structural Guaranty thereof (even though such duration would otherwise constitute a frustration of a lease), whether or not resulting from accident and whether or not without fault on the part of Lessee or any other Person; (G) any merger or consolidation of Lessor, Lessee or Guarantors into or with any other Person, or any sale, lease or transfer of any of the assets of Lessor, Lessee or Guarantors to any other Person; (H) any change in the ownership of any shares of capital stock of Lessor, Lessee or Guarantors or any corporate change in Lessor, Lessee or Guarantors; (I) any loan to or other transaction between the Beneficiaries, or any of them, and Lessee or Lessor; or (J) any other occurrence or circumstance whatsoever, whether similar or dissimilar to the foregoing, and any other circumstance that might otherwise constitute a legal or equitable defense or discharge of the liabilities of a guarantor or surety or that might otherwise limit recourse against Guarantors. The obligations of Guarantors set forth herein constitute the full recourse obligations of Guarantors enforceable against them to the full extent of all of their assets and properties, notwithstanding any provision in the Lease or any other Operative Document or any other document or agreement to the contrary. Guarantors waive any and all notice of the creation, renewal, extension or accrual of any of the Liabilities and notice of or proof of reliance by any Beneficiary upon this Guaranty or acceptance of this Guaranty, and the Liabilities, and any of them, shall conclusively be deemed to have been created, contracted or incurred in reliance upon this Guaranty. Guarantors unconditionally waive, to the extent permitted by law: (a) acceptance of this Guaranty and proof of reliance by any Beneficiary hereon; (b) notice of any of the matters referred to in clauses A through J above, or any right to consent or assent to any thereof; (c) all notices that may be required by statute, rule of law or otherwise, now or hereafter in effect, to preserve intact any rights against Guarantors, including, without limitation, any demand, presentment, protest, proof or notice of nonpayment under any Operative Document, and notice of default or any failure on the part of Lessor to perform and comply with any covenant, agreement, term or condition of any Operative Document; (d) any right to the enforcement, assertion or exercise against Lessor of any right, power, privilege or remedy conferred in any -7- Structural Guaranty Operative Document or otherwise; (e) any requirement of diligence on the part of any Person; (f) any requirement of any Beneficiary to take any action whatsoever, to exhaust any remedies or to mitigate the damages resulting from a default by any Person under any Operative Document; (g) any notice of any sale, transfer or other disposition by any Person of any right under, title to or interest in any Operative Document or the Sites; and (h) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge, release or defense of a guarantor or surety, or that might otherwise limit recourse against Guarantors. Guarantors agree that this Guaranty shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of itself or Lessor is rescinded or must be otherwise restored by any Beneficiary whether as a result of any proceedings in bankruptcy or reorganization or otherwise. Guarantors further agree that, without limiting the generality of this Guaranty, if an Event of Default shall have occurred and be continuing and any Beneficiary is prevented by applicable law from exercising its remedies under the Operative Documents, such Beneficiary shall be entitled to receive hereunder from Guarantors, upon demand therefor, the sums which would have otherwise been due from Lessee had such remedies been exercised. Section 3. Incorporated Financial Covenants. Genesis hereby covenants and agrees that it shall at all times comply with the Financial Covenants, which covenants are incorporated herein by this reference, provided that compliance hereunder with the Financial Covenants shall be waived to the extent that compliance with such Financial Covenants may be waived from time to time under and in accordance with the Credit Agreement, exclusive of waivers made in contemplation of the termination of the Credit Agreement. Section 4. Waiver of Subrogation. Guarantors hereby irrevocably waive any claim or other rights which they may now or hereafter acquire against Lessor. Section 5. Reasonableness and Effect of Waivers. Guarantors warrant and agree that each of the waivers set forth in this Guaranty is made with full knowledge of its significance and consequences and that, under the circumstances, the waivers are reasonable and not contrary to public policy or law. If any of such waivers are determined to be contrary to any applicable law or public policy, such waivers shall be effective only to the maximum extent permitted by law. -8- Structural Guaranty Section 6. Representations and Warranties of Guarantors. As of the date hereof, each of the Guarantors makes the representations and warranties set forth in this Section 6 to each of the Beneficiaries. (A) Due Organization, etc. It is a corporation or partnership duly organized, validly existing and in good standing under the laws of the state of its organization and it has full corporate power and authority to conduct its business as presently and presently proposed to be conducted, to own or hold under lease its properties, to enter into and perform its obligations under each of the Operative Documents to which it is or is to be a party and each other agreement, instrument and document to be executed and delivered by it on or before the Document Closing Date in connection with or as contemplated by each such Operative Document to which it is or is to be a party, and it is duly qualified as a foreign corporation authorized to do business and is in good standing in every jurisdiction in which its failure to be so qualified would have a Material Adverse Effect. The information set forth on Schedule 1 hereto with respect to it is true and correct. (B) Authorization; No Conflict. The execution and delivery by it of each of the Operative Documents to which it is or is to be a party, and the performance by it of its obligations under such Operative Documents, have been duly authorized by all necessary corporate action (including any necessary stockholder action) on its part, and do not and will not: (i) contravene any Applicable Laws and Regulations currently in effect applicable to or binding on it or the Sites; (ii) violate any provision of its charter or bylaws; (iii) result in a breach of or constitute a default under any indenture, loan or credit agreement, or any other agreement or instrument to which it is a party or by which it or its properties may be bound or affected, which breaches or defaults would have, individually or in the aggregate, a Material Adverse Effect; (iv) result in, or require, the creation or imposition of any Lien of any nature upon or with respect to any of the properties now owned or hereafter acquired by it (other than the security interests created pursuant to the Operative Documents); or (v) require any Governmental Action by any Authority, except for (A) the filings and recordings listed on Schedule 4.1B to the Participation Agreement to perfect the rights of Lessor, the Lenders and Agent intended to be created by the Operative Documents, and (B) those Governmental Actions required with respect to Lessee or any of its Affiliates listed on Schedule 4.1A to the Participation Agreement, each of which have been duly effected and are, or on the initial Advance Date will be, in full force and effect; and it is not in default under or in violation of its charter or bylaws. Attached as Schedule -9- Structural Guaranty 4.1C to the Participation Agreement are correct and complete computations demonstrating compliance by Genesis with Section 5.9 of the Indenture after giving effect as Indebtedness under such Indenture to the obligations of Lessee and Guarantors under or in connection with the Operative Documents. (C) Enforceability, etc. Each Operative Document to which it is or is to be a party constitutes its legal, valid and binding obligation, enforceable against it in accordance with the terms thereof, except as such enforceability may be limited by applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and by general equitable principles. (D) Litigation. There is no action, proceeding or investigation pending or threatened which questions the validity of the Operative Documents to which it is or is to be a party or any action taken or to be taken pursuant to the Operative Documents to which it is or is to be a party, and there is no action, proceeding or investigation pending or threatened which, if adversely determined, would have a Material Adverse Effect. (E) Taxes. It has filed or caused to be filed all United States Federal and all other material tax returns that are required to be filed by it, and has paid or caused to be paid all taxes shown to be due and payable on such returns or on any assessment received by it to the extent that such taxes have become due and payable except to the extent that taxes due, but unpaid, are being contested in good faith by it by appropriate action or proceeding and, to the extent (if any) that such taxes are not due and payable, it has established or caused to be established reserves that are adequate for the payment thereof in accordance with GAAP. (F) Investment Company Act. It is not an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. (G) Public Utility Holding Company. It is not subject to regulation as a "holding company," an "affiliate" of a "holding company", or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. (H) Solvency. The consummation by Lessee and the Guarantors of the transactions contemplated by the Operative Documents does not and will not render it insolvent, nor was it made in contemplation of its insolvency; the value of its assets and properties at fair valuation and at their then present fair -10- Structural Guaranty salable value is and, after such transactions, will be greater than its total liabilities, including contingent liabilities, as they become due; the property remaining in its hands was not and will not be an unreasonably small amount of capital. Section 7. Covenants of Guarantors. (A) Consolidation, Merger, Sale, etc. No Guarantor shall consolidate with any Person, merge with or into any Person or convey, transfer or lease to any Person all or substantially all of its assets in any single transaction (or series of related transactions), unless, immediately after giving effect to such transaction, the conditions set forth in clauses (i) through (v) shall have been satisfied: (i) the conditions of Section 7.09 or 7.10, as applicable, of the Credit Agreement shall have been satisfied with respect to such transaction; provided, that for purposes of this clause (i), (a) all references in said Sections 7.09 and 7.10 to an Event of Default or Potential Default shall include (x) a Lease Event of Default or Lease Default, respectively, and (y) a default under this Guaranty, (b) all notices, certificates and other documents required to be delivered under said Section 7.09 shall also be delivered to Agent, on behalf of the Participants, (c) all references in said Sections 7.09 and 7.10 to Lender Party or Agent shall include Agent, on behalf of the Participants, (d) all references in said Sections 7.09 and 7.10 to Borrower or Borrowers shall be references to Guarantor or Guarantors, respectively, and (e) all references in said Sections 7.09 and 7.10 to Loan Obligations shall be references to the obligations of the applicable parties under the Operative Documents and (f) all references in said Sections 7.09 and 7.10 to Loan Documents shall be references to the Operative Documents; (ii) (x) the Person formed by such consolidation with or into which such Guarantor shall be merged or (y) the Person which shall acquire by conveyance, transfer or lease all or substantially all of the assets of such Guarantor, if in the case of this clause (y), such Person is obligated under the terms of the Credit Agreement to become a party thereto (in the case of clause (x) or clause (y), as applicable, the "Surviving Company"), if other than such Guarantor immediately prior to such transaction, shall execute and deliver to each of the parties hereto an agreement, in form and substance reasonably satisfactory to Agent, containing the assumption by the Surviving Company of the due and punctual payment, performance and observation of -11- Structural Guaranty each obligation, covenant and agreement of such Guarantor under this Guaranty; (iii) if the applicable Guarantor is Genesis and the Surviving Company is not Genesis, such Surviving Company shall be a corporation that is organized under the laws of the United States of America, a state thereof or the District of Columbia; (iv) the title of Lessor to the Sites and Lessor's rights under this Guaranty and the other Operative Documents and the first and prior Lien of the Mortgage on the Collateral shall not be adversely affected; and (v) Lessee shall have delivered to Agent, on behalf of Lessor and the Lenders, an Officer's Certificate and an opinion of counsel reasonably satisfactory to each such Person stating that such transaction complies with this Section 7, that all conditions to the consummation of such transaction have been fulfilled and that all Governmental Actions required in connection with such transaction have been obtained, given or made. Upon the consummation of such transaction, the Surviving Company, if other than the applicable Guarantor immediately prior thereto, shall succeed to, and be substituted for, and may exercise every right and power of, such Guarantor immediately prior to such transaction under this Guaranty and each other Operative Document to which such Guarantor was a party immediately prior to such transaction, with the same effect as if the Surviving Company had been named herein and therein. Notwithstanding the foregoing provisions of this Section 7, no conveyance, transfer or lease of all or substantially all of the assets of any Guarantor shall release Guarantor from its payment or other obligations under this Guaranty or any other Operative Document without the written consent of Lessor and Agent. (B) Existence. Subject to Section 7(A), each Guarantor shall at all times maintain its existence as a corporation or partnership in good standing under the laws of the state of its organization and shall use commercially reasonable efforts to preserve and keep in full force and effect its franchises material to its business. (C) Senior Indebtedness. This Guaranty is an obligation of the Guarantors under and in respect of the Lease, which lease refunded, refinanced and replaced that certain Acquisition Credit Agreement, dated as of September 29, 1995, as amended, among Genesis, certain of its Subsidiaries, Mellon Bank, -12- Structural Guaranty N.A. ("Mellon") as Agent, Citibank, N.A. ("Citibank") as Co-Agent and the Lenders named therein, which agreement supplemented that certain Amended and Restated Credit Agreement, dated as of September 29, 1995, as amended, among Genesis, certain of its Subsidiaries, Mellon as Issuer of Letters of Credit, Mellon as Agent and Citibank as Co-Agent, which agreement refunded, refinanced and replaced that certain Credit Agreement, dated as of November 22, 1993, among Genesis, certain of its Subsidiaries, Mellon as Agent and the Lenders named therein. The obligations hereunder are secured and superior in right of payment to the obligations under those certain debentures issued pursuant to the 1993 Indenture and the 1995 Indenture (each as hereinafter defined). The obligations hereunder constitute "Indebtedness" as such term is defined in the 1995 Indenture (as hereinafter defined) and this guarantee is a "Credit Facility", "Senior Indebtedness" and "Designated Senior Indebtedness" within the meaning of that certain Indenture, dated as of June 15, 1995, between Genesis and Delaware Trust Company as Trustee (the "1995 Indenture") and is "Senior Indebtedness" within the meaning of that certain Indenture, dated as of November 30, 1993, between Genesis and First Fidelity Bank, N.A., Pennsylvania as Trustee (the "1993 Indenture"). Section 8. Transfers by Beneficiaries. Each Beneficiary may, from time to time, whether before or after any discontinuance of this Guaranty, at its sole discretion (subject to the requirements of the Participation Agreement) and without notice to or consent of Guarantors, assign or transfer any or all of its portion of the Liabilities or any interest therein; and, notwithstanding any such assignment or transfer or any subsequent assignment or transfer thereof, such Liabilities shall be and remain Liabilities for the purposes of this Guaranty, and each and every immediate and successive assignee or transferee of any of the Liabilities or of any interest therein shall, to the extent of such assignee's or transferee's interest in the Liabilities, be entitled to the benefits of this Guaranty to the same extent as if such assignee or transferee were such Beneficiary. Section 9. No Waiver by Beneficiaries. No delay in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy; nor shall any modification or waiver of any of the provisions of this Guaranty be binding upon any Beneficiary except as expressly set forth in a writing duly signed and delivered on its behalf. No action permitted hereunder shall in any way affect or impair any Beneficiary's rights or Guarantors' obligations under this Guaranty. For the -13- Structural Guaranty purposes of this Guaranty, Liabilities shall include all of the obligations described in the definition thereof, notwithstanding any right or power of Guarantors or anyone else to assert any claim or defense as to the invalidity or unenforceability of any such obligation, and no such claim or defense shall affect or impair the obligations of Guarantors hereunder. Guarantors' obligations under this Guaranty shall be absolute and unconditional irrespective of any circumstance whatsoever which might constitute a legal or equitable discharge or defense of Guarantors. Guarantors hereby acknowledge that there are no conditions to the effectiveness of this Guaranty. Section 10. Joint and Several Obligations; Successors and Assigns. All obligations under this Guaranty are joint and several to each of the Guarantors and any other party which hereafter guarantees any portion of the Liabilities, and shall be binding upon them and upon their successors and assigns. All references herein to Guarantors shall be deemed to include any successor or successors, whether immediate or remote, to such Person. Section 11. Severability. Wherever possible, each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under Applicable Laws and Regulations, but if any provision of this Guaranty shall be prohibited by or invalid thereunder, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. Section 12. Submission to Jurisdiction; Waivers. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY: (A) AGREES THAT ANY ACTION, SUIT OR PROCEEDING BY ANY PERSON ARISING FROM OR RELATING TO THIS AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT OR ANY STATEMENT, COURSE OF CONDUCT, ACT OR OMISSION, OR EVENT OCCURRING IN CONNECTION HEREWITH OR THEREWITH (COLLECTIVELY, "RELATED LITIGATION") MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN ALLEGHENY COUNTY OR PHILADELPHIA COUNTY, PENNSYLVANIA, SUBMITS TO THE JURISDICTION OF SUCH COURTS, AND TO THE FULLEST EXTENT PERMITTED BY LAW AGREES THAT, TO THE EXTENT THAT ANY SUCH COURT HAS OR IS ABLE TO OBTAIN PERSONAL JURISDICTION OVER THE PARTY AGAINST WHICH SUCH PARTY IS SEEKING TO BRING RELATED LITIGATION, IT WILL NOT BRING ANY RELATED LITIGATION IN ANY OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY LENDER TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM); -14- Structural Guaranty (B) WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY RELATED LITIGATION BROUGHT IN ANY SUCH COURT, WAIVES ANY CLAIM THAT ANY SUCH RELATED LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, AND WAIVES ANY RIGHT TO OBJECT, WITH RESPECT TO ANY RELATED LITIGATION BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY; (C) CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS IN ANY RELATED LITIGATION BY REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO SUCH PARTY'S ADDRESS FOR NOTICES DESCRIBED IN SCHEDULE II HEREOF, AND CONSENTS AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY LAW); AND (D) WAIVES THE RIGHT TO TRIAL BY JURY IN ANY RELATED LITIGATION. Section 13. Notices. All notices, demands, declarations, consents, directions, approvals, instructions, requests and other communications required or permitted by this Guaranty shall be in writing and shall be deemed to have been duly given when addressed to the appropriate Person and delivered in the manner specified in Section 21.3 of the Lease. The initial address for notices to each of the Guarantors is set forth on Schedule 3 hereto. -15- Structural Guaranty SECTION 14. GOVERNING LAW. THIS GUARANTY HAS BEEN DELIVERED TO AGENT AT PENNSYLVANIA AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. Section 15. Joinder; Release. Genesis covenants that upon each and every addition or deletion of a Subsidiary as a party to the Credit Agreement, it will (i) promptly notify Agent thereof and (ii) cause to be executed and delivered to Agent, on behalf of the Beneficiaries, a joinder or release in the form of Exhibit A-1 or Exhibit A-2, respectively, attached hereto evidencing such addition or deletion of a Material Subsidiary hereunder. Each Guaranty and each Beneficiary hereby agree that no such joinder shall require the consent of Agent, any other Beneficiary or any Guarantor. Each of the Beneficiaries hereby authorizes Agent to execute and deliver any such release from time to time, but no such release shall require the consent of any other Beneficiary or any Guarantor. Each Guarantor agrees that no such joinder or release shall affect the obligations of any Guarantor (other than the Guarantor which shall have executed and delivered such joinder or release). [SIGNATURE PAGES FOLLOW] -16- Structural Guaranty IN WITNESS WHEREOF, Guarantors have caused this Guaranty and Agreement of Suretyship to be executed and delivered as of the date first above written. GENESIS HEALTH VENTURES, INC., a Pennsylvania corporation By:________________________________ Name: Ira C. Gubernick Title: Secretary BREVARD MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Healthcare, Inc., a Pennsylvania corporation, its sole general partner CATONSVILLE MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Health, Inc., a Pennsylvania corporation, one of its sole general partners EASTON MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Healthcare, Inc., a Pennsylvania corporation, its sole general partner EDELLA STREET ASSOCIATES, a Pennsylvania limited partnership By: Genesis Health Ventures of Clarks Summit, Inc., its sole general partner GENESIS HEALTH VENTURES OF ARLINGTON, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF BLOOMFIELD, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF CLARKS SUMMIT, INC., a Pennsylvania corporation Structural Guaranty GENESIS HEALTH VENTURES OF INDIANA, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF MASSACHUSETTS, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF NAUGATUCK, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF SALISBURY, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF WAYNE, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF WEST VIRGINIA, INC., a Pennsylvania corporation GENESIS HEALTH VENTURES OF WINDSOR, INC., a Pennsylvania corporation GENESIS IMMEDIATE MED CENTER, INC., a Pennsylvania corporation GENESIS ELDERCARE NETWORK SERVICES, INC. f/k/a GENESIS MANAGEMENT RESOURCES, INC., a Pennsylvania corporation GENESIS ELDERCARE PHYSICAL SERVICES, INC. f/k/a GENESIS PHYSICIAN SERVICES, INC., a Pennsylvania corporation GENESIS PROPERTIES LIMITED PARTNERSHIP, a Pennsylvania limited partnership By: Genesis Health Ventures of Arlington, Inc., its sole general partner GREENSPRING MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Healthcare, Inc., a Pennsylvania corporation, its sole general partner HALLMARK HEALTHCARE LIMITED PARTNERSHIP, a Maryland limited partnership By: Pharmacy Equities, Inc., a Pennsylvania corporation, its sole general partner Structural Guaranty HAMMONDS LANE MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Health, Inc., a Pennsylvania corporation, one of its general partner HEALTHCARE RESOURCES CORP., a Pennsylvania corporation HEALTHCARE SERVICES NETWORK, INC., a Pennsylvania corporation KNOLLWOOD MANOR, INC., a Pennsylvania corporation MERIDIAN HEALTH, INC. a Pennsylvania corporation MERIDIAN HEALTHCARE, INC. a Pennsylvania corporation MILLVILLE MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Healthcare, Inc., a Pennsylvania corporation, its sole general partner PHARMACY EQUITIES, INC., a Pennsylvania corporation PHILADELPHIA AVENUE ASSOCIATES, a Pennsylvania limited partnership By: Philadelphia Avenue Corp., its sole general partner PHILADELPHIA AVENUE CORPORATION, a Pennsylvania corporation RIVER STREET ASSOCIATES, a Pennsylvania limited partnership By: Genesis Health Ventures of Wilkes-Barre, Inc., its sole general partner SEMINOLE MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Health, Inc., a Pennsylvania corporation, its sole general partner Structural Guaranty STAFF REPLACEMENT SERVICES, INC., a Pennsylvania corporation STATE STREET ASSOCIATES, L.P., a Pennsylvania limited partnership By: Genesis Health Ventures, Inc., its sole general partner STATE STREET ASSOCIATES, INC., a Pennsylvania corporation SUBURBAN MEDICAL SERVICES, INC. a Pennsylvania corporation GENESIS ELDERCARE REHABILITATION SERVICES, INC. f/k/a TEAM REHABILITATION, INC. a Pennsylvania corporation THERAPY CARE SYSTEMS, L.P., a Pennsylvania limited partnership By: Team Rehabilitation, Inc., its sole general partner THE TIDEWATER HEALTHCARE SHARED SERVICES GROUP, INC., a Pennsylvania corporation VOLUSIA MERIDIAN LIMITED PARTNERSHIP, a Maryland limited partnership By: Meridian Health, Inc., a Pennsylvania corporation, its sole general partner WYNCOTE HEALTHCARE CORP., a Pennsylvania corporation By:_______________________ Name: Ira C. Gubernick Title: Secretary ASCO HEALTHCARE, INC., a Maryland corporation By:______________________________ Name: Ira C. Gubernick Title: Secretary Structural Guaranty BRINTON MANOR, INC., a Delaware corporation By:______________________________ Name: Ira C. Gubernick Title: Secretary CONCORD HEALTHCARE CORPORATION, a Delaware corporation By:______________________________ Name: Ira C. Gubernick Title: Secretary CRYSTAL CITY NURSING CENTER, INC., a Maryland corporation By:______________________________ Name: Ira C. Gubernick Title: Secretary EASTERN MEDICAL SUPPLIES, INC., a Maryland corporation By:______________________________ Name: Ira C. Gubernick Title: Secretary EASTERN REHAB SERVICES, INC., a Maryland corporation By:______________________________ Name: Ira C. Gubernick Title: Secretary Structural Guaranty GENESIS HEALTH SERVICES CORPORATION, a Delaware corporation By:______________________________ Name: Ira C. Gubernick Title: Secretary GENESIS HEALTHCARE CENTERS HOLDINGS, INC., a Delaware corporation By:______________________________ Name: Ira C. Gubernick Title: Secretary GENESIS HOLDINGS, INC. a Delaware corporation By:______________________________ Name: Ira C. Gubernick Title: Secretary GENESIS PROPERTIES OF DELAWARE CORPORATION, a Delaware corporation By:______________________________ Name: Ira C. Gubernick Title: Secretary GENESIS PROPERTIES OF DELAWARE LTD PARTNERSHIP, L.P., a Delaware limited partnership By: Genesis Properties of Delaware Corporation, a general partner By:______________________________ Name: Ira C. Gubernick Title: Secretary Structural Guaranty GOVERNOR'S HOUSE NURSING HOME, INC., a Delaware corporation By:______________________________ Name: Ira C. Gubernick Title: Seretary HEALTH CONCEPTS AND SERVICES, INC., a Maryland corporation By:______________________________ Name: Ira C. Gubernick Title: Secretary HILLTOP HEALTH CARE CENTER, INC., a Delaware corporation By:______________________________ Name: Ira C. Gubernick Title: Secretary KEYSTONE NURSING HOME, INC., a Delaware corporation By:______________________________ Name: Ira C. Gubernick Title: Secretary LINCOLN NURSING HOME, INC., a Delaware corporation By:______________________________ Name: Ira C. Gubernick Title: Secretary Structural Guaranty WAYSIDE NURSING HOME, INC., a Delaware corporation By:______________________________ Name: Ira C. Gubernick Title: Secretary Structural Guaranty SCHEDULE 1 Material Subsidiaries State of Name Type of Entity Organization - ---- -------------- ------------ Structural Guaranty SCHEDULE 2 Lenders Mellon Bank, N.A. Structural Guaranty SCHEDULE 3 Addresses for Notices Suite 100 148 West State Street Kennett Square, PA 19348 Attention: Senior Vice President and Chief Financial Officer Telephone: 610-444-6350 Facsimile: 610-444-3365 Structural Guaranty EXHIBIT A-1 FORM OF JOINDER JOINDER AGREEMENT THIS JOINDER AGREEMENT, dated as of July 25, 1996 (this "Joinder"), is executed by National Health Care Affiliates, Inc., a Florida corporation (the "Additional Guarantor"), with its principal place of business located at 651 Delaware Avenue, Buffalo, New York 14202. BACKGROUND 1. Genesis Eldercare Properties, Inc. ("Lessee"), Mellon Financial Services Corporation #4 ("Lessor"), the Lenders party thereto, and Mellon Bank, N.A., as Agent, entered into a Participation Agreement, dated as of July 24, 1996 (as heretofore amended, the "Participation Agreement") pursuant to which Lessee has made a covenant that it shall cause the Guarantors to execute and deliver the Guaranty and Agreement of Suretyship (the "Guaranty"). 2. The Guaranty and Agreement of Suretyship provides that upon each and every addition of a Subsidiary as a party to the Credit Agreement, Genesis will cause this Joinder to be executed and delivered by such Subsidiary to Agent. 2. The Additional Guarantor desires to become a Guarantor pursuant to Section 15 of the Guaranty. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Additional Guarantor hereby agrees as follows: Section 1. Definitions. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned thereto in the Participation Agreement. Section 2. Operative Documents. The Additional Guarantor hereby agrees that it shall be bound by all the terms and provisions of, and shall be deemed to be a party to (as if it were an original signatory to), the Guaranty; from and after the date hereof, the Additional Guarantor shall be a Guarantor of the Liabilities (as defined in the Guaranty). The Additional Guarantor Structural Guaranty hereby acknowledges that it has received copies of the Participation Agreement, the Guaranty and the other Operative Documents. Structural Guaranty Section 3. Miscellaneous. This Joinder shall be governed by, and construed in accordance with, the internal laws of the Commonwealth of Pennsylvania. This Joinder is hereby executed by the Additional Guarantor for the benefit of Lessor, the Agent and the Lenders, and each of the foregoing parties may rely hereon. This Joinder shall be binding upon, and shall inure to the benefit of, the Additional Guarantor and its successors and permitted assigns. IN WITNESS WHEREOF, the undersigned has caused this Joinder to be executed by its duly authorized officer as of the date and year first above written. NATIONAL HEALTH CARE AFFILIATES, INC. By:___________________________ Name: Ira C. Gubernick Its: Secretary Structural Guaranty EXHIBIT A-2 Form of Release RELEASE OF GUARANTY Reference is made to the Guaranty and Agreement of Suretyship (the "Guaranty") dated as of July 24, 1996 made by Genesis Health Ventures, Inc. and its Material Subsidiaries for the benefit of the Beneficiaries. Unless otherwise defined herein, terms used herein have the meanings assigned to them in Appendix 1 to the Participation Agreement. _____________________________ is no longer a party to the Credit Agreement and thus, pursuant to Section 15 of the Guaranty, Agent hereby releases _____________________ as a Guarantor under the Guaranty. Dated: _______ __, ____ MELLON BANK N.A., as Agent By:_______________________________ Title:____________________________ EX-10.8 7 LEASE AND AGREEMENT Exhibit 10.8 =============================================================================== LEASE AND AGREEMENT Dated as of July 24, 1996 between MELLON FINANCIAL SERVICES CORPORATION #4, as Lessor, and GENESIS ELDERCARE PROPERTIES, INC., as Lessee =============================================================================== ALL RIGHT, TITLE AND INTEREST OF LESSOR UNDER THIS LEASE AND AGREEMENT AND THE PROPERTY SUBJECT HERETO HAVE BEEN ASSIGNED TO AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF MELLON BANK, N.A., AGENT ("AGENT"), UNDER CERTAIN MORTGAGES, ASSIGNMENTS OF RENTS AND LEASES, SECURITY AGREEMENTS AND FIXTURE FILING STATEMENTS (AS SUCH AGREEMENTS AND INSTRUMENTS MAY BE AMENDED AND/OR SUPPLEMENTED TO THE EXTENT PERMITTED THEREBY), FOR THE BENEFIT OF THE LENDERS REFERRED TO IN SUCH SECURITY INSTRUMENTS. THIS LEASE AND AGREEMENT HAS BEEN EXECUTED IN SEVERAL COUNTERPARTS. TO THE EXTENT, IF ANY, THAT THIS LEASE AND AGREEMENT CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE AND AGREEMENT MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART HEREOF OTHER THAN THE "ORIGINAL EXECUTED COUNTERPART NO. 1", WHICH SHALL BE IDENTIFIED AS THE COUNTERPART CONTAINING THE RECEIPT THEREFOR EXECUTED BY AGENT ON OR FOLLOWING THE SIGNATURE PAGE THEREOF. SEE SECTION 21.20 FOR THE NATURE OF THIS TRANSACTION AND INTENTION OF THE PARTIES. THIS COUNTERPART IS [NOT] THE ORIGINAL EXECUTED COUNTERPART NO. 1. 1 TABLE OF CONTENTS (Lease and Agreement)
Page ARTICLE I DEFINITIONS; LESSEE LIABILITY........................................ 1 ARTICLE II LEASE OF SITES; LEASE TERM.......................................... 2 SECTION 2.1. Acceptance and Lease of Sites. ............................................ 2 SECTION 2.2. Acceptance Procedure........................................................ 2 SECTION 2.3. Lease Term.................................................................. 2 SECTION 2.4. Lease Renewal............................................................... 2 ARTICLE III OTHER PROPERTY................................................ 3 ARTICLE IV RENT..................................................... 3 SECTION 4.1. Basic Rent.................................................................. 3 SECTION 4.2. Supplemental Rent........................................................... 3 SECTION 4.3. Method and Amount of Payment................................................ 3 SECTION 4.4. Late Payment................................................................ 4 SECTION 4.5. Net Lease; No Setoff; Etc................................................... 4 ARTICLE V UTILITY CHARGES............................................... 6 ARTICLE VI RENEWAL OPTION; SALE, RETURN AND PURCHASE OPTIONS.............................. 6 SECTION 6.1. Renewal Option.............................................................. 6 SECTION 6.2. Purchase Option............................................................. 7 SECTION 6.3. Sale Option................................................................. 7 SECTION 6.4. Conditions for Sale of the Sites............................................ 8 SECTION 6.5. Early Termination........................................................... 11 SECTION 6.6. Exercise of Options; Failure to Elect....................................... 12 SECTION 6.7. Return of Sites............................................................. 12 SECTION 6.8. Intentionally Omitted....................................................... 13 SECTION 6.9. Failure of Lessee to Sell Sites............................................. 13 ARTICLE VII CONDITION AND USE OF SITES.......................................... 16 SECTION 7.1. Waivers..................................................................... 16 ARTICLE VIII LIENS; EASEMENTS............................................... 17 SECTION 8.1. Liens....................................................................... 17 SECTION 8.2. No Lessor Consent or Liability.............................................. 17 SECTION 8.3. Easements................................................................... 18 i ARTICLE IX MAINTENANCE AND REPAIR; ALTERATIONS AND ADDITIONS................................ 19 SECTION 9.1. Maintenance and Repair; Compliance With Law......................................................................... 19 SECTION 9.2. Alterations................................................................. 20 SECTION 9.3. Title to Alterations........................................................ 22 SECTION 9.4. Maintenance and Repair Reports.............................................. 23 SECTION 9.5. Permitted Contests.......................................................... 23 ARTICLE X USE........................................................ 24 ARTICLE XI INSURANCE..................................................... 24 SECTION 11.1. Required Coverages.......................................................... 24 SECTION 11.2. Delivery of Insurance Certificates.......................................... 26 ARTICLE XII ASSIGNMENT AND SUBLEASING............................................. 27 SECTION 12.1. Assignment and Subletting................................................... 27 SECTION 12.2. Sublease Subordination...................................................... 29 ARTICLE XIII LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE..................................... 30 SECTION 13.1. Event of Loss; Condemnation or Casualty..................................... 30 SECTION 13.2. Application of Payments Relating to an Event of Loss............................................................... 31 SECTION 13.3. Application of Certain Payments Relating to a Condemnation........................................................... 31 SECTION 13.4. Casualty.................................................................... 31 SECTION 13.5. Other Dispositions.......................................................... 32 SECTION 13.6. Negotiations................................................................ 32 SECTION 13.7. No Rent Abatement........................................................... 33 ARTICLE XIV NON-INTERFERENCE.................................................. 33 SECTION 14.1. Non-Interference............................................................ 33 SECTION 14.2. Certain Duties and Responsibilities of Lessor...................................................................... 33 ARTICLE XV INSPECTION AND REPORTS............................................... 34 SECTION 15.1. Inspection.................................................................. 34 SECTION 15.2. Reports..................................................................... 34 ARTICLE XVI OWNERSHIP, GRANT OF SECURITY INTEREST AND FURTHER ASSURANCES............................................... 34 SECTION 16.1. Grant of Security Interest.................................................. 34 SECTION 16.2. Attorney-in-Fact............................................................ 35 ii ARTICLE XVII LEASE EVENTS OF DEFAULT................................. 36 ARTICLE XVIII ENFORCEMENT....................................... 39 SECTION 18.1. Remedies.................................................................... 39 SECTION 18.2. Proceeds of Sale; Deficiency................................................ 43 SECTION 18.3. Grant and Foreclosure on Lessee's Estate.................................... 43 SECTION 18.4. Remedies Cumulative; No Waiver; Consents.................................... 44 ARTICLE XIX RIGHT TO PERFORM FOR LESSEE......................................... 44 ARTICLE XX LESSOR LIENS................................................. 45 ARTICLE XXI MISCELLANEOUS................................................ 45 SECTION 21.2. Severability................................................................ 45 SECTION 21.3. Notices..................................................................... 46 SECTION 21.4. Amendment; Complete Agreements.............................................. 46 SECTION 21.5. Headings.................................................................... 46 SECTION 21.6. Original Lease.............................................................. 46 SECTION 21.7. GOVERNING LAW............................................................... 46 SECTION 21.8. Discharge of Lessee's Obligations by its Affiliates.................................................................. 47 SECTION 21.9. Liability of Lessor Limited................................................. 47 SECTION 21.10. Estoppel Certificates....................................................... 47 SECTION 21.11. No Joint Venture............................................................ 48 SECTION 21.12. No Accord and Satisfaction.................................................. 48 SECTION 21.13. No Merger................................................................... 48 SECTION 21.14. Successor Lessor............................................................ 49 SECTION 21.15. Survival.................................................................... 49 SECTION 21.16. Transfer of Sites to Lessee or any other Person...................................................................... 49 SECTION 21.17. Enforcement of Certain Warranties........................................... 49 SECTION 21.18. Investment of Security Funds................................................ 50 SECTION 21.19. Recording of Lease Supplements.............................................. 50 SECTION 21.20. Nature of Transaction....................................................... 51 SCHEDULE I - Description of Sites Delivered on Document Closing Date EXHIBIT A - Form of Lease Supplement and Memorandum of Lease and Agreement iii
Lease Agreement THIS LEASE AND AGREEMENT dated as of July 24, 1996 (as amended, supplemented, or otherwise modified from time to time, this "Lease"), is between MELLON FINANCIAL SERVICES CORPORATION #4, a Pennsylvania corporation, as Lessor and as mortgagee ("Lessor"), and GENESIS ELDERCARE PROPERTIES, INC., a Pennsylvania corporation and a wholly-owned subsidiary of Genesis, as Lessee and as mortgagor ("Lessee"). In consideration of the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, hereby agree as follows: ARTICLE I DEFINITIONS; LESSEE LIABILITY For all purposes hereof, the capitalized terms used herein and not otherwise defined shall have the meanings assigned thereto in Appendix 1 to that certain Participation Agreement dated as of July 24, 1996, by and among Lessee, Lessor, the Lenders identified therein, and Mellon Bank, N.A., as Agent (the "Participation Agreement"). All obligations imposed on the "Lessee" in this Lease shall be the full recourse liability of Lessee. This Lease refunds, refinances and replaces that certain Acquisition Credit Agreement, dated as of September 29, 1995, as amended, among Genesis Health Ventures, Inc. ("Genesis"), certain of its subsidiaries, Mellon Bank, N.A., ("Mellon") as Agent, Citibank, N.A. ("Citibank") as Co-Agent and the lenders named therein, which agreement supplemented that certain Amended and Restated Credit Agreement, dated as of September 29, 1995, as amended, among Genesis, certain of its subsidiaries, Mellon as Issuer of Letters of Credit, Mellon as agent and Citibank as co-Agent, which agreement refunded, refinanced and replaced that certain Credit Agreement, dated as of November 22, 1993, among Genesis, certain of its subsidiaries, Mellon as agent and the lenders named therein. The obligations hereunder are secured and superior in right of payment to the obligations under those certain Debentures issued pursuant to the 1993 Indenture (as hereinafter defined). This Lease (including all amendments and supplements hereto including, without limitation, any amendments which may increase the amount of this facility) is a "Credit Facility" within the meaning of that certain Indenture, dated as of June 15, 1995, between Genesis and Delaware Trust Company as Trustee (the "1995 Indenture") and constitutes "Senior Indebtedness" within the meaning of that certain Indenture, dated Lease Agreement as of November 30, 1993, between Genesis and First Fidelity Bank, N.A., Pennsylvania as Trustee (the "1993 Indenture"). ARTICLE II LEASE OF SITES; LEASE TERM SECTION 2.1. Acceptance and Lease of Sites. On the Document Closing Date, Lessor, subject to the satisfaction or waiver of the conditions set forth in Appendix 2 of the Participation Agreement, hereby agrees to accept delivery on the Document Closing Date of the Sites pursuant to the terms of the Participation Agreement and simultaneously to lease the Sites to Lessee hereunder, and Lessee, subject to the satisfaction or waiver of the conditions set forth in Appendix 2 of the Participation Agreement, hereby agrees, expressly for the direct benefit of Lessor, to lease commencing on such Document Closing Date from Lessor for the Lease Term, such Sites. SECTION 2.2. Acceptance Procedure. Lessor hereby authorizes one or more employees of Lessee, to be designated by Lessee, as the authorized representative or representatives of Lessor to accept delivery of the Sites. Lessee hereby agrees that such acceptance of delivery by such authorized representative or representatives and the execution and delivery by Lessee as of the Document Closing Date, of a Lease Supplement in the form of Exhibit A hereto or in such other form as may be reasonably acceptable to the Agent and Lessor (in each case, appropriately completed) shall, without further act, constitute the irrevocable acceptance by Lessee of the Sites which are the subject thereof for all purposes of this Lease and the other Operative Documents on the terms set forth therein and herein. SECTION 2.3. Lease Term. Unless earlier terminated, the term of this Lease shall consist of the Basic Term, commencing on and including the Document Closing Date and ending on the date (the "Basic Term Expiration Date") which is five years after the Document Closing Date and the Renewal Term, if exercised and effective (collectively, the "Lease Term"). SECTION 2.4. Lease Renewal. Subject to the consent of Lessor and the Lenders pursuant to Section 2.10 of the Participation Agreement, Lessee may elect to renew this Lease for one five-year renewal term (the "Renewal Term") commencing upon the expiration of the Basic Term (the "Renewal Term Commencement Date") and ending on the date which is five years after the Renewal Term Commencement Date, as provided in Article VI and in the applicable Lease Supplement. 2 Lease Agreement ARTICLE III OTHER PROPERTY Lessee may from time to time own or hold under lease from Persons other than Lessor, furniture, trade fixtures and equipment located on or about the Sites that is not subject to this Lease. Lessor shall from time to time, upon the reasonable request, and at the cost and expense of Lessee, which request shall be accompanied by such supporting information and documents as Lessor may reasonably require, promptly acknowledge in writing to Lessee or other Persons that the particular items of furniture, trade fixtures and equipment in question are not part of the related Site and that, subject to the rights of Lessor under any other Operative Documents, Lessor does not own or have any other right or interest in or to such furniture, trade fixtures and equipment. ARTICLE IV RENT SECTION 4.1. Basic Rent. Lessee shall pay to Agent, for the benefit of Lessor and the Lenders, the amounts of Basic Rent during the Basic Term and, if applicable, the Renewal Term, determined in accordance with the definition of "Basic Rent" on each Payment Date. SECTION 4.2. Supplemental Rent. Lessee shall pay to Agent, for the benefit of Lessor, or to whomever shall be entitled thereto as expressly provided herein or in any other Operative Document (and Lessor hereby directs Lessee, on behalf of Lessor, to so pay such Agent or other Person), any and all Supplemental Rent promptly as the same shall become due and payable and, in the event of any failure on the part of Lessee to pay any Supplemental Rent, Lessor shall have all rights, powers and remedies provided for herein or by law or in equity or otherwise in the case of nonpayment of Basic Rent. Lessee hereby reaffirms its obligation to pay as Supplemental Rent (i) any and all Additional Costs, and (ii) any Transaction Costs not paid on the Document Closing Date, as further described in Section 9.9 of the Participation Agreement. SECTION 4.3. Method and Amount of Payment. As long as any obligations remain outstanding under the Loan Agreement, Basic Rent and Supplemental Rent shall be paid to Agent (or, in the case of Supplemental Rent, to such Person as may be entitled thereto) on the due date therefor at such place as Agent shall specify in writing to Lessee at least two (2) Business Days prior 3 Lease Agreement to the due date therefor. Agent, on behalf of Lessor, shall notify Lessee of the applicable LIBO Rate or Prime Rate, as applicable, promptly upon the determination thereof. Each payment of Rent shall be made by Lessee prior to 12:00 noon Philadelphia time (and payments made after such time shall be deemed to have been made on the next day) at the place of payment in funds consisting of lawful currency of the United States of America which (in the case of any amount payable to Lessor, Agent or any Lender) shall be immediately available on the scheduled date when such payment shall be due, unless the scheduled date shall not be a Business Day, in which case such payment shall be made on the next succeeding Business Day (unless the result of such extension would be to carry such payment into the next calendar month, in which event such payment shall be made on the next preceding Business Day). The provisions of the foregoing sentence of this Section 4.3 shall be applicable only to Basic Rent and to Supplemental Rent payable to, or on behalf of or for the account of, Lessor, any Lender, Agent and any other Indemnitee. Any amounts payable by Lessee to Lessor hereunder shall be payable in accordance with Section 9.16 of the Participation Agreement. SECTION 4.4. Late Payment. If any Basic Rent shall not be paid when due (not taking into account any applicable grace period), Lessee shall pay to Agent on behalf of Lessor and the Lenders, or if any Supplemental Rent payable to or on behalf or for the account of Lessor, any Lender, Agent or other Indemnitee is not paid when due (not taking into account any applicable grace period), Lessee shall pay to whomever shall be entitled thereto, in each case as Supplemental Rent, interest at the Overdue Rate (to the maximum extent permitted by law) on such overdue amount from and including the initial due date thereof (not taking into account any applicable grace period) to but excluding the Business Day of payment thereof at the Overdue Rate. SECTION 4.5. Net Lease; No Setoff; Etc. This Lease shall constitute a net lease and, notwithstanding any other provision of this Lease, it is intended that Basic Rent and Supplemental Rent shall be paid without counterclaim, setoff, deduction or defense of any kind and without abatement, suspension, deferment, diminution or reduction of any kind, and Lessee's obligation to pay all such amounts, throughout the Basic Term and the Renewal Term, if applicable, is absolute and unconditional. The obligations and liabilities of Lessee hereunder shall in no way be released, discharged or otherwise affected for any reason, including, without limitation, to the maximum extent permitted by law: (a) any defect in the condition, merchantability, design, construction, quality or fitness for use of any portion of the 4 Lease Agreement Sites, or any failure of the Sites to comply with all Applicable Laws and Regulations, including any inability to occupy or use the Sites by reason of such non-compliance; (b) any damage to, abandonment, loss, contamination of or Release from or destruction of or any requisition or taking of the Sites or any part thereof, including eviction; (c) any restriction, prevention or curtailment of or interference with any use of the Sites or any part thereof, including eviction; (d) any defect in title to or rights to the Sites or any Lien on such title or rights or on the Sites; (e) any change, waiver, extension, indulgence or other action or omission or breach in respect of any obligation or liability of or by Lessor, Agent or any Lender; (f) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceedings relating to Lessee, Lessor, Agent, any Lender or any other Person, or any action taken with respect to this Lease by any trustee or receiver of Lessee, Lessor, Agent, any Lender or any other Person, or by any court, in any such proceeding; (g) any claim that Lessee has or might have against any Person, including, without limitation, Lessor, or any Lender; (h) any failure on the part of Lessor to perform or comply with any of the terms of this Lease, any other Operative Document or of any other agreement whether or not related to the Overall Transaction; (i) any invalidity or unenforceability or disaffirmance against or by Lessee of this Lease or any provision hereof or any of the other Operative Documents or any provision of any thereof; (j) the impossibility of performance by Lessee, Lessor or both; (k) any action by any court, administrative agency or other Authority; any restriction, prevention or curtailment of or any interference with the construction on or any use of any Site or any part thereof; or (m) any other occurrence whatsoever, whether similar or dissimilar to the foregoing, whether or not Lessee shall have notice or knowledge of any of the foregoing. Except as specifically set forth in Section 6.5 or Article XIII of this Lease, this Lease shall be noncancellable by Lessee for any reason whatsoever, and Lessee, to the extent permitted by Applicable Laws and Regulations, waives all rights now or hereafter conferred by statute or otherwise to quit, terminate or surrender this Lease, or to any diminution, abatement or reduction of Rent payable by Lessee hereunder. If for any reason whatsoever this Lease shall be terminated in whole or in part by operation of law or otherwise, except as expressly provided in Section 6.5 or Article XIII of this Lease, Lessee shall, unless prohibited by Applicable Laws and Regulations, nonetheless pay to Lessor (or, in the case of Supplemental Rent, to whomever shall be entitled thereto) an amount equal to each Rent payment at the time and in the manner that such payment would have become due and payable under the terms of this Lease if it had not been terminated in whole or in part, and in such case, so long as such 5 Lease Agreement payments are made and no Lease Event of Default shall have occurred and be continuing, Lessor will deem this Lease to have remained in effect. Each payment of Rent made by Lessee hereunder shall be final and, absent manifest error in the computation of the amount thereof, Lessee shall not seek or have any right to recover all or any part of such payment from Lessor, Agent or any party to any agreements related thereto for any reason whatsoever. Lessee assumes the sole responsibility for the condition, use, operation, maintenance, and management of the Sites and Lessor shall have no responsibility in respect thereof and shall have no liability for damage to the property of Lessee or any subtenant of Lessee on any account or for any reason whatsoever other than by reason of Lessor's willful misconduct or gross negligence or breach of any of its obligations under any Operative Document. ARTICLE V UTILITY CHARGES Lessee shall pay or cause to be paid all charges for electricity, power, gas, oil, water, telephone, sanitary sewer service and all other rents and utilities used in or on a Site during the Lease Term. Lessee shall be entitled to receive any credit or refund with respect to any utility charge paid by Lessee and the amount of any credit or refund received by Lessor on account of any utility charges paid by Lessee, net of the costs and expenses reasonably incurred by Lessor in obtaining such credit or refund, shall be promptly paid over to Lessee. All charges for utilities imposed with respect to a Site for a billing period during which this Lease expires or terminates (except pursuant to Section 6.2, in which case Lessee shall be solely responsible for all such charges) shall be adjusted and prorated on a daily basis between Lessor and Lessee, and each party shall pay or reimburse the other for each party's pro rata share thereof. ARTICLE VI RENEWAL OPTION; SALE, RETURN AND PURCHASE OPTIONS SECTION 6.1. Renewal Option. Subject to the consent of Lessor and the Lenders pursuant to Section 2.10 of the Participation Agreement, Lessee shall have the right, at its option, to request the Participants to renew all (but not less than all) of the Lease Supplements for the Renewal Term, commencing immediately following the expiration of the Basic Term. In order to exercise such option, Lessee shall give irrevocable written notice thereof to Lessor no earlier than 6 Lease Agreement fifteen (15) months and no later than twelve (12) months prior to the end of the Basic Term and no Lease Payment/Bankruptcy Default or Lease Event of Default shall have occurred and be continuing at the time of exercise and at the commencement of the Renewal Term. If the Renewal Term is applicable, Lessee shall continue to pay Rent, including Basic Rent (upon the terms agreed to by Lessee and the Participants for the Renewal Term), during the Renewal Term on each Payment Date occurring during the Renewal Term. All of the provisions of this Lease shall remain in effect during the Renewal Term. SECTION 6.2. Purchase Option. Lessee will have the right, at its option and upon ten (10) months prior written notice (which notice shall be irrevocable) to Lessor prior to expiration of the Lease Term, to purchase all (but not less than all) of the Sites then subject to the Lease Supplements at a price equal to the Purchase Option Exercise Amount (the "Purchase Option"). If Lessee shall have elected to purchase the Sites, Lessor shall, upon discharge of the Lien of the Mortgages pursuant to the provisions thereof, and the payment in full of an amount sufficient to retire the Notes and pay in full the Equity Amount, and the payment of all accrued but unpaid Rent and breakage fees, if any, plus all other amounts (including, without limitation, all Supplemental Rent), fees and expenses then due and payable, transfer by quitclaim deed all of Lessor's right, title and interest in and to the Sites to Lessee or its designee, without recourse or warranty (except as to the absence of Lessor Liens), and against payment by Lessee of the Purchase Option Exercise Amount in immediately available funds. Lessee, at its option, may assign its right to exercise the Purchase Option by written notice thereof to Agent and Lessor; provided that (i) Lessee shall be bound by any exercise of the Purchase Option by the assignee, (ii) such assignee shall be bound by the provisions of this Article VI applicable to the Purchase Option, and (iii) no such assignment shall release Lessee from its obligations under this Article VI and, without limitation, Lessee shall remain primarily liable to Lessor for the payment of all amounts due under this Article VI in respect of the Purchase Option. SECTION 6.3. Sale Option. If no Lease Payment/Bankruptcy Default or Lease Event of Default shall have occurred and be continuing, then Lessee may cause all (but not less than all) of the Sites subject to the Lease Supplements to be sold on the last day of the Lease Term for cash to a purchaser or purchasers not affiliated in any way with Lessee (the "Sale Option"); provided that each Land Interest and the Facility thereon shall be sold to the same Person and all Land Interests and all Facilities thereon shall be sold to one or more Persons in the same transaction; and provided further that in connection with the sale of each 7 Lease Agreement Facility located on a Non-Acquired Land Interest, Lessee shall be obligated to sell the related Land Interest as well. In the event Lessee timely elects the Sale Option, on the last day of the Lease Term, Lessee will pay as Supplemental Rent to Lessor the amounts determined in accordance with Section 6.4(b) until the Lease Balance and all other amounts payable under the Operative Documents have been paid in full. SECTION 6.4. Conditions for Sale of the Sites. (a) In the event that the Sale Option is applicable, Lessee shall cause all (but not less than all) of the Sites to be sold in accordance with the procedures set forth in this Section 6.4. In order to exercise the Sale Option, Lessee shall give notice of its election of the Sale Option effective at the expiration of the Basic Term or Renewal Term, as the case may be, not later than ten (10) months prior to such expiration, which exercise shall be irrevocable, and any failure of Lessee to so elect the Sale Option shall be deemed an election of the Purchase Option pursuant to Section 6.2. Subject to the preceding sentence, during the period commencing on the date ten (10) months prior to the scheduled end of the Basic Term or the Renewal Term, as the case may be, Lessee, on behalf of Lessor, shall use best commercial efforts, as nonexclusive agent for Lessor, to obtain the highest cash bids for the purchase of the Sites and, in the event it receives any bid, Lessee shall, within five (5) Business Days after receipt thereof and at least twenty (20) Business Days prior to the Lease Termination Date, certify to Lessor and Agent in writing the amount and terms of such bid, and the name and address of the party or parties (who shall not be Lessee or any Affiliate of Lessee or any Person with whom Lessee has an understanding or arrangement regarding the future use of the Sites by Lessee or such Affiliate, but who may be Lessor or a Lender, any Affiliate thereof or any Person contacted by a Lender) submitting such bid. Lessee will keep Agent promptly informed of the material terms of any proposed bid. Lessee shall bear its own expenses and pay, as Supplemental Rent, the reasonable expenses of Lessor, Agent and each Lender in connection with any such bidding and sale process pursuant to this Section 6.4 including any recapture costs incurred under government-funded healthcare programs, as well as all costs and expenses incurred by any party (including a buyer or potential buyer) to place the Sites in the condition required by Section 9.1 and costs of repairs, Alterations or improvements desired by such buyer. (b) In the event that Lessee contemplates accepting any bid which, upon payment of all amounts under Section 6.4(b), shall result in any portion of the Lease Balance or any other 8 Lease Agreement amount due under the Operative Documents remaining outstanding (a "Loss Bid"), Lessee shall notify Agent and Lessor in writing (a "Loss Bid Notice") of such fact and the calculation thereof prior to accepting any such bid; and in the event of such bid, any Participant may submit a bid to Lessee not later than thirty (30) days after the date of such notice from Lessee. On or before the Lease Termination Date, so long as no Lease Event of Default or Lease Payment/Bankruptcy Default shall have occurred and be continuing, and subject to the release of the security interest with respect to the Sites under the Mortgages: (i) Lessee shall transfer all of Lessee's right, title and interest in the Sites, or cause the Sites to be transferred, to the bidder(s), if any, which shall have submitted the highest bid therefor at least twenty (20) (or, in the case of a Participant, any Affiliate thereof or Person contacted by a Participant, five (5)) Business Days prior to such Lease Termination Date, in the same manner and in the same condition and otherwise in accordance with all the terms of this Lease; (ii) subject to prior or concurrent payment by Lessee of all amounts due under clause (iii) of this sentence, Lessor shall exercise such rights as it has to cause the Sites to be released from the Lien of the Mortgages and shall, without recourse or warranty (except as to the absence of Lessor Liens), transfer by quitclaim deed Lessor's right, title and interest in and to the Sites for cash to such bidder(s); and (iii) Lessee shall simultaneously pay or cause to be paid to Lessor in immediately available funds an amount equal to the sum of (p) all unpaid Basic Rent due on or prior to the Lease Termination Date, and all Supplemental Rent due on or prior to such date and any other amounts due and payable by Lessee to Lessor, Agent and each Lender plus (q) the gross sale proceeds of the Sites sold by Lessor (the "Proceeds"); plus (r) the Applicable Percentage Amount. To the extent the sum of the Proceeds plus the Applicable Percentage Amount shall exceed the Lease Balance, upon receipt of the amounts described in clause (p) of the preceding sentence, Lessor shall apply the amount of Proceeds equal to such excess to the amount payable by Lessee under clause (r); provided, that to the extent that the Proceeds alone shall exceed the Lease Balance, upon receipt of the amounts described in clause (p) of the preceding sentence, Lessor shall pay the amount of such excess to Lessee. For purposes of clause (q), with respect to the gross sales proceeds relating to the sale of the Non-Acquired Land Interests and the related Facilities, such gross proceeds shall be allocated between Lessee's interest in such Non-Acquired Land Interest (as the owner thereof) and Lessor's interest in such Non-Acquired Land Interest (as the ground lessee thereof) and in the Facility thereon based upon the respective Fair Market Sales Values of Lessee's interest in such Non-Acquired Land Interest and Lessor's interest in such Non- 9 Lease Agreement Acquired Land Interest and the Facility thereon as determined by an appraisal conducted, at Lessee's expense, by an appraiser of nationally recognized standing, selected and engaged by the Required Participants; provided, that the maximum portion of the gross sales proceeds allocated to any Non-Acquired Land Interest shall be Lessee's cost for such Non-Acquired Land Interest as set forth in the applicable Lease Supplement. The "Applicable Percentage Amount" shall be based upon the Applicable Percentage for the Lease Supplement applicable to such Site, and shall be determined in accordance with the definition thereof in Appendix 1 to the Participation Agreement. The "Applicable Percentage" for each Lease Supplement shall be determined on or about the Document Closing Date and shall be set forth in the Lease Supplement provided that the maximum "Applicable Percentage Amount" will be assumed without causing the present value at the beginning of the Lease Term of the minimum lease payments, as determined in accordance with generally accepted accounting principles, to equal or exceed ninety percent (90%) of the Fair Market Sales Value, at the beginning of this Lease, of the applicable Site. The Applicable Percentage for any Lease Supplement shall in no event be less than eighty percent (80%). (c) If Lessee exercises the Sale Option and a Loss Bid Notice is to be provided pursuant to Section 6.4(b), then as a condition to Lessee's right to consummate the Sale Option pursuant to Sections 6.3 and 6.4, Lessee shall cause to be delivered to Lessor not later than five (5) Business Days prior to the Lease Termination Date, at Lessee's sole cost and expense, a report in form and substance reasonably satisfactory to the Agent and Lessor from an Appraiser selected by Lessee and reasonably acceptable to the Agent and Lessor (the "End of Term Report") to establish the reason for any impairment to the value of any of the Sites which are being sold for less than the Allocated Amount applicable to such Site. Without limiting the indemnities provided in the Operative Documents, on the Lease Termination Date, Lessee shall pay to Agent, on behalf of Lessor and the Lenders, an amount equal to the Shortfall Amount that the End of Term Report demonstrates was the result of any impairment to the value in any of the Sites due to: (i) the existence of any Hazardous Materials, Environmental Concern Materials or violations of Environmental Laws with respect to a Site occurring or discovered after the date such Site becomes subject to the Lease (regardless of the Person so discovering any of the foregoing), or 10 Lease Agreement (ii) any restoration or rebuilding carried out by Lessee or any failure of Lessee to complete any Alterations, restoration or rebuilding, or (iii) any easements or other actions described in clauses (i) through (viii) of Section 8.3, or (iv) the failure of Lessor to have good and marketable title to any Site free and clear of all Liens (including Permitted Liens (other than Lessor Liens)) and exceptions to title caused by the acts or omissions of Lessee or any Affiliate or Subtenant. As used herein, the term "Shortfall Amount" means the excess, if any, of (i) the Lease Balance over (ii) the sum of the Proceeds plus the Applicable Percentage Amount. SECTION 6.5. Early Termination. (a) Commencing two years after the Document Closing Date and provided that no Lease Payment/Bankruptcy Default or Lease Event of Default shall have occurred and be continuing (or any such defaults are cured contemporaneously with the consummation of the purchase option under this Section 6.5(a)), Lessee shall have the option to purchase all (but not less than all) of the Sites on the next scheduled Payment Date for an amount equal to, without penalty, the Lease Balance plus all other amounts then due under the Lease and the other Operative Documents, including, without limitation, accrued but unpaid Rent and breakage fees, if any, plus all other amounts, fees and expenses then due and payable. (b) On any scheduled Payment Date prior to the first year anniversary of the Document Closing Date, Lessee may, at its option, by giving at least ninety (90) days' advance written notice to Lessor, purchase all (but not less than all) of the Sites for an amount equal to the Lease Balance, accrued but unpaid Rent and breakage fees, if any, all other amounts, fees and expenses then due and payable plus a prepayment fee equal to 50 basis points of the Lease Balance. On any scheduled Payment Date after the first year anniversary of the Document Closing Date, but prior to the second year anniversary of the Document Closing Date, Lessee may, at its option, by giving at least ninety (90) days' advance written notice to Lessor, purchase all (but not less than all) of the Sites for an amount equal to the Lease Balance, accrued but unpaid Rent and breakage fees, if any, all other amounts, fees and expenses then due and payable, plus a prepayment fee equal to 25 basis points of the Lease Balance. 11 Lease Agreement SECTION 6.6. Exercise of Options; Failure to Elect. In order to exercise any of its purchase or sale options under this Lease (other than under Section 6.5), Lessee shall give irrevocable written notice to Lessor not less than twelve (12) months prior to the end of the Basic Term, that Lessee intends to exercise one of the options provided in this Article VI and specifying such option. If Lessee shall fail to deliver such written notice in the time required, Lessee shall be deemed to have elected to exercise the Purchase Option pursuant to Section 6.2. Lessee's election (or deemed election) of the Purchase Option will be irrevocable at the time it is made (or deemed made). If Lessee has elected the option to sell the Sites under Section 6.3, such option shall be automatically revoked and such election shall be deemed of no effect if, on or after the date Lessee elects such option, there exists or occurs a Lease Event of Default or Lease Payment/Bankruptcy Default or Lessee shall fail in any manner fully to comply with this Article VI, in which case Lessee shall be automatically deemed to have elected the Purchase Option pursuant to Section 6.2. SECTION 6.7. Return of Sites. Unless the Sites shall have been transferred to Lessee pursuant to Section 6.2 or 6.5, Lessee shall, on the Lease Termination Date, and at its own expense, transfer the Sites (together with the reports described in Section 9.4 relating thereto) to the independent purchaser thereof pursuant to Section 6.3, free and clear of all Liens other than Permitted Exceptions and Lessor Liens, in as good condition as they were on the Document Closing Date, ordinary wear and tear excepted, and in compliance with all Applicable Laws and Regulations and the other requirements of Article IX (and in any event without (x) any asbestos installed or maintained in any part of the Site, (y) any polychlorinated byphenyls (PCBs) in, on or used, stored or located at the Site, and (z) any other Hazardous Materials). Lessee shall cooperate with the independent purchaser of the Site in order to facilitate the ownership and operation by such purchaser of the Site after the Lease Termination Date, including providing all books, reports and records regarding the maintenance, repair and ownership of the Site and all data and technical information relating to the physical operation and maintenance of the Site, granting or assigning (to the extent permitted by law) all licenses necessary for the operation and maintenance of the Site and cooperating in seeking and obtaining all necessary Governmental Action. Lessee shall have also paid the total cost for the completion of all Alterations commenced prior to the Lease Termination Date. The obligation of Lessee under this Article VI regarding the Purchase Option shall survive the expiration or termination of this Lease, except if Lessee duly 12 Lease Agreement and timely exercises the Sale Option and performs its obligations under Sections 6.3 and 6.4, or Lessee duly and timely exercises its rights under Section 6.5 and performs its obligations thereunder. Unless Lessee shall have exercised or been deemed to have exercised its option to purchase the Sites, then after the date which is twelve (12) months prior to the Lease Termination Date, Lessor shall at Lessee's expense be entitled to perform such investigation, including obtaining reports of engineers and other experts as to the condition and state of repair and maintenance required by this Section 6.7 and as to the compliance with Environmental Laws of the Site, as it deems appropriate. Lessee, at its sole cost and expense, shall cause the repair or other remediation of any discrepancies between the actual condition of the Site and the condition required under the Lease, such repair or remediation to be completed not later than the expiration of this Lease. SECTION 6.8. Intentionally Omitted. SECTION 6.9. Failure of Lessee to Sell Sites. If Lessee shall exercise the Sale Option and shall fail to arrange for the sale of all of the Sites on or before the Lease Termination Date in accordance with and subject to the provisions of Sections 6.4 and 6.6, then Lessee and Lessor hereby agree as follows: (a) On the Lease Termination Date, Lessee shall (i) pay to Agent (on behalf of the Participants) the Applicable Percentage Amount and (ii) Lessee will do both of the following: (1) at the option of Agent (on behalf of the Participants), either (x) cancel the sale of the Sites for which Lessee has arranged a sale (in which case, all Sites will constitute "unsold Sites" under this Section 6.9) or (y) sell the Sites for which Lessee has arranged a sale pursuant to the provisions of Sections 6.4 and 6.6; and (2) at the option of Agent (on behalf of the Participants), either (x) tender to Lessor possession of the unsold Sites or (y) continue to lease the unsold Sites during a holdover period (the "Holdover Period") and in the case of such holdover, Lessee shall continue to market, on a non-exclusive basis, the Sites for sale on behalf of Lessor in accordance with the provisions of the Lease. For each such Site, such Holdover Period shall expire on the earlier of (x) the sale of such Site and (y) the reduction of the Lease Balance to zero 13 Lease Agreement and the payment by Lessee of all Basic Rent, Supplemental Rent and all other amounts then due and payable under the Operative Documents, and (z) written notice by Agent, as Agent for the Lenders, of a date specified for the termination of such Holdover Period with respect to such Site. The Basic Rent payable by Lessee for the Sites during any Holdover Period shall be applied first to payment of the portion of Basic Rent set forth in clauses (i) and (ii) of the definition thereof, with any excess being applied to reduce such Lease Balance. Any proceeds from the sale of any Sites during the Holdover Period will be applied to reduce the Lease Balance, with such application being allocated first to the Lenders in respect of the remaining amount of the Notes, and second to the Equity Amount. If and when the Lease Balance shall be reduced to zero, (i) any further proceeds from the sale of any remaining Sites shall be remitted to Lessee for its own account, (ii) at the request of either Lessor (or Agent on Lessor's behalf) or Lessee, Lessor will transfer to Lessee or its designee, and Lessee will accept or cause its designee to accept the transfer of, all remaining Sites by quitclaim deed, and Lessee shall pay or cause to be paid all costs and expenses (including, without limitation, reasonable attorneys' fees and expenses of counsel to the Participants) in connection with such transfer. (b) On or after the Lease Termination Date, Agent, on behalf of Lessor and the Lenders, shall have the right, but not the obligation, to sell the Sites for such purchase price and upon such terms as Agent shall determine in its sole discretion. In the event that Agent shall so elect to sell the Sites, Agent shall notify each of Lessor, Lessee and the Lenders thereof, and each shall have the right to submit a bid and/or to cause any other Person to submit a bid to Agent not later than twenty (20) Business Days prior to the date Agent desires to sell the Sites (as set forth in the aforementioned notice thereof); provided, however, that Agent, on behalf of Lessor and the Lenders, shall have the right, in its sole discretion, from time to time, to defer such proposed sale date, in which event, the rights of Lessee, Lessor and each Lender to submit a bid and/or to cause any other Person to submit a bid to Agent shall be extended to the date that is twenty (20) Business Days prior to the revised proposed sale date. At no time shall Agent be obligated to accept any bid for the sale of the Sites 14 Lease Agreement (whether such bid was obtained by Lessee, Lessor, any Lender or otherwise) or to consummate any proposed sale. (c) At any time and from time to time on or after the Lease Termination Date, Agent, on behalf of Lessor and the Lenders, shall have the right to withdraw from the Sale Deposit (other than the portion thereof constituting the Applicable Percentage Amount) amounts to pay, or reimburse itself for the payment of, expenses of Lessor, Agent and each Participant in connection with any bidding and sale (or proposed sale, whether or not consummated) described in clause (b). In the event that there are insufficient funds remaining from the Sale Deposit to pay such expenses, Lessee shall pay such expenses from time to time upon demand. (d) Contemporaneously with the consummation of any sale of the Sites by Lessee or Agent pursuant to this Section 6.9, (i) Lessee will transfer all of Lessee's right, title and interest in the Sites to be transferred to the purchaser, (ii) subject to prior or concurrent payment by Lessee of all amounts due under clause (iii) of this sentence and receipt by Lessor of Proceeds from such sale, Lessor shall exercise such rights as it has to cause the Sites to be released from the Lien of the Mortgages and shall, without recourse or warranty (except as to the absence of Lessor Liens), transfer by quitclaim deed Lessor's right, title and interest in and to the Sites for cash to such purchaser; and (iii) Lessee shall simultaneously pay or cause to be paid to Agent, on behalf of Lessor and the Lenders, in immediately available funds an amount equal to all unpaid Basic Rent and all Supplement Rent due on or prior thereto and any other amounts due and payable by Lessee to Lessor, Agent and each Lender. Any Proceeds in excess of the sum of (x) the Lease Balance, plus (y) all unpaid Basic Rent and all Supplemental Rent due on or prior thereto and any other amounts due and payable by Lessee to Lessor, Agent and each Lender, shall be remitted to Lessee promptly after receipt. (e) Until a sale of the Sites by Lessee or Agent pursuant to this Section 6.9, Lessee shall be bound by all of the obligations and duties of Lessee under this Lease, notwithstanding the occurrence of the Lease Termination Date. (f) Lessor reserves all rights under this Lease and the other Operative Documents arising out of Lessee's breach of any provisions of this Lease (including Article VI), 15 Lease Agreement whether occurring prior to, on or after the Lease Termination Date, including Lessee's breach of any of its obligations under Sections 6.3 and 6.4, including the right to sue Lessee for damages. (g) To the greatest extent permitted by law, Lessee hereby unconditionally and irrevocably waives, and releases Lessor and Agent from, any right to require Lessor or Agent to sell the Sites at all or for any minimum purchase price or on any particular terms and conditions, Lessee hereby agreeing that if Lessee shall elect the Sale Option, its ability to sell the Sites on or prior to the Lease Termination Date and its right thereafter to submit a bid or to cause any other Person to submit a bid to Agent pursuant to Section 6.9(b) in the event Agent shall elect to sell the Sites, shall constitute full and complete protection of Lessee's interest hereunder. ARTICLE VII CONDITION AND USE OF SITES SECTION 7.1. Waivers. The Sites are let by Lessor "AS IS" in their present or then condition, as the case may be, subject to (a) any rights of any parties in possession thereof, (b) the state of the title thereto existing at the time Lessor acquired its interest in the Site, (c) any state of facts which an accurate survey or physical inspection might show (including any survey delivered on the Document Closing Date), (d) all Applicable Laws and Regulations, and (e) any violations of Applicable Laws and Regulations which may exist at the commencement of the Lease Term. Lessee has examined the Site and (insofar as Lessor is concerned) has found the same to be satisfactory. NEITHER LESSOR, AGENT NOR ANY LENDER HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OR SHALL BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE TO THE SITES OR TO THE VALUE, MERCHANTABILITY, HABITABILITY, CONDITION, OR FITNESS FOR USE OF THE SITES, OR ANY PART THEREOF, OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE SITES, OR ANY PART THEREOF, AND NEITHER LESSOR, AGENT NOR ANY LENDER SHALL BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN OR THE FAILURE OF THE SITES, OR ANY PART THEREOF, TO COMPLY WITH ANY APPLICABLE LAWS AND REGULATIONS, except that Lessor hereby represents and warrants that the Site is and shall be free of Lessor Liens. Lessee has been afforded full opportunity to inspect the Sites, is satisfied with the results of its inspections and is entering into this Lease solely on the basis of the results of its own inspections, and all risks 16 Lease Agreement incident to the matters discussed in the preceding sentence (other than Lessor Liens), as between Lessor, Agent and the Lenders, on the one hand, and Lessee, on the other, are to be borne by Lessee. The provisions of this Article VII have been negotiated, and, except to the extent otherwise expressly stated, the foregoing provisions are intended to be a complete exclusion and negation of any representations or warranties by any of Lessor, Agent or the Lenders, express or implied, with respect to the Sites (or any interest therein), that may arise pursuant to any law now or hereafter in effect or otherwise. ARTICLE VIII LIENS; EASEMENTS SECTION 8.1. Liens. Lessee shall not directly or indirectly create, incur, assume or suffer to exist any Lien, defect, attachment, levy, title retention agreement or claim upon any Site or Alteration, or with respect to the Sites, any Basic Rent or Supplemental Rent, the title thereto, or any interest therein, including all Liens which arise out of the possession, use or occupancy of the Sites or by reason of labor or materials furnished or claimed to have been furnished to Lessee, or any of its contractors or agents or by reason of the financing of any Alterations constructed by or for the benefit of Lessee and not financed by Lessor, except in all cases Permitted Liens. With respect to all Liens other than Permitted Liens, Lessee shall promptly, but not later than thirty (30) days (or, in the case of non-consensual Liens, sixty (60) days) after the filing thereof, at its own expense, take such action as may be necessary duly to discharge or eliminate or bond in a manner reasonably satisfactory to Lessor any such Lien if the same shall arise at any time. SECTION 8.2. No Lessor Consent or Liability. Nothing contained in this Lease shall be construed as constituting the consent or request of the Lessor, expressed or implied, to or for the performance by any contractor, mechanic, laborer, materialman, supplier or vendor of any labor or services or for the furnishing of any materials for any construction, alteration, addition, repair or demolition of or to any Site or any part thereof. NOTICE IS HEREBY GIVEN THAT NEITHER LESSOR NOR ANY LENDER OR AGENT IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO LESSEE, OR TO ANYONE HOLDING A SITE OR ANY PART THEREOF THROUGH OR UNDER LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LESSOR, AGENT OR ANY LENDER IN AND TO ANY SITE. 17 Lease Agreement SECTION 8.3. Easements. Notwithstanding the foregoing paragraph, at the request of Lessee, Lessor shall, from time to time during the Lease Term and upon at least thirty (30) days' prior written notice from Lessee, and receipt of the materials specified in the next succeeding sentence, consent to and join in any (i) grant of easements, licenses, rights of way, party wall rights and other rights in the nature of easements, with or without consideration, (ii) release or termination of easements, licenses, rights of way, party wall rights or other rights in the nature of easements which are for the benefit of a Site or any portion thereof, with or without consideration, (iii) dedication or transfer of portions of a Site, not improved with a building, for road, highway or other public purposes, with or without consideration, (iv) execution of petitions to have a Site or any portion thereof annexed to any municipal corporation or utility district, (v) execution of agreements for the use and maintenance of common areas, for reciprocal rights of parking, ingress and egress and amendments to any covenants and restrictions affecting a Site or any portion thereof, with or without consideration, (vi) request to any Authority for platting or subdivision or replatting or resubdivision approval with respect to a Site or any portion thereof or any parcel of land of which a Site or any portion thereof forms a part or a request for any variance from zoning, (vii) creation of a governmental special benefit district for public improvements and collection of special assessments in connection therewith, in lump sum or installments, and (viii) execution and delivery of any instrument appropriate to confirm or effect such grant, release, dedication, transfer request or such other matter, document or proceeding. Lessor's obligations pursuant to the preceding sentence shall be subject to the requirements that: (a) any such action shall be at the sole cost and expense of Lessee, and Lessee shall pay all reasonable out-of-pocket costs of Lessor, Agent and the Lenders in connection therewith (including, without limitation, the reasonable fees of attorneys (including allocated costs of internal counsel of Agent; (b) Lessee shall have delivered to Lessor a certificate of a Responsible Officer of Lessee stating that: (1) such action will not cause the Site or any portion thereof to fail to comply in any respect with the provisions of the Lease or any other Operative Documents and in any material respect with all Applicable Laws and Regulations (including, without limitation, all applicable zoning, planning, building and subdivision ordinances, all 18 Lease Agreement applicable restrictive covenants and all applicable architectural approval requirements); (2) all governmental consents or approvals required prior to such action have been obtained, and all filings required prior to such action have been made; (3) such action will not result in any material down-zoning of the Site or any portion thereof or a material reduction in the maximum density or development rights available to the Site under all Applicable Laws and Regulations; (4) this Lease and Lessee's obligations hereunder shall continue in full force and effect, without abatement, suspension, deferment, diminution, reduction, counterclaim, setoff, defense or deduction; (5) such action will not materially reduce the Fair Market Sales Value, utility, remaining economic useful life or residual value of the Site or Lessor's interest therein; and (6) such action will not impose or create any liability or obligation on Lessor; (c) all consideration received in connection with such action shall be paid to Lessee; and (d) no Lease Event of Default shall have occurred and be continuing. ARTICLE IX MAINTENANCE AND REPAIR; ALTERATIONS AND ADDITIONS SECTION 9.1. Maintenance and Repair; Compliance With Law. Lessee, at its own expense, shall at all times (a) maintain the Sites in good repair and condition, subject to ordinary wear and tear, and in safe repair and condition (all whether involving interior or exterior, structural or nonstructural, ordinary or extraordinary, and foreseen or unforeseen circumstances); (b) except to the extent Section 9.5 shall apply, maintain, manage and monitor the Sites in accordance with all Applicable Laws and Regulations, whether or not such maintenance requires structural modifications, noncompliance with which (i) would have a material adverse effect on Lessee's right to use the Sites or Lessee's 19 Lease Agreement business or financial condition, (ii) would cause any of the results enumerated in Section 9.5 hereof, (iii) would materially adversely affect the Fair Market Sales Value, utility, remaining economic useful life or residual value of the Sites, or (iv) would materially adversely affect Lessor's interest in the Sites; (c) comply with the standards imposed by any insurance policies required to be maintained hereunder which are in effect at any time with respect to the Sites or any part thereof; (d) maintain, manage and monitor the Sites in accordance with all applicable contracts, including service contracts and insurance contracts; (e) conduct maintenance and repair under the same programs and subject to the same standards as Lessee or its Affiliates shall maintain and repair other healthcare facilities owned, leased or operated by Lessee or its Affiliates; (f) cause the Sites to continue to have at all times the capacity and functional ability to be used for, on a continuing basis (subject to normal interruption in the ordinary course of business for maintenance, inspection and repair) and in commercial operation, the purposes for which it was specifically designed; (g) maintain appropriate and customary written environmental operations and maintenance plans (including, where appropriate for asbestos-containing materials) for the Sites; and (h) procure, maintain and comply in all material respects with all material licenses, permits, orders, approvals, consents and other authorizations required for the construction, use, maintenance and operation of the Sites and for the use, operation, maintenance, repair and restoration of the Facilities. Lessee waives any right that it may now have or hereafter acquire to (x) require Lessor to maintain, repair, replace, alter, remove or rebuild all or any part of the Sites or (y) make repairs at the expense of Lessor pursuant to any Applicable Laws and Regulations or other agreements. SECTION 9.2. Alterations. (a) At Lessee's own cost and expense, (i) Lessee shall make alterations, renovations, improvements and additions to any Site(s) or any part thereof and substitutions and replacements therefor (collectively, "Alterations") so long as such Alterations are (A) made to repair or maintain the Site(s) in the condition required by Section 9.1; (B) necessary in order for the Site(s) to be in compliance with Applicable Laws and Regulations; or (C) necessary or advisable to restore the Site(s) to their condition existing prior to a Casualty or Condemnation; and (ii) so long as no Lease Event of Default or Lease Payment/Bankruptcy Default has occurred and is continuing, Lessee may undertake Alterations on one or more Sites so long as such Alterations comply with Applicable Laws and Regulations and with Section 9.1 and subsection (b) of this Section 9.2. 20 Lease Agreement (b) The making of any Alterations must be in compliance with the following requirements; provided that in the case of any Alteration required by an emergency or by Applicable Laws and Regulations, Lessee shall (x) promptly notify Agent thereof, (y) not be bound by the provisions of clause (1) below and (z) effect such Alteration in a manner to avoid (or minimize if it is not possible to avoid) any violation of clause (5) below: (1) No such Alterations with a cost exceeding $500,000 (or, in the case of related Alterations at any one Site, with an aggregate cost exceeding $500,000) shall be made or undertaken except upon not less than thirty days' prior written approval of Agent, which approval shall not be unreasonably withheld. For any Alterations which are subject to this clause (1), if Agent, in its good faith judgment, believes that such Alterations may violate the provisions of clause (5) below, Agent (on behalf of the Participants) may engage an appraiser of nationally recognized standing, at Lessee's expense, to determine (by appraisal methods satisfactory to Agent) the projected Fair Market Sales Value of any Facility following the completion of Alterations relating thereto and may delay its approval until receipt of such appraisal. (2) Lessee shall not make any Alterations in violation of the terms of any restriction, easement, condition or covenant or other matter affecting title to the Site. (3) No Alterations shall be undertaken until Lessee shall have procured and paid for, so far as the same may be required from time to time, all permits and authorizations relating to such Alterations of all municipal and other Authorities having jurisdiction over the Site. Lessor, at Lessee's expense, shall join in the application for any such permit or authorization and execute and deliver any document in connection therewith, whenever such joinder is necessary or advisable. (4) The Alterations shall be expeditiously completed in a good and workmanlike manner and in compliance with all Applicable Laws and Regulations then in effect and the standards imposed by any insurance policies required to be maintained hereunder. (5) All Alterations shall, when completed, be of such a character as to not materially adversely affect the Fair Market Sales Value, utility, remaining economic useful life 21 Lease Agreement or residual value of the Site from its Fair Market Sales Value, utility, remaining economic useful life or residual value immediately prior to the making thereof or, in the case of Alterations being made by virtue of a Casualty or Condemnation, immediately prior to the occurrence of such Casualty or Condemnation. (6) Lessee shall have made adequate arrangements for payment of the cost of all Alterations when due so that the Site shall at all times be free of Liens for labor and materials supplied or claimed to have been supplied to the Site, other than Permitted Liens; provided, that Lessee shall have the right to contest the amount claimed by any such supplier of labor or materials in accordance with the applicable provisions of Section 9.5. SECTION 9.3. Title to Alterations. Title to Alterations shall without further act vest in Lessor and shall be deemed to constitute a part of the related Site and be subject to this Lease in the following cases: (a) such Alterations shall be in replacement of or in substitution for a portion of the Facilities and/or the Sites; (b) such Alterations shall be required to be made pursuant to the terms of Section 9.1 or 9.2(a)(i) hereof; or (c) such Alterations shall be Nonseverable. Lessee, at Lessor's request, shall execute and deliver any deeds, bills of sale, assignments or other documents of conveyance reasonably necessary to evidence the vesting of title in and to such Alterations to Lessor. If such Alterations are not within any of the categories set forth in clauses (a) through (c) of this Section 9.3, then title to such Alterations shall vest in Lessee and such Alterations shall not be deemed to be Alterations which are part of the Site. All Alterations to which Lessee shall have title may, so long as removal thereof shall not result in the violation of any Applicable Laws and Regulations and no Lease Event of Default or Lease Payment/Bankruptcy Default is continuing, be removed at any time by Lessee. Any such Alterations shall be removed by Lessee at its expense if Lessor shall so request prior to the return of the Site to Lessor or sale of the Site in accordance with the provisions of this Lease, and Lessee shall at its 22 Lease Agreement expense repair any damage to the Site caused by the removal of such Alterations. Lessor (or the purchaser of the applicable Site) may purchase from Lessee Alterations (if not already owned by Lessor) which Lessee notifies Lessor that Lessee intends to remove from the Site prior to the return of the Site to Lessor or sale of the Site, which purchase shall be at the Fair Market Sales Value of such Alterations. Title to any Lessee Alterations shall vest in Lessor (or the purchaser of the applicable Site) if not removed from the Site by Lessee prior to the return of the Site to Lessor or sale of the Site. SECTION 9.4. Maintenance and Repair Reports. Lessee shall keep maintenance and repair reports in sufficient detail, and as customary for owners of commercial real estate, to indicate the nature and date of major work done. Lessee shall prepare and maintain appropriate and customary written operations and maintenance plans (including, where appropriate for asbestos-containing materials) for the Sites. Such reports and plans shall be kept on file by Lessee at its offices during the Lease Term, and shall be made available to Lessor upon reasonable request. Lessee shall give notice to Lessor and Agent of any Condemnation or Casualty the cost to repair which is reasonably expected by Lessee to exceed $250,000, promptly after Lessee has knowledge thereof. SECTION 9.5. Permitted Contests. If, to the extent and for so long as (a) a test, challenge, appeal or proceeding for review of any Applicable Laws and Regulations or any Governmental Action relating to any Site or to the operation or maintenance of any Facility shall be prosecuted diligently and in good faith in appropriate proceedings by Lessee or (b) compliance with such Applicable Laws and Regulations or such Governmental Action shall have been excused or exempted by a valid nonconforming use permit, waiver, extension or forbearance, Lessee shall not be required to comply with such Applicable Laws and Regulations or such Governmental Action but only if and so long as any such test, challenge, appeal, proceeding or noncompliance shall not, in the reasonable opinion of Lessor, involve (A) any meaningful risk of (1) foreclosure, forfeiture or loss of a Site, (2) criminal liability being imposed on Lessor, Agent, any Lender or the Site or (3) the nonpayment of Rent or (B) any substantial danger of (1) the sale of, or the creation of any Lien (other than a Permitted Lien) on, any part of the Site, (2) material civil liability being imposed on Lessor, Agent, any Lender or the Site, (3) the extension of the ultimate imposition of such Applicable Laws and Regulations or such Governmental Action beyond the last day of the Lease Term, or (4) enjoinment of, or interference with, the use, possession or disposition of the Site 23 Lease Agreement in any material respect. Lessee shall provide Lessor with notice of any contest of the type described in clause (a) above in detail sufficient to enable Lessor to ascertain whether such contest may have an effect of the type described in clauses (b)(A) and (B) above. Lessor will not be required to join in any proceedings pursuant to this Section 9.5 unless a provision of any Applicable Laws and Regulations requires, or, in the good faith opinion of Lessee, it is helpful to Lessee that such proceedings be brought by or in the name of Lessor; and in that event Lessor will join in the proceedings or permit them or any part thereof to be brought in its name if and so long as no Lease Event of Default or Lease Payment/Bankruptcy Default is continuing and Lessee pays all related expenses. ARTICLE X USE Lessee may use each Site as a health care facility and for related ancillary purposes. Lessee shall not use any Site or any part thereof for any purpose or in any manner that would materially adversely affect the Fair Market Sales Value, utility, remaining useful life or residual value of the Site or that would create a materially increased risk of environmental liability or that would violate or conflict with, or constitute or result in a violation or default under (a) any Applicable Laws and Regulations whether now existing or hereafter in effect, foreseen or unforeseen, except to the extent permitted by Section 9.5, (b) any insurance policies required by Article XI, or (c) any Operative Document. Lessee shall pay, or cause to be paid, all charges and costs required in connection with the use of the Sites as contemplated by this Lease. Lessee shall not commit or permit any waste of the Sites or any part thereof. ARTICLE XI INSURANCE SECTION 11.1. Required Coverages. Lessee will keep insured all property of a character usually insured by corporations engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such corporations, and carry such other insurance as is usually carried by such corporations, provided that in any event Lessee will maintain: 24 Lease Agreement (a) Commercial General Liability Insurance. Combined single limit insurance against claims for bodily injury, death or third-party property damage occurring on, in or about each Site (including adjoining streets and sidewalks) in an amount at least equal to $5,000,000 per person and $5,000,000 per occurrence (subject to a maximum deductible of $350,000 per occurrence) and $5,000,000 for property damage per occurrence, with a minimum general annual limit of $5,000,000 and a minimum of $15,000,000 excess of such coverage. (b) Property Insurance. Insurance against loss of damage covering each Site or any portion thereof by reason of any Peril (as defined below) in an amount (subject to such deductibles and/or self-insurance in such maximum amounts as is approved by Agent from time to time, such approval not to be unreasonably withheld) at least equal to such minimum amounts as are carried by corporations owning and/or operating healthcare facilities comparable to the Sites; provided, however, that at no time shall the amount of such coverage be less than replacement cost. (c) Workers' Compensation Insurance. Lessee shall, in the operation of the Sites, comply with the applicable Workers' Compensation laws and protect Lessor, Agent and the Lenders against any liability under such laws. (d) Builder's Risk Insurance. During the construction of any Alteration, Lessee shall also maintain, for the benefit of Lessor, all-risk Builders' Risk Insurance in an amount equal to the greater of the replacement value of the applicable Facility and Alteration and the then outstanding Allocated Amount of the applicable Site. (e) Flood Insurance. For any Site located in a special flood hazard area (as defined in National Flood Insurance Reform Act), Lessee shall maintain flood insurance, for the benefit of Lessor, Agent and the Lenders, in an amount at least equal to the then outstanding Allocated Amount of the applicable Site. Prior to the date hereof and from time to time upon Lessor's request, Lessee shall deliver to Lessor evidence reasonably satisfactory to Lessor for each Site establishing whether such Site is located in a special flood hazard area. (f) Other Insurance. Such other insurance, including worker's compensation insurance, malpractice or professional liability insurance, automobile liability (if applicable) and business interruption insurance, in each case as is generally carried by owners of similar properties in such amounts and 25 Lease Agreement against such risks as are then customary for properties similar in use. Such insurance shall be written by reputable insurance companies that are financially sound and solvent and otherwise reasonably appropriate considering the amount and type of insurance being provided by such companies. Any insurance company selected by Lessee shall be rated in A.M. Best's Insurance Guide or any successor thereto (or if there be none, an organization having a similar national reputation) and shall have a general policyholder rating of "A-" (or comparable rating for a rating by an organization other than A.M. Best) and a financial rating of at least "X" (or comparable rating for a rating by an organization other than A.M. Best) or be otherwise acceptable to the Required Participants. In the case of liability insurance maintained by Lessee, it shall name Agent, together with Lessor, as additional insureds and, in the case of property insurance maintained by Lessee, it shall name Agent, together with Lessor, as mortgagees and loss payees. Each policy referred to in this Section 11.1 shall provide that: (i) it will not be cancelled, materially modified or its limits reduced, or allowed to lapse without renewal, except after not less than 30 days' prior written notice to Agent; (ii) the interests of Agent and Lessor shall not be invalidated by any act or negligence of or breach of warranty or representation by Lessee or any Person having an interest in a Site or the Facility thereon; (iii) such insurance is primary with respect to any other insurance carried by or available to Agent and Lessor; (iv) the insurer shall waive any right of subrogation, setoff, counterclaim, or other deduction, whether by attachment or otherwise, against Agent or Lessor; and (v) such policy shall contain a cross-liability clause providing for coverage of Agent and Lessor as if separate policies had been issued to each of them. Lessee will notify Agent promptly of any policy cancellation, reduction in policy limits, modification or amendment. The term "Peril" shall mean, collectively, fire, lightning, flood, windstorm, hail, explosion, riot and civil commotion, vandalism and malicious mischief, damage from aircraft, vehicles and smoke and all other perils covered by the "all risk endorsement" then in use in the Commonwealth of Pennsylvania. SECTION 11.2. Delivery of Insurance Certificates. On or before the Document Closing Date, Lessee shall deliver to Agent and Lessor certificates of insurance satisfactory to Agent and Lessor evidencing the existence of all insurance required to be maintained hereunder and setting forth the respective coverages, limits of liability, carrier, policy number and period of coverage. Thereafter, throughout the Lease Term, at the time each of Lessee's insurance policies is renewed (but in no event 26 Lease Agreement less frequently than once each year), Lessee shall deliver to Agent and Lessor certificates of insurance evidencing that all insurance required by Section 11.1 to be maintained by Lessee with respect to the Sites is in effect. ARTICLE XII ASSIGNMENT AND SUBLEASING SECTION 12.1. Assignment and Subletting. (a) Lessee may not assign, mortgage or pledge, in whole or in part, any of its right, title or interest in, to or under this Lease or any portion of the Sites to any Person (including an Affiliate of Lessee) at any time, and any such assignment, mortgage or pledge shall be void; provided, however, that without the consent of Lessor, Lessee may assign this Lease to a single-purpose, wholly-owned, direct or indirect Subsidiary of Genesis (the "Permitted Assignee") provided that the following conditions are met: (i) The Permitted Assignee must be incorporated under the laws of the State of Delaware or the Commonwealth of Pennsylvania; (ii) No Lease Event of Default or Lease Payment/Bankruptcy Default shall have occurred and be continuing; (iii) The Permitted Assignee shall, prior to or simultaneously with the assignment, enter into an assumption agreement, which agreement shall include all of the representations, warranties and covenants contained in this Lease; (iv) Genesis and its Material Subsidiaries shall, prior to or simultaneously with the assignment of the Lease deliver a reaffirmation of the Guaranties; and (v) Lessee shall deliver an opinion of counsel for the Permitted Assignee, reasonably acceptable to Lessor and Agent, dated as of the date of the assignment, stating that the Permitted Assignee has the legal capacity to perform and fulfill all of the obligations and liabilities contained in the Lease, and containing other matters as reasonably requested by Lessor and Agent. 27 Lease Agreement Lessee may not sublease, in whole or in part, any of its right, title or interest in, to or under this Lease or any portion of the Sites to any Person at any time, and any such sublease shall be void and of no force or effect; provided, however, that without the consent of Lessor, Lessee may sublease any Site to a wholly-owned direct or indirect Subsidiary of Genesis (any such permitted sublease is hereinafter referred to as a "Sublease"). Any such permitted sublessee under any Sublease described in this Section 12.1(a) shall hereinafter be referred to as a "Subtenant." Regardless of Lessor's consent, no subletting shall release Lessee of Lessee's obligation or alter the primary liability of Lessee to pay Rent hereunder (including, without limitation, Basic Rent and Supplemental Rent) and to perform all other obligations to be performed by Lessee hereunder. The acceptance of Rent by Lessor from any other Person shall not be deemed to be a waiver by Lessor of any provision hereof. Consent to one subletting of one Site shall not be deemed consent to any subsequent or further subletting of such Site or any other Site. Lessor may proceed directly against Lessee without the necessity of exhausting remedies against said successor. (b) Lessee hereby assigns to Lessor all of Lessee's right, title and interest in and to all Subleases entered into by Lessee in accordance with Section 12.1(a), now or hereafter in effect, including but not limited to all rents and other sums payable to Lessee under each such Sublease. Lessor shall have no obligation to perform, and Lessee shall not by reason of such assignment be relieved of its obligation to perform, any of Lessee's covenants or agreements under this Lease or covenants or agreements of Lessee, as sublessor, under any such Sublease; provided that, upon the termination of this Lease or upon termination of Lessee's right to possess the Site following a Lease Event of Default (the date of such termination shall be referred to herein as the "Turnover Date") the following shall apply: (A) if Lessee acquires ownership of the Site in accordance with the terms of this Lease or if Lessee's right to possess the Site has been terminated following a Lease Event of Default then, subject to the provisions of Article XVIII, Lessee shall continue to be liable for all obligations under the Subleases; or (B) if Lessee does not acquire ownership of the Site, (i) Lessee shall continue to be liable for any obligations under the Subleases accruing or arising prior to the Turnover Date and for any tenant improvement obligations arising or accruing prior to the later of (x) the Turnover Date and (y) the scheduled termination date of the Basic Term or the Renewal Term or the Extended Renewal Term, as applicable, and (ii) with respect to any Subleases not terminated in accordance with 28 Lease Agreement Section 12.2(b), Lessor (or any successor owner of the Site (the "Designated Owner")) shall assume and be liable for, subject to the limitations on the liability of the Designated Owner set forth in Section 12.2 and subject to the limitations on the liability of Lessee set forth in Article XVIII, Lessee's obligations under the Subleases other than those referred to in clause (i) above. Prior to the Turnover Date, Lessee shall have the right to collect and enjoy all rents and other sums of money payable under any Sublease and Lessee shall have the right to modify, extend, amend or terminate any or all of the Subleases (except that Lessee shall not have the right to amend or modify any Sublease, the effect of which would be to cause a Qualified Subtenant (defined below) to become a non-Qualified Subtenant, unless the modification also revises the language required in the Sublease pursuant to Section 12.2(a) hereof to be consistent with the language required by Section 12.2(c) hereof. SECTION 12.2. Sublease Subordination. (a) In the case of any proposed Sublease with a Subtenant, not less than thirty days prior to the consummation of such Sublease (or in the case of a Sublease to be entered into within ten days after the Document Closing Date, not later than the fifth day after the Document Closing Date), Lessee shall deliver to Lessor each of the following: (i) a certification of Lessee identifying the proposed Subtenant in question and confirming that such proposed Subtenant satisfies the requirements of Section 12.1(a) and Section 12.2(b), and (ii) a copy of the proposed Sublease. (b) In the case of any Sublease, following the Turnover Date the Designated Owner shall have the right to terminate such Sublease and the Subtenant's Sublease and right of possession thereunder or, in the alternative (at the Designated Owner's option), the Designated Owner may require the Subtenant under such Sublease to attorn to the Designated Owner; and in the case of such required attornment, the rights (including, without limitation, the right of possession) of such Subtenant under such Sublease shall not be disturbed or affected by the Designated Owner so long as no default by such Subtenant exists under the terms of such Sublease as would enable Lessee (as sublessor) to terminate such Sublease or would cause termination of such Sublease or would entitle Lessee (as sublessor) to dispossess the Subtenant under such Sublease. Each Sublease shall contain the following language: "The Tenant hereunder agrees that this Lease is subject and subordinate to the lease under which the Landlord hereunder occupies the 29 Lease Agreement Property (the "Overlease", with the landlord under the Overlease and its successors and assigns in interest to the Property or this Lease being hereinafter referred to as the "Overlandlord") and in the event of the termination of the Overlease or in the event the Overlandlord terminates the Landlord's right of possession under the Overlease (the date on which either such termination becomes effective being referred to herein as the "Turnover Date"), the Overlandlord shall have (i) the right to terminate this Lease and the Tenant's right of possession hereunder, or, in the alternative (at the Overlandlord's option), (ii) the right to require the Tenant hereunder to attorn to the Overlandlord; and in the case of such required attornment election, the Tenant hereunder will attorn to the Overlandlord and pay the Overlandlord all of the rents and other monies required to be paid by the Tenant hereunder, and perform all of the terms, covenants, conditions and obligations contained in this Lease, and this Lease shall continue as a direct lease between the Tenant hereunder and the Overlandlord upon all of the terms and conditions hereof except that in no event shall the Overlandlord have any obligation to perform any obligation of the Landlord hereunder with respect to obligations of the Landlord hereunder accruing prior to the Turnover Date and that any obligations of the Overlandlord (or any successor Overlandlord) hereunder arising after the Turnover Date shall be without recourse to Overlandlord (other than the interest of the Overlandlord in the property demised by this Lease)." ARTICLE XIII LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE SECTION 13.1. Event of Loss; Condemnation or Casualty. (a) If an Event of Loss shall occur, Lessee shall give Lessor and Agent prompt written notice of such occurrence and the date thereof and Lessee shall purchase the Site(s) affected thereby from Lessor on the next succeeding Payment Date after the date such Event of Loss shall have occurred at a purchase price 30 Lease Agreement equal to the sum of (A) the Allocated Amount, plus (B) all accrued but unpaid Rent, plus (C) all other sums due and payable by Lessee to Lessor, Agent or any Lender with respect to such affected Site(s) under any of the Operative Documents. (b) Upon payment in full of all amounts payable pursuant to Section 13.1(a) and the discharge of the Lien of the Mortgage pursuant to Section 6.3 thereof, (i) the Lease Term shall end with respect to the affected Site(s), (ii) the obligations of Lessee hereunder with respect to the affected Site(s) (other than any obligations expressed herein as surviving termination of this Lease) shall terminate as of the date of such payment. SECTION 13.2. Application of Payments Relating to an Event of Loss. All Net Condemnation Proceeds and property insurance proceeds received at any time by Lessor, Lessee or Agent from any Authority or other Person with respect to any Event of Loss of one or more Sites shall be promptly remitted to Lessor and, in the event Lessee purchases the affected Site(s) pursuant to Section 13.1(a), be applied against the purchase price payable by Lessee pursuant to Section 13.1(a), and any such Net Condemnation Proceeds and property insurance proceeds remaining thereafter shall be paid over to, or retained by, Lessee, or as Lessee may direct. SECTION 13.3. Application of Certain Payments Relating to a Condemnation. In case of a requisition for temporary use of all or a portion of any Site which is not an Event of Taking, this Lease shall remain in full force and effect, without any abatement or reduction of Rent, and the proceeds received from any Authority relating to a Condemnation for the affected Site shall be paid to Lessee, except that any portion of such proceeds that is awarded with respect to the time period after the expiration or termination of the Lease Term (unless Lessee shall have exercised an option to purchase the Sites and no Lease Payment/Bankruptcy Default or Lease Event of Default shall have occurred and be continuing) shall be paid to Lessor; provided, that if Lessee has paid the Lease Balance to Lessor, such proceeds (or the portion of such proceeds in excess of the portion thereof applied to payment of the Lease Balance) shall be paid over to Lessee. SECTION 13.4. Casualty. Upon any Casualty with respect to a Site the cost of repair of which would exceed $250,000, Lessee shall give to Lessor written notice thereof. As soon as practicable after a Casualty, Lessee shall repair and rebuild the affected portions of the Site suffering such Casualty (or cause such affected portions to be repaired and rebuilt) to the 31 Lease Agreement condition required to be maintained by Section 9.1 hereof; provided, that the value and functional capability of such item as restored is at least equivalent to the value and functional capability of such item as in effect immediately prior to the occurrence of such Casualty. If any insurance proceeds received with respect to any Casualty shall be in excess of twenty-five percent (25%) of the Allocated Amount for the applicable Site, the insurance proceeds received with respect to such Casualty shall be paid over to or retained by Agent (on behalf of the Participants), to be distributed to Lessee upon completion of such repairs and rebuilding of the affected portions of the applicable Site in accordance with the conditions set forth in this Section 13.4; provided that in such event, at Lessee's request and expense, Agent and Lessee shall enter into an insurance escrow and disbursement agreement in form and substance reasonably satisfactory to Agent providing for the disbursement of proceeds (not more often than once per month and with each monthly disbursement being not less than $100,000) to Lessee or its contractor during the course of such repair and rebuilding upon conditions satisfactory to Agent in its reasonable judgment. SECTION 13.5. Other Dispositions. Notwithstanding the foregoing provisions of this Article XIII, as long as a Lease Payment/Bankruptcy Default or Lease Event of Default shall have occurred and be continuing, any amount that would otherwise be payable to or for the account of, or that would otherwise be retained by, Lessee pursuant to this Article XIII shall be paid to Agent (or to Lessor after the Loan Agreement shall have been satisfied and discharged) as security for the obligations of Lessee under this Lease, shall be invested by Agent (or Lessor) in accordance with Section 21.18 in Permitted Investments and, if a Lease Event of Default is continuing, may be applied to the obligations of Lessee hereunder, and, at such time thereafter as no Lease Payment/Bankruptcy Default or Lease Event of Default shall be continuing, such amount and gain thereon shall be paid promptly to Lessee to the extent not previously applied in accordance with the terms of this Lease. SECTION 13.6. Negotiations. In the event any part of a Site becomes subject to condemnation or requisition proceedings, Lessee shall give notice thereof to Lessor and Agent promptly after Lessee has knowledge thereof and, to the extent permitted by any Applicable Laws and Regulations, Lessee shall control the negotiations with the relevant Authority unless a Lease Payment/Bankruptcy Default or Lease Event of Default shall be continuing, in which case Lessor shall control such negotiations; provided that in any event Lessor may participate at Lessor's expense (or if a Lease Payment/Bankruptcy Default or Lease Event of Default shall be continuing, at Lessee's expense) in such 32 Lease Agreement negotiations; and provided in all cases, that no settlement will be made without Lessor's prior written consent, not to be unreasonably withheld. Lessee shall give to Lessor and Agent such information, and copies of such documents, which relate to such proceedings, or which relate to the settlement of amounts due under insurance policies required by Article XI, and are in the possession of Lessee, as are reasonably requested by Lessor or Agent. If the proceedings relate to an Event of Taking, Lessee shall act diligently in connection therewith. SECTION 13.7. No Rent Abatement. Rent shall not abate hereunder by reason of any Casualty, any Event of Loss, any Event of Taking or any Condemnation of a Site, and Lessee shall continue to perform and fulfill all of Lessee's obligations, covenants and agreements hereunder notwithstanding such Casualty, Event of Loss, Event of Taking or Condemnation until the Lease Termination Date. ARTICLE XIV NON-INTERFERENCE SECTION 14.1. Non-Interference. Lessor covenants that it will not interfere in Lessee's or any of its Subtenants' use of the Sites in accordance with this Lease during the Lease Term, so long as no Lease Event of Default has occurred and is continuing; it being agreed that Lessee's remedies for breach of the foregoing covenant shall be limited to a claim for damages or the commencement of proceedings to enjoin such breach. Such right is independent of and shall not affect Lessor's rights otherwise to initiate legal action to enforce the obligations of Lessee under this Lease. SECTION 14.2. Certain Duties and Responsibilities of Lessor. Lessor undertakes to perform such duties and only such duties as are specifically set forth herein and in the other Operative Documents, and no implied covenants or obligations shall be read into this Lease against Lessor, and Lessor agrees that it shall not, nor shall it have a duty to, manage, control, use, sell, maintain, insure, register, lease, operate, modify, dispose of or otherwise deal with the Sites in any manner whatsoever, except as required by the terms of the Operative Documents and as otherwise provided herein; provided that during the continuance of a Lease Event of Default or a Lease Payment/Bankruptcy Default, Lessor shall have no obligation to Lessee to perform any such duties. 33 Lease Agreement ARTICLE XV INSPECTION AND REPORTS SECTION 15.1. Inspection. Upon five (5) Business Days prior notice to Lessee, each of Agent, Lessor, any Lender and their respective authorized representatives (the "Inspecting Parties") may inspect (a) any Site and (b) the books and records of Lessee relating directly and primarily to the Site and make copies and abstracts therefrom, but only after material related to matters other than the Site shall have been redacted therefrom. All such inspections shall be at the expense and risk of the Inspecting Parties, except that if a Lease Event of Default or Lease Payment/Bankruptcy Default has occurred and is continuing, Lessee shall reimburse the Inspecting Parties for the reasonable costs of such inspections and such inspection shall be at Lessee's risk. Lessee shall furnish to the Inspecting Parties statements accurate in all material respects regarding the condition and state of repair of the Sites, all at such times and as often as may be reasonably requested. No inspection shall unreasonably interfere with Lessee's operations or the operations of any other occupant of the Sites. None of the Inspecting Parties shall have any duty to make any such inspection or inquiry, and none of the Inspecting Parties shall incur any liability or obligation by reason of not making any such inspection or inquiry. None of the Inspecting Parties shall incur any liability or obligation by reason of making any such inspection or inquiry unless and to the extent, so long as no Lease Event of Default has occurred and is continuing at the time of inspection, such Inspecting Party causes damage to the Site or any property of Lessee or any other Person during the course of such inspection. SECTION 15.2. Reports. To the extent permissible under Applicable Laws and Regulations, Lessee shall prepare and file in timely fashion, or, where Lessor shall be required to file, Lessee shall prepare and make available to Lessor and Agent within a reasonable time prior to the date for filing and Lessor shall file, any reports with respect to the condition or operation of the Sites that shall be required to be filed with any Authority. ARTICLE XVI OWNERSHIP, GRANT OF SECURITY INTEREST AND FURTHER ASSURANCES SECTION 16.1. Grant of Security Interest. Lessee hereby assigns, grants and pledges to Lessor for the benefit of Agent and the Lenders a security interest in and Lien against all of 34 Lease Agreement Lessee's right, title and interest, whether now or hereafter existing or acquired, in the Sites and proceeds therefrom, to secure the payment and performance of all obligations of Lessee now or hereafter existing under this Lease or any other Operative Document. Lessee shall, at its expense, do any further act and execute, acknowledge, deliver, file, register and record any further documents which Lessor or any Lender may reasonably request in order to protect Lessor's title to and their perfected Lien in the Sites, subject to no Liens other than Permitted Liens, and Lessor's rights and benefits under this Lease. Lessee shall promptly and duly execute and deliver to Lessor such documents and assurances and take such further actions as Lessor or any Lender may from time to time reasonably request in order to carry out more effectively the intent and purpose of this Lease and the other Operative Documents, to establish and protect the rights and remedies created or intended to be created in favor of Lessor hereunder and thereunder, and to establish, perfect and maintain the right, title and interest of Lessor in and to the Sites, subject to no Lien other than Permitted Liens, or of such financing statements or fixture filings or other documents with respect hereto as Lessor or any Lender may from time to time reasonably request, and Lessee agrees to execute and deliver promptly such of the foregoing financing statement and fixture filings or other documents as may require execution by Lessee. To the extent permitted by Applicable Laws and Regulations, Lessee hereby authorizes any such financing statement and fixture filings to be filed without the necessity of the signature of Lessee. Upon Lessee's request, Lessor shall at such time as all of the obligations of Lessee under this Lease or any other Operative Documents have been indefeasibly paid or performed in full (other than Lessee's contingent obligations, if any, under Article VII of the Participation Agreement) execute and deliver termination statements and other appropriate documentation reasonably requested by Lessee, all at Lessee's expense, to evidence Lessor's release of its Lien against the Sites. SECTION 16.2. Attorney-in-Fact. Lessee hereby irrevocably appoints Agent as Lessee's attorney-in-fact, with full authority in the place and stead of Lessee and in the name of Lessee or otherwise, from time to time in Lessor's discretion, upon the occurrence and during the continuance of a Lease Event of Default, to take any action (including any action that Lessee is entitled to take) and to execute any instrument which Lessor may deem necessary or advisable to accomplish the purposes of this Lease (subject to any limitations set forth in the Operative Documents), including, without limitation: 35 Lease Agreement (a) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for money due and to become due under or in connection with the Sites; (b) to receive, endorse and collect any drafts or other instruments, documents and chattel paper in connection with the foregoing clause (a); (c) to file any claim or take any action or institute any proceedings which Lessor may deem to be necessary or advisable for the collection thereof or to enforce compliance with the terms and conditions of the Lease; and (d) to perform any affirmative obligations of Lessee hereunder. Lessee hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section 16.2 is irrevocable and coupled with an interest. ARTICLE XVII LEASE EVENTS OF DEFAULT The occurrence of any one or more of the following events, whether any such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body, shall constitute a "Lease Event of Default": (a) Lessee shall fail to make any payment (i) of any Supplemental Rent payable to Agent or any Participant or of Basic Rent when due and such failure shall continue for a period of five days, or (ii) of amounts payable pursuant to the exercise of the Sale Option, or amounts payable pursuant to Section 13.1, when due, or (iii) of Supplemental Rent payable to any Person other than Agent or a Participant and such failure under this clause (iii) shall continue for a period of five days after notice to Lessee from any Person of such failure; (b) Lessee or any Guarantor shall fail to make any payment of any other amount payable hereunder or under any of the other Operative Documents and such failure shall continue for a period of five days after such amount first became due and payable (or in the case of any payment to any Person other than Agent or any Participant, such failure shall continue for a period of five days after notice to Lessee from any Person of such failure); 36 Lease Agreement (c) Lessee shall (i) fail to maintain insurance as required by Section 11.1, or (ii) default in the performance or observance of any term, covenant, condition or agreement on its part to be performed or observed under Section 5.2, 5.3, 5.4, 5.7 or 5.11 of the Participation Agreement; (d) any representation or warranty by Lessee or any Guarantor in any Operative Document or in any certificate or document delivered to Lessor, Agent or any Lender pursuant to any Operative Document shall have been incorrect in any material respect when made and shall remain material when discovered and if curable shall continue for a period of 30 days; provided that if Lessee or such Guarantor shall commence such cure within said 30-day period and shall diligently be pursuing such cure, then said 30-day period shall be extended to 90 days; (e) Lessee or any Guarantor shall fail in any material respect timely to perform or observe any covenant, condition or agreement (not included in any other clause of this Article XVII) to be performed or observed by it hereunder or under any other Operative Document and such failure shall continue for a period of 30 days; provided that if Lessee or such Guarantor shall commence such cure within said 30-day period and shall diligently be pursuing such cure, then said 30-day period shall be extended to 90 days; (f) (i) Lessee or any Guarantor shall generally fail to pay, or admit in writing its inability to pay, its debts as they become due, or shall voluntarily commence any case or proceeding or file any petition under any bankruptcy, insolvency or similar law or seeking dissolution, liquidation or reorganization or the appointment of a receiver, trustee, custodian or liquidator for itself or a substantial portion of its property, assets or business or to effect a plan or other arrangement with its creditors, or shall file any answer admitting the jurisdiction of the court and the material allegations of any involuntary petition filed against it in any bankruptcy, insolvency or similar case or proceeding, or shall be adjudicated bankrupt, or shall make a general assignment for the benefit or creditors, or shall consent to, or acquiesce in the appointment of, a receiver, trustee, custodian or liquidator for itself or a substantial portion of its property, assets or business, or (ii) corporate action shall be taken by Lessee or any Guarantor for the purpose of effectuating any of the foregoing; (g) involuntary proceedings or an involuntary petition shall be commenced or filed against Lessee or any Guarantor under any bankruptcy, insolvency or similar law or seeking the 37 Lease Agreement dissolution, liquidation or reorganization of Lessee or the appointment of a receiver, trustee, custodian or liquidator for Lessee or any Guarantor or of a substantial part of the property, assets or business of Lessee or any Guarantor or, any writ, judgment, warrant of attachment, execution or similar process shall be issued or levied against a substantial part of the property, assets or business of Lessee or any Guarantor, and such proceedings or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded, within 30 days after commencement, filing or levy, as the case may be; (h) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against Lessee or any Guarantor or any Subsidiary of any Guarantor, and such judgment or judgements remain undischarged, unbonded, unstayed or unsatisfied for a period (during which execution shall be effectively stayed) of 30 days; provided, that the aggregate of all such judgments exceeds $500,000; (i) Lessee or any Guarantor shall directly or indirectly contest the validity of any Operative Document in any manner in any court of competent jurisdiction or the Lien granted by this Lease or any Mortgage; (j) (A) an event of default shall occur in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Indebtedness of Lessee or any Guarantor or any Subsidiary of any Guarantor that individually or in the aggregate exceeds $1,000,000 or (B) any other event of default shall occur with respect to any Indebtedness of Lessee or any Guarantor or any Subsidiary of any Guarantor that individually or in the aggregate exceeds $1,000,000; (k) Any one or more Pension-Related Events referred to in subsection (a)(ii), (b) or (e) of the definition of "Pension-Related Event" shall have occurred; or any one or more other Pension-Related Events shall have occurred and the Agent shall determine in good faith (which determination shall be conclusive) that such other Pension-Related Events, individually or in the aggregate, could have a Material Adverse Effect; (l) either of the Guaranties shall no longer be in full force and effect; or (m) an Event of Default (as defined in the Credit Agreement) shall occur under the Credit Agreement. 38 Lease Agreement ARTICLE XVIII ENFORCEMENT SECTION 18.1. Remedies. Upon the occurrence of a Lease Event of Default, at Lessor's option and without limiting Lessor in the exercise of any other right or remedy Lessor may have on account of such default (including, without limitation, the obligation of Lessee to purchase the Sites as set forth below), and without any further demand or notice, Lessor may cause the following to occur: (i) By notice to Lessee, Lessor may terminate Lessee's right to possession of the Sites. A notice given in connection with unlawful detainer proceedings specifying a time within which to cure a default shall terminate Lessee's right to possession if Lessee fails to cure the default within the time specified in the notice. (ii) Upon termination of Lessee's right to possession and without further demand or notice, Lessee shall surrender possession and vacate the Sites and deliver possession thereof, and Lessor may re-enter the Sites and remove any persons in possession thereof. (iii) Upon termination of Lessee's right to possession, this Lease shall terminate and Lessor may declare to be immediately due and payable, and Lessor shall be entitled to (x) recover from Lessee the following amounts and (y) take the following actions: (A) Lessee shall pay all accrued and unpaid Rent hereunder (including, without limitation, Basic Rent and Supplemental Rent) which had been earned at the time of termination; (B) Lessor may elect any of the following: (1) Lessor may demand, by written notice to the Lessee specifying a Payment Date (the "Final Rent Payment Date") not earlier than ten (10) days after the date of such notice, that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the Final Rent Payment Date (in lieu of Basic Rent due after the Final Rent Payment Date), an amount equal to the sum of (A) the Lease Balance computed as of the Final Rent Payment Date, plus (B) all accrued and unpaid Rent due and unpaid to and 39 Lease Agreement including the Final Rent Payment Date, and upon payment of such amount, and the amount of all other sums due and payable by Lessee under this Lease and the other Operative Documents (and interest at the Overdue Rate on the amounts payable under this clause (B)(1) from the Final Rent Payment Date to the date of actual payment), Lessor shall transfer by quitclaim deed to Lessee all of Lessor's right, title and interest in and to the Sites without recourse or warranty, but free and clear of Lessor Liens; or (2) Lessor may sell its interest in the Sites, in which event Lessee shall pay to Lessor an amount equal to the excess, if any, of (x) all amounts due Lessor under clause (B)(1) above over (y) the net sale proceeds received by Lessor from the foregoing sale (provided, that in calculating such net sale proceeds, all expenses and taxes incurred by Lessor, Agent or any of the Lenders in connection with such sale, including, without limitation, legal fees, shall be deducted from such sales proceeds); (C) Any other amount necessary to compensate Lessor for all actual damages caused by Lessee's failure to perform Lessee's obligation under this Lease or which in the ordinary course of things would be likely to result therefrom, including, but not limited to, the costs and expenses (including without limitation, reasonable attorneys' fees, advertising costs and brokers' commissions) of recovering possession of the Sites, removing persons or property therefrom, placing the Sites in good order, condition, and repair, preparing and altering the Sites for reletting, and all other costs and expenses of reletting; and (D) Such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law. (iv) Lessor may enforce the Lien given hereunder pursuant to Section 16.1 hereof, Section 11 of the Lease Supplements, the Uniform Commercial Code or any other law. (v) If Lessee has breached this Lease and abandoned the Site, this Lease shall continue in effect for 40 Lease Agreement so long as Lessor does not terminate Lessee's right to possession, and Lessor may enforce all of Lessor's rights and remedies under this Lease, including the right to recover the Rent hereunder (including, without limitation, Basic Rent and Supplemental Rent) as it becomes due under this Lease. Lessee's right to possession shall not be deemed to have been terminated by Lessor except pursuant to clause (i) above. The following do not constitute a termination of Lessee's right to possession: (A) Acts of maintenance or preservation or efforts to relet the Sites; (B) The appointment of a receiver upon the initiative of Lessor to protect Lessor's interest under this Lease; (C) Reasonable withholding of consent to an assignment or subletting, or terminating a subletting or assignment by Lessee. (vi) In the event that Lessor elects to continue this Lease in full force and effect, Lessor may enforce all its rights and remedies under this Lease, including, but not limited to, the right to recover Rent hereunder (including, without limitation, Basic Rent and Supplemental Rent) as it becomes due. During the continuance of a Lease Event of Default, Lessor may enter the Sites in accordance with applicable law without terminating this Lease and sublet all or any part of the Sites for Lessee's account to any Person, for such term (which may be a period beyond the remaining Lease Term), at such rents and on such other terms and conditions as are commercially reasonable. In the event of any such subletting, rents received by Lessor from such subletting shall be applied (i) first, to the payment of the reasonable costs incurred by Lessor in maintaining, preserving, altering and preparing the Sites for subletting and other costs of subletting, including, but not limited to, brokers' commissions and attorneys' fee; (ii) second, to the payment of Rent hereunder (including, without limitation, Basic Rent and Supplemental Rent) then due and payable; (iii) third, to the payment of future Rent hereunder (including, without limitation, Basic Rent and Supplemental Rent) as the same may become due and payable hereunder; (iv) fourth, to the payment of all other obligations of Lessee hereunder, and (v) fifth, the balance, if any, shall be paid to Lessee upon (but not before) expiration of the Lease Term. If the rents received by Lessor from such subletting, after application as provided 41 Lease Agreement above, are insufficient in any period to pay the Rent (including, without limitation, Basic Rent and Supplemental Rent) due and payable hereunder for such period, Lessee shall pay such deficiency to Lessor upon demand. Notwithstanding any such subletting for Lessee's account without termination, Lessor may at any time thereafter, by written notice to Lessee, elect to terminate this Lease by virtue of a previous Lease Event of Default. Upon (but not before) and during the continuance of a Lease Event of Default, if Lessee has abandoned the Sites, for so long as Lessor does not terminate Lessee's right to possession of the Sites, Lessor shall not unreasonably withhold its approval to a sublease of the Sites; provided, however, that Lessor's withholding of such consent shall not be deemed unreasonable upon the standard contained in Section 12.1. (vii) Lessor may exercise any other right or remedy that may be available to it under Applicable Laws and Regulations or in equity, or proceed by appropriate court action (legal or equitable) to enforce the terms or to recover damages for the breach hereof. Separate suits may be brought to collect any such damages for any Rent Installment Period(s), and such suits shall not in any manner prejudice Lessor's right to collect any such damages for any subsequent Rent Installment Period(s), or Lessor may defer any such suit until after the expiration of the Basic Term or any Renewal Term, in which event such suit shall be deemed not to have accrued until the expiration of the Basic Term, or such Renewal Term; or (viii) Lessor may retain and apply against Lessor's damages all sums which Lessor would, absent such Lease Event of Default, be required to pay to, or turn over to, Lessee pursuant to the terms of this Lease. (ix) Lessor may exercise the remedies described in Section 11 of the Lease Supplement. In addition to the foregoing, Lessee acknowledges that (i) pursuant to the Collateral Agency Agreement and the Security Agreement, the Joint Stock Collateral constitutes additional security for the payment and performance of Lessee's obligations under this Lease and the other Operative Documents, and (ii) the Guaranty and Agreement of Suretyship Regarding Obligations Lessee and Affiliates, as it may be amended from time to time, which constitutes one of the Guaranties shall constitute further additional security for, among other things, the payment and 42 Lease Agreement performance of Lessee's obligations under this Lease and the other Operative Documents. SECTION 18.2. Proceeds of Sale; Deficiency. All payments received and amounts held or realized by Lessor at any time when a Lease Event of Default shall have occurred and be continuing and after the Lease Balance shall have been accelerated pursuant to Article XVIII as well as all payments or amounts then held or thereafter received by Lessor, except for rents received by Lessor from subletting pursuant to Section 18.1(vi) and the proceeds of sale pursuant to Section 11 of the Lease Supplements, shall be distributed forthwith upon receipt by Lessor in the following order of priority: first: so much of such payments or amounts as shall be required to reimburse Lessor for any tax (other than any income tax payable on Basic Rent or interest and on fees and other compensation of Lessor), expense or other amount owed to Lessor in connection with the collection or distribution of such payments or amounts to the extent not previously reimbursed by Lessee (including, without limitation, the expenses of any sale, taking or other proceeding, expenses in connection with realizing on any of the Sites, reasonable attorneys' fees and expenses (including the allocated costs of internal counsel), court costs and any other reasonable expenditures incurred or reasonable expenditures or advances made by Lessor in the protection, exercise or enforcement of any right, power or remedy upon such Lease Event of Default whether pursuant to Article XVII or otherwise) shall be so applied by Lessor; second: so much of such payments or amounts except those specified in clause third below, which under the terms of this Lease and the other Operative Documents have accrued shall be so applied; third: so much of such payments or amounts remaining as shall be required to pay Agent (on behalf of the Participants) in full the aggregate unpaid Lease Balance and all Basic Rent (including, to the extent permitted by applicable law, interest on interest) shall be so applied (to be distributed by Agent pursuant to Section 3.3 of the Loan Agreement); and fourth: so much of such payments or amounts as shall remain shall be distributed to Lessee. SECTION 18.3. Grant and Foreclosure on Lessee's Estate. Each Lease Supplement shall contain a provision by which Lessee 43 Lease Agreement grants to a trustee, in trust, with power of sale, or grants a mortgage lien to Lessor in, all of Lessee's right, title and interest in and to the Sites subject to each such Lease Supplement and, upon the occurrence of a Lease Event of Default, granting Lessor the power and authority, after fulfillment of certain conditions, to cause the trustee to sell, or foreclose its mortgage lien against, the Sites. SECTION 18.4. Remedies Cumulative; No Waiver; Consents. To the extent permitted by, and subject to the mandatory requirements of, Applicable Laws and Regulations, each and every right, power and remedy herein specifically given to Lessor or otherwise in this Lease shall be cumulative and shall be in addition to every other right, power and remedy herein specifically given or now or hereafter existing at law, in equity or by statute, and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and as often and in such order as may be deemed expedient by Lessor, and the exercise or the beginning of the exercise of any power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any right, power or remedy. No delay or omission by Lessor in the exercise of any right, power or remedy or in the pursuit of any remedy shall impair any such right, power or remedy or be construed to be a waiver of any default on the part of Lessee or be an acquiescence therein. Lessor's consent to any request made by Lessee shall not be deemed to constitute or preclude the necessity for obtaining Lessor's consent, in the future, to all similar requests. No express or implied waiver by Lessor of any Lease Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Lease Default or Lease Event of Default. To the extent permitted by Applicable Laws and Regulations, Lessee hereby waives any rights now or hereafter conferred by statute or otherwise that may require Lessor (i) to provide any notice to Lessee, or (ii) to sell, lease or otherwise use the Site or part thereof in mitigation of Lessor's damages, or (iii) to take any other action, upon the occurrence of a Lease Event of Default, or that may otherwise limit or modify any of Lessor's rights or remedies under this Article XVIII. ARTICLE XIX RIGHT TO PERFORM FOR LESSEE If Lessee shall fail to perform or comply with any of its agreements contained herein, Lessor may, but shall not be obligated to, on five Business Days' prior notice to Lessee (except in the event of an emergency, in which case only one Business Day's prior notice shall be required), perform or comply 44 Lease Agreement with such agreement, and Lessor shall not thereby be deemed to have waived any default caused by such failure, and the amount of such payment and the amount of the expenses of Lessor (including reasonable attorneys' fees and expenses) incurred in connection with such payment or the performance of or compliance with such agreement, as the case may be, together with interest thereon at the Overdue Rate, shall be deemed Supplemental Rent, payable by Lessee to Lessor upon demand; provided that in the case of an emergency Lessee shall permit Lessor so to perform or comply on less than one Business Day's notice unless Lessee has a good faith reason not to permit Lessor to do so. ARTICLE XX LESSOR LIENS In the event that Lessor shall be obligated to remove any Lessor Liens from the Sites and shall fail to do so, Lessee shall have a claim against Lessor for such failure, but shall not have any right of offset. ARTICLE XXI MISCELLANEOUS SECTION 21.1. Binding Effect; Successors and Assigns; Survival. The terms and provisions of this Lease, and the respective rights and obligations hereunder of Lessor, Lessee, Agent and the Lenders shall be binding upon them and their respective successors, legal representatives and assigns (including, in the case of Lessor, any Person to whom Lessor may transfer the Sites or any interest therein in accordance with the provisions of the Operative Documents), and inure to their benefit and the benefit of their respective permitted successors, legal representatives and assigns. SECTION 21.2. Severability. Any provision of this Lease that shall be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction, and Lessee shall remain liable to perform its obligations hereunder except to the extent of such unenforceability. To the extent permitted by Applicable Laws and Regulations, Lessee hereby waives any provision of law that renders any provision hereof prohibited or unenforceable in any respect. 45 Lease Agreement SECTION 21.3. Notices. Unless otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be in writing and shall be delivered and shall be deemed to have been given in accordance with Section 9.3 of the Participation Agreement. SECTION 21.4. Amendment; Complete Agreements. Neither this Lease nor any of the terms hereof may be terminated, amended, supplemented, waived or modified orally, but only by an instrument in writing signed by the party against which the enforcement of the termination, amendment, supplement, waiver or modification shall be sought. This Lease, together with the other Operative Documents, is intended by the parties as a final expression of their agreement and as a complete and exclusive statement of the terms thereof, all negotiations, considerations and representations between the parties having been incorporated herein and therein. No course of prior dealings between the parties or their officers, employees, agents or Affiliates shall be relevant or admissible to supplement, explain, or vary any of the terms of this Lease or any other Operative Document. Acceptance of, or acquiescence in, a course of performance rendered under this or any prior agreement between the parties or their Affiliates shall not be relevant or admissible to determine the meaning of any of the terms of this Lease or any other Operative Document. No representations, undertakings, or agreements have been made or relied upon in the making of this Lease other than those specifically set forth in the Operative Documents. SECTION 21.5. Headings. The Table of Contents and headings of the various Articles and Sections of this Lease are for convenience of reference only and shall not modify, define or limit any of the terms or provisions hereof. SECTION 21.6. Original Lease. The single executed original of this Lease containing the receipt of Lessor therefor on or following the signature page thereof shall be the "original executed counterpart" of this Lease. To the extent that this Lease constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest in this Lease may be created through the transfer or possession of any counterpart other than the "original executed counterpart". SECTION 21.7. GOVERNING LAW. THIS LEASE HAS BEEN DELIVERED IN, AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, EXCEPT AS TO MATTERS RELATING TO THE CREATION, 46 Lease Agreement PERFECTION AND ENFORCEMENT OF LIENS AND SECURITY INTERESTS AND THE EXERCISE OF REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE IN WHICH THE APPLICABLE SITE IS LOCATED. SECTION 21.8. Discharge of Lessee's Obligations by its Affiliates. Lessor agrees that performance of any of Lessee's obligations hereunder by one or more of its Affiliates or one or more sublessees of the Site or any part thereof shall constitute performance by Lessee of such obligations to the same extent and with the same effect hereunder as if such obligations were performed by Lessee, but no such performance shall excuse Lessee from any obligation not performed by it or on its behalf under the Operative Documents. SECTION 21.9. Liability of Lessor Limited. The parties hereto agree that Lessor shall have no personal liability whatsoever to Lessee or its respective successors and assigns for any Claim based on or in respect of this Lease or any of the other Operative Documents or arising in any way from the transactions contemplated hereby or thereby; provided, however, that Lessor shall be liable in its individual capacity for (i) Lessor Liens required to be removed by Lessor under Section 6.2(a) of the Participation Agreement and (ii) its own willful misconduct or gross negligence. It is understood and agreed that, except as provided in the preceding proviso: (i) Lessor shall have no personal liability under any of the Operative Documents; (ii) all obligations of Lessor to Lessee are solely nonrecourse obligations, recourse being limited to its interest in the Sites and the Operative Documents (excluding Excluded Amounts); and (iii) all such personal liability of Lessor is expressly waived and released as a condition of, and as consideration for, the execution and delivery of the Operative Documents by Lessor. SECTION 21.10. Estoppel Certificates. Each party hereto agrees that at any time and from time to time during the Lease Term, it will promptly, but in no event later than thirty (30) days after request by the other party hereto, execute, acknowledge and deliver to such other party or to any prospective purchaser (if such prospective purchaser has signed a commitment letter or letter of intent to purchase the Sites or any part thereof or to purchase any Note), assignee or mortgagee or third party designated by such other party, a certificate stating (a) that this Lease is unmodified and in force and effect (or if there have been modifications, that this Lease is in force and effect as modified, and identifying the modification agreements); (b) the date to which Basic Rent has been paid; (c) in the case of an estoppel certificate to be given by Lessee, whether or not 47 Lease Agreement there is any existing default by Lessee in the payment of Basic Rent or any other sum of money hereunder, and whether or not there is any other existing Lease Default or Lease Event of Default with respect to which a notice of default has been served, and, if there is any such default, specifying the nature and extent thereof; (d) in the case of an estoppel certificate to be given by Lessee, whether or not, to the knowledge of Lessee after due inquiry and investigation, there are any purported setoffs, defenses or counterclaims against enforcement of the obligations to be performed hereunder existing in favor of Lessee; and (e) other items that may be reasonably requested; provided that no such certificate may be requested unless the requesting party has a good faith reason for such request. In addition, Lessee, promptly, but in no event later than thirty days after request by any other party hereto, shall obtain and deliver to such other party or to any prospective purchaser (if such prospective purchaser has signed a commitment letter or letter of intent to purchase the Site or any part thereof or to purchase any Note), assignee, mortgagee or third party designated by such other party, an estoppel certificate from each Subtenant under each Sublease containing such items as reasonably requested by the party requesting the same; provided that no such certificate may be requested unless the requesting party has a good faith reason for such request. SECTION 21.11. No Joint Venture. Any intention to create a joint venture or partnership relation between Lessor and Lessee is hereby expressly disclaimed. SECTION 21.12. No Accord and Satisfaction. The acceptance by Lessor of any sums from Lessee (whether as Basic Rent or otherwise) in amounts which are less than the amounts due and payable by Lessee hereunder is not intended, nor shall be construed, to constitute an accord and satisfaction of any dispute between Lessor and Lessee regarding sums due and payable by Lessee hereunder, unless the Required Participants specifically deem it as such in writing. SECTION 21.13. No Merger. In no event shall the Leasehold Estate of Lessee hereunder, or the rights and interests of the holder of any Notes secured by a Lien in this Lease, merge with any interests, estates or rights of Lessor in or to the Site, it being understood that such Leasehold Estate of Lessee hereunder, and the rights and interests of the holder of any Notes secured by a Lien in this Lease, shall be deemed to be separate and distinct from Lessor's interests, estates and rights in or to the Site, notwithstanding that any such interests, estates or rights shall at any time or times be held by or vested in the same Person. 48 Lease Agreement SECTION 21.14. Successor Lessor. Lessee agrees that, in the case of any transfer of the Sites to a successor Lessor in accordance with the provisions of Section 6.2 of the Participation Agreement from time to time, such successor Lessor shall, upon written notice by such successor Lessor to Lessee, succeed to all the rights, powers and title of Lessor hereunder and shall be deemed to be Lessor for all purposes hereof and without in any way altering the terms of this Lease or Lessee's obligations hereunder. Such transfer to a successor Lessor shall not exhaust the right to any further transfer to another successor Lessor pursuant to said Section 6.2, but such right may be exercised repeatedly as long as this Lease shall be in effect. SECTION 21.15. Survival. The obligations of Lessee to be performed under this Lease prior to the Lease Termination Date and the obligations of Lessee pursuant to Sections 4.1, 4.2, 4.4, 4.5, Article XVIII and Section 21.1 shall survive the expiration or termination of this Lease. The extension of any applicable statute of limitations by Lessor, Agent, Lessee or any other Indemnitee shall not affect such survival. SECTION 21.16. Transfer of Sites to Lessee or any other Person. Whenever pursuant to any provision of this Lease Lessor is required to transfer the Sites to Lessee or to any other Person, such transfer shall be made at Lessee's expense (including, without limitation, all costs of conveyance, applicable transfer taxes and recording fees without regard to local custom) by the quitclaim transfer of all of Lessor's right, title and interest in and to the Sites on an "as is, where is, with all faults" basis free and clear of all Lessor Liens, but subject to the Lien of the Loan Agreement if and to the extent it may then attach, and otherwise without recourse, representation or warranty of any kind, and together with the due assumption by Lessee (or such third party) of, and due release of Lessor from, all obligations relating to the Sites or the Operative Documents. Any provision in this Lease or other Operative Document to the contrary notwithstanding, Lessor shall not be obligated to make any such transfer until Lessor has received all Rent and other amounts due and owing hereunder. SECTION 21.17. Enforcement of Certain Warranties. (a) Unless a Lease Event of Default shall have occurred and be continuing, Lessor authorizes Lessee (directly or through agents), at Lessee's expense, to assert, during the Lease Term, all of Lessor's rights (if any) under any applicable warranty and any other claim that Lessee or Lessor may have under the warranties provided to Lessor in connection with the purchase, of the Sites and Lessor agrees to cooperate, at Lessee's expense, 49 Lease Agreement with Lessee and its agents in asserting such rights. Any amount recovered by Lessee under any such warranties shall be paid to Lessee. (b) Notwithstanding the foregoing provisions of this Section 21.17, so long as a Lease Event of Default or Lease Payment/Bankruptcy Default shall have occurred and be continuing, any amount that would otherwise be retained by Lessee pursuant to Section 21.17(a) shall be paid to Lessor as security for the obligations of Lessee under this Lease, shall be invested by Lessor in accordance with Section 21.18 in Permitted Investments and, if a Lease Event of Default is continuing, may be applied to the obligations of Lessee hereunder, and, at such time thereafter as no Lease Event of Default or Lease Payment/Bankruptcy Default shall be continuing, such amount and gain thereon shall be paid promptly to Lessee to the extent not previously applied in accordance with the terms of this Lease. SECTION 21.18. Investment of Security Funds. Any amounts not payable to Lessee and paid to or retained by Lessor pursuant to any provision hereof solely because a Lease Event of Default or Lease Payment/Bankruptcy Default shall have occurred and be continuing or because Lessee shall not have performed in full its obligations under Article XIII shall be held by Lessor as security for the obligations of Lessee under this Lease and the other Operative Documents. At such time as no Lease Event of Default or Lease Payment/Bankruptcy Default, or failure to perform shall be continuing, such amounts, net of any amounts previously applied to Lessee's obligations hereunder or under any other Operative Documents, shall be paid to Lessee. Any such amounts which are held pending payment to Lessee or application hereunder shall be invested by Lessor (or Agent) as directed from time to time in writing by Lessee (provided, however, if a Lease Event of Default has occurred and is continuing it will be directed by Lessor), and at the expense and risk of Lessee, in Permitted Investments. Any gain (including interest received) realized as the result of any such investment (net of any fees, commissions and other expenses, if any, incurred in connection with such investment) shall be applied from time to time in the same manner as the principal invested. Lessee will promptly pay to Lessor on demand, the amount of any loss realized as the result of any such investment (together with any fees, commissions and other expenses, if any, incurred in connection with such investment), such amount to be held, paid and applied in the same manner as other amounts subject to this Section 21.18. SECTION 21.19. Recording of Lease Supplements. Concurrently with the execution and delivery of this Lease and 50 Lease Agreement concurrently with the execution and delivery of each Lease Supplement, Lessor and Lessee shall execute, acknowledge and cause to be recorded each such Lease Supplement in the official records of each County where the Site(s) that are the subject of this Lease or such Lease Supplement are located. Notwithstanding the execution, delivery and recording of any such Lease Supplement, the terms, covenants and conditions of this Lease shall control. SECTION 21.20. Nature of Transaction. (a) It is the intent of the parties hereto that: (i) the transaction contemplated hereby constitutes an operating lease from Lessor to Lessee for purposes of Lessee's financial reporting, (ii) the transaction contemplated hereby preserves ownership in the Sites to Lessee for purposes of Federal and state tax and bankruptcy purposes, (iii) Lessee, pursuant to the Lease, grants a security interest or lien, as the case may be, in the Sites and the other Collateral to Lessor, (iv) for purposes of Federal and state tax and bankruptcy purposes, the payment by Lessee of Basic Rent shall be treated as payments of interest, and the payment by Lessee of any amounts in respect of the Lease Balance shall be treated as repayments of principal, and (v) the Mortgage and Assignment of Lease create a lien and security interest in the Sites, subject to certain limited exceptions. Nevertheless, Lessee acknowledges and agrees that none of Lessor, Agent or any Lender has provided or will provide tax, accounting or legal advice to Lessee regarding the Overall Transaction or made any representations or warranties concerning the tax, accounting or legal characteristics of the Operative Documents and that Lessee has obtained and relied upon such tax, accounting and legal advice concerning the Operative Documents as it deems appropriate. (b) Specifically, without limiting the generality of subsection (a) of this Section 21.20, but understanding that the parties' characterization is not the sole determinant of the issue, the parties hereto intend and agree that with respect to the nature of the transactions evidenced by this Lease in the context of the exercise of remedies under the Operative Documents, relating to and arising out of any insolvency or receivership proceedings or a petition under the United States bankruptcy laws or any other applicable insolvency laws or statute of the United States of America or any State or Commonwealth thereof affecting Lessee, Lessor or any Lender or any enforcement or collection actions, the transactions evidenced by the Operative Documents are loans made by the Lenders as unrelated third party lenders to Lessee secured by the Sites. 51 Lease Agreement IN WITNESS WHEREOF, the undersigned have each caused this Lease to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. MELLON FINANCIAL SERVICES CORPORATION #4, as Lessor By: --------------------------------- Name Printed: Arthur A. Folsom, Jr. Title: Senior Vice President Address: One Mellon Bank Center Rm 151-4444 Pittsburgh, PA 15258-0001 Attention: Leasing Group GENESIS ELDERCARE PROPERTIES, INC., as Lessee By: --------------------------------- Name Printed: Ira C. Gubernick Title: Secretary Address: 148 West State Street Kennett Square, PA 19348 Attn: George V. Hager, Jr. 52 Lease Agreement RECEIPT FOR COUNTERPART NO. 1 MELLON BANK, N.A., as Agent By: -------------------------------------------- Name Printed: Carol Paige Title: Vice President 53 Lease Agreement STATE OF _______________ ) ) SS.: COUNTY OF ______________ ) The foregoing Lease Agreement was acknowledged before me, the undersigned Notary Public, in the County of _______________, State of ____________, this ____ day of July, 1996, by Carol Paige, as Vice President of MELLON BANK, N.A., a national banking association, on behalf of the such national banking association. [Notarial Seal] _________________________ Notary Public My commission expires:________________ 54 Lease Agreement STATE OF ________ ) ) SS.: COUNTY OF ________ ) The foregoing Lease Agreement was acknowledged before me, the undersigned Notary Public, in the County of ______, State of ________, this ____ day of July, 1996, by Ira C. Gubernick, as Secretary of GENESIS ELDERCARE PROPERTIES, INC., a Pennsylvania corporation, on behalf of the corporation. [Notarial Seal] _________________________ Notary Public My commission expires: _____________________ 55 Lease Agreement STATE OF ________ ) ) SS.: COUNTY OF ________ ) The foregoing Lease Agreement was acknowledged before me, the undersigned Notary Public, in the County of ______, State of ________, this ____ day of July, 1996, by Arthur A. Folsom, Jr., as Senior Vice President of MELLON FINANCIAL SERVICES CORPORATION #4, a Pennsylvania corporation, on behalf of the corporation. [Notarial Seal] _________________________ Notary Public My commission expires: ____________________ 56 Lease Agreement SCHEDULE I to LEASE AGREEMENT DESCRIPTION OF SITES DELIVERED ON DOCUMENT CLOSING DATE Atlantis Rehabilitation and Health Care Center Old Congress Road, Lantana, Florida; Bowman's Health Care Center South Ridgewood, Ormand Beach, Florida; Eagle Crest Nursing Center Parental Home Road, Jacksonville, Florida; Oakwood Rehabilitation and Health Care Center South East Bay Street, Eustis, Florida; Tierra Pines Health Care Center Ulmerton Road, Largo, Florida; Woodlands Nursing Center North 46th Street, Tampa, Florida; Williamsburg Health Care and Rehabilitation Center Mount Vernon Avenue, Williamsburg, Virginia; Windham Main Street, Route 240, Crozet, Virginia; Woodmont Health Care Center Dairy Lane, Fredricksburg, Virginia; Attached hereto are legal descriptions for the above-described Sites. Lease Agreement Atlantis Legal Description A tract of land in Section 6, Township 45 South, Range 43 East, Palm Beach County, Florida, said parcel of land being specifically described as follows, to wit: BEGINNING at a point 33.00 feet West of the East line of said Section 6 and 40.00 feet South of the North line of said Section; thence bear South 00(degree) 10' 40" West, along a line parallel to and 33.00 feet West of, as measured at right angles to, the East line of said Section 6, a distance of 257.00 feet; thence North 89(degree) 55' 30" West, along a line parallel to the North line of said Section, a distance of 350.20 feet; thence North 00(degree) 10' 40" East, along a line parallel to the East line of said Section, a distance of 257 feet to a point on the South right-of-way line of the Lake Worth Drainage District Lateral No. 16; thence South 89(degree) 55' 30" East along said South right-of-way line, said line being parallel to and 40.00 feet South of, as measured at right angles to, the North line of said Section, a distance of 350.20 feet to the POINT OF BEGINNING. Said lands situate, lying and being in Palm Beach County, Florida. Tax Assessor's No. PCN 00-43-45-06-00-000-1051 2 Lease Agreement Bowman's Legal Description Lots 7, 8, 9, 10, 11 and 12, Block 2, HAND TRACT IN THE THOMAS FITCH GRANT, according to the map thereof, as recorded in Map Book P, Page 1, of the Public Records of Volusia County, Florida. 3 Lease Agreement Eagle Crest Legal Description That certain piece, parcel or tract of land, situate, lying and being a part of Farm 10, as shown on the Plat of Love Grove Farms, as recorded in Plat Book 7, page 3 of the current public records of Duval County, Florida, and being more particularly described as follows: Beginning at the Southeast corner of those lands shown on Plat of Sans Souci Estates Unit 2, as recorded in Plat Book 29 page 25 of said public records, said point also being the Southwest corner of said Farm 10; thence North 2 degrees 06 minutes 20 seconds East along the East line of said Sans Souci Estates, Unit 2, 342.62 feet; thence North 78 degrees 33 minutes 20 seconds East, 608.72 feet to the Southwesterly right of way line of Dean Road (a 50-foot right of way as now established by possession and usage); thence South 19 degrees 20 minutes 20 seconds East along said Southwesterly right of way line of Dean Road, 215.28 feet to its intersection with the Westerly right of way line of Parental Home Road (a 66-foot right of way as now established); thence South 8 degrees 14 minutes 00 seconds West along said Westerly right of way line of Parental Home Road, 286.04 feet to its intersection with the South line of said Farm 10; thence North 87 degrees 56 minutes 10 seconds West along said South line of Farm 10, 639.95 feet to the point of beginning. 4 Lease Agreement Oakwood Legal Description A tract of land located in the City of Eustis, Section 11, Township 19 South, Range 26 East, Lake County, Florida, and being Lots 1 to 16, inclusive, of Block 34, in Pendryville, a subdivision in the City of Eustis, Florida, according to the plat thereof recorded in Plat Book 1, Page 45, of the Public Records of Lake County, Florida, and also being otherwise described as Lots 1 to 16, inclusive, of Block 84, in the City of Eustis, Florida, according to the plat thereof recorded in Plat Book 1, Page 79, Public Records of Lake County, Florida, and being measured and described as follows: Beginning at a concrete monument located at the intersection of the Southerly edge of the right-of-way of Lemon Avenue (a 66-foot wide right-of-way) and the Westerly edge of Eustis Street (a 66-foot wide right-of-way); thence running Southerly along the Westerly edge of the right-of-way of Eustis Street, a distance of 264.35 feet to a concrete monument at the point of intersection of said Westerly edge of the right-of-way of Eustis Street and the Northerly edge of the right-of-way of Ward Avenue (a 66-foot wide right-of-way); thence running Westerly along a course making an interior angle of 89(degree)59'36" with the preceding course, a distance of 263.96 feet along the Northerly edge of the right-of-way of Ward Avenue to the point of intersection of said Northerly edge of the right-of-way of Ward Avenue with the Easterly edge of the right-of-way of Bay Street (a 66-foot wide right-of-way), said point being marked by an "X" cut in a retaining wall; thence running Northerly along a course making an interior angle of 90(degree)07'44" with the preceding course, a distance of 264.29 feet along the Easterly edge of the right-of-way of Bay Street, to the intersection of said Easterly right-of-way of Bay Street, with the Southerly edge of Lemon Avenue, said intersecting point being presently marked by an "X" cut in a sidewalk to an old residence; thence running Easterly along a course making an interior angle of 89(degree)53'03" with the preceding course, a distance of 264.59 feet along the Southerly edge of the right-of-way of Lemon Avenue to the point of beginning. 5 Lease Agreement Tierra Pines Legal Description Parcel 1: Commence at the Northeast corner of the Northwest 1/4 of Section 7, Township 30 South, Range 16 East, Pinellas County, Florida; thence North 87 deg 36 min 11 sec West along the North boundary of the Northwest 1/4 of said Section 7, 768.79 feet; thence South 00 deg 18 min 30 sec East, 75.00 feet Westerly of and parallel to the East boundary of Lot 2 of Pinellas Groves Subdivision of the Northwest 1/4 of said Section 7, as recorded in Plat Book 1, Page 55 of the public records of Pinellas County, Florida, 72.08 feet to a Point of Beginning; thence continue South 00 deg 18 min 30 sec East along the West boundary of a 50 foot wide non-exclusive easement recorded in O.R. Book 4636, Page 1802 of the public records of Pinellas County, Florida, 606.00 feet; thence North 87 deg 36 min 11 sec West, 215.00 feet; thence North 00 deg 18 min 30 sec West, 606.00 feet; thence South 87 deg 36 min 11 sec East along the Southerly right-of-way line of Ulmerton Road, 215.00 feet to the Point of Beginning. Parcel 2: Commence at the Northeast corner of the Northwest 1/4 of Section 7, Township 30 South, Range 16 East, Pinellas County, Florida; thence North 87 deg 36 min 11 sec West along the North boundary of the Northwest 1/4 of said Section 7, 743.76 feet; thence South 00 deg 18 min 30 sec East, 50.00 feet Westerly of and parallel to the East boundary of Lot 2 of Pinellas Groves Subdivision of the Northwest 1/4 of said Section 7, as recorded in Plat Book 1, Page 55 of the public records of Pinellas County, Florida, 72.08 feet to a Point of Beginning; thence continue South 00 deg 18 min 30 sec East along the centerline of a 50.00 foot wide non-exclusive easement recorded in O.R. Book 4636, Page 1802 of the public records of Pinellas County, Florida, 606.00 feet; thence North 87 deg 36 min 11 sec West, 25.03 feet; thence North 00 deg 18 min 30 sec West, 606.00 feet; thence South 87 deg 36 min 11 sec East along the Southerly right-of-way line of Ulmerton Road, 25.03 feet to the Point of Beginning. TOGETHER WITH a non-exclusive easement for ingress, egress, utilities and drainage, described as follows: The Westerly 25.00 feet of the Easterly 50.00 feet of the Southerly 605.32 feet of the Northerly 677.32 feet of Lot 2 of Pinellas Groves Subdivision of the Northwest 1/4 of said Section 7, Township 30 South, Range 16 East, as recorded in Plat Book 1, Page 55 of the public records of Pinellas County, Florida. 6 Lease Agreement Woodlands Legal Description The South 1/2 of the Southeast 1/4 of the Northeast 1/4 of the Southwest 1/4 of Section 4, Township 28 South, Range 19 East, LESS the East 25 feet thereof for road right-of-way, all lying and being in Hillsborough County, Florida. 7 Lease Agreement Williamsburg Legal Description ALL those certain lots, pieces or parcels of land located in the City of Williamsburg, Virginia, on the eastern most line of Mount Vernon Avenue, together with all improvements thereon and appurtenances thereto belonging, which are shown on a certain plat of survey dated March 10, 1989, by Harvey L. Parks, Inc., entitled "PLAT OF TWO PARCELS OF LAND WITH IMPROVEMENTS SHOWN THEREON, SITUATED ON THE EASTERN MOST LINE OF MOUNT VERNON AVENUE IN THE CITY OF WILLIAMSBURG, VIRGINIA.", and being more particularly described as follows: BEGINNING at a rod found on the northern line of Mount Vernon Avenue (55' R/W), said rod being 196.91' from the intersection with the southern line of Monticello Avenue, and running from said rod in a northerly direction N 49 degrees 37' 30" E a distance of 199.54' to a rod; thence S 40 degrees 22' 30" E a distance of 580.62' to a rod; thence S 49 degrees 37' 30" W a distance of 193.75' to a rod on the northern right-of-way line of Mount Vernon Avenue; thence along the northern right-of-way line of Mount Vernon Avenue along a curve to the right with a radius of 322.50' a length of 63.59' to a rod; thence along said right-of-way line N 40 degrees 22' 30" W a distance of 496.95' to a rod; thence continuing along said right-of-way on a curve to the right with a radius of 472.50' a length of 20.53' to a rod found, being the point and place of beginning, containing 2.663 acres, more or less, all in the City of Williamsburg, Virginia further described as Parcel No. 2 and Parcel No. 3, as shown on plat of survey made by Harvey L. Parks, Inc., dated March 10, 1989, a copy of which is attached to the Deed of Trust, recorded February 6, 1990, in the Clerk's Office, Circuit Court, City of Williamsburg, Virginia, in Deed Book 90, at page 710, reference to which is made for a more particular description. BEING the same property conveyed to The Industrial Development Authority of the City of Hopewell, Virginia, by deed from United Health Services, Inc., a Virginia corporation, dated October 14, 1976, recorded October 15, 1976, in the Clerk's Office, Circuit Court, City of Williamsburg, Virginia, in Deed Book 54, page 167. 8 Lease Agreement Windham Legal Description PARCEL ONE: ALL that certain lot, piece or parcel of land, with all improvements thereon and appurtenances thereto belonging, lying and being in White Hall District of Albemarle County, Virginia, containing 0.856 acres according to plat entitled "Plat Showing 0.856 Acre of Land With Improvements Shown, Situated On The Western Line of State Route No. 240, Lying in Crozet, White Hall District, Albemarle County, Virginia", made by Harvey L. Parks, Inc., dated March 15, 1989, and recorded in the Clerk's Office of the Circuit Court of Albermarle County, Virginia, in Deed Book 1086, page 505. BEGINNING at a rod found at the intersection of the northern property line of Parcel 62 owned by National Health Care Affiliates, Inc., and the eastern right of way line of High Street, running from said rod in a northerly direction N 26 degrees 12' 51" E a distance of 57.17' to a rod; thence S 74 degrees 17' 10" E a distance of 186.00' to a rod; thence S 58 degrees 47' 06" E a distance of 99.11' to a rod; thence S 65 degrees 06' 06" E a distance of 100.11' to a rod; thence S 37 degrees 06' 06" E a distance of 42.55' to a P.K. Nail found on the northern line of State Route No. 240; thence along the northern line of State Route No. 240 S 32 degrees 18' 45" W a distance of 62.72' to a point; thence continuing along the northern line of State Route No. 240 S 29 degrees 27' 54" W a distance of 40.88' to a point on the northern boundary line of property owned by the VA. National Bank (Parcel 60); thence N 64 degrees 36' 31" W a distance of 212.70' to a rod; thence N 25 degrees 40' 17" E a distance of 31.48' to a rod; thence S 64 degrees 21' 49" E a distance of 30.00' to a rod; thence N 25 degrees 38' 11" E a distance of 10.22' to a rod; thence S 64 degrees 21' 49" E a distance of 32.00" to a rod; thence N 25 degrees 38' 11" E a distance of 30.00' to a rod, thence N 64 degrees 21' 49" W a distance of 125.00' to a rod; thence S 25 degrees 38' 11" W a distance of 29.16' to a rod; thence N 64 degrees 19' 43" W a distance of 134.66' to a rod found, being the point and place of beginning, containing 0.856 acre, more or less, all in Crozet, White Hall District of Albemarle County, Virginia, as shown on plat of survey by Harvey L. Parks, Inc., dated March 15, 1989. Together with a non-exclusive easement, with maintenance agreement, 10 feet in width for vehicular and pedestrian traffic, parking and ingress and egress from State Route 240, recorded in 9 Lease Agreement the Clerk's Office of the Circuit Court of Albermarle County, Virginia, in Deed Book, 779, page 239. BEING the same property conveyed to the Industrial Development Authority of Albemarle County, Virginia, by deed from Windham, Incorporated, a Virginia corporation, dated January 1, 1980, recorded January 29, 1980, in the Clerk's Office, Circuit Court, Albemarle County, Virginia, in Deed Book 688, page 476, and leased to Windham, Incorporated by instrument dated January 1, 1980, recorded in the Clerk's Office, Circuit Court, Albermarle County, Virginia, in Deed Book 688, page 481. By Articles of Merger recorded May 21, 1984 in the aforesaid Clerk's Office in Deed Book 799, page 341, Windham, Incorporated merged into United Service Industries, Inc. By Certificate of Merger issued by the Commonwealth of Virginia State Corporation Commission on February 10, 1984, United Service Industries, Inc., a Virginia corporation merged into National Health Care Affiliates, Inc., a Florida corporation, thereby vesting fee simple title in the name of National Health Care Affiliates, Inc. PARCEL TWO: ALL that certain lot, piece or parcel of land, with all improvements thereon and appurtenances thereto belonging, lying and being in White Hall District of Albemarle County, Virginia, containing 0.2905 acre according to plat entitled "Plat of 0.2905 Acre Of Land, With Improvements Shown, Situated On The Eastern Line Of High Street, Lying in Crozet, White Hall District of Albemarle County, Virginia", made by Harvey L. Parks, Inc., dated March 15, 1989, recorded in the Clerk's Office of the Circuit Court of Albemarle County, Virginia, in Deed Book 1086, page 507. BEGINNING at a spike found at the intersection of the southern line of High Street and the northern property line of Va. National Bank (Parcel 60A), and running from said spike along the southern line of High Street in a northerly direction N 26 degrees 12' 51" E a distance of 44.91' to a pipe; thence S 64 degrees 19' 43" E a distance of 134.66' to a rod; thence N 25 degrees 38' 11" E a distance of 29.16' to a rod; thence S 64 degrees 21' 49" E a distance of 125.00' to a rod; thence S 25 degrees 38' 11" W a distance of 30.00' to a rod; thence N 64 degrees 21' 49" W a distance of 32.00' to a rod; thence S 25 degrees 38' 11" W a distance of 10.22' to a rod; thence N 64 degrees 21' 49" W a distance of 30.00' to a rod; thence S 25 degrees 40' 17" W a distance of 31.48' to a rod; thence N 65 degrees 01' 29" W a distance of 198.11' to a spike found, being the point and place of beginning, containing 0.2905 acre, more or less, all in Crozet, White Hall District of Albemarle County, Virginia, further described as Parcel 62, as shown on plat of 10 Lease Agreement survey made by Harvey L. Parks, Inc., dated March 15, 1989, recorded in Deed Book 1086, page 507. TOGETHER WITH a non-exclusive easement, with maintenance agreement, 10 feet in width for vehicular and pedestrian traffic, parking and ingress and egress from State Route 240, recorded in the Clerk's Office of the Circuit Court of Albemarle County, Virginia, in Deed Book 779, page 239. BEING the same real estate conveyed to Central Virginia Health Facilities, Inc., a Virginia corporation, by deed of exchange from Julia Sharp Vergara, divorced, dated January 4, 1979, recorded in the Clerk's Office of the Circuit Court of Albemarle County, Virginia, in Deed Book 664, page 615, and a portion conveyed to Central Virginia Health Facilities, Inc., recorded in Deed Book 655, page 191. By Consent of Shareholder, dated June 29, 1979; Plan of Merger of Central Virginia Health Facilities, Inc., with and into United Service Industries, Inc., dated June 30, 1979; and by Certificate of Merger issued by the Commonwealth of Virginia State Corporation Commission on February 10, 1984, United Service Industries, Inc., a Virginia corporation merged into National Health Care Affiliates, Inc., a Florida corporation, thereby vesting fee simple title in the name of National Health Care Affiliates, Inc., a Florida corporation. PARCEL THREE: ALL that certain lot of land situated in Albemarle County, Virginia, in Crozet, fronting on State Route 240 parallel to the C & O Railroad and bounded on the south by the land owned by the Industrial Development Authority of Albemarle County and on the west by High Street, on the east by State Route 240 and on the north by the C & O Railroad. BEING a portion of the same property conveyed to The Miller Manual School of Albemarle by the following deeds from: (i) Abraham Wayland and Martha T. Wayland, dated September 10, 1894, recorded in the Clerk's Office, Circuit Court, Albemarle County, Virginia, in Deed Book 102, page 231; and (ii) R.T.W. Duke, Commissioner of Circuit Court of Albemarle County, dated May 25, 1887, recorded June 13, 1887, in the Clerk's Office, Circuit Court, Albemarle County, Virginia, in Deed Book 88, page 103. 11 Lease Agreement Leased to National Health Care Affiliates by instrument dated January 1, 1979, recorded in Deed Book 786, page 655. 12 Lease Agreement PARCEL FOUR: ALL that certain lot, piece or parcel of land, with all improvements thereon and appurtenances thereto belonging, lying and being in White Hill District of Albemarle County, Virginia, containing 0.3927 acre according to plat entitled "Plat Showing 0.3927 Acre Of Land With Improvements Shown Situated On The Eastern Line Of High Street, Lying in Crozet, White Hill District of Albemarle County, Virginia", made by Harvey L. Parks, Inc., dated March 15, 1989, recorded in the Clerk's Office of the Circuit Court of Albemarle County, Virginia, in Deed Book 1086, page 506. BEGINNING at a rod found at the intersection of southern line of High Street and the northern property line of Stanley P. Wilcox (Parcel 56) and running from said rod in a northerly direction along the southern line of High Street N 32 degrees 06' 32" E a distance of 60.15' to a spike; thence S 57 degrees 40' 33" E a distance of 102.86' to a rod; thence S 32 degrees 21' 53" W a distance of 48.93' to a P.K. set; thence S 57 degrees 38' 07" E a distance of 109.00' to a P.K. set; thence N 32 degrees 21' 53" E a distance of 49.01' to a rod; thence S 57 degrees 40' 33" E a distance of 162.60 feet to a P.K. set on the northern line of State Route No. 240; thence along the northern line of State Route No. 240 S 34 degrees 00' W a distance of 60.33' to a P.K. set; thence N 57 degrees 34' 43" W a distance of 215.56' to a spike set; thence N 57 degrees 44' 44" W a distance of 156.91' to a rod found, being the point and place of beginning, containing 0.3927 acre, more or less, all in Crozet, White Hall District of Albemarle County, Virginia, as shown on plat of survey made by Harvey L. Parks, Inc., dated March 15, 1989, recorded in Deed Book 1086, page 506. TOGETHER WITH the right of way of ingress and egress over 10-foot strip as described in deed recorded in Deed Book 170, page 370, which strip adjoins the lot hereby conveyed on its southern boundary by instrument recorded in the Clerk's Office, Circuit Court, Albemarle County, Virginia, in Deed Book 695, page 232. TOGETHER WITH perpetual non-exclusive easement, with maintenance agreement, for vehicular and pedestrian traffic, parking and ingress and egress as recorded in the Clerk's Office, Circuit Court, Albemarle County, Virginia, in Deed Book 695, page 237. TOGETHER WITH a non-exclusive easement, with maintenance agreement, 10-feet in width for vehicular and pedestrian traffic, parking and ingress and egress from State Route 240 recorded in the Clerk's Office, Circuit Court, Albemarle County, Virginia, in Deed Book 779, page 239. 13 Lease Agreement BEING a part of the same real estate conveyed to United Service Industries, Inc., by the following deeds from: (i) Virginia National Bank, a national banking association, dated April 25, 1983, recorded June 15, 1983, in the Clerk's Office, Circuit Court, Albemarle County, Virginia, in Deed Book 766, page 29; and (ii) Central Fidelity Bank Charlottesville, a Virginia corporation, dated June 13, 1980, recorded June 20, 1980, in the aforesaid Clerk's Office, in Deed Book 695, page 232. By Certificate of Merger issued by the Commonwealth of Virginia State Corporation Commission on February 10, 1984, United Service Industries, Inc., a Virginia corporation merged into National Health Care Affiliates, Inc., a Florida corporation, thereby vesting fee simple title in the name of National Health Care Affiliates, Inc. 14 Lease Agreement Woodmont Legal Description All that certain tract or parcel of land, situate lying and being in Falmouth District, Stafford County, Virginia, containing 8.770 acres, as shown on plat of survey shown as Parcels 1 and 2 on plat of survey made by Potts, Minter & Associates, P.C., dated May 31, 1996, and further described as: Beginning at a point on the southern line of State Route 607, and from said point and place of beginning along a curve to the right with a radius of 2754.87 feet and an arc length of 214.97 feet, having a chord bearing South 46(degree)27'37" West and a distance of 214.92 feet to a point; thence along a curve to the right with a radius of 2277.50 feet, an arc length of 429.29, a chord bearing South 54(degree)05'44" West, and a distance of 428.65 feet to a point; thence, North 30(degree)30'14" West 40.00 feet to a point; thence along a curve to the right with a radius of 2237.50 feet, an arc length of 668.34 feet, a chord bearing South 68(degree)03'11" West, and a distance of 665.86 feet to a point; thence, South 76(degree)36'37" West 218.25 feet to a point; thence North 13(degree)23'23" West 362.21 feet to a point; thence, north 66(degree)54'00" East 209.00 feet to a point; thence, South 23(degree)06'00" East, 55.00 feet to a point; thence, North 66(degree)54'00" East, 100.00 feet to a point; thence, North 23(degree)06'00" West, 55.00 feet to a point; thence, North 66(degree)54'00" East, 364.44 feet to a point; thence South 37(degree)25'55" East, 191.34 feet to a point; thence, along a curve to the left with a radius of 230.00 feet, and an arc length of 370.11 feet to a point; thence along a non-tangent curve to the left with a radius of 248.41 feet, an arc length of 83.65 feet, a chord bearing North 18(degree)37'39" East 83.27 feet to a point; thence, North 08(degree)58'45" East, 193.51 feet to a point; thence, along the centerline of the old Route 607 South 81(degree)01'15" East, 80.01 feet to a point; thence, continuing along said old Route 607 South 85(degree)03'45" East, 263.09 feet to a point and place of beginning 8.770 acres. Parcel 1 is the same property conveyed to National Health Care Affiliates, Inc., by deed of Industrial Development Authority of Stafford County, Virginia, dated April 1, 1989, recorded in Deed Book 669, at Page 469, in the Clerk's Office of the Circuit Court of Stafford County, Virginia. Parcel 2 is part of the same property conveyed to United Health Services, Incorporated, by deed from Woodmont, Incorporated, dated November 19, 1975, recorded in Deed Book 281, page 492 in the aforesaid Clerk's Office. By Articles of Amendment recorded 15 Lease Agreement in Deed Book 549, page 101, United Health Services, Incorporated changed their name to United Service Industries, Incorporated. By Articles of Merger recorded in Deed Book 458, page 158, United Service Industries, Inc. merged into National Health Care Affiliates, Inc. 16 EXHIBIT A TO LEASE AGREEMENT FORM OF LEASE SUPPLEMENT AND MEMORANDUM OF LEASE AND AGREEMENT THIS LEASE SUPPLEMENT AND MEMORANDUM OF LEASE AND AGREEMENT dated _____________, 19__ (this "Lease Supplement") is between MELLON FINANCIAL SERVICES CORPORATION #4, as Lessor (the "Lessor"), and GENESIS ELDERCARE PROPERTIES, INC., a Pennsylvania corporation and a wholly-owned subsidiary of Genesis Health Ventures, Inc., as Lessee (the "Lessee"); W I T N E S S E T H: WHEREAS, Lessee and Lessor have heretofore entered into that certain Lease and Agreement dated as of July 24, 1996 (as amended, supplemented, or otherwise modified from time to time, the "Lease"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings specified in the Lease; and WHEREAS, the Lease provides for the execution and delivery of a Lease Supplement on the Document Closing Date substantially in the form hereof for the purpose of confirming the acceptance and lease of certain Sites, specifying the Rent applicable to such Sites and setting forth certain other matters, all as required pursuant to the Lease; NOW, THEREFORE, in consideration of the premises and other good and sufficient consideration, Lessor and Lessee hereby agree as follows: 1. Delivery and Acceptance. Lessor hereby delivers and leases to, and confirms delivery and lease to, Lessee, and Lessee hereby accepts delivery and leases, and confirms acceptance of delivery and lease, from Lessor, under the Lease as hereby supplemented, of the Site(s) listed on Schedule I hereto. The term "Site" includes, without limitation, all of the right, title and interest of Lessor or Lessee in and to the following: Lease Supplement (A) the real property described in Schedule III attached to the Participation Agreement (the "Land"); all buildings, structures and other improvements now or in the future located on the Land (the "Improvements"; the Improvements and the Land are sometimes collectively referred to herein as the "Property"); (B) all the estate, right, title, claim or demand whatsoever of Lessor or Lessee, in possession or expectancy, in and to the Property or any part thereof; (C) all right, title and interest of Lessor in and to all of the fixtures, furnishings and fittings of every kind and nature whatsoever, and all appurtenances and additions thereto and substitutions or replacements thereof (together with, in each case, attachments, components, parts and accessories) currently owned or subsequently acquired by the Mortgagor and now or subsequently attached to, or contained in or used or usable in any way in connection with any operation or letting of the Property (all of the foregoing in this paragraph (C) being referred to as the "Fixtures"); (D) all right, title and interest of Lessor or Lessee in and to all of the fixtures, chattels, business machines, machinery, apparatus, equipment, furnishings, fittings and articles of personal property of every kind and nature whatsoever, and all appurtenances and additions thereto and substitutions or replacements thereof (together with, in each case, attachments, components, parts and accessories) currently owned or subsequently acquired by Mortgagor and now or subsequently attached to, or contained in or used or usable in any way in connection with any operation or letting of the Property, including but without limiting the generality of the foregoing, all screens, awnings, shades, blinds, curtains, draperies, artwork, carpets, rugs, storm doors and windows, furniture and furnishings, heating, electrical, and mechanical equipment, lighting, switchboards, plumbing, ventilating, air conditioning and air-cooling apparatus, refrigerating, and incinerating equipment, escalators, refrigerators, elevators, loading and unloading equipment and systems, stoves, ranges, laundry equipment, cleaning systems (including window cleaning apparatus), telephones, communication systems (including satellite dishes and antennae), televisions, computers (excluding software), sprinkler systems and other fire prevention and extinguishing apparatus and materials, security systems, motors, engines, machinery, pipes, pumps, tanks, conduits, appliances, fittings and fixtures of every 2 Lease Supplement kind and description (all of the foregoing in this paragraph (D) being referred to as the "Equipment"); (E) all right, title and interest of Lessor or Lessee in and to all substitutes and replacements of, and all additions and improvements to, the Improvements and the Fixtures and Equipment, subsequently acquired by Lessor or Lessee or constructed, assembled or placed by Lessor or Lessee on the Land, immediately upon such acquisition, release, construction, assembling or placement, including, without limitation, any and all building materials whether stored at the Property or offsite, and, in each such case, without any further lease, mortgage, conveyance, assignment or other act by Lessor or Lessee; (F) all right, title and interest of Lessor or Lessee in, to and under all books and records relating to or used in connection with the operation of the Property or the Fixtures or any part thereof; and all general intangibles related to the operation of the Improvements now existing or hereafter arising; and (G) all right, title and interest of Lessor or Lessee in and to (to the extent assignable) (i) all consents, licenses, building permits, certificates of occupancy and other governmental approvals relating to construction, completion, occupancy, use or operation of the Property or any part thereof and (ii) all plans and specifications relating to the Property. 2. Warranty. Lessee hereby represents and warrants that no event which would constitute a Casualty or an Event of Taking and no notice of such Casualty or Event of Taking has been given to Lessee or any of its Affiliates with respect to the Sites under the Lease has occurred with respect to the Sites set forth on Schedule I hereto as of the date hereof. Lessee hereby reaffirms each of the representations and warranties set forth at Section 4.1 of the Participation Agreement as if made on the date hereof, except to the extent any such representation and warranty relates to an earlier date, including the Sites set forth on Schedule I hereto are free and clear of all Liens other than Permitted Liens. 3. Term, Applicable Percentage. The term of this Lease Supplement shall commence on the date hereof and end on the Lease Termination Date. The Applicable Percentage on each Payment Date is set forth in the appropriate portion of Schedule II. 3 Lease Supplement 4. Renewal Terms, Lessee's Cost and Estimated Sales Costs. With respect to the Sites covered by this Lease Supplement and subject to the consent of the Participants pursuant to Section 2.10 of the Participation Agreement, Lessee shall have a five-year renewal option to be exercised pursuant to Section 6.1 of the Lease. The estimated sales costs for the Sites are set forth in Schedule II attached hereto. 5. Confirmation. Lessee hereby confirms its agreement, in accordance with the Lease as supplemented by this Lease Supplement, to pay Rent to Agent, for the benefit of Lessor, for the Sites leased hereunder. Nothing herein shall reduce Lessee's obligation to make all other payments required under the Lease, including those payments to be made on the last day of the Lease Term pursuant to Article VI of the Lease. 6. Incorporation into Lease. This Lease Supplement shall be construed in connection with and as part of the Lease, and all terms, conditions and covenants contained in the Lease, as supplemented by this Lease Supplement, shall be and remain in full force and effect and shall govern the Sites described in Schedule I hereto. 7. References. Any and all notices, requests, certificates and other instruments executed and delivered concurrently with or after the execution and delivery of this Lease Supplement may refer to the "Lease Agreement, dated as of July 24, 1996", or may identify the Lease in any other respect without making specific reference to this Lease Supplement, but nevertheless all such references shall be deemed to include this Lease Supplement, unless the context shall otherwise require. 8. Recording. Lessor and Lessee agree that this Lease Supplement shall be recorded at Lessee's sole cost and expense as required under Section 21.19 of the Lease. 9. Counterparts. This Lease Supplement may be executed in any number of counterparts, each executed counterpart constituting an original but all together one and the same instrument. 10. Nature of Transaction. (A) IT IS THE INTENT OF THE PARTIES HERETO THAT: (i) THE TRANSACTION CONTEMPLATED HEREBY CONSTITUTES AN OPERATING LEASE FROM LESSOR TO LESSEE FOR PURPOSES OF LESSEE'S FINANCIAL REPORTING, (ii) THE TRANSACTION CONTEMPLATED HEREBY PRESERVES OWNERSHIP IN THE 4 Lease Supplement SITES TO LESSEE FOR PURPOSES OF FEDERAL AND STATE TAX AND BANKRUPTCY PURPOSES, (iii) LESSEE, PURSUANT TO THE LEASE, GRANTS A SECURITY INTEREST OR LIEN, AS THE CASE MAY BE, IN THE SITES AND THE OTHER COLLATERAL TO LESSOR, (iv) FOR PURPOSES OF FEDERAL AND STATE TAX AND BANKRUPTCY PURPOSES, THE PAYMENT BY LESSEE OF BASIC RENT SHALL BE TREATED AS PAYMENTS OF INTEREST, AND THE PAYMENT BY LESSEE OF ANY AMOUNTS IN RESPECT OF THE LEASE BALANCE SHALL BE TREATED AS REPAYMENTS OF PRINCIPAL, AND (v) THE MORTGAGE AND ASSIGNMENT OF LEASE CREATE A LIEN AND SECURITY INTEREST IN LESSOR'S INTEREST IN AND TO THE SITES, THE LEASE AND THE OTHER OPERATIVE DOCUMENTS, SUBJECT TO CERTAIN LIMITED EXCEPTIONS. NEVERTHELESS, LESSEE ACKNOWLEDGES AND AGREES THAT NONE OF LESSOR, AGENT OR ANY LENDER HAS PROVIDED OR WILL PROVIDE TAX, ACCOUNTING OR LEGAL ADVICE TO LESSEE REGARDING THE OVERALL TRANSACTION OR MADE ANY REPRESENTATIONS OR WARRANTIES CONCERNING THE TAX, ACCOUNTING OR LEGAL CHARACTERISTICS OF THE OPERATIVE DOCUMENTS AND THAT LESSEE HAS OBTAINED AND RELIED UPON SUCH TAX, ACCOUNTING AND LEGAL ADVICE CONCERNING THE OPERATIVE DOCUMENTS AS IT DEEMS APPROPRIATE. (B) SPECIFICALLY, WITHOUT LIMITING THE GENERALITY OF SUBSECTION (A) OF THIS SECTION 10, BUT UNDERSTANDING THAT THE PARTIES' CHARACTERIZATION IS NOT THE SOLE DETERMINANT OF THE ISSUE, THE PARTIES HERETO INTEND AND AGREE THAT WITH RESPECT TO THE NATURE OF THE TRANSACTIONS EVIDENCED BY THIS LEASE IN THE CONTEXT OF THE EXERCISE OF REMEDIES UNDER THE OPERATIVE DOCUMENTS, RELATING TO AND ARISING OUT OF ANY INSOLVENCY OR RECEIVERSHIP PROCEEDINGS OR A PETITION UNDER THE UNITED STATES BANKRUPTCY LAWS OR ANY OTHER APPLICABLE INSOLVENCY LAWS OR STATUTE OF THE UNITED STATES OF AMERICA OR ANY STATE OR COMMONWEALTH THEREOF AFFECTING LESSEE, LESSOR OR ANY LENDER OR ANY ENFORCEMENT OR COLLECTION ACTIONS, THE TRANSACTIONS EVIDENCED BY THE OPERATIVE DOCUMENTS ARE LOANS MADE BY THE LESSOR AND THE LENDERS AS UNRELATED THIRD PARTY LENDERS TO LESSEE SECURED BY THE SITES. 11. Grant and Foreclosure on Lessee's Estate.1 Lessee hereby grants to ____________________, as trustee (together with all successor trustees, the "Trustee"), IN TRUST, WITH POWER OF SALE, all of Lessee's right, title and interest in and to the Sites listed on Schedule I and, upon the occurrence of a Lease Event of Default, Lessor shall have the power and authority, after proper notice and lapse - -------- 1 To be conformed to requirements of local law for each state. 5 Lease Supplement of such time as may be required by law, to cause Trustee to sell such Sites by notifying Trustee of that election and depositing with Trustee this instrument and receipts and evidence of expenditures made and secured hereby as Trustee may reasonably require. Upon receipt of any such notice from Lessor, Trustee shall cause to be recorded, published and delivered to Lessee such Notice of Default and Election to Sell as is then required by applicable statutory authority and by this instrument, which notice shall set forth, among other things, the nature of the breach(es) or default(s), the action(s) required to effect a cure thereof and the time period within which that cure may be effected. If no cure is effected within the statutory time limits following recordation of the Notice of Default and Election to Sell and after Notice of Sale has been given as required by the above-referenced statutes, Trustee may without further notice or demand sell and convey the Sites in accordance with the above-referenced statutes. The Sites may be sold as a whole or in separate lots, parcels or items and in such order as Lessor may direct, at public auction to the highest bidder for cash in lawful money of the United States payable at the time of sale. Lessor may purchase all or any part of the Sites at such sale. Lessee acknowledges that sales for cash or on credit to a wholesaler, retailer or user of the Sites, at a public or private auction, are all commercially reasonable. Trustee shall deliver to such purchaser(s) a good and sufficient deed or deeds conveying the property so sold, but without any covenant or warranty express or implied. The recitals in such deed of any matter or fact shall be conclusive proof of the truthfulness thereof. Any Person, including Lessee, Trustee or Lessor, may purchase at any sale. After deducting all costs, fees and expenses of Lessor and Trustee, including costs of evidence of title in connection with any sale, Lessor shall apply the proceeds of sale, in the following order of priority, to payment of the following (collectively, the "Obligations"): (i) first, all amounts expended by or for the account of Lessor under the terms hereof and not then repaid, with accrued interest at the Overdue Rate; and (ii) second, all other amounts then due and owing hereunder including, without limitation, all Accrued Variable Rent, Supplemental Rent, the full amount of the Lease Balance as of the date of sale as if this Lease had been terminated with respect to all of the Sites then subject to this Lease under Section 6.3, and all other amounts then payable by Lessee under this Lease and the other Operative Documents, with Lessor having the right to apply the proceeds of sale to the amounts described above in this clause (ii) in such order, proportion and priority as Lessor may elect in its 6 Lease Supplement sole and absolute discretion. To the extent permitted by applicable statutes, Trustee may postpone the sale of all or any portion of the Sites by public announcement at the time and place of sale, and from time to time thereafter may again postpone that sale by public announcement or subsequently noticed sale, and without further notice may make such sale at the time fixed at the last postponement or may, in its discretion, give a new notice of sale. A sale of less than all of the Sites or any defective or irregular sale made hereunder shall not exhaust the power of sale provided for herein, and subsequent sales may be made hereunder until all of the Obligations have been satisfied or the entire Sites sold, without defect or irregularity. No action of Lessor or Trustee based upon the provisions contained herein or contained in the applicable statutes, including, without limitation, the giving of the Notice of Default and Election to Sell or the Notice of Sale, shall constitute an election of remedies which would preclude Lessor from pursuing judicial foreclosure before a completed sale pursuant to the power of sale contained herein. Lessor shall have the right, with the irrevocable consent of Lessee hereby given and evidenced by the execution of this instrument, to obtain appointment of a receiver by any court of competent jurisdiction without further notice to Lessee, which receiver shall be authorized and empowered to enter upon and take possession of the Sites, including all personal property constituting a permanent part of the Site and fixtures thereto used upon or in connection with the real property herein conveyed (and any other personal property constituting a part of the Site which Lessee acquired with the funds of Lessor or the Lenders), to let the Sites, to receive all the rents, issues and profits, if any, which may be due or become due in respect to the leasing of the Sites to another party and apply the rents after payment of all necessary charges and expenses to reduction of the Obligations in such order, proportion and priority as Lessor may elect. At the option of Lessor, the receiver shall accomplish entry and taking possession of the Sites by actual entry and possession or by notice to Lessee. The receiver so appointed by a court of competent jurisdiction shall be empowered to issue receiver's certificates for funds advanced by Lessor for the purpose of protecting the value of the Sites as security for the Obligations. The amounts evidenced by receiver's certificates shall bear interest at the Overdue Rate and may be added to the Obligations if Lessee or a junior lienholder purchases the Sites at the trustee's sale. Trustee or any successor acting hereunder may resign and thereupon be discharged of the trusts hereunder upon thirty (30) days' 7 Lease Supplement prior written notice to Lessor. Regardless of whether Trustee resigns, Lessor may, from time to time, substitute a successor or successors to any Trustee named herein or acting hereunder in accordance with any statutory procedure for such substitution; or if Lessor, in its sole and absolute discretion, so elects, and if permitted by law, Lessor may substitute such successors or successors by recording, in the office of the recorder of the county or counties where a Site is located, a document executed by Lessor and containing the name of the original Lessee and Lessor hereunder, the book and page where this instrument (or a memorandum hereof) is recorded (and/or instrument number, as applicable) and the name of the new Trustee, which instrument shall be conclusive proof of proper substitution of such successor Trustee or Trustees, who shall, without conveyance from the predecessor Trustee, succeed to the rights, powers and duties hereunder. It is acknowledged that A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT; A POWER OF SALE MAY ALLOW LESSOR TO TAKE THE SITES AND SELL THEM WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY LESSEE UNDER THIS INSTRUMENT. 12. Governing Law. THIS LEASE SUPPLEMENT HAS BEEN DELIVERED IN, AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, EXCEPT THAT FORECLOSURE UPON THE SITES SUBJECT TO THIS LEASE SUPPLEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE IN WHICH THE SITE SUBJECT TO THIS LEASE SUPPLEMENT IS LOCATED. [remainder of page intentionally left blank] 8 Lease Supplement IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement to be duly executed and delivered on the day and year first above written. MELLON FINANCIAL SERVICES CORPORATION, as Lessor By___________________________ Name Printed:________________ Title:_______________________ Address: One Mellon Bank Center Rm 151-4444 Pittsburgh, PA 15258-0001 Attention: Leasing Group GENESIS ELDERCARE PROPERTIES, INC., as Lessee By___________________________ Name Printed:________________ Title:_______________________ Address: 148 West State Street Kennett Square, PA 19348 Attn: George V. Hager, Jr. [Conform execution and acknowledgments to applicable state requirements in state where applicable Site is located] Lease Supplement STATE OF _______________ ) ) SS.: COUNTY OF ______________ ) The foregoing Lease Supplement was acknowledged before me, the undersigned Notary Public, in the County of _______________, State of ____________, this ____ day of _______________, 19____, by ___________________________, as _________________________ of GENESIS ELDERCARE PROPERTIES, INC., a Pennsylvania corporation, on behalf of the corporation. [Notarial Seal] _________________________ Notary Public My commission expires:________________ [USE APPROPRIATE NOTARY FORMS FOR APPLICABLE STATE] 10 Lease Supplement STATE OF _______________ ) ) SS.: COUNTY OF ______________ ) The foregoing Lease Supplement was acknowledged before me, the undersigned Notary Public, in the County of _______________, State of ____________, this ____ day of _______________, 19____, by ___________________________, as _________________________ of MELLON FINANCIAL SERVICES CORPORATION #4, on behalf of the Corporation. [Notarial Seal] _________________________ Notary Public My commission expires:________________ [USE APPROPRIATE NOTARY FORMS FOR APPLICABLE STATE] 11 Lease Supplement SCHEDULE I TO LEASE SUPPLEMENT Sites 12 Lease Supplement SCHEDULE II TO LEASE SUPPLEMENT Applicable Estimated Site Percentage Sales Costs - ---- ---------- ----------- Atlantis Rehabilitation 84.855% 1% and Health Care Center Old Congress Road, Lantana, Florida Bowman's Health Care Center 84.855% 1% South Ridgewood Ormand Beach, Florida Eagle Crest Nursing Center 84.855% 1% Parental Home Road Jacksonville, Florida Oakwood Rehabilitation 84.855% 1% and Health Care Center South East Bay Street Eustis, Florida Tierra Pines Health 84.855% 1% Care Center Ulmerton Road Largo, Florida Woodlands Nursing Center 84.855% 1% North 46th Street Tampa, Florida Williamsburg Health Care 84.855% 1% and Rehabilitation Center Mount Vernon Avenue Williamsburg, Virginia Windham 84.855% 1% Main Street, Route 240 Crozet, Virginia Woodmont Health Care Center 84.855% 1% Dairy Lane Fredricksburg, Virginia 13 EX-10.9 8 PARTICIPATION AGREEMENT Exhibit 10.9 ================================================================================ PARTICIPATION AGREEMENT Dated as of July 24, 1996 Among GENESIS ELDERCARE PROPERTIES, INC. as Lessee, MELLON FINANCIAL SERVICES CORPORATION #4, as Lessor PERSONS NAMED ON SCHEDULE I, as Lenders, and MELLON BANK, N.A. not in its individual capacity except as expressly stated herein, but solely as Agent ================================================================================ -1- TABLE OF CONTENTS (Participation Agreement) Page ARTICLE I DEFINITIONS.............................................. 2 ARTICLE II EFFECTIVENESS; ACQUISITION AND LEASE; GENERAL PROVISIONS. 2 SECTION 2.1 Effectiveness of Agreement............................... 2 SECTION 2.2 Agreement to Acquire and Lease........................... 2 SECTION 2.3 Participation by Lenders................................. 2 SECTION 2.4 Participation by Lessor.................................. 3 SECTION 2.5 Advances for Transaction Costs........................... 3 SECTION 2.6 Structuring/Underwriting Fee............................. 4 SECTION 2.7 Payments to Participants................................. 5 SECTION 2.8 Nature of Transaction.................................... 5 SECTION 2.9 Computations............................................. 6 SECTION 2.10 Renewal Term............................................. 6 SECTION 2.11 Highest Lawful Rate...................................... 9 ARTICLE III [INTENTIONALLY OMITTED].................................. 11 ARTICLE IV REPRESENTATIONS AND WARRANTIES........................... 12 SECTION 4.1 Representations and Warranties of Lessee................. 12 SECTION 4.2 Representations and Warranties of each Lender............ 20 SECTION 4.3 Representations and Warranties of Lessor................. 22 SECTION 4.4 Representations and Warranties of Agent.................. 24 ARTICLE V COVENANTS OF LESSEE...................................... 25 SECTION 5.1 Further Assurances....................................... 25 SECTION 5.2 Consolidation, Merger, Sale, etc......................... 26 SECTION 5.3 Corporate Existence...................................... 28 SECTION 5.4 Guaranty................................................. 28 SECTION 5.5 Liens.................................................... 28 SECTION 5.6 Compliance Certificates.................................. 28 SECTION 5.7 Change of Name or Address................................ 29 SECTION 5.8 Environmental Matters.................................... 29 SECTION 5.9 Investigation by Authorities............................. 29 SECTION 5.10 Financial and Other Information.......................... 30 SECTION 5.11 Securities............................................... 32 SECTION 5.12 Interest Rates........................................... 32 SECTION 5.13 Appraisals............................................... 32 -i- SECTION 5.14 Environmental Audits..................................... 32 SECTION 5.15 Additional Compensation in Certain Circumstances......... 33 ARTICLE VI OTHER COVENANTS AND AGREEMENTS........................... 33 SECTION 6.1 Cooperation with Lessee.................................. 33 SECTION 6.2 Covenants of Lessor and Lenders.......................... 34 SECTION 6.3 Restrictions on and Effect of Transfer by any Lender........................................ 35 SECTION 6.4 Covenants and Agreements of Lenders...................... 38 SECTION 6.5 Future Lenders........................................... 39 SECTION 6.6 Agent under Participation Agreement and Mortgages........ 39 SECTION 6.7 Syndication by Agent..................................... 39 SECTION 6.8 Prepayment by Lessor..................................... 40 SECTION 6.9 Foreclosure against Lessor............................... 40 ARTICLE VII INDEMNIFICATION.......................................... 40 SECTION 7.1 General Indemnification.................................. 40 SECTION 7.2 General Tax Indemnity.................................... 41 SECTION 7.3 Withholding Tax Exemption................................ 46 SECTION 7.4 Excessive Use Indemnity.................................. 46 SECTION 7.5 Gross Up................................................. 47 ARTICLE VIII THE AGENT................................................ 47 SECTION 8.1 Appointment of Agent; Powers and Authorization to Take Certain Actions................ 47 SECTION 8.2 Reliance................................................. 49 SECTION 8.3 Action Upon Instructions Generally....................... 49 SECTION 8.4 Indemnification.......................................... 50 SECTION 8.5 Independent Credit Investigation......................... 51 SECTION 8.6 Refusal to Act........................................... 52 SECTION 8.7 Resignation or Removal of Agent; Appointment of Successor............................. 52 SECTION 8.8 Separate Agent........................................... 53 SECTION 8.9 Termination of Agency.................................... 53 SECTION 8.10 Compensation of Agency................................... 53 SECTION 8.11 Limitations.............................................. 54 SECTION 8.12 Agent May Be a Participant............................... 54 ARTICLE IX MISCELLANEOUS............................................ 55 SECTION 9.1 Survival of Agreements................................... 55 SECTION 9.2 No Broker, etc........................................... 55 SECTION 9.3 Notices.................................................. 55 SECTION 9.4 Counterparts............................................. 56 SECTION 9.5 Amendments............................................... 56 SECTION 9.6 Headings, etc............................................ 57 -ii- SECTION 9.7 Parties in Interest...................................... 57 SECTION 9.8 GOVERNING LAW; Submission to Jurisdiction; Waiver of Jury Trial.................... 57 SECTION 9.9 Payment of Transaction Costs and Other Costs............. 57 SECTION 9.10 Severability............................................. 58 SECTION 9.11 Limited Liability of Lessor.............................. 58 SECTION 9.12 Liabilities of the Lenders............................... 59 SECTION 9.13 Liabilities of Agent..................................... 59 SECTION 9.14 Reproduction of Documents................................ 59 SECTION 9.15 Consideration for Consents to Waivers and Amendments........................................ 60 SECTION 9.16 Payment Directions....................................... 60 SECTION 9.17 Action of and Notices to Lessor under Loan Agreement........................................ 60 SECTION 9.18 Submission to Jurisdiction; Waivers...................... 60 SECTION 9.19 Final Agreement.......................................... 61 -iii- APPENDIX 1 Definitions APPENDIX 2 Conditions to Document Closing SCHEDULE I Lenders and Commitments SCHEDULE II Addresses For Notice; Wire Instructions SCHEDULE III Sites SCHEDULE IV Stock Sellers SCHEDULE 4.1A Governmental Actions SCHEDULE 4.1B Filings and Recordings SCHEDULE 4.1C Computation under Section 5.9 of 1995 Subordinated Note Indenture SCHEDULE 4.1D ERISA Plans EXHIBIT A Form of Lease and Agreement Exhibit A - Form of Lease Supplement and Memorandum of Lease and Agreement EXHIBIT B-1 Form of Guaranty of Lease EXHIBIT B-2 Form of Structural Guaranty EXHIBIT C Form of Loan Agreement Exhibit A - Form of Note EXHIBIT D-1 Form of Mortgage EXHIBIT D-2 Form of Deed of Trust EXHIBIT E-1 Form of Opinion of In-House Counsel to Lessee EXHIBIT E-2 Form of Opinion of Special Counsel to Lessee EXHIBIT E-3 Form of Local Counsel Opinion EXHIBIT E-4 Form of Opinion of Special Counsel to Lessee regarding "Senior Indebtedness" EXHIBIT E-5 Form of Local Counsel Questionnaire EXHIBIT F Form of Officer's Certificate EXHIBIT G Form of Investor's Letter EXHIBIT H Form of Assignment of Lease and Agreement and Lease Supplements and Memoranda of Lease and Agreement EXHIBIT I-1 Form of Amendment to Security Agreement EXHIBIT I-2 Form of Amendment to Collateral Agency Agreement EXHIBIT J Form of Assignment of Licenses EXHIBIT K INTENTIONALLY OMITTED EXHIBIT L INTENTIONALLY OMITTED EXHIBIT M Form of Ground Lease EXHIBIT N Form of Advance Request EXHIBIT O Form of Assignment and Assumption by Participant -iv- Participation Agreement ----------------------- PARTICIPATION AGREEMENT THIS PARTICIPATION AGREEMENT, dated as of July 24, 1996 (this "Agreement"), is among GENESIS ELDERCARE PROPERTIES, INC., as Lessee; MELLON FINANCIAL SERVICES CORPORATION #4, as Lessor; the Persons named on Schedule I hereto (together with their respective permitted successors, assigns and transferees), as Lenders; and MELLON BANK, N.A., a national banking association, not in its individual capacity except as expressly stated herein, but solely as Agent for Lessor and Lenders. W I T N E S E T H: WHEREAS, Lessee, Lessor, Lenders and Agent have entered into this Agreement for the purpose of providing financing for the acquisition of certain parcels of real property (each a "Land Interest") and the acquisition of certain facilities currently located thereon (each, a "Facility") (each such Land Interest, together with such Facility and the other real estate or related interests described in the definition of Site in Appendix 1 hereto, are referred to individually as a "Site" and collectively as the "Sites"); and WHEREAS, the Sites are identified on Schedule III hereto; and WHEREAS, on the Document Closing Date Lessor shall lease the Sites to Lessee and Lessee shall lease the Sites from Lessor for the Lease Term pursuant to the Lease in the form of Exhibit A hereto; and WHEREAS, Lessee shall sublease the Sites (other than the Sites located at Tierra Pines Health Care Center and Eatle Crest Nursing Center) to Subtenants pursuant to the Subleases; WHEREAS, Lessor shall contribute a portion of the Total Costs through an equity investment in the Sites (the "Equity Amount"); and WHEREAS, Lessor wishes to obtain, and the Lenders are willing to provide, financing (the "Financing") of the remaining portion of the Total Costs; and WHEREAS, concurrently with the execution and delivery of this Agreement Lessee shall cause the Guarantors to execute and deliver guaranties (the "Guaranties") in the forms of Exhibit B-1 and Participation Agreement ----------------------- Exhibit B-2 attached hereto from the Guarantors for the benefit of Lessor, Lenders and Agent; and WHEREAS, to secure the Financing, Agent, on behalf of the Lenders, will have the benefit of a Lien from Lessor on all of Lessor's right, title and interest in each Site and on substantially all of Lessor's rights against Lessee under the Lease with respect to each Site. NOW, THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS Unless the context shall otherwise require, capitalized terms used and not defined herein shall have the meanings assigned thereto in Appendix 1 hereto for all purposes hereof. ARTICLE II EFFECTIVENESS; ACQUISITION AND LEASE; GENERAL PROVISIONS SECTION 2.1. Effectiveness of Agreement. This Agreement shall become effective on the date (on or before July 24, 1996) on which all the conditions precedent thereto set forth in Appendix 2 hereto shall have been satisfied or waived by the applicable parties as set forth therein (the "Document Closing Date"). SECTION 2.2. Agreement to Acquire and Lease. Lessee hereby directs Lessor to acquire the Sites on the Document Closing Date. On the Document Closing Date, after Lessor's acquisition of the Sites, Lessor and Lessee shall enter into the Lease pursuant to which Lessor shall lease the Sites to Lessee, and Lessor and Lessee shall enter into, and Lessee shall cause to be recorded, the Lease Supplement. SECTION 2.3. Participation by Lenders. Subject to the terms and conditions of this Agreement and in reliance on the representations and warranties of each of the parties hereto contained herein or made pursuant hereto, on the Document Closing Date each Lender shall finance, in part, the Total Costs by making a secured loan to Lessor (in accordance with Lessor's payment instructions set forth on Schedule II) in an amount in immediately 2 Participation Agreement ----------------------- available funds on such Document Closing Date equal to such Lender's Commitment Percentage of the Total Costs and in the aggregate not more than its Commitment as set forth on Schedule I hereto. Each loan shall be evidenced by one or more Notes issued to the Lender(s) under and repayable in accordance with the terms of the Loan Agreement (which shall be substantially in the form of Exhibit A thereto). SECTION 2.4. Participation by Lessor. Subject to the terms and conditions of this Agreement and in reliance on the representations and warranties of each of the parties hereto contained herein or made pursuant hereto, on the Document Closing Date Lessor shall acquire an equity interest in the Overall Transaction by contributing the Equity Amount in immediately available funds. In consideration for its contribution of the Equity Amount Lessor shall be paid the Yield on the Equity Amount on each Payment Date. SECTION 2.5. Advances for Transaction Costs. For Transaction Costs payable by Lessor pursuant to Section 9.9 below after the Document Closing Date, the following procedures shall be applicable. (a) Notices and Closing. At least five (5) Business Days prior to each Advance Date, Lessee or Agent shall deliver to the other and to the Participants an irrevocable written notice substantially in the form of Exhibit N (an "Advance Request"), setting forth: (i) the proposed Advance Date; (ii) a description of such Transaction Costs and a statement specifying the Site or Sites to which such Transaction Costs are allocable; and (iii) wire transfer instructions for the disbursement of funds. (b) Commitment Limits. The aggregate amount disbursed by the Participants hereunder shall not exceed the aggregate Commitments. For any Advance Request made by Lessee, or to be funded, after the occurrence of a Lease Event of Default, Agent shall have (i) the right, but shall not be obligated (unless so directed by the Required Participants), to cancel such Advance Request prior to the honoring of such Advance Request, and (ii) the right, but shall not be obligated (unless so directed by the Required Participants), 3 Participation Agreement ----------------------- to terminate the Commitments; provided that if Agent shall terminate the Commitments of the Lenders, the Commitment of Lessor shall automatically be terminated and Lessor shall have no further obligation to make any other Advances hereunder. (c) Required Dates. For Lessor's payment of Transaction Costs, the Advance Date or Dates for any calendar month shall be the date or dates selected by Agent, on behalf of Lessor. (d) Obligations Several. The obligations of the parties hereto or elsewhere in the Operative Documents shall be several and not joint; and no party shall be liable or responsible for the acts or defaults of any other party hereunder or under any other Operative Document. (e) Termination of Commitment. Notwithstanding anything in this Agreement to the contrary, no party hereto shall be obligated to make any fundings pursuant to this Agreement after 5:00 P.M., New York time, on July 31, 1996 (for the initial advance) and September 24, 1996 (for any subsequent advance for Transaction Costs), and no Advance Date may occur following such latter date. (f) Notes and Certificates; Notations. Upon the consummation of each Advance, each Lender may make a notation on the grid attached to such Lender's Note indicating the amount of the Loan advanced by such Lender on such Advance Date, and the Agent, on behalf of Lessor and the Lenders, shall make a notation on its records indicating the amount of the Loan advanced by each Lender and the portion of the Equity Amount so advanced by Lessor on such Advance Date. Each Participant is hereby authorized to record the date and amount of each Advance made by such Participant, each continuation thereof, the date and amount of each payment or repayment of principal or Equity Amount thereof (as the case may be) and the length of each Interest Period with respect thereto, on the grid annexed to and constituting a part of each Note held by such Participant or the records of Agent, as applicable, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded, provided, however that the failure to make any such recordation or any error in such recordation shall not affect the obligation of Lessor under any Note or the obligation of Lessee to pay Rent. (g) Initial Interest and Yield on Advances. Interest and Yield on each Advance shall be determined by reference to the Prime Rate or LIBO Rate, whichever is applicable, for the period from the date of such Advance until the commencement of the next succeeding Interest Period. 4 Participation Agreement ----------------------- SECTION 2.6. Structuring/Underwriting Fee. Genesis shall pay to Agent a fully-earned, non-refundable Structuring/Underwriting Fee (the "Structuring/Underwriting Fee") to be earned and payable as outlined in the Commitment Letter, which fee shall be paid by Lessor as part of Transaction Costs pursuant to Section 2.5 and repaid by Lessee as part of Basic Rent as specified in clause (iii)(y) of the definition thereof. SECTION 2.7. Payments to Participants. The parties to this Agreement hereby agree that any payment required to be made by Lessee to Lessor or any of the Lenders, or by Lessor to Lenders out of amounts paid by Lessee to Lessor, pursuant to any Operative Document may be made directly to Agent on behalf of the applicable Participants by Lessee in lieu of the corresponding payment required to be made by Lessee to such Participants, or by Lessor to Lenders out of amounts payable by Lessee to Lessor, pursuant to any Operating Document. Such payment by Lessee to Agent shall be deemed to constitute (a) the required payment from Lessee to Lessor or any other applicable Participant and (b) the corresponding payment by Lessor to the Lenders. Agent shall promptly (and in any case, within one Business Day) remit to each of the Participants its respective share of any such amounts. SECTION 2.8. Nature of Transaction. (a) It is the intent of the parties hereto that: (i) the transaction contemplated hereby constitutes an operating lease from Lessor to Lessee for purposes of Lessee's financial reporting, (ii) the transaction contemplated hereby preserves ownership in the Sites to Lessee for purposes of Federal and state tax and bankruptcy purposes, (iii) Lessee, pursuant to the Lease, grants a security interest or lien, as the case may be, in the Sites and the other Collateral to Lessor, (iv) for purposes of Federal and state tax and bankruptcy purposes, the payment by Lessee of Basic Rent shall be treated as payments of interest, and the payment by Lessee of any amounts in respect of the Lease Balance shall be treated as repayments of principal, and (v) the Mortgage and Assignment of Lease create a lien and security interest in the Collateral, subject to certain limited exceptions. Nevertheless, Lessee acknowledges and agrees that none of Lessor, Agent or any Lender has provided or will provide tax, accounting, health care regulatory or legal advice to Lessee regarding the Overall Transaction or made any representations or warranties concerning the tax, accounting, regulatory or legal characteristics of the Operative Documents and that Lessee has obtained and relied upon such tax, 5 Participation Agreement ----------------------- accounting, regulatory and legal advice concerning the Operative Documents as it deems appropriate. (b) Specifically, without limiting the generality of subsection (a) of this Section 2.8, but understanding that the parties' characterization is not the sole determinant of the issue, the parties hereto intend and agree that with respect to the nature of the transactions evidenced by the Lease in the context of the exercise of remedies under the Operative Documents, relating to and arising out of any insolvency or receivership proceedings or a petition under the United States bankruptcy laws or any other applicable insolvency laws or statute of the United States of America or any State or Commonwealth thereof affecting Lessee, Lessor or any Lender or any enforcement or collection actions, the transactions evidenced by the Operative Documents are loans made by the Lenders as unrelated third party lenders to Lessee secured by the Sites. SECTION 2.9. Computations. For all purposes under the Operative Documents, all computations of interest, Yield and other accrued amounts (including the Overdue Rate) shall be made on the basis of actual number of days elapsed in a 360-day year (or in the case of calculations based upon the Prime Rate, on the basis of actual number of days elapsed in a 365 (366) day year), except as otherwise specifically provided in any Operative Document. SECTION 2.10. Renewal Term. (a) Lessee's Renewal Request. Pursuant to Section 6.1 of the Lease, so long as no Lease Payment/Bankruptcy Default or Lease Event of Default shall have occurred and be continuing at the time Lessee delivers the Renewal Request and at the commencement of the Renewal Term, Lessee may request that Agent, Lessor and the Lenders extend the Lease and the Financing for the Renewal Term (such request by Lessee is herein called the "Renewal Request"). In the event Lessee makes such request, within thirty (30) days, Agent will prepare a proposal setting forth the terms and conditions upon which Lessor and each Lender may agree to extend the Lease for the Renewal Term, to present to Lessee, Lessor and each Lender. Within fifteen (15) days of its receipt of Agent's proposal, Lessee shall inform Agent in writing of whether Agent's proposal is acceptable to Lessee, such approval by Lessee being in Lessee's sole discretion. Failure of Lessee to inform Agent in writing of its approval or rejection within fifteen (15) days of its receipt of Agent's proposal shall be deemed to constitute Lessee's rejection thereof, in which event, Lessee's Renewal Request shall be deemed void and of no force or effect. 6 Participation Agreement ----------------------- (b) Agent's Solicitation of Lessor and Lenders. If Lessee shall approve of Agent's proposal in writing, Agent shall solicit approval from each of Lessor and the Lenders of such proposal; provided, that neither Lessor nor any Lender shall be required to approve a proposal submitted by Agent. Within thirty (30) days of solicitation by Agent, Lessor and each Lender shall indicate its approval or rejection of the proposal submitted by Agent, such approval by Lessor and each Lender being in such party's sole discretion. Failure of Lessor or any Lender to indicate its approval or rejection within thirty (30) days of solicitation shall be deemed to constitute such party's rejection thereof. If Lessor or any Lender rejects (or is deemed to have rejected) Agent's proposal to extend the Lease and the Financing for the Renewal Term (such Lessor or Lender, in either case, is herein called a "Non- Renewing Participant"), then within five (5) Business Days after the expiration of the aforementioned 30-day period, Lessee shall be required to take one of the following actions: (i) Lessee may elect to cancel its Renewal Request, in which event, Lessee shall not have any right to extend the Lease and the Financing for the Renewal Term. Lessee shall make such election by written notice delivered to Agent not later than the end of such five (5) Business Day period. In the event that Lessee desires then to elect the Sale Option, Lessee shall make such election in its notice cancelling its Renewal Request delivered pursuant to the preceding sentence, and failing such election of the Sale Option, Lessee shall be deemed to have irrevocably waived such Sale Option and elected the Purchase Option. (ii) Lessee may elect to replace the Non-Renewing Participant with another Person which will constitute a replacement Lessor or Lender (a "Replacement Participant") upon expiration of the Basic Term, provided that Lessee certifies that the agreement between Lessee and the Replacement Participant to become a Replacement Participant is not based on terms more favorable to the Replacement Participant than terms available to the other Participants (except for Lessee's payment of the Replacement Participant's legal fees and expenses). Lessee shall make such election by written notice delivered to Agent not later than the end of such five (5) Business Day period, which notice shall identify the Replacement Participant. The date of expiration of the Basic Term shall be treated as the Final Maturity Date with respect to the Non-Renewing Participant, and on such date Lessee shall cause 7 Participation Agreement ----------------------- the Replacement Participant to purchase in immediately available funds all of the interest of the Non-Renewing Participant in the Sites or the Notes, as applicable, and the Operative Documents, for cash at a price equal to: (x) in the case of Lessor, the aggregate outstanding Equity Amount and accrued but unpaid Yield, or (y) in the case of a Lender, the aggregate outstanding amount of principal and accrued but unpaid interest then outstanding on the Notes then held by the Non-Renewing Participant. Any such transfer of a Non-Renewing Participant's interests shall comply with the provisions of Section 6.3 of this Agreement, except those provisions that require a Non-Renewing Participant to pay its own costs and expenses in connection with such transfer. If Lessee fails (for any reason, including a default by the Replacement Participant) to cause the Replacement Participant to pay any such amounts when due pursuant to the preceding sentence, the Lease shall not be renewed for the Renewal Term, Lessee shall not be entitled to the Renewal Term, and such date of expiration of the Basic Term shall be deemed the Final Maturity Date with respect to all Participants. Each Replacement Participant shall be subject to each of the terms and conditions of this Agreement and each of the other Operative Documents imposed upon Lenders (or upon Lessor in the case of a Replacement Participant for Lessor), and shall make the representations, warranties and covenants and perform its obligations required hereunder and thereunder. Specifically, without limitation, a Person shall not become a Replacement Participant unless Agent consents to the Replacement Participant (such consent not to be unreasonably withheld) and Agent shall receive prior to such Person becoming a Replacement Participant the Non-Renewing Participant's written assignment and the Replacement Participant's written assumption of the Non- Renewing Participant's rights and obligations under the Operative Documents, such assignment and assumption to be substantially in the form of Exhibit O hereto and to otherwise be in form and substance reasonably acceptable to Agent. If Lessee shall fail to duly elect either of the options under clauses (i) and (ii) above within the applicable five (5) Business Day period, Lessee shall be deemed to have made its election under clause (i) above and shall be deemed to have elected the Purchase Option. 8 Participation Agreement ----------------------- If at any time after Lessee shall have made a Renewal Request and prior to the commencement of the Renewal Term, a Lease Event of Default shall have occurred, then Lessee's rights under this Section 2.10 shall automatically terminate and Lessee shall not be entitled to the Renewal Term. Any provision in this Section 2.10 to the contrary notwithstanding, in the event Lessee, Lessor and the Lenders accept Agent's proposal to renew the Lease and the Financing for the Renewal Term, then all renewing and replacement Lenders must extend the Financing upon the same terms and conditions; and if the foregoing condition shall not be satisfied, Lessee shall not be entitled to the Renewal Term. Lessee hereby agrees to pay all reasonable costs and expenses (including reasonable legal fees and expenses) incurred by Agent, the then existing Participants (including any Non-Renewing Participants) and any Replacement Participants in connection with the provisions of this Section 2.10; provided, however, that Lessee shall not be responsible for any legal fees and expenses of more than two counsel for all of Agent and the Participants (including, without limitation, special Credit Agreement counsel) and any special local counsel required by Agent. Lessee shall not be responsible for the legal fees and expenses of other counsel for the Non-Renewing Participants and Replacement Participants unless Lessee and such parties mutually agree on the amount of such fees and expenses to be paid by Lessee. SECTION 2.11. Highest Lawful Rate. It is the intention of the parties hereto to conform strictly to applicable usury laws and, anything herein to the contrary notwithstanding, the obligations of (a) Lessee to Lessor under this Agreement and the Lease, (b) Lessor to the Lenders under this Agreement, the Notes and the Loan Documents and (c) either Lessee or Lessor or any other party under any other Operative Document, shall be subject to the limitation that payments of interest or of other amounts constituting interest under Applicable Laws and Regulations shall not be required to the extent that receipt thereof would be in excess of the Highest Lawful Rate (as defined below), or otherwise contrary to provisions of law applicable to the recipient limiting rates of interest which may be charged or collected by the recipient. Accordingly, if the transactions or the amount paid or otherwise agreed to be paid for the use, forbearance or detention of money under this Agreement, the Lease, the Loan Documents and any other Operative Document would exceed the Highest Lawful Rate or otherwise be usurious under Applicable Laws and Regulations (including without limitation the federal and state laws of the United States of America, 9 Participation Agreement ----------------------- or of any other jurisdiction whose laws may be mandatorily applicable) with respect to the recipient of any such amount then, in that event, notwithstanding anything to the contrary in this Agreement, the Lease, the Loan Documents, or any other Operative Document, it is agreed as follows as to the recipient of any such amount: (a) the provisions of this Section 2.11 shall govern and control over any other provision in this Agreement, the Lease, the Loan Documents, and any other Operative Document and each provision set forth therein is hereby so limited; (b) the aggregate of all consideration which constitutes interest under Applicable Laws and Regulations that is contracted for, charged or received under this Agreement, the Lease, the Loan Documents, or any other Operative Document shall under no circumstances exceed the maximum amount of interest allowed by Applicable Laws and Regulations of the Commonwealth of Pennsylvania, excluding any conflicts law (or, if and to the extent required by the Applicable Laws and Regulations of any state in which any Site is located, the Applicable Laws and Regulations of such state), it being the intention of the parties that the Applicable Laws and Regulations of the Commonwealth of Pennsylvania, excluding any conflicts laws, shall govern the determination of the Highest Lawful Rate (such maximum lawful interest rate, if any, with respect to such Lender herein called the "Highest Lawful Rate"), and all amounts owed under this Agreement, the Lease, the Loan Documents and any other Operative Document shall be held subject to reduction and (i) the amount of interest which would otherwise be payable to the recipient hereunder and under the Lease, the Loan Documents and any other Operative Document, shall be automatically reduced to the amount allowed under Applicable Laws and Regulations and (ii) any unearned interest paid in excess of the Highest Lawful Rate shall be credited to the payor by the recipient (or, if such consideration shall have been paid in full, refunded to the payee); (c) all sums paid, or agreed to be paid for the use, forbearance and detention of the money under this Agreement, the Lease, the Loan Documents, or any other Operative Document shall, to the extent permitted by Applicable Laws and Regulations, be amortized, prorated, allocated and spread throughout the full term of such indebtedness until payment in full so that the actual rate of interest is uniform throughout the full term thereof; 10 Participation Agreement ----------------------- (d) if at any time the interest, together with any other fees, late charges and other sums payable pursuant to or in connection with this Agreement, the Lease, the Loan Documents, and any other Operative Document executed in connection herewith or therewith, and deemed interest under Applicable Laws and Regulations, exceeds that amount which would have accrued at the Highest Lawful Rate, the amount of interest and any such fees, charges and sums to accrue to the recipient of such interest, fees, charges and sums pursuant to the Operative Documents shall be limited, notwithstanding anything to the contrary in the Operative Documents to that amount which would have accrued at the Highest Lawful Rate for the recipient, but any subsequent reductions, as applicable, shall not reduce the interest to accrue pursuant to the Operative Documents below the recipient's Highest Lawful Rate until the total amount of interest payable to the recipient (including all consideration which constitutes interest) equals the amount of interest which would have been payable to the recipient (including all consideration which constitutes interest), plus the amount of fees which would have been received but for the effect of this Section 2.11. ARTICLE III [INTENTIONALLY OMITTED] ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.1. Representations and Warranties of Lessee. As of the date hereof, Lessee makes the representations and warranties set forth in this Section 4.1 to each of the other parties hereto. (a) Due Organization, etc. Lessee is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and Lessee has full corporate power and authority to conduct its business as presently and presently proposed to be conducted, to own or hold under lease its properties, to enter into and perform its obligations under each of the Operative Documents to which it is or is to be a party and each other agreement, instrument and document to be executed and delivered by it on or before the Document Closing Date in connection with or as contemplated by each such Operative Document to which it is or is to be a party 11 Participation Agreement ----------------------- and it is duly qualified as a foreign corporation authorized to do business and is in good standing in every jurisdiction in which its failure to be so qualified would have a Material Adverse Effect. Lessee is a single purpose corporation wholly-owned by Genesis, the sole purpose of which is to enter into and perform its obligations under the transactions contemplated by the Operative Documents and hold its rights in and to the Sites. (b) Authorization; No Conflict. The execution and delivery by Lessee of each of the Operative Documents to which it is or is to be a party, and the performance by Lessee of its obligations under such Operative Documents, have been duly authorized by all necessary corporate action (including any necessary stockholder action) on its part, and do not and will not: (i) contravene any Applicable Laws and Regulations currently in effect applicable to or binding on it or the Sites; (ii) violate any provision of its charter or bylaws; (iii) result in a breach of or constitute a default under any indenture, loan or credit agreement, or any other agreement or instrument to which Lessee is a party or by which Lessee or its properties may be bound or affected, which breaches or defaults would have, individually or in the aggregate, a Material Adverse Effect; (iv) result in, or require, the creation or imposition of any Lien of any nature upon or with respect to any of the properties now owned or hereafter acquired by Lessee (other than the security interests created pursuant to the Operative Documents); or (v) require any Governmental Action by any Authority, except for (A) the filings and recordings listed on Schedule 4.1B to perfect the rights of Lessor, the Lenders and Agent intended to be created by the Operative Documents, and (B) those Governmental Actions required with respect to Lessee or any of its Affiliates listed on Schedule 4.1A, each of which have been duly effected and are, or on the initial Advance Date will be, in full force and effect; and Lessee is not in default under or in violation of its charter or bylaws. Attached as Schedule 4.1C are correct and complete computations demonstrating compliance by Genesis with Section 5.9 of the Indenture after giving effect as Indebtedness under such Indenture to the obligations of Lessee and Guarantors under or in connection with the Operative Documents. (c) Enforceability, etc. Each Operative Document to which Lessee is or is to be a party constitutes the legal, valid and binding obligation of Lessee, enforceable against Lessee in accordance with the terms thereof, except as such enforceability may be limited by applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and by general equitable principles. 12 Participation Agreement ----------------------- (d) Litigation. There is no action, proceeding or investigation pending or, to Lessee's knowledge, threatened which questions the validity of the Operative Documents to which Lessee is or is to be a party or any action taken or to be taken pursuant to the Operative Documents to which Lessee is or is to be a party, and there is no action, proceeding or investigation pending or, to Lessee's knowledge, threatened which, if adversely determined, would have a Material Adverse Effect. (e) Taxes. Lessee has filed or caused to be filed all United States Federal and all other material tax returns that are required to be filed by Lessee, and has paid or caused to be paid all taxes shown to be due and payable on such returns or on any assessment received by Lessee to the extent that such taxes have become due and payable except to the extent that taxes due, but unpaid, are being contested in good faith by Lessee by appropriate action or proceeding and, to the extent (if any) that such taxes are not due and payable, Lessee has established or caused to be established reserves that are adequate for the payment thereof in accordance with GAAP. (f) Rights in Respect of the Sites. Lessee is not a party to any contract or agreement to sell any interest in the Sites or any part thereof other than pursuant to or in accordance with this Agreement and the Lease. (g) No Lease Default, Loss, etc. As of the Document Closing Date: no Lease Default, Lease Event of Default, Event of Loss, Condemnation or Casualty has occurred and is continuing; there is no action pending or, to the best of Lessee's knowledge, threatened by an Authority to initiate a Condemnation; no condition exists that constitutes, or with the giving of notice or lapse of time or both would constitute an event of default by Lessee under any material indenture, mortgage, chattel mortgage, deed of trust, lease, conditional sales contract, loan or credit arrangement or other material agreement or instrument to which Lessee is a party or by which Lessee or any of its properties may be bound which individually or in the aggregate with all such events of default could have a Material Adverse Effect. (h) Chief Executive Office of Lessee. The principal place of business and chief executive office, as such terms are used in Section 9-103(3) of the UCC, of Lessee are each located at 148 West State Street, Kennett Square, Pennsylvania 19348. Lessee does not do business in more than one county in the Commonwealth of Pennsylvania. 13 Participation Agreement ----------------------- (i) Compliance With Law. With respect to each Site, except as otherwise set forth in the Environmental Audit of such Site, (i) Lessee is in material compliance with and will comply with all Applicable Laws and Regulations, including all Environmental Laws, (ii) each Site and the use thereof by Lessee and its agents, assignees, employees, invitees, lessees, licensees and tenants complies in all material respects with all Applicable Laws and Regulations (including all zoning and land use laws and Environmental Laws) and Insurance Requirements, except for any violations which would not have, individually or in the aggregate, a Material Adverse Effect on Lessee or any Site; and (iii) such Facility on such Site do not encroach in any material manner onto any adjoining land (except as permitted by express written easements or as insured by appropriate title insurance). Except as otherwise set forth in the Environmental Audit of such Site, with respect to each Site, there are no underground storage tanks at such Site and Lessee shall not cause or permit any underground storage tanks to be constructed or located at any Site. Lessee will not direct Lessor to acquire any Site pursuant to Section 2.2 unless (x) such Site and operation and condition thereof shall comply with all Applicable Laws and Regulations, including all Environmental Laws, except for any violations which would not have, individually or in the aggregate, a Material Adverse Effect on Lessee or any Site, and (y) no condition regarding Hazardous Materials exists on or with respect to such Site except as otherwise set forth in the Environmental Audit of such Site. (j) Investment Company Act. Lessee is not an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. (k) Public Utility Holding Company. Lessee is not subject to regulation as a "holding company," an "affiliate" of a "holding company", or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. (l) Licenses, Registrations and Permits. Except as set forth on the Environmental Audit, all material licenses, approvals, authorizations, consents, permits, easements and rights-of-way, including proof and dedication, (collectively, the "Permits") required for the use and occupancy of the Sites and for the operation thereof (including a certificate or certificates of 14 Participation Agreement ----------------------- occupancy for such Site or other legally equivalent permission to occupy such Site) have been obtained from the appropriate Authorities having jurisdiction or from private parties, as the case may be except for those which will not cause a Material Adverse Effect. Lessee shall deliver to Agent, upon request, true, correct and complete copies of all Permits issued prior to the date that this representation is made or remade, as the case may be. (m) Nature, Condition and Use of Sites. Each Site consists of a Land Interest on which a Facility exists. Such Land Interest is located in the United States (but not in California). No notices, complaints or orders of violation or non-compliance or liability of any nature whatsoever have been issued or, to Lessee's knowledge, threatened by any Authority with respect to the Sites or any present or intended future use thereof, except for such violations and instances of non-compliance as could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on any Site, and Lessee is not aware of any circumstances which could give rise to the issuance of any such notices, complaints or orders. There are no material defects to such Facility including the plumbing, heating, air conditioning and electrical systems thereof and all water, sewer, electric, gas, telephone and drainage facilities. (n) Utility Services. Each Site has available all material utilities necessary for use and operation of the Facility thereon for its primary intended purposes and means of access between such Facility and public highways for pedestrians and motor vehicles. All utilities serving each Site are located in, and vehicular access to the Facility on such Site is provided by, either public rights-of-way abutting such Site or by Appurtenant Rights. (o) Use and Operation of Sites. All material agreements, easements and other rights, public or private, which are necessary to permit the lawful use and operation of the Sites as Lessee intends to use the Sites under the Lease and which are necessary to permit the lawful intended use and operation of all presently intended utilities, driveways, roads and other means of egress and ingress to and from the same (including certificates of occupancy) have been obtained and are in full force and effect and Lessee has no actual knowledge of any pending modification or cancellation of any of the same. (p) Securities Act. Neither Lessee nor anyone authorized to act on its behalf (including, without limitation, any of the Guarantors) has, directly or indirectly, in violation of 15 Participation Agreement ----------------------- Section 5 of the Securities Act or any state securities laws, offered or sold any interest in the Notes, the Sites or the Lease, or in any security or lease the offering of which, for purposes of the Securities Act or any state securities laws, would be deemed to be part of the same offering as the offering of the aforementioned securities or leases, or solicited any offer to acquire any of the aforementioned securities or leases. (q) Title. Neither Lessee nor any of its Affiliates has taken or caused to be taken any action which would have a material adverse effect on Lessor's title to the Sites from that indicated in the Title Policies delivered pursuant to Appendix 2. Neither Lessee nor any of its Affiliates has created, consented to, incurred or suffered to exist any Lien upon any of the Sites other than Permitted Liens. (r) Federal Reserve Regulations. Neither Lessee nor any Affiliate of Lessee will, directly or indirectly, use any of the proceeds of the sale of the Notes or of the purchase by Lessor of the Sites for the purpose of purchasing or carrying any "margin security" or "margin stock" within the meaning of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System, respectively, or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry a margin security or margin stock or for any other purpose which might cause any of the transactions contemplated by this Agreement or any other Operative Document to constitute a "purpose credit" within the meaning of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System, or for the purpose of purchasing or carrying any security, and neither Lessee nor any Affiliate of Lessee has taken or will otherwise take or permit any action by Lessee or any of its Affiliates in connection with any of the transactions contemplated by any of the Operative Documents which would involve a violation of Regulation G, T, U, or X, or any other regulation of the Board of Governors of the Federal Reserve System. (s) ERISA. (i) A copy of the most recent Annual Report (5500 Series Form) including all attachments thereto as filed with the Internal Revenue Service for each Plan (if any) relating to Lessee or Genesis or any other Guarantor has been provided to the Agent and Lessor and fairly presents the funding status of such Plan N Health status. There has been no material deterioration in any Plan's funding status since the date of such Annual Report. Schedule 4.1D hereto sets forth a list of all Plans and Multiemployer Plans relating to the Lessee or Genesis or any other Guarantor, and all information available to Lessee or Genesis or any other Guarantor with respect to the 16 Participation Agreement ----------------------- direct, indirect or potential withdrawal liability to any Multiemployer Plan of Lessee or Genesis or any other Guarantor or any Controlled Group Member. Copies have been provided to Agent of all of the documents provided to Genesis pursuant to Section 4.16 of the Stock Purchase Agreement and the representations contained in Section 4.16(d) and (e) are, to the best knowledge of Lessee and Genesis, true, correct and complete. Except as set forth in such Schedule 4.1D, none of Lessee or Genesis or any other Guarantor has or (after giving effect to the consummation of the transactions contemplated by the Stock Purchase Agreement) will have any liability (contingent or otherwise) in excess of $100,000 for or in connection with, and none of their respective properties is subject to a Lien in connection with, any Pension-Related Event. Neither Lessee nor Genesis nor any other Guarantor nor any Controlled Group Member (both as of the Document Closing Date and after giving effect to the consummation of the transactions contemplated by the Stock Purchase Agreement) has or (after giving effect to the consummation of the transactions contemplated by the Stock Purchase Agreement) will have any liability (contingent or otherwise) for or in connection with, any Postretirement Benefits. (ii) Neither Lessee, nor any Controlled Group Member, presently maintains, participates in, or contributes to, a Plan (A) which is subject to Title IV of ERISA, but is not a Multiemployer Plan whose assets do not at least equal the present value of its accrued benefits based on the actuarial methods and assumptions included in the most recent actuarial valuation reports, (B) which is a Multiemployer Plan for which Lessee or any Controlled Group Member has received notice that the plan is in reorganization or insolvent, (C) for which material actions, lawsuits or claims have been asserted, or (D) for which penalties or taxes have been imposed under Sections 502(i) and 502(l) of ERISA or Section 4975 of the Code. Neither Lessee nor any Controlled Group Member has in the immediate six year period had a complete or partial withdrawal from any Multiemployer Plan and the liability to which Lessee or any Controlled Group Member would become subject under ERISA were there to be a complete withdrawal from all Multiemployer Plans to which Lessee and its Controlled Group Members contribute is not in excess of $500,000. (iii) The execution and delivery of this Agreement, including the issuance and sale of the Notes and the consummation of the transactions contemplated hereby and thereby under the Operative Documents, will not involve any prohibited transactions, within the meaning of Section 406 of ERISA or in connection with which a tax could be imposed pursuant to Section 4975 of the Code. 17 Participation Agreement ----------------------- The representation by Lessee in the preceding sentence is made in reliance upon and subject to the correctness of the representation by each of the Lenders in Section 4.2(e) and the representation by Lessor in Section 4.3(i). (t) Financial Information. (i) Audited Financial Statements. Lessee has heretofore furnished to Agent and each Lender the consolidated balance sheet of Genesis and its Consolidated Subsidiaries (including Lessee) as of September 30, 1995 and the related consolidated statements of income, cash flows and changes in stockholders' equity for the fiscal year then ended, as examined and reported on by KPMG Peat Marwick, independent certified public accountants for Lessee and Genesis, who delivered an unqualified opinion in respect thereof. Such financial statements (including the notes thereto), fairly present, in conformity with GAAP, the consolidated financial position of Genesis and its Consolidated Subsidiaries as of such date and their consolidated results of operations and changes in financial position for such fiscal year. (ii) Interim Financial Statements. Lessee has heretofore furnished to Agent and each Lender interim consolidated balance sheets of Genesis and its Consolidated Subsidiaries as of March 31, 1996 and the related consolidated statements of income, cash flows and changes in stockholders' equity for the portion of Genesis's fiscal year ended at the end of such quarter. Such financial statements fairly present, in conformity with GAAP, the consolidated financial position of Genesis and its Consolidated Subsidiaries as of such date and their consolidated results of operations and changes in financial position for such fiscal quarter, subject to normal year-end auditing adjustments and except that such financial statements do not contain all of the footnote disclosures required by GAAP. (iii) Since March 31, 1996 there has been no Material Adverse Effect. (u) No Other Filings. Except for the filings and recordings listed in Schedule 4.1B, no other filings or recordings are necessary to validly and effectively convey to Lessor and Agent such interests in the Site and the Collateral as contemplated by the Operative Documents, in each case free and clear of all Liens, other than Permitted Liens. 18 Participation Agreement ----------------------- (v) Zoning. Each Site complies in all material respects with all applicable zoning and subdivision laws, ordinances, regulations and restrictive covenants, and all requirements thereof necessary for the use, occupancy and operation of such Site have been satisfied in all material respects, and the current use and intended use under the Lease of such Site is a conforming use in each case, except for violations which would not create a Material Adverse Effect. (w) Disclosure. The information disclosed in writing by Lessee or any of its Affiliates (or any Person authorized or employed by any such Person as agent or otherwise) to the Lenders in connection with the negotiation of the Operative Documents and the transactions contemplated thereby, when taken as a whole with all other written disclosures to such parties, do not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, misleading. There is no particular fact of which Lessee or any of its Affiliates has knowledge that has not been disclosed by Lessee or any of its Affiliates (or by any Person authorized or employed by Lessee or any of its Affiliates as agent or otherwise) in writing to the Lenders that, as far as Lessee or any of its Affiliates can reasonably foresee, is reasonably likely to have a Material Adverse Effect. (x) Appraisal Data. The information provided by Lessee and its Affiliates to the Appraiser and forming the basis for the conclusions set forth in each Appraisal, taken as a whole, was true and correct in all material respects and did not omit any information known and available to Lessee necessary to make the information provided not materially misleading. (y) Subjection to Government Regulation. None of Agent, Lessor nor any Lender will become (i) solely by reason of entering into the Operative Documents or consummation of the transactions contemplated thereby (other than upon exercise of remedies under the Lease or upon the expiration thereof) subject to ongoing regulation of its operations by any Authority having jurisdiction, or be required to hold any license, permit or approval, solely by reason of Lessee's business activities or the nature of the Sites; or (ii) except for regulation the applicability of which depends upon the existence of facts in addition to the ownership of, or the holding of any interest in, the Sites or any interest therein upon the exercise of remedies under the Lease or upon the expiration thereof, subject to ongoing regulation of its operations by any Authority having jurisdiction, or be required to hold any license, permit or 19 Participation Agreement ----------------------- approval, solely by reason of Lessee's business activities or the nature of the Sites. SECTION 4.2. Representations and Warranties of each Lender. Each Lender represents and warrants severally and only as to itself to each of the other parties hereto as follows: (a) Due Organization, etc. It is duly organized and validly existing under the laws of the jurisdiction of its organization and has full corporate power and authority to enter into and perform its obligations as Lender under each Operative Document to which it is or is to be a party and each other agreement, instrument and document to be executed and delivered by it in connection with or as contemplated by each such Operative Document to which it is or is to be a party. (b) Authorization; Enforceability, etc. This Agreement and each other Operative Document to which it is or is to be a party have been or will be, duly authorized, executed and delivered by or on behalf of it and are, or upon execution and delivery will be, legal, valid and binding obligations of it, enforceable against it in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting creditors' rights generally and by general equitable principles. (c) No Conflict. Neither the execution and delivery of the Operating Documents, nor the consummation of the transactions contemplated thereby, nor compliance by it with any of the terms and provisions thereof (i) requires any approval of its stockholders or approval or consent of any trustee or holders of any of its indebtedness or obligations, (ii) contravenes or will contravene any Applicable Laws and Regulations currently in effect applicable to or binding on it (except no representation or warranty is made as to any Applicable Laws and Regulations to which it or the Sites, directly or indirectly, may be subject because of the lines of business or other activities of Lessee) or (iii) results in any breach of or constitutes any default under, any indenture, mortgage, chattel mortgage, deed of trust, lease, conditional sales contract, loan or credit arrangement, other material agreement or instrument, corporate charter, by-laws or other agreement or instrument to which it is a party or by which it or its properties may be bound or affected. (d) Lessor Liens. Each Site is free and clear of all Lessor Liens attributable to it. 20 Participation Agreement ----------------------- (e) ERISA. It is purchasing its interest in the Note(s) with assets that are either (i) not assets of any Plan (or its related trust) which is subject to Title I of ERISA or Section 4975 of the Code; or (ii) assets of any Plan (or its related trust) which is subject to Title I of ERISA or Section 4975 of the Code, but there is available an exemption from the prohibited transaction rules under Section 406(a) of ERISA and Section 4975 of the Code and such exemption is immediately applicable to each transaction contemplated by the Operative Documents to the extent that any other party to such transaction is a "party in interest" as defined in Section 3(14) of ERISA with respect to such plan assets. SECTION 4.3. Representations and Warranties of Lessor. Lessor hereby represents and warrants to Lessee, Agent and Lenders as set forth in this Section 4.3. (a) Chief Executive Office. Lessor's chief executive office and principal place of business and the place where the documents, accounts and records relating to the Overall Transaction are kept is located at One Mellon Bank Center, Rm 151-4444, Pittsburgh, PA 15258-0001, Attention: Leasing Group. (b) Due Organization, etc. Lessor is a corporation duly organized and validly existing in good standing under the laws of the Commonwealth of Pennsylvania and has full corporate power and authority to execute, deliver and perform its obligations as Lessor under each Operative Document to which it is or is to be a party and each other agreement, instrument and document to be executed and delivered by it in connection with or as contemplated by each such Operative Document to which it is or is to be a party. (c) Authorization; Enforceability, etc. This Agreement and each other Operative Document to which Lessor is or is to be a party have been or will be, duly authorized, executed and delivered by or on behalf of Lessor and are, or upon execution and delivery will be, legal, valid and binding obligations of Lessor, enforceable against it in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting creditors' rights generally and by general equitable principles. (d) No Conflict. Neither the execution and delivery thereof, nor the consummation of the transactions contemplated thereby, nor compliance by it with any of the terms and provisions thereof (i) requires any approval of its stockholders or approval or consent of any trustee or holders of any of its indebtedness or obligations, (ii) contravenes or will contravene any Applicable 21 Participation Agreement ----------------------- Laws and Regulations currently in effect applicable to or binding on it (except no representation or warranty is made as to any Applicable Laws and Regulations to which it or the Sites, directly or indirectly, may be subject because of the lines of business or other activities of Lessee) or (iii) results in any breach of or constitutes any default under, any indenture, mortgage, chattel mortgage, deed of trust, lease, conditional sales contract, loan or credit arrangement, other material agreement or instrument, corporate charter, by-laws or other agreement or instrument to which it is a party or by which it or its properties may be bound or affected. (e) Lessor Liens. Each Site is free and clear of all Lessor Liens attributable to Lessor. (f) Litigation. There is no action, proceeding or investigation pending or, to Lessor's knowledge, threatened which questions the validity of the Operative Documents to which Lessor is or is to be a party or any action taken or to be taken pursuant to the Operative Documents to which Lessor is or is to be a party, and there is no action, proceeding or investigation pending or, to Lessor's knowledge, threatened which, if adversely determined, would have a Material Adverse Effect. (g) Use of Proceeds. The Proceeds shall be used solely in accordance with the terms and provisions of the Operative Documents. (h) Financial Information. Lessor (i) holds assets other than the Sites and unrelated to this transaction and (ii) was not created at the request of Lessee in connection with the transactions contemplated by the Operative Documents. (i) ERISA. Lessor is purchasing its interest in the Sites with assets that are either (i) not assets of any Plan (or its related trust) which is subject to Title I of ERISA or Section 4975 of the Code; or (ii) assets of any Plan (or its related trust) which is subject to Title I of ERISA or Section 4975 of the Code, but there is available an exemption from the prohibited transaction rules under Section 406(a) of ERISA and Section 4975 of the Code and such exemption is immediately applicable to each transaction contemplated by the Operative Documents to the extent that any other party to such transaction is a "party in interest" as defined in Section 3(14) of ERISA with respect to such plan assets. The representation by Lessor in the preceding sentence is made in reliance upon and subject to the correctness of the representation by each of the Lenders in Section 4.2(e). 22 Participation Agreement ----------------------- SECTION 4.4. Representations and Warranties of Agent. Mellon Bank, N.A., in its individual capacity, hereby represents and warrants to Lessor and Lenders as set forth in this Section 4.4. (a) Organization and Authority. Agent is a national banking association duly organized and validly existing in good standing under the laws of the United States of America and has the requisite power and authority to enter into and perform its obligations under the Operative Documents. (b) Authorization; Binding Effect. The Operative Documents to which Agent is or will be a party have been or will be, on the date required to be delivered hereby, duly authorized, executed and delivered by Agent, and this Participation Agreement is, and such other Operative Documents are, or, when so executed and delivered by Agent will be, valid, legal and binding agreements of Agent, enforceable against Agent in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity. (c) Non-Contravention. Neither the execution and delivery by Agent of the Operative Documents to which it is or will be a party, either in its individual capacity, as Agent, or both, nor compliance with the terms and provisions thereof, conflicts with, results in a breach of, constitutes a default under (with or without the giving of notice or lapse of time or both), or violates any of the terms, conditions or provisions of: (i) the articles of organization or by-laws of Agent; (ii) any bond, debenture, note, mortgage, indenture, agreement, lease or other instrument to which Agent, either in its individual capacity, as Agent, or both, is now a party or by which it or its property, either in its individual capacity, as Agent, or both, is bound or affected, where such conflict, breach, default or violation would be reasonably likely to materially and adversely affect the ability of Agent, either in its individual capacity, as Agent or both, to perform its obligations under any Operative Document to which it is or will be a party, either in its individual capacity, as Agent, or both; or (iii) any of the terms, conditions or provisions of any law, rule, regulation, order, injunction or decree of any Authority applicable to it in its individual capacity, as Agent, or both, where such conflict, breach, default or violation would be reasonably likely to materially and adversely affect the ability of Agent, either in its individual capacity, as Agent or both, to perform its obligations under any Operative Document to which it is or will be a party. 23 Participation Agreement ----------------------- (d) Absence of Litigation, etc. There is no litigation (including derivative actions), arbitration or governmental proceedings pending or, to the best knowledge of Agent, threatened against it which would be reasonably likely to adversely affect Agent's ability to perform its obligations under the Operative Documents to which it is party. (e) Consents, etc. No authorization, consent, approval, license or formal exemption from, nor any filing, declaration or registration with, any Authority, is or will be required in connection with the execution and delivery by Agent of the Operative Documents to which it is a party or the performance by Agent of its obligations under such Operative Documents. ARTICLE V COVENANTS OF LESSEE SECTION 5.1. Further Assurances. Lessee, at its own cost and expense, will cause to be promptly and duly taken, executed, acknowledged and delivered all such further acts, documents and assurances as any Lender, Lessor or Agent reasonably may request from time to time in order to carry out more effectively the intent and purposes of this Agreement and the other Operative Documents and the Overall Transaction. Lessee, at its own cost and expense, will cause all financing statements (including precautionary financing statements), fixture filings and other documents, to be recorded or filed at such places and times in such manner, and will take all such other actions or cause such actions to be taken, as may be necessary or as may be reasonably requested by any Lender, Lessor or Agent in order to establish, preserve, protect and perfect the title of Lessor to the Sites and Lessor's and Lenders' rights under this Agreement and the other Operative Documents and to perfect, preserve and protect the first and prior Lien of the Mortgage on the Collateral. Without limiting the foregoing, Lessee shall furnish to Lessor and Agent, by the ninetieth day (but not earlier than the 180th day) prior to the fifth anniversary of the Document Closing Date, and if the Renewal Term is entered into, by the ninetieth day (but not earlier than the 180th day) prior to the expiration of the Renewal Term, an opinion of counsel with respect to the continued perfection of the security interests created pursuant to the Operative Documents. Lessee will maintain in full force and effect all Permits. Upon any transfer of the Sites, whether pursuant to any provision of the Operative Documents (including Article VI of the Lease) or after the occurrence of a Lease Event of Default or otherwise, Lessee, at its own cost and expense, will cause to be promptly and duly taken, executed, 24 Participation Agreement ----------------------- acknowledged and delivered all such further acts, documents and assurances as any Lender, Lessor or Agent reasonably may request from time to time in order to cause the Permits to be transferred or reissued in the name of the Person acquiring the Sites. SECTION 5.2. Consolidation, Merger, Sale, etc. (a) Lessee shall not consolidate with any Person, merge with or into any Person or convey, transfer or lease to any Person (except as permitted by Section 12.1 of the Lease) all or substantially all of its assets in any single transaction (or series of related transactions), unless, immediately after giving effect to such transaction, the conditions set forth in clauses (i) through (v) shall have been satisfied: (i) The Person formed by such consolidation with or into which Lessee shall be merged or the Person which shall acquire by conveyance, transfer or lease all or substantially all of the assets of Lessee (the "Surviving Company"), if other than Lessee immediately prior to such transaction, shall be a corporation that is organized under the laws of the United States of America, a state thereof or the District of Columbia; (ii) the Surviving Company shall be a single purpose, wholly-owned direct or indirect subsidiary of Genesis, the sole purpose of which is to enter into (or assume) and perform its obligations under the transactions contemplated by the Operative Documents and hold its rights in and to the Sites; (iii) the Surviving Company, if other than Lessee immediately prior to such transaction, shall execute and deliver to each of the parties hereto an agreement, in form and substance reasonably satisfactory to Lessor and Agent, containing the assumption by the Surviving Company of the due and punctual payment, performance and observation of each obligation, covenant and agreement of Lessee under this Agreement and each other Operative Document to which, immediately prior to such transaction, Lessee was a party; (iv) no Lease Payment/Bankruptcy Default or Lease Event of Default (including as a result of the breach of Section 3 of either of the Guaranties) shall have occurred and be continuing or would occur as a result thereof and no Event of Loss shall have occurred or would occur as a result thereof; 25 Participation Agreement ----------------------- (v) the title of Lessor to the Sites and Lessor's and Lenders' rights under this Agreement and the other Operative Documents and the first and prior Lien of the Mortgage on the Collateral shall not be adversely affected; and (vi) Lessee shall have delivered to Agent, on behalf of Lessor and the Lenders, an Officer's Certificate and an opinion of counsel reasonably satisfactory to each such Person stating that such transaction complies with this Section 5.2, that all conditions to the consummation of such transaction have been fulfilled and that all Governmental Actions required in connection with such transaction have been obtained, given or made. Upon the consummation of such transaction, the Surviving Company, if other than Lessee immediately prior thereto, shall succeed to, and be substituted for, and may exercise every right and power of, Lessee immediately prior to such transaction under this Agreement and each other Operative Document to which Lessee was a party immediately prior to such transaction, with the same effect as if the Surviving Company had been named herein and therein. Notwithstanding the foregoing provisions of this Section 5.2, no conveyance, transfer or lease of all or substantially all of the assets of Lessee shall release Lessee from its payment or other obligations under this Agreement or any other Operative Document without the written consent of Lessor and Agent. SECTION 5.3. Corporate Existence. Subject to Section 5.2, Lessee shall at all times maintain its existence as a corporation in good standing under the laws of the Commonwealth of Pennsylvania and shall use commercially reasonable efforts to preserve and keep in full force and effect its franchises material to its business. Lessee shall remain a single purpose corporation, the sole purpose of which is to enter into and perform its obligations under the transactions contemplated by the Operative Documents and hold its rights in and to the Sites. SECTION 5.4. Guaranty. Concurrently with the execution and delivery of this Agreement, Lessee shall cause the Guarantors to execute and deliver the Guaranties attached hereto as Exhibit B-1, which guaranties all obligations of Lessee under the Lease and other Operative Documents, and Exhibit B-2, which guaranties (subject to certain limitations therein) payment of all amounts funded by Lessor and Lenders pursuant to the investment of the Equity Amount and the Financing. 26 Participation Agreement ----------------------- SECTION 5.5. Liens. Lessee shall not incur, suffer or permit to exist any Lien on any of the Sites other than Permitted Liens. SECTION 5.6. Compliance Certificates. (a) Lease Defaults. Lessee shall furnish, following the Document Closing Date and until the termination of the Lease, to Lessor, Agent and each Lender a certificate of Lessee signed by a Responsible Officer of Lessee promptly after Lessee obtains knowledge that there exists a Lease Default or Lease Event of Default, which such certificate shall describe such Lease Default or Lease Event of Default in reasonable detail, with a statement of Lessee's action with respect thereto taken or proposed to be taken. (b) Annual Certificates. Within 90 days after the close of each fiscal year, Lessee shall deliver to Lessor, Agent and each Lender a certificate of Lessee signed by a Responsible Officer of Lessee to the effect that the signer is familiar with or has reviewed the relevant terms of this Agreement, the Lease and each other Operative Document to which Lessee is a party and has made, or caused to be made under his or her supervision, a review of the transactions contemplated hereby and thereby and the condition of the Sites during the preceding fiscal year, and that such review has not disclosed the existence during such fiscal year of any condition or event which constitutes a Lease Event of Default, an Event of Loss, Condemnation (except as described therein) or Casualty (except as described therein), nor does the signer have knowledge, after due inquiry, of the existence as of the date of such certificate, of any condition or event which constitutes a Lease Default, a Lease Event of Default, an Event of Loss, Condemnation or Casualty or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action Lessee has taken or is taking or proposes to take with respect thereto. SECTION 5.7. Change of Name or Address. Lessee shall provide Lessor, each Lender and Agent thirty (30) days prior written notice of (i) any change in name, identity or corporate structure or the address of its chief executive office and principal place of business or the office where it keeps its records concerning its accounts and the Sites, or (ii) any change with respect to its places of business whereby it will thereafter have a place of business in only one county in the Commonwealth of Pennsylvania or will thereafter have no place of business in the Commonwealth of Pennsylvania. 27 Participation Agreement ----------------------- SECTION 5.8. Environmental Matters. (a) Lessee shall comply at all times with all Applicable Laws and Regulations affecting a Site, the non-compliance of which would have a Material Adverse Effect on such Site and shall maintain at any Site only such minimum quantities of Hazardous Materials, if any, as are necessary for the operation of any Site or held for resale by Lessee, and in all events, such Hazardous Materials shall be held in compliance with all Applicable Laws and Regulations; (b) Lessee shall not cause or permit the installation of any underground storage tanks at any Site; and (c) Lessee shall maintain and comply with appropriate and customary written operations and maintenance plans (including, without limitation, for asbestos-containing materials) for the Sites. SECTION 5.9. Investigation by Authorities. Lessee shall deliver to Lessor, each Lender and to Agent promptly upon Lessee's receiving written notice of the intent by any Authority to (x) take an action which would constitute a Condemnation or an Event of Taking, (y) investigate any Site for a material violation of any Applicable Laws and Regulations on or at such Site, including any Environmental Law, under which liability may be imposed upon Lessor, any Lender or Agent or under which liability having a Material Adverse Effect may be imposed on Lessee or (z) investigate any Site (other than routine fire, life-safety and similar inspections) for any violation of Applicable Laws and Regulations under which criminal liability may be imposed upon Lessor, any Lender or Agent or under which liability having a Material Adverse Effect may be imposed on Lessee. SECTION 5.10. Financial and Other Information. Lessee shall deliver to Agent, with sufficient counterpart originals for Agent to distribute to Lessor and each Lender, the following financial and other information: (a) Audited Statements. As soon as practicable, and in any event within ninety (90) days after the close of each fiscal year of Lessee, a consolidated balance sheet of Genesis and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of, operations, cash flows and changes in stockholders' equity for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year. Such statements shall be accompanied by an opinion of KPMG Peat Marwick or other certified public accountants of nationally recognized standing selected by Lessee and satisfactory to Agent. Such opinion shall be without qualifications that are of "going concern" or like nature or that relate to a limited scope of examination. Such opinion in any event shall contain a written 28 Participation Agreement ----------------------- statement of such accountants substantially to the effect that (i) such accountants examined such financial statements in accordance with generally accepted auditing standards and accordingly made such tests of accounting records and such other auditing procedures as such accountants considered necessary under the circumstances and (ii) in the opinion of such accountants such financial statements present fairly the financial position of Genesis and its Consolidated Subsidiaries as of the end of such fiscal year and the results of their operations and their cash flows and changes in stockholders' equity for such fiscal year, in conformity with GAAP. (b) Quarterly Statements. As soon as practicable, and in any event within forty-five (45) days after the close of each of the first three fiscal quarters of each fiscal year of Genesis, the consolidated balance sheet of Genesis and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statement of operations and cash flows of Genesis and its Consolidated Subsidiaries for the portion of Lessee's fiscal year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter of, and the corresponding portion of Genesis's preceding fiscal year, all certified (subject, in the case of such quarterly financial statements, to normal year-end auditing adjustments) by a Responsible Officer of Genesis as to fairness of presentation and preparation in accordance with GAAP applied on a basis consistent with those used in preparing the financial statements referred to in Section 5.10(a) hereof (subject to such changes in accounting principles as shall be described in such certificate and shall have been approved in writing attached to such certificate by Genesis's independent accountants); (c) Compliance Certificates. As soon as practicable, and in any event within forty-five (45) days after the close of each of the first three fiscal quarters of each fiscal year of Genesis and ninety (90) days after the close of each fiscal year of Genesis, a compliance certificate for Genesis and its Consolidated Subsidiaries. Such certificates shall be certified by a Responsible Officer of Genesis as presenting fairly the compliance of Genesis and each Subsidiary with the Financial Covenants as of the end of such fiscal quarter for the year to date or fiscal year, as the case may be, in conformity with GAAP (exclusive of principles of consolidation), subject (in the case of quarterly reports) to normal and recurring year-end audit adjustments. (d) Shareholder Mailings. Promptly upon the mailing thereof to the shareholders of Genesis generally, copies of all financial statements, reports and proxy statements so mailed; 29 Participation Agreement ----------------------- (e) Supplemental Environmental Information. Promptly upon receipt thereof, copies of all environmental audits and updates regarding the environmental condition of any of the Sites; and (f) Genesis's Funded Debt/Cash Flow Ratio. Lessee shall deliver to Agent within forty-five (45) Business Days after the end of each fiscal quarter (including the fourth fiscal quarter) an Officer's Certificate of Genesis setting forth Genesis's Funded Debt/Cash Flow Ratio (as defined in the definition of Applicable Margin) as of the last day of the immediately preceding fiscal quarter of Genesis and setting forth in reasonable detail the manner in which such ratio was calculated and any other related information requested by Agent; provided that if at any time Lessee shall fail to deliver such Officer's Certificate on or before the date such information is required to be delivered, then for purposes of Section 2.7 of the Loan Agreement, Genesis's Funded Debt/Cash Flow Ratio shall be deemed to be greater than 4.5 for the applicable Interest Period(s); and provided, further, that if, when delivered, such Officer's Certificate sets forth a Funded Debt/Cash Flow Ratio which is less than that determined in accordance with the foregoing proviso, the amounts calculated under said Section 2.7 using such deemed Funded Debt/Cash Flow Ratio shall be revised as of the next fiscal quarter using Genesis's actual Funded Debt/Cash Flow Ratio for such Interest Period(s), except to the extent that the Officer's Certificate for such subsequent fiscal quarter shall indicate a change in the Funded Debt/Cash Flow Ratio from that set forth in the delinquent Officer's Certificate. (g) Other. With reasonable promptness, unless disclosure thereof is prohibited by Applicable Laws and Regulations and subject to appropriate confidentiality undertakings with respect thereto, such other data and information (financial or otherwise) which is either maintained in the ordinary course of Lessee's business or can be obtained or derived without undue burden to Lessee as to the business of Lessee or as to any Site as from time to time may be reasonably requested in writing by Agent after a Lease Default or Lease Event of Default shall have occurred and be continuing. SECTION 5.11. Securities. Lessee shall not, nor shall it permit anyone authorized to act on its behalf to, take any action which would subject the issuance or sale of the Notes, any Site or the Lease, or in any security or lease the offering of which, for purposes of the Securities Act or any state securities laws, would be deemed to be part of the same offering as the offering of the aforementioned securities or leases to the registration requirements of Section 5 of the Securities Act or any state securities laws. 30 Participation Agreement ----------------------- SECTION 5.12. Interest Rates. With respect to each determination of an interest rate pursuant to the Loan Agreement, Lessee agrees to be bound by Section 2.7 of the Loan Agreement. SECTION 5.13. Appraisals. Lessee will pay all costs of any Appraisal of any or all of the Sites which Agent may from time to time require; provided, however, that Lessee shall only be obligated to pay for appraisals of any Site once every three years and at any time while a Lease Event of Default shall have occurred and is continuing; and provided, further, that prior to the occurrence of a Lease Event of Default, Agent will not require an Appraisal the costs of which are payable by Lessee under this Section 5.13 unless the Agent, in its reasonable judgment, determines that such an Appraisal is necessary based upon the Agent's concern regarding the diminution in value of the applicable Site or based upon bank regulatory requirements. SECTION 5.14. Environmental Audits. For each Site, Lessee will deliver to Agent, upon Agent's request, but not more often than annually, or at any time upon request while a Lease Event of Default shall have occurred and is continuing, an Environmental Audit in form and substance satisfactory to Agent, which (with Agent's consent) may be updates of previously furnished Environmental Audits; provided, that prior to the occurrence of a Lease Event of Default, Agent will not require an Environmental Audit under this Section 5.14 unless the Agent, in its reasonable judgment, determines that such an Environmental Audit is necessary based upon the Agent's concern regarding the environmental condition of the applicable Site or based upon bank regulatory requirements. If Lessee shall fail to so deliver any such Environmental Audit, Agent may obtain such an Environmental Audit and Lessee will pay all reasonable costs and expenses thereof. SECTION 5.15. Additional Compensation in Certain Circumstances. (a) Increased Costs or Reduced Return Resulting From Taxes, Reserves, Capital Adequacy Requirements, Expenses, Etc. If any Applicable Laws and Regulations or guideline or interpretation or application thereof by any Authority charged with the interpretation or administration thereof or compliance with any request or directive of any Authority (whether or not having the force of Applicable Laws and Regulations) now existing or hereafter adopted: 31 Participation Agreement ----------------------- (i) subjects Lessor or any LIBOR Office to any tax or changes the basis of taxation with respect to this Participation Agreement, the Lease, the Notes, the Loans or payments by the Lessee or Genesis of Basic Rent, the Lease Balance, principal, interest, commitment fee or other amounts due from any such party hereunder or under the Lease (except for taxes on the overall net income or overall gross receipts of Lessor or such LIBOR Office imposed by the jurisdictions (federal, state and local) in which Lessor's principal office or LIBOR Office is located), (ii) imposes, modifies or deems applicable any reserve, special deposit or similar requirement against credits or commitments to extend credit extended by, assets (funded or contingent) of, deposits with or for the account of, or other acquisitions of funds by, Lessor or any LIBOR Office (other than requirements expressly included herein in the determination of the LIBO Rate hereunder), (iii) imposes, modifies or deems applicable any capital adequacy or similar requirement (A) against assets (funded or contingent) of, or credits or commitments to extend credit extended by, Lessor or any LIBOR Office, or (B) otherwise applicable to the obligations of Lessor or any LIBOR Office under this Participation Agreement, the Lease or any of the other Operative Documents, or (iv) imposes upon any Lender or any LIBOR Office any other condition or expense with respect to this Participation Agreement, the Lease, the Notes or any of the other Operative Documents or its making, maintenance or funding of any Loan or any security therefor, and the result of any of the foregoing is to increase the cost to, reduce the income receivable by, or impose any expense (including loss of margin) upon any Lender, any LIBOR Office or, in the case of clause (iii) hereof, any Person controlling a Lender, with respect to this Agreement, the Notes or the issuance, making, maintenance or funding of any Loan (or, in the case of any capital adequacy or similar requirement, to have the effect of reducing the rate of return on such Lender's or such controlling Person's capital, taking into consideration Lessor's or such controlling Person's policies with respect to capital adequacy) by an amount which Lessor deems to be material (Lessor being deemed for this purpose to have made, maintained or funded each portion of the Equity Amount bearing interest based upon LIBO Rate from a Corresponding Source of Funds), Lessor may from time to time notify the Agent and Lessee, of the 32 Participation Agreement ----------------------- amount determined in good faith (using any averaging and attribution methods) by Lessor (which determination shall be conclusive) to be necessary to compensate Lessor or such LIBOR Office for such increase, reduction or imposition. Such amount shall be due and payable by Lessee to Lessor 30 days after such notice is given, together with an amount equal to interest on such amount from the date two Business Days after the date demanded until such due date at the Prime Rate plus the Applicable Margin (calculated on the basis of a year of 360 days and actual days elapsed). A certificate by Lessor as to the amount due and payable under this Section 5.15(a) from time to time and the method of calculating such amount shall be conclusive. (b) Funding Breakage. In addition to all other amounts payable hereunder, if and to the extent for any reason any part of any portion of the Equity Amount bearing Yield based upon the LIBO Rate becomes due (by acceleration or otherwise), or is paid, prepaid or converted to Equity Amount bearing Yield based upon the Prime Rate (whether or not such payment, prepayment or conversion is mandatory or automatic and whether or not such payment or prepayment is then due), on a day other than the last day of the corresponding LIBO Period, Lessee shall pay Lessor an amount determined as provided below in this Section 5.15(b). Furthermore, in addition to all other amounts payable hereunder, if Standard Notice has been given for the conversion to or renewal of any portion of the Equity Amount to Equity Amount bearing Yield based upon the LIBO Rate or for the making of any Advance which shall bear Yield based upon the LIBO Rate or for the selection of a LIBO Period for any Equity Amount bearing Yield based upon the LIBO Rate shall be applicable in whole or in part and (x) Lessee attempts to revoke (expressly, by later inconsistent notices or otherwise) such Standard Notice or (y) (A) an applicable condition precedent is not satisfied and (B) such conversion or renewal does not take place as specified in such Standard Notice or (z) (A) an applicable condition precedent is not satisfied and (B) the portion of such Advance to bear Yield based upon the LIBO Rate is not made as specified in such Standard Notice, then in each case Lessee shall pay Lessor an amount determined as provided below in this Section 5.15(b) if Lessor has delivered to Lessee and the Agent a certificate stating that Lessor has incurred costs as a result of the events described in this sentence. "Funding Breakage Date" shall mean, in a case described in the first sentence of this Section 5.15(b), the date that any part of any Equity Amount bearing Yield based upon the LIBO Rate becomes due, or is paid, prepaid or converted, as described in such sentence, or in a case described in the 33 Participation Agreement ----------------------- second sentence of this Section 5.15(b), the date for the conversion to or renewal of Equity Amount bearing Yield based upon the LIBO Rate, or for the making of a Advance, specified in the Standard Notice described in such sentence. In a case described in the first sentence of this Section 5.15(b), "Adjusted Contract Rate" for a particular amount of Equity Amount shall mean the rate of Yield (including the Applicable Margin) applicable to such amount on the Funding Breakage Date, less the Applicable Margin, and in a case described in the second sentence of this Section 5.15(b), "Adjusted Contract Rate" for a particular principal amount of to-be-made Advances shall mean the rate of Yield (including the Applicable Margin) which would have applied to such amount on the Funding Breakage Date absent the failure to renew, convert or borrow, less the Applicable Margin. "Redeployment Rate" shall mean (x) so long as no determination by Lessor described in Section 2.11 of the Loan Agreement (mutadis mutandis) is then applicable, a Yield rate per annum equal to the LIBO Rate (without the Applicable Margin) determined by the Agent for the applicable amount using as the LIBO Period a period as equal as practicable to the Redeployment Period (as hereinafter defined) or (y) if any determination by Lessor described in Section 2.11 of the Loan Agreement (mutadis mutandis) is then applicable, a Yield rate per annum equal to the Treasury Rate, in each case as of or as soon as practicable after the Funding Breakage Date. In each case, the amount determined as being payable pursuant to this Section 5.15(b) may be referred to as the "Funding Breakage Indemnity." The calculation of the Adjusted Contract Rate and the Redeployment Rate shall be made on the assumption that the LIBO Rate Reserve Percentage shall remain constant throughout the applicable LIBO Period; in the event that such assumption proves to be inaccurate and Lessor would have received greater indemnification absent such assumption, then Lessor shall be entitled to receive such additional indemnification on demand. The Agent shall calculate Lessor's Funding Breakage Indemnity as follows: (i) For each portion of the Equity Amount owing to Lessor which so became due, or which was so paid, prepaid or converted, or as to which such Equity Amount were to have been renewed or converted to Equity Amount bearing Yield based upon the LIBO Rate, or which was to be disbursed (to the extent applicable to such to-be-borrowed Advances), the Agent shall calculate the product (the "Future Value Amount") of 34 Participation Agreement ----------------------- (1) the amount of such portions of the Equity Amount multiplied by (2) the greater of (x) zero or (y) the Adjusted Contract Rate minus the Redeployment Rate, in each case for such amount, multiplied by (3) the number of days from and including the Funding Breakage Date to but not including the last day of such LIBO Period (or scheduled LIBO Period in the case of a failure to renew, convert or borrow) (the "Redeployment Period"), divided by 360. (ii) The Agent shall then determine the present value as of the Funding Breakage Date (discounted at the Treasury Rate as of such Funding Breakage Date, and calculated on the basis of a year of 365 or 366 days, as the case may be, and the actual number of days in the Redeployment Period) (each a "Present Value Amount") of each Future Value Amount (assuming for this purpose that each Future Value Amount is payable on the last day of the corresponding Funding Period (or scheduled Funding Period in the case of a failure to renew, convert or borrow)). (iii) The Agent finally shall total Lessor's Present Value Amounts for all of its affected portions of the Loans, and this total shall be the amount of the Funding Breakage Indemnity to be paid by Lessee to Lessor. Such Funding Breakage Indemnity shall be due and payable on demand. In addition, Lessee shall, on the due date for payment of any Funding Breakage Indemnity, pay to Lessor an additional amount equal to interest on such Funding Breakage Indemnity from the Funding Breakage Date to but not including such due date at the Prime Rate plus the Applicable Margin (calculated on the basis of a year of 360 days and actual days elapsed). The amount payable to Lessor under this Section 5.15(b) shall be determined in good faith by the Agent, and such determination shall be conclusive. 35 Participation Agreement ----------------------- ARTICLE VI OTHER COVENANTS AND AGREEMENTS SECTION 6.1. Cooperation with Lessee. Lessor, Agent and each Lender shall, to the extent reasonably requested by Lessee (but without assuming additional liability on account thereof), at Lessee's expense, cooperate to allow Lessee to (a) perform its covenants contained in Section 5.1, including at any time and from time to time, upon the reasonable request of Lessee, to promptly and duly execute and deliver any and all such further instruments, documents and financing statements (and continuation statements related thereto) as Lessee may request in order to perform such covenants and (b) further Lessee's requirements as lessee of the Sites, including to file any statement with respect to any tax abatements or other requirements. SECTION 6.2. Covenants of Lessor and Lenders. (a) Discharge of Liens. Lessor covenants that it will not create or permit to exist at any time, and will, at its own cost and expense, promptly (and in any event, within 90 days) take such action as may be necessary duly to discharge, or to cause to be discharged, all Lessor Liens attributable to it unrelated to the transactions contemplated by the Operative Documents. Notwithstanding the foregoing, Lessor shall not be required to so discharge any such Lessor Lien while the same is being contested in good faith by appropriate proceedings diligently prosecuted so long as such proceedings shall not involve any meaningful danger of the impairment of the Lien of the Mortgages or of the sale, forfeiture or loss of, and shall not interfere with the use or disposition of, any part of the Sites or the Lease or title thereto or any interest therein or the payment of Rent; provided, however, that Lessor shall discharge or bond over any such Lessor Lien attributable to it unrelated to the transactions contemplated by the Operative Documents, whether or not subject to contest as provided above, upon the purchase of any Site by Lessee pursuant to the Lease. (b) Change of Principal Place of Business. Lessor shall give prompt notice to Lessee and Agent, if Lessor's principal place of business or chief executive office, or the office where the records concerning the accounts or contract rights relating to the Sites or the Overall Transaction are kept, shall cease to be located at One Mellon Bank Center, Rm 151-4444, Pittsburgh, PA 15258-0001, Attention: Leasing Group or if it shall change its name or identity. 36 Participation Agreement ----------------------- (c) Loan Agreement. As between Lessor and Lessee, Lessor and each Lender hereby agree that, so long as the Lease is in effect, Lessor shall not consent to or permit any amendment of the terms and provisions of the Loan Agreement, the Mortgages or any Note, whether or not any Lease Event of Default shall have occurred and be continuing, if any such amendment or action would have the effect of increasing the obligations of Lessee or decreasing the rights of Lessee, in each case without the prior written consent of Lessee, except that without such consent, Lessor may waive performance by Agent of obligations to Lessor the non-performance of which does not materially adversely affect Lessee. (d) Depreciation. From the date hereof unless and until Lessor's interest in the Sites is unencumbered by the Lease, neither Lessor nor any Lender shall claim any federal or state tax attributes or benefits (including depreciation) relating to the Sites unless required to do so by an appropriate taxing authority or after a clearly applicable change in Applicable Laws and Regulations or as a protective response to a proposed adjustment by an Authority; provided, however, that if an appropriate taxing authority shall require Lessor to claim any such federal or state tax attributes or benefits, such Person shall promptly notify Lessee thereof and shall permit Lessee to contest such requirement in a manner similar to the contest rights provided in, and subject to any applicable limitation to a contest contained in, Section 7.2(b) hereof. (e) Transfer by Lessor. Lessor shall not transfer its interest in the Sites (other than a transfer pursuant to the provisions of the Operative Documents) without the consent of Agent and, so long as no Lease Event of Default shall have occurred and be continuing, Lessee, each such consent not to be unreasonably withheld. The foregoing limitation shall not be applicable to the transfer of any stock or other ownership interests in Lessor, nor of any assets of Lessor other than its rights in the Sites. (f) No Voluntary Bankruptcy. Lessor shall not (i) commence any case, proceeding or other action under any existing or future law of any jurisdiction (domestic or foreign) relating to bankruptcy, insolvency, reorganization, arrangement, winding up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (ii) seek appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial benefit of its creditors. 37 Participation Agreement ----------------------- SECTION 6.3. Restrictions on and Effect of Transfer by any Lender. No Lender shall assign, convey or otherwise transfer (including pursuant to a participation) all or any portion of its right, title or interest in, to or under any of the Operative Documents or any Note, unless the provisions of this Section 6.3 are satisfied. With respect to any assignment, conveyance or other transfer, other than a loan participation, the conditions set forth in clauses (a) through (g) of this Section 6.3 are applicable. With respect to any loan participation, the conditions set forth in Section 6.4 shall be applicable. (a) Required Notice and Effective Date. Any Lender desiring to effect a transfer of its interest shall give written notice of each such proposed transfer to Lessee and Agent at least ten (10) Business Days prior to such proposed transfer (other than with respect to transfers of a Lender's interest on the Document Closing Date, notice of which may be given on the Document Closing Date), setting forth the name of such proposed transferee, the percentage or interest to be retained by such Lender, if any, and the date on which such transfer is proposed to become effective. All reasonable out-of-pocket costs incurred by Agent and Lessor in connection with any such disposition by a Lender under this Section 6.3 shall be borne by such Lender. In the event of a transfer under this Section 6.3, any expenses incurred by the transferee in connection with its review of the Operative Documents and its investigation of the transactions contemplated thereby shall be borne by such transferee or the relevant Lender, as they may determine, but shall not be considered costs and expenses which Lessee is obligated to pay or reimburse under Section 9.9. (b) Required Consent; Securities Laws. No Lender may make any such assignment, conveyance or transfer unless (i) Lessee and Agent shall have consented to the transfer and the transferee, such consents not to be unreasonably withheld, and (ii) the applicable Lender and transferee shall have complied with all applicable securities laws with respect to such transfer. (c) Employee Benefit Plans. No Lender may make any such assignment, conveyance or transfer to or in connection with any arrangement or understanding in any way involving any employee benefit plan (or its related trust), as defined in Section 3(3) of ERISA, or with the assets of any such plan (or its related trust), as defined in Section 4975(e)(1) of the Code (other than a governmental plan, as defined in Section 3(32) of ERISA), with respect to which Lessee or 38 Participation Agreement ----------------------- such Lender or any of their Affiliates is a party in interest within the meaning of ERISA or a "disqualified person" within the meaning of the Code. (d) Representations and Warranties. Notwithstanding anything to the contrary set forth above, no Lender may assign, convey or transfer its interest to any Person, unless such Person shall have delivered to Agent and Lessee a certificate confirming the accuracy of the representations and warranties set forth in Section 4.2 with respect to such Person (other than as such representation or warranty relates to the execution and delivery of Operative Documents). (e) [Intentionally Omitted.] (f) Assumption of Obligations. Upon satisfaction of all applicable conditions set forth in this Section 6.3 and the consummation of the transfer (other than a loan participation), the obligations of the transferring Lender under the Operative Documents shall be proportionately released and reduced to the extent of such transfer. Upon any such transfer as above provided, the transferee shall be deemed to be bound by all obligations (whether or not yet accrued) under, and to have become a party to, all Operative Documents to which its transferor was a party, shall be deemed the pertinent "Lender" for all purposes of the Operative Documents and shall be deemed to have made that portion of the payments pursuant to this Agreement previously made or deemed to have been made by the transferor represented by the interest being conveyed; and each reference herein and in the other Operative Documents to the pertinent "Lender" shall thereafter be deemed a reference to the transferee, to the extent of such transfer, for all purposes. Upon any such transfer, Agent shall deliver to Lessor and Lessee new Schedules I and II to this Participation Agreement, revised to reflect the relevant information for such new Lender and the Commitment of such new Lender (and the revised Commitment of the transferor Lender if it shall not have transferred its entire interest). (g) Affidavit. If a new Note is to be issued upon transfer, the transferring Lender shall have the transferee and Lessor execute an affidavit to the Note, affirming that the Note was executed and delivered outside of the State of Florida. 39 Participation Agreement ----------------------- (h) Effect. From and after any transfer of its Notes in accordance with this Section 6.3 (other than a loan participation) the transferring Lender shall be released, to the extent assumed by the transferee, from its liability and obligations hereunder and under the other Operative Documents relating to the Sites to which such transferor is a party in respect of obligations to be performed on or after the date of such transfer. Upon any transfer by a Lender as above provided, any such transferee shall be deemed a "Lender" for all purposes of such documents and each reference herein to a Lender shall thereafter be deemed a reference to such transferee for all purposes, except as the context may otherwise require. Notwithstanding any transfer as provided in this Section 6.3, the transferor shall be entitled to all benefits accrued and all rights vested prior to such transfer, including rights to indemnification under this Agreement or any other Operative Document. (i) Documentation; Agent's Fee. Each such transfer (including, without limitation, a loan participation) shall be subject to the requirement that (i) the transferee (or loan participant, as applicable) shall have executed and delivered to Agent, Lessee and Lessor a letter in substantially the form of the Investor's Letter attached hereto as Exhibit G, and (ii) the applicable Lender and transferee shall have executed and delivered such other documents, certificates and opinions of counsel which Lessee or Agent shall reasonably request to confirm the satisfaction of the conditions of this Section 6.3. The applicable Lender or transferee shall pay to Agent for each transfer: (i) a fee of $3,000, and (ii) the reasonable fees and expenses of counsel to Agent. The obligations of the applicable Lender and the transferee under the immediately preceding sentence shall be joint and several. SECTION 6.4. Covenants and Agreements of Lenders. (a) Participations. Each Lender covenants and agrees that it will not grant participations in its Notes to any Person (a "Loan Participant") unless the conditions of clauses (a) through (g) and clause (i) of Section 6.3 shall have been satisfied. In the event of any such sale by a Lender of a participating interest to a Loan Participant, such Lender's obligations under this Agreement and under the other Operative Documents shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of its Note for all purposes under this Agreement and under the other Operative Documents, and Lessor, Agent and, except as set forth in Section 6.4(b), Lessee shall continue to deal solely and directly with 40 Participation Agreement ----------------------- such Lender in connection with such Lender's rights and obligations under this Agreement and under the other Operative Documents. Notwithstanding any such loan participation, no Loan Participant shall have any right to vote with respect to the transactions contemplated by the Operative Documents other than with respect to changes in principal amount of the Note in which such Loan Participant has a participation, the interest rate payable under such Note and the stated maturity date of such Note. (b) Transferee Indemnities. Each Loan Participant shall be entitled to the benefits of Sections 2.11 and 2.12 of the Loan Agreement with respect to its Notes or participation in the Loans outstanding from time to time; provided, that no Loan Participant shall be entitled to receive any greater amount pursuant to such Sections than the transferor Lender would have been entitled to receive in respect of the amount of the Notes or participation transferred by such transferor Lender to such Loan Participant had no such transfer or participation occurred. SECTION 6.5. Future Lenders. Each Lender, by its acceptance of its Note or Notes, shall be deemed to be bound by and, upon compliance with the requirements of Section 6.4, will be entitled to all of the benefits of the provisions of this Agreement. SECTION 6.6. Agent under Participation Agreement and Mortgages. For purposes of this Agreement and the Mortgages, the parties hereto agree that Agent shall be the agent of the Lenders, with Agent's duties and obligations hereunder and thereunder being subject to the limitations, and Agent being entitled to the rights, set forth in Article VII of the Loan Agreement. The foregoing provisions of this Section 6.6 shall not limit the provisions of Article 8 of this Participation Agreement or the rights and obligations of Agent as Agent for all of the Participants pursuant to said Article 8. SECTION 6.7. Syndication by Agent. Lessee acknowledges that promptly after the Document Closing Date, Agent expects, but shall not be required to, syndicate the Notes to the lenders under the Credit Agreement or others, and Lessee shall cooperate, and, on a timely basis, shall cause the Guarantors to cooperate, with Agent and take, or cause to be taken, all actions and execute and deliver, or cause to be executed and delivered, all agreements, documents, certificates, opinions of counsel and other materials reasonably requested by Agent in connection therewith. 41 Participation Agreement ----------------------- SECTION 6.8. Prepayment by Lessor. Except as expressly permitted by the Operative Documents, each Lender acknowledges and agrees that Lessor may not voluntarily prepay the Notes, or any part thereof, without the written consent of Lessee; provided, however, that Lessor may prepay, or cause to be prepaid, all or any portion of the Notes at any time during the continuance of a Lease Event of Default. SECTION 6.9. Foreclosure against Lessor. If Lessor's interest in the Sites is foreclosed by reason of a Loan Event of Default while no Lease Event of Default shall have occurred and be continuing, Lessee shall not be responsible for any costs or expenses incurred by Agent in connection with such foreclosure or as a result thereof. ARTICLE VII INDEMNIFICATION SECTION 7.1. General Indemnification. Lessee agrees, whether or not any of the transactions contemplated hereby shall be consummated, to assume liability for, and to indemnify, protect, defend, save and keep harmless on an after-tax basis (in accordance with Section 7.5) each Indemnitee from and against any and all Claims that may be imposed on, incurred by or asserted against such Indemnitee (whether because of action or omission, negligent or otherwise, by such Indemnitee or otherwise), whether or not such Indemnitee shall also be indemnified as to any such Claim by any other Person and whether or not such Claim arises or accrues prior to the Document Closing Date or after the Lease Termination Date, in any way relating to or arising out of (a) any of the Operative Documents or any of the transactions contemplated thereby or any investigation, litigation or proceeding in connection therewith, and any amendment, modification or waiver in respect thereof; or (b) any Site or any part thereof or interest therein; or (c) the acquisition, mortgaging, design, preparation, installation, inspection, delivery, non-delivery, acceptance, rejection, purchase, ownership, possession, rental, lease, sublease, repossession, maintenance, repair, alteration, modification, addition or substitution, storage, transfer or title, redelivery, use, financing, refinancing, operation, condition, sale (including any sale pursuant to Section 6.3 of the Lease or any sale pursuant to Article XVIII of the Lease), return or other disposition of all or any part of any interest in the Sites or the imposition of any Lien (or incurrence of any liability to refund or pay over any amount as a result of any Lien) thereon, including, without limitation: (i) Claims or penalties arising from any violation of law, including Applicable Laws 42 Participation Agreement ----------------------- and Regulations, or in tort (strict liability or otherwise), (ii) loss of or damage to the environment (including investigation costs, clean-up costs, response costs, remediation and removal costs, costs of corrective action, costs of financial assurance, and all other damages, costs, fees and expenses, fines and penalties, including natural resource damages), or death or injury to any Person, and all expenses associated with the protection of wildlife, aquatic species, vegetation, flora and fauna, and any mitigative action required by or under Environmental Laws, (iii) latent or other defects, whether or not discoverable by Lessee or any Indemnitee, (iv) any Claims resulting from the existence or Release of any Hazardous Materials at or from any Site and (v) any Claim for patent, trademark, tradename or copyright infringement, provided that the matters in this clause (c) shall be without duplication of any matter for which indemnification is provided pursuant to the Environmental Indemnity; (d) the offer, issuance, sale or delivery of the Notes; (e) the breach or alleged breach by Lessee of any representation or warranty, covenant or agreement made by it or deemed made by it in any Operative Document; (f) the transactions contemplated hereby or by any other Operative Document, in respect of the application of Parts 4 and 5 of Subtitle B of Title I of ERISA and any prohibited transaction described in Section 4975(c) of the Code or (g) any other agreement entered into or assumed by Lessee in connection with any Site (including, in each case, matters based on or arising from the negligence of any Indemnitee). Lessee shall not be required to indemnify under this Section 7.1 for (1) as to an Indemnitee, any Claim to the extent resulting from the willful misconduct or gross negligence of such Indemnitee, as determined by a court of competent jurisdiction or to the extent resulting from the breach of representations, warranties or covenants of such Indemnitee (including, in the case of clause (f) of this Section 7.1, the representation of such Lender set forth in Section 4.2(e) and the covenant of such Lender set forth in Section 6.3(c)), (2) any Claims in respect of Taxes (such Claims to be subject to Section 7.2), other than a payment necessary to make payments under this Section 7.1 on an after-tax basis, provided, that this clause (2) does not apply to any taxes or penalties included in Claims against which the Indemnitee is provided an indemnification under clause (f) of this Section 7.1 and (3) as to an Indemnitee, any Claim resulting from Lessor Liens which such Indemnitee is responsible for discharging under the Operative Documents. In the event that the indemnification provided for herein is prohibited by Applicable Laws and Regulations, Lessee will contribute to a Claim to the maximum extent permitted by law. 43 Participation Agreement ----------------------- SECTION 7.2. General Tax Indemnity. (a) Tax Indemnity. Lessee shall pay, defend and, on written demand, indemnify and hold each Indemnitee harmless (on an after-tax basis in accordance with Section 7.5) from and against, any and all Taxes, howsoever imposed, on or with respect to any Indemnitee, the Sites or any portion thereof, any Operative Document or Lessee or any sublessee or user of a Site by any Authority in connection with or in any way relating to (i) the acquisition, mortgaging, design, preparation, installation, inspection, delivery, non-delivery, acceptance, rejection, purchase, ownership, possession, rental, lease, sublease, repossession, maintenance, repair, alteration, modification, addition or substitution, storage, transfer of title, redelivery, use, financing, refinancing, operation, condition, sale, return or other application or disposition of all or any part of the Sites or the imposition of any Lien (or incurrence of any liability to refund or pay over any amount as a result of any Lien) thereon, (ii) Basic Rent or Supplemental Rent or the receipts or earnings arising from or received with respect to the Sites or any part thereof, or any interest therein or any applications or dispositions thereof, (iii) any other amount paid or payable pursuant to the Notes or any other Operative Documents, (iv) the Sites or any part thereof or any interest therein, (v) all or any of the Operative Documents, any other documents contemplated thereby and any amendments and supplements thereto, and (vi) otherwise with respect to or in connection with the transactions contemplated by the Operative Documents; provided, however, that the indemnification obligation of this Section 7.2(a) shall not apply to (i) Taxes which are based upon or measured by the Indemnitee's net income (including taxes based on minimum taxes or capital gains), or which are expressly in substitution for, or relieve Indemnitee from, any actual Tax based upon or measured by Indemnitee's net income; (ii) any Tax or imposition to the extent, but only to such extent, it relates to any act, event or omission that occurs after the termination of the Lease and the discharge of all of Lessee's obligations under the Operative Documents which were matured at the time of such termination (but not any Tax or imposition that relates to any period prior to the discharge of all of Lessee's obligations under the Operative Documents which were matured at the time of such termination) unless such termination is the result of a Lease Event of Default or the Site has been transferred to Lessee; (iii) any interest or penalties imposed on an Indemnitee as a result of the failure of such Indemnitee to comply with its obligations set forth in Section 7.2(d) unless such failure results from the failure of Lessee to comply with its obligations set forth in Section 7.2(d); (iv) any Taxes which are imposed on an Indemnitee as a result of a 44 Participation Agreement ----------------------- breach of a covenant or representation by such Indemnitee in any Operative Document (unless caused by the Lessee's breach of its representation, warranties or covenants) or is a result of the gross negligence or willful misconduct of such Indemnitee itself (as opposed to gross negligence or willful misconduct imputed to such Indemnitee), but not Taxes imposed as a result of ordinary negligence of such Indemnitee; (v) Taxes based upon the voluntary transfer, assignment or disposition by Agent, Lessor or any Lender of any interest in any of the Sites (other than a transfer pursuant to the exercise of remedies under the Operative Documents, transfers pursuant to the exercise of the Sale Option or Purchase Option, a transfer to Lessee or otherwise pursuant to the Lease) or any involuntary transfer of any interest in any of the Sites resulting from the bankruptcy or insolvency of the Agent, Lessor or any Lender (other than in connection with the existence of a Lease Event of Default or a Credit Agreement Event of Default); (vi) any gift, inheritance, franchise or estate Taxes (vii) taxes and impositions that are imposed by any state or local jurisdiction or taxing authority within any state or local jurisdiction and that are based upon or measured by the net income or net receipts (including any minimum taxes, withholding taxes or taxes on or measured by capital, net worth, excess profits or items of tax preference or taxes that are capital stock, franchise or doing business taxes); (viii) any Tax or imposition for so long as, but only for so long as, it is being contested in accordance with the provisions of the Participation Agreement; (ix) any Taxes or impositions that are enacted or adopted by their express terms as a substitute for any Tax that would not have been indemnified against pursuant to the terms of Section 7.2(a) of the Participation Agreement; (x) any Taxes or impositions to the extent that such Taxes are actually reimbursed to the Lessor by another Person other than an Affiliate of the Lessor; (xi) in the event of a voluntary transfer, assignment or disposition, or any involuntary transfer of any interest in any of the Sites resulting from the bankruptcy or insolvency of Lessor (other than in connection with the existence of a Lease Event of Default or a Credit Agreement Event of Default), any Tax or imposition imposed on a direct or indirect transferee, successor or assign of the Lessor to the extent of the excess of such Taxes over the amount of such Taxes that would have been imposed had there not been a transfer by the original Lessor of an interest arising under the Operative Documents, unless a Lease Event of Default shall have occurred and be continuing; and (xii) any Taxes or impositions imposed on the Lessor that are a result of the Lessor not being considered a "United States person" as defined in Section 7701(a)(30) of the Code. Notwithstanding the proviso of the preceding sentence, Lessee shall pay or reimburse, and indemnify and hold harmless, any 45 Participation Agreement ----------------------- Indemnitee which is not incorporated under the laws of the United States, or a state thereof, and which has complied with Section 7.3, from any deduction or withholding of any United States Federal, state or local income tax. All indemnities contained in this Section 7.2(a) are expressly made for the benefit of, and shall be enforceable by, each Indemnitee. (b) Contests. Lessee shall pay on or before the time or times prescribed by law any Taxes (except any Taxes excluded by the proviso to Section 7.2(a)); provided, however, that Lessee shall be under no obligation to pay any such Tax so long as the payment of such Tax is not delinquent or is being contested by a Permitted Contest. If any claim or claims is or are made against any Indemnitee for any Tax which is subject to indemnification as provided in Section 7.2(a), Indemnitee shall as soon as practicable, but in no event more than 20 days after receipt of formal written notice of the Tax or proposed Tax, notify Lessee and if, in the reasonable opinion of Lessee and (in the case of any Tax which may reasonably be expected in the aggregate to exceed $50,000) tax counsel acceptable to the Indemnitee, there exists a basis to contest such Tax which satisfies the requirements of ABA Formal Opinion 85-352 (and if the provisos of the definition of "Permitted Contest" continues to be satisfied and so long as no Lease Event of Default exists), Lessee at its expense may, to the extent permitted by Applicable Laws and Regulations, contest such Tax, and subsequently may appeal any adverse determination, in the appropriate administrative and legal forums; provided that in all other circumstances, upon notice from Lessee to such Indemnitee that there exists a basis to contest any such Tax which satisfies the requirements of ABA Formal Opinion 85-352 (as supported by an opinion of tax counsel to Lessee acceptable to the Indemnitee), the Indemnitee, at Lessee's expense, shall contest any such Tax. Lessee shall pay all expenses incurred by the Indemnitee in contesting any such Tax (including all reasonable attorneys' and accountants' fees, including the allocated costs of internal counsel), upon demand by the Indemnitee. Lessee shall have the right to participate in the conduct of any proceedings controlled by the Indemnitee to the extent that such participation by such Person does not interfere with the Indemnitee's control of such contest and Lessee shall in all events be kept informed, to the extent practicable, of material developments relative to such proceedings. The Indemnitee shall have the right to participate in the conduct of any proceedings controlled by Lessee and the Indemnitee shall in all events be kept informed, to the extent practicable, of material developments relative to such proceedings. The Indemnitees agree that a contested claim for which Lessee would be required to make a reimbursement 46 Participation Agreement ----------------------- payment hereunder will not be settled or compromised without Lessee's prior written consent (which consent shall neither be unreasonably delayed nor withheld), unless the provisos of the definition of "Permitted Contest" would not continue to be satisfied. Indemnitee shall endeavor to settle or compromise any such contested claim in accordance with written instructions received from Lessee, provided that: (x) Lessee on or before the date the Indemnitee executes a settlement or compromise pays the contested Tax to the extent agreed upon or makes an indemnification payment to the Indemnitee in an amount acceptable to the Indemnitee; and (y) the settlement or compromise does not, in the reasonable opinion of the Indemnitee materially adversely affect the right of such Lessor to receive Rent or the Lease Balance or any other payment pursuant to the Operative Documents, or involve a material risk of sale, forfeiture or loss of any Site or any interest therein or any matter described in the provisos to the definition of "Permitted Contest". The failure of an Indemnitee to timely contest a claim against it for any Tax which is subject to indemnification under Section 7.2(a) and for which it has an obligation to Lessee to contest under this Section 7.2(b) in the manner required by Applicable Laws and Regulations where Lessee has timely requested that such Indemnitee contest such claim shall relieve Lessee of its obligations to such Indemnitee under Section 7.2(a) with respect to such claim to the extent such failure results in the loss of an effective contest. If Applicable Laws and Regulations require the payment of a contested Tax as a condition to, or regardless of, its being contested, and Lessee chooses to contest such Tax or to direct the Indemnitee to contest such Tax in accordance with this Section, then Lessee shall provide the Indemnitee with the funds to pay such Tax, such provision of funds to be deemed a non-interest bearing loan by Lessee to the Indemnitee to be repaid by any recovery of such Tax from such contest and any remaining unpaid amount not recovered to offset Lessee's obligation to indemnify the Indemnitee for such Tax. Lessee shall indemnify the Indemnitee on a grossed-up basis (in accordance with Section 7.5) for and against any adverse tax consequences of such interest-free loan. In the event that the Indemnitee receives a refund (or like adjustment) in respect of any Tax for which the Indemnitee has been reimbursed by Lessee, the Indemnitee shall immediately remit the amount of such refund (or like adjustment) to Lessee, net of all costs and expenses incurred by such Indemnitee. (c) Payments. Any Tax indemnifiable under Section 7.2(a) shall be paid directly to the applicable taxing authority if direct payment is practicable and permitted. If direct payment to the applicable taxing authority is not permitted or is otherwise not made, any amount payable to an Indemnitee 47 Participation Agreement ----------------------- pursuant to Section 7.2(a) shall be paid within thirty (30) days after receipt of a written demand therefor from such Indemnitee accompanied by a written statement describing in reasonable detail the amount so payable, but not before the date that the relevant Taxes are due. Any payments made pursuant to Section 7.2(a) directly to the Indemnitee entitled thereto or Lessee, as the case may be, shall be made in immediately available funds at such bank or to such account as specified by the payee in written directions to the payor, or, if no such direction shall have been given, by check of the payor payable to the order of the payee by certified mail, postage prepaid at its address as set forth in this Participation Agreement. Upon the request of any Indemnitee with respect to a Tax that Lessee is required to pay, Lessee shall furnish to such Indemnitee the original or a certified copy of a receipt for Lessee's payment of such Tax or such other evidence of payment as is reasonably acceptable to such Indemnitee. Taxes imposed with respect to the Property for a billing period during which the Lease expires or terminates (provided that the Lessee surrenders possession of the Property to Lessor) shall be adjusted and prorated on a daily basis between the Lessee and the Lessor, whether or not such Imposition is imposed before or after such expiration or termination and each party shall pay or reimburse the other for each party's pro rata share thereof. At Lessee's request, the amount of any indemnification payment by Lessee pursuant to subsection (a) shall be verified and certified by an independent public accounting firm mutually acceptable to Lessee and the Indemnitee. The fees and expenses of such independent public accounting firm shall be paid by Lessee unless such verification shall result in an adjustment in Lessee's favor of 5% or more of the payment as computed by the Indemnitee, in which case such fee shall be paid by the Indemnitee. In no event shall Lessee have the right to review the Indemnitee's tax returns or receive any other confidential information from the Indemnitee in connection with such verification. Any information provided to such accountants by any Person shall be and remain the exclusive property of such Person and shall be deemed by the parties to be (and the accountants will confirm in writing that they will treat such information as) the private, proprietary and confidential property of such Person, and no Person other than such Person and the accountants shall be entitled thereto and all such materials shall be returned to such Person. Such accounting firm shall be requested to make its determination within 30 days of Lessee's request for verifications and the computations of the accounting firm shall be final, binding and conclusive upon Lessee and the Indemnitee. The parties agree that the sole responsibility of the independent public accounting firm shall be to verify the amount of 48 Participation Agreement ----------------------- a payment pursuant to this Participation Agreement and that matters of interpretation of this Participation Agreement are not within the scope of the independent accounting firm's responsibilities. (d) Reports. If any report, return or statement is required to be filed with respect to any Taxes that are subject to indemnification under Section 7.2(a), Lessee shall, if Lessee is permitted by Applicable Laws and Regulations, timely prepare and file such report, return or statement; provided, however, that if Lessee is not permitted by Applicable Laws and Regulations to file any such report Lessee will promptly so notify the appropriate Indemnitee, in which case the Indemnitee will file any such report after preparation thereof by Lessee. Lessee will deliver any such return, together with immediately available funds for payment of any Tax due, to such Indemnitee at least ten (10) days in advance of the date such return or payment is due. SECTION 7.3. Withholding Tax Exemption. On or before the first date on which any payment is due under any Note for the account of any Lender not incorporated under the laws of the United States or a state thereof, such Lender agrees that it will have delivered to each of Lessee, Lessor and Agent (i) two valid, duly completed copies of United States Internal Revenue Service Form 1001 or 4224, certifying in either case that such Lender is entitled to receive payments under the Operative Documents without deduction or withholding of any United States federal income taxes and (ii) a valid, duly completed Internal Revenue Service Form W-8 or W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding tax. Each Lender which so delivers a Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms, further undertakes to deliver to each of Lessee, Lessor and Agent two additional copies of such form on or before the date that such form expires (currently, three successive calendar years for Form 1001 and one calendar year for Form 4224) or becomes obsolete or after the occurrence of any event requiring a change in the most recent forms so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by Lessee, Lessor or Agent, in each case certifying that such Lender is entitled to receive payments under the Operative Documents without deduction or withholding of any United States Federal income taxes, unless any change in treaty, law or regulation has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender advises Lessee, Lessor and Agent that it is not capable of receiving payments without any withholding of United States Federal income tax. 49 Participation Agreement ----------------------- SECTION 7.4. Excessive Use Indemnity. In the event that at the end of the Lease Term: (a) Lessee elects the Sale Option; and (b) after paying to Lessor all amounts due under Section 6.3 of the Lease, including Proceeds and the aggregate Applicable Percentage Amount, Lessor does not have sufficient funds to reduce the Lease Balance to zero, then Lessee shall promptly pay over to Lessor the shortfall unless Lessee delivers a report from an independent appraiser in form and substance satisfactory to Lessor and the Agent which establishes that the decline in value in the Sites from the aggregate amount anticipated for such date in the Appraiser's report delivered with respect to each Site on or about the Document Closing Date was not due to the excessive use of any Facility or any Site, failure to maintain any Facility or any Site, modifications or restorations which reduce the value of any Facility or any Site, any adverse change in the environmental condition of any Facility or any Site, any easements granted pursuant to Section 8.3 of the Lease which reduce the value of any Facility or Site or any other cause or condition within the power of Lessee to control or affect differing from ordinary wear and tear. SECTION 7.5. Gross Up. If an Indemnitee shall not be entitled to a corresponding and equal deduction with respect to any payment or Tax which Lessee is required to pay or reimburse under any other provision of this Article VII (each such payment or reimbursement under this Article VII, an "original payment") and which original payment constitutes income to such Indemnitee, then Lessee shall pay to such Indemnitee on demand the amount of such original payment on a grossed-up basis such that, after subtracting all Taxes imposed on such Indemnitee with respect to such original payment by Lessee (including any Taxes otherwise excluded by Section 7.2(b) and assuming for this purpose that such Indemnitee was subject to taxation at the highest Federal marginal rates applicable to widely held corporations for the year in which such income is taxable and at an assumed state and local income tax rate of 9.5%, such payments shall be equal to the original payment to be received or paid (net of any credits, deductions or other tax benefits then actually recognized that arise from the payment by such Indemnitee of any amount, including taxes, for which the payment to be received is made). 50 Participation Agreement ----------------------- ARTICLE VIII THE AGENT SECTION 8.1. Appointment of Agent; Powers and Authorization to Take Certain Actions. (a) Each Participant irrevocably appoints and authorizes Agent to act as its agent hereunder, with such powers as are specifically delegated to Agent by the terms hereof, together with such other powers as are reasonably incidental thereto. Each Participant authorizes and directs Agent to, and Agent agrees for the benefit of the Participant, that, on the Document Closing Date it will accept the Operative Documents and thereafter, it will accept all documents to be delivered to Agent on behalf of the Participants or the Lenders under the Operative Documents. Specifically, without limitation, Lessor hereby appoints Agent as its agent hereunder and under the Operative Documents to accept delivery of all documents to be delivered to Lessor under the Operative Documents and to take all action on behalf of Lessor required to be taken by Lessor under the Operative Documents, subject to the remaining provisions of this Article 8. Agent accepts the agency hereby created applicable to it and agrees to receive all payments and proceeds pursuant to the Operative Documents and disburse such payments or proceeds in accordance with the Operative Documents. Agent shall have no duties or responsibilities except those expressly set forth in the Operative Documents. Agent shall not be responsible to any Participant (or to any other Person) (i) for any recitals, statements, representations or warranties of any party contained in any of the Operative Documents or in any certificate or other document referred to or provided for in, or received by any of them under, the Operative Documents, other than the representations and warranties made by Agent in Section 4.4, or (ii) for the value, validity, effectiveness, genuineness, enforceability or sufficiency of the Collateral or the title thereto or of the Loan Agreement or any other document referred to or provided for therein or (iii) for any failure by any Lessee, Lessor, any Lender or any other third party (other than Agent) to perform any of its obligations under any Operative Document. Agent may employ agents, trustees or attorneys-in-fact, may vest any of them with any property, title, right or power deemed necessary for the purposes of such appointment and shall not be responsible for the negligence or misconduct of any of them selected by it with reasonable care. Neither Agent nor any of its directors, officers, employees or agents shall be liable or responsible for any action taken or omitted to be taken by it or them hereunder, or in connection herewith, except for its or their own gross negligence or willful misconduct. 51 Participation Agreement ----------------------- (b) Agent shall not have any duty or obligation to manage, control, use, operate, store, lease, sell, dispose of or otherwise deal with any Site, any other Collateral or the Lease, or to otherwise take or refrain from taking any action under, or in connection with, this Agreement or any related document to which Agent is a party, except as expressly provided by the terms hereof, and no implied duties of any kind shall be read into any Operative Document against Agent. The permissive right of Agent to take actions enumerated in this Agreement or any other Operative Document shall never be construed as a duty, unless Agent is instructed or directed to exercise, perform or enforce one or more rights by the Required Participants (provided that Agent has received indemnification reasonably satisfactory to it). Subject to Section 8.1(c) below, no provision of the Operative Documents shall require Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its obligations under the Operative Documents, or in the exercise of any of its rights or powers thereunder. It is understood and agreed that the duties of Agent are ministerial in nature. (c) Except as specifically provided herein, Agent is acting hereunder solely as agent and, except as specifically provided herein, is not responsible to any party hereto in its individual capacity, except with respect to any claim arising from Agent's gross negligence or willful misconduct or any breach of a representation or covenant made in its individual capacity. (d) Agent may accept deposits from, lend money to and otherwise deal with Lessee or any of its Affiliates with the same rights as it would have if it were not the named Agent hereunder. SECTION 8.2. Reliance. Agent may rely upon, and shall not be bound or obligated to make any investigation into the facts or matters stated in, any certificate, notice or other communication (including any communication by telephone, facsimile, telex, telegram or cable) reasonably believed by it to be genuine and correct and to have been made, signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by Agent with due care (including any expert selected by Agent to aid Agent in any calculations required in connection with its duties under the Operative Documents). 52 Participation Agreement ----------------------- SECTION 8.3. Action Upon Instructions Generally. Subject to Sections 8.4 and 8.6, upon written instructions of the Required Participants, Agent shall, on behalf of the Participants, give such notice or direction, exercise such right, remedy or power hereunder or in respect of any Site, and give such consent or enter into such amendment to any document to which it is a party as Agent as may be specified in such instructions. Agent shall deliver to each Participant a copy of each material notice, report and certificate received by Agent pursuant to the Operative Documents. Agent shall have no obligation to investigate or determine whether there has been a Lease Default or Lease Event of Default. Agent shall not be deemed to have notice or knowledge of any Lease Default or Lease Event of Default unless a Responsible Officer of Agent is notified in writing of such Lease Default or Lease Event of Default, provided that Agent shall be deemed to have been notified in writing of any failure of Lessee to pay Basic Rent in the amounts and at the times set forth in Article IV of the Lease. If Agent receives notice of a Lease Default or Lease Event of Default, Agent shall give prompt notice thereof, at Lessee's expense, to each Participant. Subject to Sections 8.4, 8.6 and 9.5 hereof, and subject to the terms and provisions of the Collateral Agency Agreement, Agent shall take action or refrain from taking action with respect to such Lease Default or Lease Event of Default as directed by the Required Participants or, in the case of a Lease Event of Default by virtue of the failure of Lessee to pay any portion of Basic Rent, as directed by any Participant; provided that, unless and until Agent receives such directions, Agent may refrain from taking any action, or may act in its discretion, with respect to such Lease Default or Lease Event of Default. Prior to the date the Lease Balance shall have become due and payable by acceleration pursuant to Article 18 of the Lease, the Required Participants may deliver written instructions to Agent to waive, and Agent shall waive pursuant thereto, any Event of Default and its consequences; provided that in the absence of written instructions from all Participants, Agent shall not waive any (i) Lease Event of Default by virtue of the failure of Lessee to pay any portion of Basic Rent or (ii) covenant or provision which, under Section 9.5, cannot be modified or amended without the consent of all Participants. As to any matters not expressly provided for by this Agreement, Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions signed by the Required Participants and such instructions of the Required Participants and any action taken or failure to act pursuant thereto shall be binding on each Participant. 53 Participation Agreement ----------------------- SECTION 8.4. Indemnification. Each Participant shall reimburse and hold Agent harmless, ratably in accordance with its Commitment at the time the indemnification is required to be given, (but only to the extent that any such indemnified amounts have not in fact been paid to Agent by, or on behalf of, Lessee in accordance with Section 7.1) from any and all claims, losses, damages, obligations, penalties, liabilities, demands, suits, judgments, or causes of action, and all legal proceedings, and any reasonable costs or expenses in connection therewith, including allocated charges, costs and expenses of internal counsel of Agent and all other reasonable attorneys' fees and expenses incurred by Agent, in any way relating to or arising in any manner out of (i) any Operative Document, the enforcement hereof or thereof or the consummation of the transactions contemplated thereby, or (ii) instructions from the Required Participants (including, without limitation, the costs and expenses that Lessee is obligated to and does not pay hereunder, but excluding normal administrative costs and expenses incident to the performance by Agent of its agency duties hereunder other than materially increased administrative costs and expenses incurred as a result of an Event of Default), provided that no Participant shall be liable for any of the foregoing to the extent they arise from (a) the gross negligence or willful misconduct of Agent as determined by a court of competent jurisdiction, (b) the inaccuracy of any representation or warranty or breach of any covenant given by Agent in Section 4.4 hereof or in the Loan Agreement, (c) negligence of Agent in the case of Agent's handling of funds or (d) any taxes, fees or other charges payable by Agent based on or measured by any fees, commissions or compensation received by it for acting as Agent in connection with the transactions contemplated by the Operative Documents. SECTION 8.5. Independent Credit Investigation. Each Participant by entering into this Agreement agrees that it has, independently and without reliance on Agent or any other Participant and based on such documents and information as it has deemed appropriate, made its own credit analysis of Lessee and the Guarantors and its own decision to enter into this Agreement and each of the other Operative Documents to which it is a party and that it will, independently and without reliance upon Agent or any other Participant and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking action under this Agreement and any related documents to which it is a party. Agent shall not be 54 Participation Agreement ----------------------- required to keep itself informed as to the performance or observance by Lessee of any other document referred to (directly or indirectly) or provided for herein or to inspect the properties or books of Lessee. Except for notices or statements which Agent is expressly required to give under this Agreement and for notices, reports and other documents and information expressly required to be furnished to Agent alone hereunder or under any other Operative Document, Agent shall not have any duty or responsibility to provide any Participant with copies of notices or with any credit or other information concerning the affairs, financial condition or business of Lessee (or any of its Affiliates) that may come into the possession of Agent or any of its Affiliates. SECTION 8.6. Refusal to Act. Except for notices and actions expressly required of Agent hereunder, Agent shall in all cases be fully justified in failing or refusing to act unless (a) it is indemnified to its reasonable satisfaction by Lessor against any and all liability and reasonable expense which may be incurred by it by reason of taking or continuing to take any such action (provided that such indemnity shall not be required to extend to liability or expense arising from any matter described in clauses (a) through (d) of Section 8.4, it being understood that no action taken by Agent in accordance with the instructions of the Required Participants shall be deemed to constitute any such matter) and (b) it is reasonably satisfied that such action is not contrary to any Operative Document or to any applicable law. SECTION 8.7. Resignation or Removal of Agent; Appointment of Successor. Subject to the appointment and acceptance of a successor Agent as provided below, Agent may resign at any time by giving 30 days' prior written notice thereof to Lessor, Lenders and Lessee or may be removed at any time for cause by 30 days' prior written notice from the Required Participants to Agent, the other Participants and Lessee. Upon any such resignation or removal, the Required Participants at the time of the resignation or removal shall have the right to appoint a successor Agent. If, within thirty (30) calendar days after the retiring Agent's giving of notice of resignation or receipt of a written notice of removal, a successor Agent is not so appointed and does not accept such appointment, then the retiring or removed Agent may (but shall not be required to) appoint a successor Agent and transfer to such successor Agent all rights and obligations of the retiring Agent. Such successor Agent shall be a Lender if any Lender shall at the time be willing to become the successor Agent, and if no Lender is so willing, then the successor Agent shall be a financial institution. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the 55 Participation Agreement ----------------------- rights, powers, privileges and duties of the retiring or removed Agent. Upon the effective date of resignation or removal, the retiring or removed Agent shall be discharged from duties and obligations as Agent thereafter arising hereunder and under any related document, but the provisions of this Agreement and the other Operative Documents shall inure to its benefit as to any actions taken or omitted by it while it was Agent under this Agreement and the other Operative Documents. If the Required Participants or the retiring Agent does not appoint a successor in accordance with the foregoing provisions of this Section 8.7, any Participant shall be entitled to apply to a court of competent jurisdiction for such appointment, and such court may thereupon appoint a successor to act until such time, if any, as a successor shall have been appointed as above provided. SECTION 8.8. Separate Agent. Agent may, for the purpose of meeting any legal requirements of any jurisdiction in which any Site or Collateral may be located, appoint one or more individuals or corporations either to act as co-agent jointly with Agent or to act as separate agent of all or any part of the Collateral, and vest in such individuals or corporations, in such capacity, such title to such Collateral or any part thereof, and such rights or duties as Agent may consider necessary or desirable. Agent shall not be required to qualify to do business in any jurisdiction where it is not now so qualified. Agent shall execute, acknowledge and deliver all such instruments as may be required by any such co-agent or separate agent more fully confirming such title, rights or duties to such co-agent or separate agent. Upon the acceptance in writing of such appointment by any such co-agent or separate agent, it, she or he shall be vested with such interest in the Collateral or any part thereof, and with such rights and duties, not inconsistent with the provisions of the Operative Documents, as shall be specified in the instrument of appointment, jointly with Agent (except insofar as local law makes it necessary for any such co-agent or separate agent to act alone), subject to all terms of the Operative Documents. Any co-agent or separate agent, to the fullest extent permitted by legal requirements of the relevant jurisdiction, at any time, by an instrument in writing, shall constitute Agent its attorney-in-fact and agent, with full power and authority to do all acts and things and to exercise all discretion on its behalf and in its name. If any co-agent or separate agent shall die, become incapable of acting, resign or be removed, the interest in the Collateral or Sites and all rights and duties of such co-agent or separate agent shall, so far as permitted by law, vest in and be exercised by Agent, without the appointment of a successor to such co-agent or separate agent. 56 Participation Agreement ----------------------- SECTION 8.9. Termination of Agency. The agency created hereby shall terminate upon the final disposition by Lessor of all Sites and the final distribution by Agent of all monies or other property or proceeds received pursuant to the Lease and Loan Agreement in accordance with their respective terms, provided that at such time Lessee shall have complied fully with all the terms hereof. SECTION 8.10. Compensation of Agency. Lessee shall pay Agent (i) the Structuring/Underwriting Fee pursuant to Section 2.6 hereof and (ii) Agent's reasonable fees, costs and expenses for the performance of Agent's obligations hereunder. SECTION 8.11. Limitations. It is expressly understood and agreed by and among the parties hereto that, except as otherwise provided herein or in the other Operative Documents: (a) this Participation Agreement and the other Operative Documents to which Agent is a party are executed by Agent, not in its individual capacity (except with respect to the representations and covenants of Agent in Section 4.4), but solely as Agent under the Operative Documents in the exercise of the power and authority conferred and vested in it as such Agent; (b) each and all of the undertakings and agreements herein made on the part of Agent are each and every one of them made and intended not as personal undertakings and agreements by Agent, or for the purpose or with the intention of binding Agent personally, but are made and intended for the purpose of binding only the interests of Lessor and the Lenders in the Sites and Collateral unless expressly provided otherwise; (c) actions to be taken by Agent pursuant to its obligations under the Operative Documents may, in certain circumstances, be taken by Agent only upon specific authority of the Participants or Required Participants; (d) nothing contained in the Operative Documents shall be construed as creating any liability on Agent, individually or personally, or any incorporator or any past, present or future subscriber to the capital stock of, or stockholder, officer or director, employee or agent of, Agent to perform any covenants either express or implied contained herein, all such liability, if any, being expressly waived by the other parties hereto and by any Person claiming by, through or under them; and (e) so far as Agent, individually or personally, is concerned, the other parties hereto and any Person claiming by, through or under them shall look solely to the Collateral and Lessee for the performance of any obligation under any of the instruments referred to herein; provided, however, that nothing in this Section 8.11 shall be construed to limit in scope or substance the general corporate liability of Agent in respect of its gross negligence or willful misconduct or those representations, warranties and covenants of Agent in its individual capacity set forth herein or in any of the other agreements contemplated hereby. 57 Participation Agreement ----------------------- SECTION 8.12. Agent May Be a Participant. Lessee and each Participant (a) acknowledge and agree that Agent may be a Participant and Agent, (as well as an agent and a Lender under the Credit Agreement and the Collateral Agent under the Collateral Agency Agreement), and in such other capacities, shall have no obligation to Lessee or the other Participants greater than it would have were Agent solely a Participant and not Agent hereunder, or not the agent or a Lender under the Credit Agreement or Collateral Agent under the Collateral Agency Agreement and (b) waive any conflict or potential conflict by virtue of Agent also being a Participant from time to time. ARTICLE IX MISCELLANEOUS SECTION 9.1. Survival of Agreements. The representations, warranties, covenants, indemnities and agreements of the parties provided for in the Operative Documents, and the parties' obligations under any and all thereof, shall survive the execution and delivery and the termination or expiration of this Agreement and any of the Operative Documents, including the termination of the Lease with respect to any Site, the transfer of the interest in the Sites to or by Lessor as provided herein or in any other Operative Documents (and shall not be merged into the Deeds or any other conveyance or transfer document), any disposition of any interest of Lessor in the Sites, the purchase and sale of the Notes, payment therefor and any disposition thereof and shall be and continue in effect notwithstanding any investigation made by any party hereto or to any of the other Operative Documents and the fact that any such party may waive compliance with any of the other terms, provisions or conditions of any of the Operative Documents. SECTION 9.2. No Broker, etc. Except for Agent (the fees and expenses of which shall be payable by Lessee in accordance with the provisions of this Participation Agreement), each of the parties hereto represents to the others that it has not retained or employed any broker, finder or financial advisor to act on its behalf in connection with this Agreement, nor has it authorized any broker, finder or financial adviser retained or employed by any other Person so to act, nor has it incurred any fees or commissions to which Lessor or any other Participant might be subjected by virtue of its entering into the transactions contemplated by this Agreement. Any party who is in breach of this 58 Participation Agreement ----------------------- representation shall indemnify and hold the other parties harmless from and against any liability arising out of such breach of this representation. SECTION 9.3. Notices. Unless otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be made in writing and shall be deemed to have been given (i) in the case of notice by letter, the earlier of when delivered to the addressee by hand or courier if delivered on a Business Day and, if not delivered on a Business Day, the first Business Day thereafter or on the third Business Day after depositing the same in the mails, registered or certified mail, postage prepaid, return receipt requested, addressed as provided on Schedule II hereto, and (ii) in the case of notice by facsimile or bank wire, when receipt is confirmed if delivered on a Business Day and, if not delivered on a Business Day, the first Business Day thereafter, addressed as provided on Schedule II hereto, or to such other address as any of the parties hereto may designate by written notice. Copies of all notices given by facsimile or bank wire shall be contemporaneously sent by overnight courier. SECTION 9.4. Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same agreement. SECTION 9.5. Amendments. Except as otherwise specifically provided in any Operative Document, neither this Agreement nor any of the other Operative Documents nor any of the terms hereof or thereof may be terminated, amended, supplemented, waived or modified orally, but only by an instrument in writing signed by the party against which the enforcement of the termination, amendment, supplement, waiver or modification shall be sought; and no such termination, amendment, supplement, waiver or modification shall be effective unless a signed copy thereof shall have been delivered to Lessor, Lessee and Agent. Lessor and Lessee shall not be permitted to amend, modify or supplement the Lease without the written consent of the Required Participants; provided, that without the prior written consent of each Lender, Lessor shall not: (a) modify any of the provisions of this Section 9.5, change the definition of "Required Participants" or modify or waive any provision of any Operative Document requiring action by any of the foregoing, or release any collateral (except as otherwise specifically provided in any Operative Document); 59 Participation Agreement ----------------------- (b) modify, amend, waive or supplement any of the provisions of Articles XI, XIII, XVI and XVII of the Lease; (c) reduce, modify, amend or waive any indemnities in favor of any Lender; (d) reduce the amount or change the time of payment of Rent or the Lease Balance; (e) consent to any assignment of the Lease releasing Lessee from its obligations to pay Rent or the Lease Balance or changing the absolute and unconditional character of such obligations; or (f) permit the creation of any Lien on the Sites or any part thereof except as contemplated by the Operative Documents, or deprive any Lender of the benefit of the security interest and lien secured by the Sites. SECTION 9.6. Headings, etc. The Table of Contents and headings of the various Articles and Sections of this Agreement are for convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions hereof. SECTION 9.7. Parties in Interest. Except as expressly provided herein, none of the provisions of this Agreement is intended for the benefit of any Person except the parties hereto, their successors and permitted assigns. SECTION 9.8. GOVERNING LAW; Submission to Jurisdiction; Waiver of Jury Trial. THIS AGREEMENT HAS BEEN DELIVERED IN, AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES OF SUCH STATE. 60 Participation Agreement ----------------------- SECTION 9.9. Payment of Transaction Costs and Other Costs. (a) Transaction Costs. On the Document Closing Date, if the transactions contemplated by this Agreement are consummated, Lessor shall pay the Transaction Costs to the Person or Persons entitled to payment as evidenced by bills or invoices for such payment; provided, however, that Lessor shall not be required to pay any Transaction Costs in excess of $2,000,000.00 in the aggregate. Lessee shall elect which Transaction Costs Lessor shall so pay, provided that such election must include the Structuring/Underwriting Fee and Agent's attorneys fees, and Lessor shall obtain the funds necessary for such payment in accordance with Section 2.5. Any additional Transaction Costs shall be paid by Lessee. If such transactions are not consummated, Lessee shall pay all of the Transaction Costs. (b) Continuing Expenses. The Transaction Costs not paid on the Document Closing Date and the continuing expenses and disbursements (including reasonable counsel fees and expenses) of Lessor and Agent shall be paid by Lessee as Supplemental Rent; and provided, further that if Lessor shall not have paid $2,000,000 of Transaction Costs in the aggregate, Lessor shall continue to pay Transaction Costs (the specific Transaction Costs being so paid by Lessor being in Lessor's discretion) in accordance with Section 2.5 until it shall have paid $2,000,000 of Transaction Costs in the aggregate. (c) Amendments, Supplements and Appraisal. Without limitation of the foregoing, Lessee agrees to pay to the Lessor, Agent and the Lenders all reasonable costs and expenses (including reasonable legal fees and expenses) incurred by any of them in connection with: (i) the considering, evaluating, investigating, negotiating and entering into or giving or withholding of any amendments or supplements or waivers or consents with respect to any Operative Document; (ii) any Event of Loss or termination of the Lease or any other Operative Document; (iii) the negotiation and documentation of any restructuring or "workout," whether or not consummated, of any Operative Document; (iv) the enforcement of the rights or remedies under the Operative Documents; or (v) any transfer by Agent or a Lender of any interest in the Operative Documents during the continuance of a Lease Event of Default; provided, however, that in the case of clauses (i) and (ii) Lessee shall not be responsible for any legal fees and expenses of more than two special counsel for all of Agent and the Lenders (including, without limitation, special Credit Agreement counsel) and any special local counsel required by Agent. 61 Participation Agreement ----------------------- SECTION 9.10. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 9.11. Limited Liability of Lessor. The parties hereto agree that Lessor shall have no personal liability whatsoever to Lessee, the Lenders, Agent or any of their respective successors and assigns for any Claim based on or in respect of this Agreement or any of the other Operative Documents or arising in any way from the transactions contemplated hereby or thereby; provided, however, that Lessor shall be personally liable: (a) for its own willful misconduct or gross negligence, (b) for liabilities that may result from the incorrectness of any representation or warranty expressly made by it in Section 4.3 or from the failure of Lessor to perform the covenants and agreements set forth in Section 6.2(a) hereof, or (c) for any Tax based on or measured by any fees, commission or compensation received by it for actions contemplated by the Operative Documents. It is understood and agreed that, except as provided in the preceding proviso: (i) Lessor shall have no personal liability under any of the Operative Documents as a result of acting pursuant to and consistent with any of the Operative Documents; (ii) all obligations of Lessor to Lessee, the Lenders, Agent or any of their respective successors and assigns are solely nonrecourse obligations (with liability payable solely out of the Sites and the other Collateral) except to the extent that it has received payment from others; (iii) all such personal liability of Lessor is expressly waived and released as a condition of, and as consideration for, the execution and delivery of the Operative Documents by Lessor; and (iv) this Participation Agreement (except as provided in Section 4.3) is executed and delivered by Lessor solely in the exercise of the powers expressly conferred upon it as Lessor under the Operative Documents. SECTION 9.12. Liabilities of the Lenders. No Lender shall have any obligation to any other Lender or to Lessee, Lessor or Agent with respect to the transactions contemplated by the Operative Documents except those obligations of such Lender expressly set forth in the Operative Documents or except as set forth in the instruments delivered in connection therewith, and no Lender shall be liable for performance by any other party hereto of such other party's obligations under the Operative Documents except as otherwise so set forth. 62 Participation Agreement ----------------------- SECTION 9.13. Liabilities of Agent. Agent shall have no duty, liability or obligation to any party to this Agreement with respect to the transactions contemplated hereby except those duties, liabilities, or obligations expressly set forth in this Agreement or the Loan Agreement, and any such duty, liability or obligation of Agent shall be as expressly limited by this Agreement or the Loan Agreement, as the case may be. SECTION 9.14. Reproduction of Documents. This Agreement, all documents constituting Schedules or Exhibits hereto, and all documents relating hereto received by a party hereto, including, without limitation: (a) consents, waivers and modifications that may hereafter be executed; (b) documents received by the Lenders, Agent or Lessor in connection with the receipt and/or acquisition of the Sites; and (c) financial statements, certificates, and other information previously or hereafter furnished to Agent, Lessor or any Lender may be reproduced by the party receiving the same by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. Each of the parties hereto agrees and stipulates that, to the extent permitted by law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by such party in the regular course of business) and that, to the extent permitted by law, any enlargement, facsimile, or further reproduction of such reproduction shall likewise be admissible in evidence. SECTION 9.15. Consideration for Consents to Waivers and Amendments. Lessee hereby agrees that it will not, and that it will not permit any of its Affiliates to, offer or give any consideration or benefit of any kind whatsoever to any Lender in connection with, in exchange for, or as an inducement to, such Lender's consent to any waiver in respect of, any modification or amendment of, any supplement to, or any other consent or approval under, any Operative Document unless such consideration or benefit is offered ratably to all Lenders. SECTION 9.16. Payment Directions. It is understood and agreed that during the Lease Term, for administrative convenience and notwithstanding the terms and provisions of the Lease or any Loan Document, Lessee will pay all amounts due Lessor under the Lease and this Agreement, on behalf of Lessor, to or at the direction of Agent (which direction may change from time to time, so long as such direction does not require Lessee to make any payment due on any date to more than one Person) for application in accordance with the terms of Article III of the Loan Agreement. 63 Participation Agreement ----------------------- SECTION 9.17. Action of and Notices to Lessor under Loan Agreement. Notwithstanding anything to the contrary in the Loan Agreement, the Lenders, Lessor and Lessee hereby agree that any notice or demand to be delivered to Lessor pursuant to the Loan Agreement and any action to be taken by Lessor under the Loan Agreement shall, so long as no Lease Event of Default is continuing, be delivered directly to or taken by Lessee, with a copy to or notice to Lessor. SECTION 9.18. Submission to Jurisdiction; Waivers. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY: (a) AGREES THAT ANY ACTION, SUIT OR PROCEEDING BY ANY PERSON ARISING FROM OR RELATING TO THIS AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT OR ANY STATEMENT, COURSE OF CONDUCT, ACT OR OMISSION, OR EVENT OCCURRING IN CONNECTION HEREWITH OR THEREWITH (COLLECTIVELY, "RELATED LITIGATION") MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN ALLEGHENY COUNTY OR PHILADELPHIA COUNTY, PENNSYLVANIA, SUBMITS TO THE JURISDICTION OF SUCH COURTS, AND TO THE FULLEST EXTENT PERMITTED BY LAW AGREES THAT, TO THE EXTENT THAT ANY SUCH COURT HAS OR IS ABLE TO OBTAIN PERSONAL JURISDICTION OVER THE PARTY AGAINST WHICH SUCH PARTY IS SEEKING TO BRING RELATED LITIGATION, IT WILL NOT BRING ANY RELATED LITIGATION IN ANY OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY LENDER TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM); (b) WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY RELATED LITIGATION BROUGHT IN ANY SUCH COURT, WAIVES ANY CLAIM THAT ANY SUCH RELATED LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, AND WAIVES ANY RIGHT TO OBJECT, WITH RESPECT TO ANY RELATED LITIGATION BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY; (c) CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS IN ANY RELATED LITIGATION BY REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO SUCH PARTY'S ADDRESS FOR NOTICES DESCRIBED IN SCHEDULE II HEREOF, AND CONSENTS AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY LAW); AND (d) WAIVES THE RIGHT TO TRIAL BY JURY IN ANY RELATED LITIGATION. SECTION 9.19. Final Agreement. THIS AGREEMENT, TOGETHER WITH THE LEASE, LOAN DOCUMENTS, THE OTHER OPERATIVE DOCUMENTS AND OTHER DOCUMENTS EXECUTED 64 Participation Agreement ----------------------- IN CONNECTION HEREWITH OR THEREWITH REPRESENT THE ENTIRE FINAL AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND CANNOT BE MODIFIED, SUPPLEMENTED, AMENDED, RESCINDED OR CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES HERETO. [SIGNATURE PAGES FOLLOW] 65 Participation Agreement ----------------------- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. GENESIS ELDERCARE PROPERTIES, INC., as Lessee By:___________________________________ Name Printed: George V. Hager, Jr. Title: Senior Vice President MELLON FINANCIAL SERVICES CORPORATION #4, as Lessor By:___________________________________ Name Printed: Arthur A. Folsom, Jr. Title: Senior Vice President MELLON BANK, N.A., not in its individual capacity except as expressly stated herein, but solely as Agent By:___________________________________ Name Printed: Carol Paige Title: Vice President MELLON BANK, N.A., as Lender By:___________________________________ Name Printed: Carol Paige Title: Vice President 66 Participation Agreement ----------------------- SCHEDULE I Lessor and Lender Commitments Transaction Total Lessor Acquisition Costs Commitment - ------ ----------- ----------- ---------- Mellon Financial $ 2,031,000 $60,000.00 $ 2,091,000 Lender - ------ Mellon Bank, N.A. $65,669,000 $1,940,000 $67,609,000 ----------- ----------- ----------- Total $67,700,000 $2,000,000 $69,700,000 67 Participation Agreement ----------------------- SCHEDULE II Notice Information and Funding Offices Lessee: Genesis Eldercare Properties, Inc. 148 West State Street Kennett Square, PA 19348 Attention: George V. Hager, Jr. Telephone: (610) 444-6350 Facsimile: (610) 444-7483 Lessor: Mellon Financial Services Corporation #4 One Mellon Bank Center Rm 151-4444 Pittsburgh, PA 15258-0001 Attention: Leasing Group Telephone: (412) 234-0934 Facsimile: (412) 234-3948 Lender and Agent: Mellon Bank, N.A. (address for notices) Plymouth Meeting Executive Campus 610 West Germantown Pike Suite 200 Plymouth Meeting, PA 19462 Attention: Carol Paige Telephone: (610) 941-8409 Facsimile: (610) 941-4136 Lender and Agent: Mellon Bank, N.A. (funding office) Loan Administration 701 Market Street Room 199-5220 Philadelphia, PA 19106 Attention: Sally Gaymon Telephone: (215) 553-2450 Facsimile: (215) 553-1016 1 Participation Agreement ----------------------- SCHEDULE III Sites Quarterly Financing Principal Sites Seller Amount 1 Amortization - ----- ------ --------- ------------ Atlantis Rehabilitation NHCA $ 8,030428.36 $0 and Health Care Center Old Congress Road, Lantana, Florida Bowman's Health Care Center NHCA $ 6,486,115.21 $0 South Ridgewood Ormand Beach, Florida Eagle Crest Nursing Center NHCA $14,413,589.36 $0 Parental Home Road Jacksonville, Florida Oakwood Rehabilitation NHCA $ 7,103,840.47 $0 and Health Care Center South East Bay Street Eustis, Florida Tierra Pines Health NHCA $ 2,264,992.61 $0 Care Center - ---------------- (1) This amount includes the allocable share of the maximum Transaction Costs of $2,000,000 which may be funded by Lessor pursuant to Section 2.5 of the Participation Agreement. Participation Agreement ----------------------- Ulmerton Road Largo, Florida Woodlands Nursing Center NHCA $ 2,779,763.66 $0 North 46th Street Tampa, Florida Williamsburg Health Care NHCA $12,972,230.43 $0 and Rehabilitation Center Mount Vernon Avenue Williamsburg, Virginia Windham NHCA $ 1,544,313.15 $0 Main Street, Route 240 Crozet, Virginia Woodmont Health Care Center NHCA $14,104,726.75 $0 Dairy Lane Fredricksburg, Virginia Total $69,700,000 (Sites, if any, marked with an asterisk (*) indicate that Lessor is not acquiring fee title to the applicable Land Interest, but rather is becoming the ground lessee thereof.) Participation Agreement ----------------------- SCHEDULE IV Stock Sellers Mark E. Hamister George E. Hamister Julia L. Hamister The George E. Hamister Trust The Oliver C. Hamister Trust National Health Care Affiliates, Inc. Oak Hill Health Care Center, Inc. Derby Nursing Center Corporation Delaware Avenue Partnership EIDOS, Inc. VersaLink, Inc. Participation Agreement ----------------------- SCHEDULE 4.1A Government Actions No Government Actions are required other than the obtaining of such licenses, approvals, authorizations, consents, permits (including, without limitation, environmental permits, licenses, approvals, authorizations and consents), easements and rights-of-way, including proof and dedication required under applicable law for the use and occupance of the Sites and for the operation thereof. Participation Agreement ----------------------- SCHEDULE 4.1B Filings and Recordings Recordation of the deeds evidencing the acquisition of a particular site, and recordation of the Lease Supplement relating to the Site with the appropriate county office. In addition, for each State in which a Site is located, all filings and recordings specified in the local counsel questionnaire delivered by local counsel for such State pursuant to Appendix 2 shall be deemed included on this Schedule 4.1B. Participation Agreement ----------------------- SCHEDULE 4.1C Computation under Section 5.9 of 1995 Subordinated Note Indenture Participation Agreement ----------------------- SCHEDULE 4.1D ERISA Plans Meridian Healthcare, Inc. Union Retirement Savings Plan, established December 1, 1989 Genesis Health Ventures, Inc. Retirement Plan, established January 1, 1989 Genesis Health and Welfare Plan Definitions Appendix -------------------- APPENDIX 1 to Participation Agreement In the Participation Agreement and each other Operative Document, unless the context otherwise requires: (a) any term defined below by reference to another instrument or document shall continue to have the meaning ascribed thereto whether or not such other instrument or document remains in effect; (b) words importing the singular include the plural and vice versa; (c) words importing a gender include any gender; (d) a reference to a part, clause, section, article, exhibit or schedule is a reference to a part, clause, section and article of, and exhibit and schedule to, such Operative Document; (e) a reference to any statute, regulation, proclamation, ordinance or law includes all statutes, regulations, proclamations, ordinances or laws amending, supplementing, supplanting, varying, consolidating or replacing them, and a reference to a statute includes all regulations, proclamations and ordinances issued or otherwise applicable under that statute; (f) a reference to a document includes any amendment or supplement to, or replacement or novation of, that document; (g) a reference to a party to a document includes that party's successors and permitted assigns; and (h) references to "including" means including without limiting the generality of any description preceding such term and for purposes hereof the rule of ejusdem generis shall not be applicable to limit a general statement followed by or referable to an enumeration of specific matters to matters similar to those specifically mentioned. Further, each of the parties to the Operative Documents and their counsel have reviewed and revised the Operative Documents, or requested revisions thereto, and the usual rule of construction that any ambiguities are to be resolved against the drafting party shall be inapplicable in construing and interpreting the Operative Documents. A1-1 Definitions Appendix -------------------- "Accrued Variable Rent" means, as of any date of determination, (A) with respect to the Lease, the sum of the aggregate amount of interest that has accrued on the outstanding Notes to the date of determination, and (B) with respect to any Lease Supplement, the product of the Allocated Share in respect of such Lease Supplement multiplied by the amount determined pursuant to the preceding clause (A). "Additional Costs" mean (i) the amounts payable pursuant to Sections 2.11 and 2.12 of the Loan Agreement, (ii) the amounts payable pursuant to Section 5.15 of the Participation Agreement and (iii) the other amounts due and payable by the Borrower under any Loan Document other than principal and interest on the Notes. "Adjusted Contract Rate" has the meaning set forth in Section 2.12 of the Loan Agreement. "Advance" means, as the context may require, each advance of a Loan by a Lender and each advance of a portion of the Equity Amount by Lessor. "Advance Date(s)" means each of the actual dates, on or prior to the date on which the Commitments shall terminate as set forth in Section 2.5 of the Participation Agreement, on which the transactions contemplated in Article II of the Participation Agreement are completed. "Advance Request" has the meaning set forth in Section 2.5 of the Participation Agreement. "Affiliate" of a Person (the "Specified Person") shall mean (a) any Person which directly or indirectly controls, is controlled by, or is under common control with, the Specified Person, (b) any director or officer (or, in the case of a Person which is not a corporation, any individual having analogous powers) of the Specified Person or of a Person who is an Affiliate of the Specified Person within the meaning of the preceding clause (a), and (c) for each individual who is an Affiliate of the Specified Person within the meaning of the foregoing clauses (a) or (b), any other individual related to such Affiliate by consanguinity within the third degree or in a step or adoptive relationship within such third degree or related by affinity with such Affiliate or any such individual. For purposes of the preceding sentence, "control" of a Person means (a) the possession, directly or indirectly, of the power to direct A1-2 Definitions Appendix -------------------- or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise and (b) in any case shall include direct or indirect ownership (beneficially or of record) of, or direct or indirect power to vote, 5% or more of the outstanding shares of any class of capital stock of such Person (or in the case of a Person that is not a corporation, 5% or more of any class of equity interest). "Agent" means Mellon Bank, N.A., a national banking association, in its capacity as administrative agent for the Participants under the Loan Agreement and the Participation Agreement. "Allocated Amount" means, with respect to a Site, the product of (a) the Lease Balance multiplied by (b) a fraction, the numerator of which is Lessor's Cost of such Site and the denominator of which is the aggregate Lessor's Cost of all Sites. "Allocated Share", with respect to any Lease Supplement, means a fraction (expressed as a percentage) the numerator of which is Lessor's Cost of a Site or Group subject to the Lease Supplement in question and the denominator of which is the Lease Balance. "Alterations" has the meaning set forth in Section 9.2(a) of the Lease. "Amendment to Collateral Agency Agreement" means that certain First Amendment to Amended and Restated Collateral Agency Agreement dated as of July 24, 1996, among Genesis, as a Borrower and as a Shared Obligor, certain other Subsidiary Grantors referred to therein, the RCA Lender Parties referred to therein, by Mellon, as RCA Agent, the ACA Lender Parties referred to therein, by Mellon, as ACA Agent, the SLT Parties referred to therein, by Mellon, as SLT Agent, and Mellon as Collateral Agent, in the form of Exhibit I-2 to the Participation Agreement. "Amendment to Security Agreement" means that certain First Amendment to Amended and Restated Security Agreement dated as of July 24, 1996, among Genesis and certain of its Subsidiaries, as Grantors, and Mellon, as Collateral Agent, in the form of Exhibit I-1 to the Participation Agreement. "Applicable Laws and Regulations" mean all existing and future applicable laws, rules, regulations (including Environmental Laws), statutes, treaties, codes, ordinances, permits, certificates, orders and licenses of and interpretations by, any Authority, Insurance Requirements and applicable A1-3 Definitions Appendix -------------------- judgments, decrees, injunctions, writs, orders or like action of any court, arbitrator or other administrative, judicial or quasi-judicial tribunal or agency of competent jurisdiction (including those pertaining to health, safety or the environment and those pertaining to the use or occupancy of any Site) and any restrictive covenant or deed restriction or easement of record affecting a Site. "Applicable Margin" means: (a) for any Interest Period occurring entirely prior to the earlier of (i) October 1, 1996 and (ii) the date that the Operative Documents are amended to increase the amount of the Commitments set forth in Schedule I to the Participation Agreement, zero basis points for interest determined by reference to the Prime Rate and 100 basis points for interest determined by reference to the LIBO Rate; and (b) for any Interest Period occurring in whole or in part after the earlier of the dates specified in clauses (i) and (ii) of the immediately preceding clause (a), the Applicable Margin set forth in the Credit Agreement, with (x) the Applicable Margin thereunder applicable to the Prime Rate Option thereunder being the Applicable Margin hereunder for interest determined by reference to the Prime Rate under the Operative Documents and (y) the Applicable Margin thereunder applicable to the Euro-Rate Option being the Applicable Margin hereunder for interest determined by reference to the LIBO Rate under the Operative Documents; provided, that the Applicable Margin for the Renewal Term shall be determined by the mutual agreement of Agent and Lessee; and provided, further, that during any Holdover Period, the Applicable Margin shall be increased by 50 basis points. "Applicable Percentage" for each Lease Supplement means, as of the end of the Basic Term and the Renewal Term, the percentage set forth opposite each such date on Schedule II to such Lease Supplement, and shall be determined on or about the Document Closing Date; provided that in no event shall such percentage be less than 80%. "Applicable Percentage Amount" means, (a) with respect to any Lease Supplement, the product obtained by multiplying Lessor's Cost of the Site covered by such Lease Supplement by the Applicable Percentage of such Lease A1-4 Definitions Appendix -------------------- Supplement and (b) with respect to the Lease, the sum of all amounts determined pursuant to the foregoing clause (a) for each Lease Supplement then in effect. "Appraisal" means any appraisal of any one or more Sites prepared by the Appraiser and delivered to Agent, on behalf of Lessor and the Lenders. "Appraiser" means Valuation Counselors or such other appraisal firm as Agent may select from time to time. "Appurtenant Rights" mean (i) all agreements, easements, rights of way or use, rights of ingress or egress, privileges, appurtenances, tenements, hereditaments and other rights and benefits at any time belonging or pertaining to any Land Interest or the Facilities, including the use of any streets, ways, alleys, vaults or strips of land adjoining, abutting, adjacent or contiguous to any Land Interest and (ii) all permits, licenses and rights, whether or not of record, appurtenant to any Land Interest. "Assignment of Lease" means the Assignment of Lease and Agreement and Lease Supplements and Memoranda of Lease and Agreement in the form of Exhibit H to the Participation Agreement from Lessor in favor of Agent for the benefit of the Lenders, as the same may be supplemented from time to time, together with the Consent and Agreement of Lessee attached thereto. "Assignment of Licenses" means the Collateral Assignment of Licenses, Permits and Approvals from Lessee, NHCA and the Property Sellers to Agent, in the form of Exhibit J to the Participation Agreement. "Authority" means any entity involved in any way in the administration of Federal or state healthcare-related programs, including the U.S. Department of Health & Human Services, the Health Care Finance Administration, Medicare carriers or intermediaries or Medicaid agencies, bureaus or departments and any government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. "Authorized Officer" means any officer in the Leasing Department of Mellon who shall be duly authorized to execute the Operative Documents. "Bankruptcy Code" means the Bankruptcy Reform Act of 1978. A1-5 Definitions Appendix -------------------- "Basic Rent" means an amount payable on each Payment Date during the Basic Term, the Renewal Term, if applicable, and the Holdover Period, if applicable, equal to the sum of (i) the aggregate amount of interest payable on such Payment Date on the Notes, plus (ii) the aggregate amount of the Yield payable on such Payment Date on the Equity Amount (calculated in accordance with the definition of "Yield" and in a manner consistent with the calculation of the amounts under clause (i) on such Payment Date) plus (iii) starting with the Payment Date October 24, 1996, principal amortization equal to the sum of (x) level principal amortization amounts, if any, for each Site as shown on Schedule III to the Participation Agreement, plus (y) level principal amortization equal to the lesser of (1) $100,000 per quarterly Payment Date and (2) the remaining unamortized portion of Transaction Costs funded by Lessor pursuant to Section 2.5 of the Participation Agreement; provided, however, that upon the occurrence and during the continuance of a Loan Event of Default under Sections 6.1(a)(ii), 6.1(a)(iii) and 6.1(a)(iv) of the Loan Agreement while no Lease Event of Default shall have occurred and be continuing, Basic Rent shall be determined on the basis of calculations made as if the Loan Event of Default shall not have occurred and the Loans shall not have been accelerated, whether or not in fact the Loans shall have been accelerated or any other remedies shall have been taken under the Loan Agreement or with respect to the Collateral. "Basic Term", means (a) the period commencing upon the Document Closing Date and ending on the date which is five years after the Document Closing Date or (b) such shorter period as may result from earlier termination of the Lease as provided therein. "Basis Term Expiration Date" has the meaning set forth in Section 2.3 of the Lease. "Bill of Sale" means each Bill of Sale from the seller of any Site to Lessor conveying any portion of the Facility located thereon which under applicable law does not or may not constitute real estate. "Board of Directors" means, with respect to a corporation, either the board of directors or any duly authorized committee of that board of directors which, pursuant to the by-laws of such corporation, has the same authority as that board of directors as to the matter at issue. "Borrower" means Lessor, as the borrower under the Loan Agreement. A1-6 Definitions Appendix -------------------- "Business Day" means (a) any day other than a Saturday, Sunday, public holiday under the laws of the Commonwealth of Pennsylvania or other day on which banking institutions are authorized or obligated to close in Philadelphia, Pennsylvania or in the city in which the Agent's office is located; and (b) solely with respect to determinations of Interest Periods and Payment Dates, dealings in United States Dollars are carried on in the London interbank market. "Casualty" means an event of damage or casualty relating to any Facility which does not constitute an Event of Loss. "Claims" mean liabilities, obligations, damages, losses, demands, penalties, fines, claims, actions, suits, judgments, settlements, utility charges, costs, fees, expenses and disbursements (including legal fees and expenses and costs of investigation which, in the case of counsel or investigators retained by an Indemnitee, shall be reasonable) of any kind and nature whatsoever, that may at any time be imposed on, asserted against or incurred by an Indemnitee as a result of, or arising out of, or in any way related to or by reason of any of the Operative Documents, as well as the Credit Agreement or any "Loan Document" referred to therein and without in any way limiting the generality of the foregoing, including any violation of any Environmental Laws or any other law by any Borrower or Subsidiary of Borrower or any Environmental Affiliate of any of them. "Code" means the Internal Revenue Code of 1986, as amended, and any successor statute of similar import, and regulations thereunder, in each case as in effect from time to time. References to sections of the Code shall be construed also to refer to any successor sections. "Collateral" means the property from time to time subject to or purported to be subject to the Liens of the subsisting Mortgage, the Assignment of Lease, the Assignment of Licenses and the Joint Stock Collateral subject to the Security Agreement, as limited by the terms and provisions of the Collateral Agency Agreement and, collectively, all of the foregoing. "Collateral Agency Agreement" means the Amended and Restated Collateral Agency Agreement dated as of September 29, 1995 between Genesis, the Subsidiary Grantors, RCA Agent, Agent and the Collateral Agent, all as defined therein, as amended (including, without limitation, by the Amendment to Collateral Agency Agreement). A1-7 Definitions Appendix -------------------- "Commitment" means as to Lessor or any Lender, its obligation to make amounts available to Lessor or Loans to the Borrower, as the case may be, in an aggregate amount not to exceed at any one time outstanding the amount set forth opposite Lessor's or such Lender's name on Schedule I to the Participation Agreement. "Commitment Letter" means that certain letter dated July 16, 1996 from Mellon Bank, N.A. to, and accepted by, Genesis. "Commitment Percentage" means as to any Participant, at a particular time, the percentage of the aggregate Commitments in effect at such time represented by such Participant's Commitment, as such percentage is shown on Schedule I to the Participation Agreement. "Condemnation" means any condemnation, requisition, confiscation, seizure or other taking or sale of the use, occupancy or title to any Site or any part thereof in, by or on account of any actual or threatened eminent domain proceeding or other action by any Authority or other Person under the power of eminent domain or otherwise or any transfer in lieu of or in anticipation thereof, which in any case does not constitute an Event of Taking. A Condemnation shall be deemed to have "occurred" on the earliest of the dates that use, occupancy or title is taken. "Consolidated Cash Flow" has the meaning specified in the Credit Agreement. "Consolidated Funded Indebtedness" at any time for a specified group of Persons shall mean all Indebtedness (including the current portion thereof) of such Persons which would at such time be classified in whole or part under GAAP as a long-term liability of such Persons and shall also and in any event include (i) any Indebtedness of any such Person having a final maturity more than one year from the date of creation of such Indebtedness and (ii) any Indebtedness of any Person, regardless of its term, which is renewable or extendable by such Person (pursuant to the terms thereof or pursuant to a revolving credit or similar agreement or otherwise) to a date more than one year from such date or more than one year from the date of creation of such Indebtedness, all as determined on a consolidated basis. "Consolidated Subsidiary" means, as to any Person at any date, any Subsidiary or other entity the accounts of which would be consolidated with those of such Person in such Person's consolidated financial statements as of such date. A1-8 Definitions Appendix -------------------- "Contingent Liability" means any agreement, undertaking or arrangement by which any Person directly or indirectly guarantees, becomes surety for, endorses, assumes, agrees to indemnify another Person (the "Deemed Obligor") against, or otherwise remains liable (contingently or otherwise) for the Indebtedness, obligation or liability (the "Assured Obligation") of the Deemed Obligor. Contingent Liability shall be deemed to exist if a Person agrees, becomes or remains liable (contingently or otherwise), directly or indirectly (a) to purchase or assume, or to supply funds for the payment, purchase or satisfaction of, an Assured Obligation, (b) to make any loan, advance, capital contribution or other investment in, or to purchase or lease any property or services from, a Deemed Obligor (i) to maintain the solvency of the Deemed Obligor, (ii) to enable the Deemed Obligor to meet any other financial condition, (iii) to enable the Deemed Obligor to satisfy any payment of dividends or other distributions upon the shares of any other Person, or (iv) to assure the holder of such Assured Obligation against loss, (c) to purchase or lease property or services from the Deemed Obligor regardless of the non-delivery of or failure to furnish of such property or services, or (d) in respect of any other transaction the effect of which is to assure the payment or performance (or payment of damages or other remedy in the event of nonpayment or nonperformance) of any Assured Obligation. "Controlled Group Member" means each trade or business (whether or not incorporated) which, at any time, together with Lessee, Genesis, National Health, any Property Seller or any Subsidiary of any thereof is treated as a single employer under Sections 4001(a)(14) or 4001(b)(1) of ERISA or Sections 414(b), (c), (m) or (o) of the Code. "Corresponding Source of Funds" means, in the case of any portion of a LIBO Rate Loan or Equity Amount (to the extent that the Yield is determined by reference to the LIBO Rate), the proceeds of hypothetical receipts by a LIBOR Office or by a Lender or Lessor through a LIBOR Office of one or more Dollar deposits in the interbank eurodollar market at the beginning of the Interest Period corresponding to such portion of the LIBO Rate Loan having maturities approximately equal to such portion of the LIBO Rate Loan or Equity Amount and in an aggregate amount approximately equal to such portion (in the case of Lessor) or such Lender's pro rata share of such portion (in the case of a Lender). "Credit Agreement" means both of the following: (i) that certain Amended and Restated Credit Agreement dated as of September 29, 1995 by and among Genesis Health Ventures, Inc. and certain of its subsidiaries, as borrowers, the institutions identified therein as lenders, Mellon Bank, N.A., A1-9 Definitions Appendix -------------------- as issuer of letters of credit, Mellon Bank, N.A., as agent and Citibank, N.A. as co-agent, and (ii) that certain Acquisition Credit Agreement dated as of September 29, 1995 by and among Genesis Health Ventures, Inc., certain of its Subsidiaries, the Lenders named therein, Mellon and Citibank, N.A. as co-agent, as each of the foregoing may be amended, modified, increased (including any increase in amounts or the commitment thereunder), supplemented, refunded or replaced from time to time, and if so amended, modified, increased, refunded or replaced, the amended, modified, increased, supplemented, refunded or replaced credit agreement. For purposes of the Operative Documents, if the Credit Agreement (or the Amended and Restated Credit Agreement referred to in clause (i), as it may be so amended, modified, supplemented, refunded or replaced from time to time as described above) shall terminate without a replacement agreement having become effective, references to the financial covenants set forth in the Credit Agreement shall mean the financial covenants as set forth in the Credit Agreement immediately prior to its termination, exclusive of any modification to the terms of such agreement or arrangement that were made in contemplation of the termination thereof. "Debt/Equity Fraction" means at any time a fraction the numerator of which is the aggregate outstanding principal balance of the Notes and the denominator of which is the sum of (i) the aggregate outstanding principal balance of the Notes plus (ii) the outstanding Equity Amount. "Deed" means each Deed from the seller of any Land Interest to Lessor, conveying the Land Interest and the Facility, if any, or other improvements, if any, located on the related Site in a form acceptable to the Lenders. "Designated Owner" has the meaning set forth in Section 12.1(b) of the Lease. "Document Closing Date" has the meaning set forth in Section 2.1 of the Participation Agreement. "Dollar" and the symbol "$" shall mean lawful money of the United States of America. "Early Termination Date" means a Payment Date on which Lessee purchases all (but not less than all) of the Sites from Lessor pursuant to Section 6.5 of the Lease. A1-10 Definitions Appendix -------------------- "End of Term Report" has the meaning set forth in Section 6.4(c) of the Lease. "Environmental Audit" means a Phase One environmental site assessment (the scope and performance of which meets or exceeds ASTM Standard Practice E1527-93 Standard Practice for Environmental Site Assessments: Phase One Environmental Site Assessment Process) of each Site to be acquired by Lessor on a Site Acquisition Date or of a Site to be sold pursuant to the Sale Option under the Lease and any additional environmental assessments (including, without limitation, a Phase Two environmental site assessment) requested by the Agent. "Environmental Concern Materials" means (a) any flammable substance, explosive, radioactive material, hazardous material, hazardous waste, toxic substance, solid waste, pollutant, contaminant or any related material, raw material, substance, product or by-product of any substance specified in or regulated or otherwise affected by any Environmental Law (including but not limited to any "hazardous substance" as defined in CERCLA or any similar state law), (b) any toxic chemical or other substance form or related to industrial, commercial or institutional activities, and (c) asbestos, gasoline, diesel fuel, motor oil, waste and used oil, heating oil and other petroleum products or compounds, polychlorinated biphenyls, radon and urea formaldehyde. "Environmental Indemnity" means the Environmental Indemnity Agreement dated as of July 24, 1996 by Lessee. "Environmental Laws" means any law, whether now existing or subsequently enacted or amended, relating to (a) pollution or protection of the environment, including natural resources, (b) exposure of Persons, including but not limited to employees, to Environmental Concern Materials, (c) protection of the public health or welfare from the effects of products, by-products, wastes, emissions, discharges or releases of Environmental Concern Materials or (c) regulation of the manufacture, use or introduction into commerce of Environmental Concern Materials including their manufacture, formulation, packaging, labeling, distribution, transportation, handling, storage or disposal. Environmental Laws shall include, without limitation, the Resource Conservation and Recovery Act of 1976, (RCRA) 42 U.S.C. sections 6901-6987, as amended by the Hazardous and Solid Waste Amendments of 1984, the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. Sections 9601-9657, (CERCLA), the Hazardous Materials Transportation Act of 1975, 49 U.S.C. Sections 1801-1812, the Toxic Substances Control Act, 15 U.S.C. A1-11 Definitions Appendix -------------------- Sections 2601-2671, the Clean Air Act, 42 U.S.C. Sections 7401 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Sections 136 et seq. and all similar federal, state and local environmental laws, ordinances, rules, orders, statutes, decrees, judgments, injunctions, codes and regulations. "Environmental Permits" means all permits, licenses, authorizations, registrations, certificates and approvals of Authorities required by Environmental Laws. "Equity Amount" means, with respect to Lessor as of any date of determination, the aggregate outstanding amount invested by Lessor for the purchase of the Sites or for Transaction Costs, excluding any portion thereof funded by the Lenders. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, and regulations thereunder, in each case as in effect from time to time. References to sections of ERISA shall be construed also to refer to any successor sections. "Event of Loss" means (x) the actual or constructive total loss of the Facility on a Site or damage to the Facility on a Site to an extent rendering repair impractical or uneconomical, in any case as reasonably determined in good faith by the Board of Directors of Lessee, such determination to be made promptly after the occurrence of such event and to be evidenced by an Officer's Certificate of Lessee delivered to Lessor, each Lender and Agent, (y) damage to the Facility on a Site which results in an insurance settlement on the basis of a total loss or a constructive total loss (including title insurance proceeds) in respect of a total loss of the Facility on a Site, or (z) an Event of Taking. "Event of Taking" means (A) taking of title to a Site or the Land Interest or (B) any condemnation (other than a requisition of temporary use) or requisition of use for a period scheduled to last beyond the end of the Lease Term, in either case resulting in (i) the loss of use or possession of substantially all of a Site or (ii) the loss of use or possession of a material portion of a Site, in either of clause (i) or clause (ii), as reasonably determined in good faith by a Senior Officer of Lessee, such determination to be made promptly after the occurrence of such event and to be evidenced by an Officer's Certificate of such Senior Officer delivered to Lessor and Agent. A1-12 Definitions Appendix -------------------- "Excluded Amounts" mean: (a) all indemnity payments and expenses to which Lessor (or the respective successors, assigns, agents, officers, directors or employees of Lessor) is entitled pursuant to the Operative Documents; (b) any amounts payable under any Operative Documents to reimburse Lessor (including the reasonable expenses of Lessor incurred in connection with any such payment) for performing any of the obligations of Lessee under and as permitted by any Operative Document; (c) any insurance proceeds (or payments with respect to risks self-insured or policy deductibles) under liability policies payable to Lessor (or the respective successors, assigns, agents, officers, directors or employees of Lessor); (d) any insurance proceeds under policies maintained by Lessor and not required to be maintained by Lessee under the Lease; (e) any amount payable to Lessor pursuant to Section 9.9 of the Participation Agreement; (f) prior to completion of any foreclosure of the Mortgage or deed in lieu thereof, any expense reimbursements to Lessor or Agent; and (g) any payments of interest on payments referred to in clauses (a) through (f) above. "Facilities" mean all buildings, structures and fixtures located on the Land Interest, but excluding the Land Interest. "Facility" has the meaning set forth in the Recitals to the Participation Agreement. "Fair Market Sales Value" with respect to any Site or any portion thereof means, as of the date of the determination, the fair market sales value as determined by an independent appraiser chosen by Agent (at the direction of the Required Participants) that would be obtained in an arm's-length transaction between an informed and willing buyer (other than a buyer currently in possession) and an informed and willing seller, under no compulsion to buy or sell, and neither of which is related to Lessee, for the purchase of such Site. Such fair market sales value shall be calculated as the value for the use of the Site, assuming, in the determination of such fair market sales value, A1-13 Definitions Appendix -------------------- that the Site is in the condition and repair required to be maintained by the terms of the Lease (unless such fair market sales value is being determined for purposes of Section 9.2(b) of the Lease, in which case this assumption shall not be made). "Final Maturity Date" means July 24, 2001, subject to extension through the end of the Renewal Term if the Renewal Term is entered into pursuant to Section 2.10 of the Participation Agreement and Section 2.4 of the Lease. "Final Rent Payment Date" has the meaning set forth in Section 18.1(iii)(B)(1) of the Lease. "Financial Covenants" means any covenant set forth in the Credit Agreement from time to time which applies a test for determining net worth, or which sets forth financial ratios, net income, debt or value levels or limitations, and as of the Document Closing Date, includes Sections 7.01 through 7.18 of the Credit Agreement. "Financing" has the meaning set forth in the Recitals to the Participation Agreement. "Force Majeure" means acts of God, fire, windstorm, flood, explosion, collapse of structures, riot, war, labor disputes, delays or restrictions by governmental bodies (other than delays or restrictions resulting from Lessee's actions or failures to take reasonably foreseeable actions), inability to obtain or use necessary materials or reasonable substitutes, or any other cause beyond the reasonable control of Lessee, other than lack of funds; provided, that in no event shall an event of Force Majeure be deemed to exist for more than thirty (30) days. "Funded Debt/Cash Flow Ratio" means, as of a specified Rolling Period Ending Date, the ratio of (i) Consolidated Funded Indebtedness of Genesis and its Consolidated Subsidiaries as of such Rolling Period Ending Date divided by (ii) Consolidated Cash Flow for the Rolling Period ending on such Rolling Period Ending Date. "Funding Breakage Date" has the meaning set forth in Section 2.12 of the Loan Agreement. "Funding Breakage Indemnity" has the meaning set forth in Section 2.12 of the Loan Agreement. A1-14 Definitions Appendix -------------------- "Future Value Amount" has the meaning set forth in Section 2.12 of the Loan Agreement. "GAAP" means generally accepted accounting principles in the United States, applied on a basis consistent with the principles used in preparing the financial statements of Genesis and its Consolidated Subsidiaries as of March 31, 1996 and for the fiscal year then ended. "Genesis" means Genesis Health Ventures, Inc., a Pennsylvania corporation. "Governmental Action" means all applicable permits, authorizations, registrations, consents, approvals, waivers, exceptions, variances, orders, judgments, decrees, licenses, exemptions, publications, filings, notices to and declarations of or with, or required by, any Authority, or required by any Applicable Laws and Regulations, and shall include, without limitation, all citings, Environmental Permits and operating permits and licenses that are required for the use, occupancy, zoning and operation of the Facilities. "Ground Lease" means, with respect to any Non-Acquired Land Interest, a ground lease agreement leasing such Non-Acquired Land Interest, executed by Lessee, as lessor under such ground lease, and Lessor, as lessee under such ground lease, and dated as of the applicable Site Acquisition Date, substantially in the form of Exhibit M to the Participation Agreement, with such modifications as may be necessary or desirable in the opinion of Lessor or Lessor's counsel to comply with all Applicable Laws and Regulations and, consistent with the provisions thereof, to set forth the provisions customarily used with respect to the applicable jurisdiction. "Group" means a group of Sites designated as a group by Lessee for accounting purposes. "Guaranties" has the meaning set forth in the Recitals to the Participation Agreement. "Guarantors" mean, as of the Document Closing Date, Genesis and all Affiliates of Genesis who are parties to the Credit Agreement as of the Document Closing Date, and thereafter from time to time, Genesis and all Affiliates of Genesis who at such time are or become parties to the Credit Agreement. A1-15 Definitions Appendix -------------------- "Hazardous Material" means any substance, waste or material which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous by listing characteristic or definition under any Environmental Law, including petroleum, crude oil or any fraction thereof, petroleum derivatives, by-products and other hydrocarbons and is or becomes regulated by any Authority, including any agency, department, commission, board or instrumentality of the United States, the States in which any Site is located or any political subdivision thereof and also including asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls ("PCBs") and radon gas. "Hedging Obligations" means, with respect to any Person, all liabilities of such Person under interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates. "Holdover Period" shall mean any period after the Lease Termination Date until the earliest of (i) the sale of the Sites pursuant to Section 6.9 of the Lease, (ii) the reduction of the Lease Balance to zero and the payment by Lessee of all Basic Rent, Supplemental Rent and all other amounts then due and payable under the Operative Documents, and (iii) written notice by the Agent, as agent for the Participants, terminating the Holdover Period pursuant to Section 6.9 of the Lease. "Highest Lawful Rate" has the meaning set forth in Section 2.11 of the Participation Agreement. "Indebtedness" has the meaning specified in the Credit Agreement. "Indemnitee" means each Lessor, Lender, Agent (in its individual capacity and as agent) and Lessor and the respective Affiliates, successors, permitted assigns, permitted transferees, invitees, contractors, servants, employees, officers, directors, shareholders, partners, participants, representatives, attorneys and agents of each of the foregoing Persons; provided, however, that in no event shall Lessee be an Indemnitee. "Indenture" has the same meaning as "1995 Subordinated Note Indenture" set forth in the Credit Agreement. "Insolvency Event" means (a) a proceeding shall have been instituted with respect to any Person (i) seeking to have an order for relief entered in A1-16 Definitions Appendix -------------------- respect of such Person, or seeking a declaration or entailing a finding that such Person is insolvent or a similar declaration or finding, or seeking dissolution, winding-up, charter revocation or forfeiture, liquidation, reorganization, arrangement, adjustment, composition or other similar relief with respect to such Person, its assets or its debts under any law, relating to bankruptcy, insolvency, relief of debtors or protection of creditors, termination of legal entities or any other similar law now or hereafter in effect, or (ii) seeking appointment of a receiver, trustee, liquidator, assignee, sequestrator or other custodian for such Person or for all or any substantial part of its property and such proceeding shall result in the entry, making or grant of any such order for relief declaration, finding, relief or appointment, or such proceeding shall remain undismissed and unstayed for a period of 30 consecutive days; or (b) Any Person shall become insolvent; shall fail to pay, become unable to pay, or state that it is or will be unable to pay, its debts as they become due; shall voluntarily suspend transaction of its business; shall make a general assignment for the benefit of creditors; shall institute (or fail to controvert in a timely and appropriate manner) a proceeding described in (a)(i) of this Definition, or (whether or not any such proceeding has been instituted) shall consent to or acquiesce in any such order for relief, declaration, finding or relief described therein; shall institute (or fail to controvert in a timely and appropriate manner) a proceeding described in (a)(ii) of this Definition, or (whether or not any such proceeding has been instituted) shall consent to or acquiesce in any such appointment or to the taking of possession by any such custodian of all or any substantial part of its property; shall dissolve, wind-up, revoke or forfeit its charter (or other constituent documents) or liquidate itself or any substantial part of its property; or shall take any action in furtherance of any of the foregoing. "Inspecting Parties" have the meaning specified in Section 15.1 of the Lease. "Insurance Requirements" means all terms and conditions of any insurance policy either required by the Lease to be maintained by Lessee and all requirements of the issuer of any such policy. "Interest Period" means (i) the successive periods commencing on (and including) a Payment Date (or in the case of the first Interest Period, July 24, 1996) and ending on (but excluding) the next succeeding Payment Date (if for any Payment Date on or prior to October 24, 1996 or Lessee elects an Interest Period of three months or the Prime Rate is applicable) or, (ii) for any Payment Date A1-17 Definitions Appendix -------------------- after October 24, 1996, the second succeeding Payment Date (if Lessee elects an Interest Period of six months and the LIBO Rate is applicable), with the Interest Period being determined by reference to clause (i) if Lessee fails to elect an Interest Period of six months not later than three Business Days prior to the commencement of the applicable Interest Period; provided, however, that no Interest Period during the Basic Term may extend beyond the last Payment Date during the Basic Term (unless the Renewal Term shall be applicable) and no Interest Period during the Renewal Term may extend beyond the last Payment Date of the Renewal Term; and provided, further that for the initial Advance on the Document Closing Date, which occurs on a date other than a Monthly Anniversary Date, the first Interest Period for such portion of the Lease Balance shall be the period commencing on (and including) the date of such Advance and ending on (but excluding) the next succeeding Payment Date and interest on the Notes and Yield for such Advance for such initial period occurring prior to the first Monthly Anniversary Date shall be determined by reference to, at Agent's option, either (x) the Prime Rate, or (y) the LIBO Rate with one or more successive LIBO Periods of one month each; and provided, finally, that for any Advance, other than the initial Advance on the Document Closing Date, which occurs on a date other than a Payment Date, the first Interest Period for such portion of the Lease Balance shall be the period commencing on (and including) the date of such Advance and ending on (but excluding) the next succeeding Payment Date and interest on the Notes and Yield for such Advance for such initial period shall be determined by reference to the Prime Rate. "Joint Stock Collateral" has the meaning specified in the Security Agreement. "Land Interest" has the meaning set forth in the Recitals to the Participation Agreement. "Lease" means the Lease and Agreement dated as of July 24, 1996 between Lessor and Lessee, in the form of Exhibit A to the Participation Agreement. "Lease Balance" means, as of any date of determination, the sum of the aggregate outstanding principal amount of the Notes plus the Equity Amount, less any amounts applied pursuant to the Operative Documents in reduction thereof. A1-18 Definitions Appendix -------------------- "Lease Default" means any event, condition or failure which, with notice or lapse of time or both, would become a Lease Event of Default. "Lease Event of Default" means any event condition or failure designated as a "Lease Event of Default" in Article XVII of the Lease. "Lease Payment/Bankruptcy Default" means the occurrence of an event specified in Section 17(a), (b), (f) or (g) of the Lease, without regard to any grace or cure periods set forth therein. "Lease Supplement" means each Lease Supplement and Memorandum of Lease and Agreement, in the form of Exhibit A to the Lease, executed and delivered by Lessee to Lessor for each Site. "Lease Term" has the meaning set forth in Section 2.3 of the Lease. "Lease Termination Date" means (i) the expiration of the Lease Term, or (ii) if earlier, the termination of Lessee's right to possession pursuant to Section 18.1 of the Lease, or (iii) with respect to all of the Sites, a termination of the Lease pursuant to Section 6.5 of the Lease. "Leasehold Estate" means Lessee's interest in the Sites (including the Facilities located thereon) subject to the Lease. "Lenders" mean the holders of the Notes. "Lessee" means Genesis Eldercare Properties, Inc. a Pennsylvania corporation and wholly-owned, single purpose subsidiary of Genesis. "Lessor" means Mellon Financial Services Corporation #4, its successors and permitted assigns. "Lessor Liens" mean Liens on or against any Site or the Lease, or any payment of Rent (a) which result from any act of, or any Claim against, Lessor or any Lender in either case unrelated to the transactions contemplated by the Operative Documents or (b) which result from any tax owed by Lessor or any Lender, except any Tax for which Lessee is obligated to indemnify. "Lessor's Cost" means (a) for all Sites, the aggregate amount paid or advanced by Lessor with respect to all Sites, and (b) for any particular Site, the aggregate amount paid or advanced by Lessor with respect to such Site A1-19 Definitions Appendix -------------------- (determined by a fair allocation by Agent of amounts paid or advanced by Lessor with respect to such Site). "LIBO Period" means for any Interest Period either three months or six months, as specified by Lessee by irrevocable written notice to Agent received by Agent not later than two (2) Business Days prior to the commencement of such Interest Period, and in the absence of such specification by Lessee, three months; provided that if Lessee duly and timely selects a six month LIBO Period for any Interest Period, such LIBO Period shall extend through the end of the next succeeding Interest Period as well; and provided, further, that no LIBO Period during the Basic Term may extend beyond the last Payment Date during the Basic Term (unless the Renewal Term shall be applicable) and no LIBO Period during the Renewal Term may extend beyond the last Payment Date of the Renewal Term; and provided finally, that the LIBO Period for any Interest Period ending on or prior to October 24, 1996 shall be a one-month period; subject to the second proviso of the definition of "Interest Period" for Advances described in such proviso. "LIBO Rate" means, with respect to any Interest Period, the rate per annum determined by Agent by dividing (the resultant quotient to be rounded upward to the nearest 1/100 of 1%) (i) the rate of interest (which shall be the same for each day in such Interest Period) determined in good faith by Agent in accordance with its usual procedures (which determination shall be conclusive) to be the average of the rates per annum for deposits in United States dollars offered by Agent to major money center banks in the London interbank market at approximately 11:00 a.m. (London time) two London Business Days before the first day of the applicable Interest Period for delivery on the first day of such Interest Period for deposits of a duration equal to the applicable LIBO Period in an amount substantially equal to the aggregate Lease Balance (or the applicable tranche thereof designated by Lessee) and having maturities comparable to such Interest Period by (ii) a number equal to 1.00 minus the LIBO Reserve Percentage. "LIBO Rate Loans" mean Loans bearing interest by reference to a LIBO Rate. " LIBO Rate Reserve Percentage" shall have the meaning set forth in the Credit Agreement for "Euro-Rate Reserve Percentage," with the reference to the Agent therein being a reference to the Agent hereunder. A1-20 Definitions Appendix -------------------- "LIBOR Office" means initially, the funding office of Lessor or any Lender designated as such in Schedule II to the Participation Agreement; and thereafter, such other office, branch, subsidiary or affiliate of such Lender, if any, which such Participant from time to time, prospectively or retrospectively, without notice to the Lessor, Lessee or Agent, deems to have made, maintained or funded all or any portion of such Participant's investment in Notes or the Equity Amount, as applicable. "Lien" means any mortgage, deed of trust, pledge, lien, security interest, charge or other encumbrance or security arrangement of any nature whatsoever, including but not limited to any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security. "Loans" has the meaning set forth in Section 2.1 of the Loan Agreement. "Loan Agreement" means the Loan Agreement, dated as of July 24,, 1996, among Lessor, Agent and the Lenders, in the form of Exhibit C to the Participation Agreement. "Loan Default" means any event, condition or failure which, with notice, passage of time or a determination by the Required Participants, or any combination of the foregoing, would become a Loan Event of Default. "Loan Documents" mean the Loan Agreement, the Notes, the Mortgages and all documents and instruments executed and delivered in connection with each of the foregoing. "Loan Event of Default" means any event, condition or failure designated as a "Loan Event of Default" in Section 6.1 of the Loan Agreement. "Loan Participant" has the meaning specified in Section 6.4(a) of the Participation Agreement. "Loan Policy" has the meaning set forth in Appendix 2 of the Participation Agreement. "Material Adverse Effect" means (a) a material adverse effect on the business, operations, condition (financial or otherwise) or prospects of Genesis or Lessee taken as a whole or Genesis and its Subsidiaries taken as a whole or (b) an adverse effect on the legality, validity, binding effect, enforceability A1-21 Definitions Appendix -------------------- or admissibility into evidence of any Operative Document, or the ability of Agent or any Participant to enforce any rights or remedies under or in connection with the Operative Documents. "Mellon" means Mellon Bank, N.A., a national banking association, and any successor. "Monthly Anniversary Date" means for each calendar month, the 24th day of such month, provided, however, that in the event that the 24th day of such month shall occur on a date which is not a Business Day, such Monthly Anniversary Date shall be the next following Business Day (unless such next following Business Day is the first Business Day of another calendar month, in which case such Monthly Anniversary Date shall be the immediately preceding Business Day). "Mortgage" means each (i) Mortgage, Assignment of Rents and Leases, Security Agreement and Fixture Filing Statement from Lessor and Lessee to Agent, substantially in the form of Exhibit D-1 to the Participation Agreement and (ii) Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing Statement from Lessor and Lessee in favor of Agent, substantially in the form of Exhibit D-2 to the Participation Agreement. The decision to use the "Mortgage" form or the "Deed of Trust" form shall be made by Agent with respect to each Site, and each such form shall be modified as necessary or desirable in Agent's opinion to comply with all Applicable Laws and Regulations and to set forth the provisions and remedies customarily used by secured lenders with respect to the applicable jurisdiction in which such instrument is to be recorded. "Mortgaged Property" has the meaning for Mortgaged Property, Collateral or similar term set forth in the Mortgage. "Multiemployer Plan" has the meaning specified in the Credit Agreement. "Net Cash Proceeds" shall have the meaning specified in the Credit Agreement. "Net Condemnation Proceeds" mean all payments received from any Authority relating to an Event of Taking after deducting the costs incurred by Lessee, Lessor, Agent or any Lender in respect of the receipt thereof. "NHCA" means National Health Care Affiliates, Inc., a Florida corporation. A1-22 Definitions Appendix -------------------- "NHCA Environmental Indemnity" means the NHCA Environmental Indemnity Agreement dated as of July 24, 1996 by NHCA and the Property Sellers. "Non-Acquired Land Interest" means the Land Interests relating to the Site or Sites, if any, identified on Schedule III, for which Lessor is not acquiring fee title to the Land Interest relating thereto, but rather is becoming the ground lessee of such Land Interest pursuant to a Ground Lease. "Non-Renewing Participant" has the meaning set forth in Section 2.10 of the Participation Agreement. "Nonseverable" shall describe an Alteration or part of an Alteration which cannot be readily removed from a Site without causing material damage to or materially impairing the value or utility of such Site. "Notes" mean the notes issued by the Borrower under the Loan Agreement and denominated as such, substantially in the form of Exhibit A to the Loan Agreement, and any and all Notes issued in replacement or exchange therefor in accordance with the provisions thereof. "Obligations" has the meaning set forth in Section 11 of the Lease Supplements "OCC" means the Office of the Comptroller of the Currency or any successor thereto. "Officer's Certificate" of a Person means a certificate signed by the Chairman of the Board of Directors or the President or any Executive Vice President or any Senior Vice President or any other Vice President of such Person signing with the Treasurer or any Assistant Treasurer or the Controller or any Assistant Controller, Cashier, Assistant Cashier or the Secretary or any Assistant Secretary of such Person, or by any Vice President who is also Controller, Treasurer or Cashier signing alone. "Operative Documents" means the Participation Agreement, the Lease, the Lease Supplements, the Guaranties, the Loan Agreement, the Notes, the Mortgages, the Environmental Indemnity, the NHCA Environmental Indemnity, the Security Agreement, the Amendment to Security Agreement, the Collateral Agency Agreement, the Amendment to Collateral Agency Agreement, the Assignment of Licenses, the Assignment of Lease, the Deeds and the Bills of Sale. A1-23 Definitions Appendix -------------------- "Overall Transaction" means all the transactions and activities referred to in or contemplated by the Operative Documents. "Overdue Rate" means the lesser of (a) the highest interest rate permitted by Applicable Laws and Regulations and (b) an interest rate per annum equal to, (i) in the case of the LIBO Rate Loans, (A) until the end of the applicable Interest Period at a rate per annum 2.00% above the rate otherwise applicable to such part, and (B) thereafter in accordance with the following clause (iii); (ii) in the case of the Equity Amount, until the end of the applicable Interest Period at a rate per annum 2.00% above the Yield; and (iii) in the case of any other amount due from Lessee hereunder or under any of the Operative Documents, 2.00% above the then-current Prime Rate. "Participants" mean Lessor and the Lenders, collectively. "Participation Agreement" means the Participation Agreement, dated as of July 24, 1996, among Lessee, Lessor, the Lenders and Agent. "Payment Dates" mean (i) the 24th day of any January, April, July and October in each year, and (ii) the 24th day of August, 1996 and the 24th day of September, 1996 commencing August 24, 1996, and shall include, in any event, the expiration date of the Basic Term (unless the Renewal Term shall be applicable), the expiration date of the Renewal Term, if applicable, and the Lease Termination Date; provided, however, that in the event that any Payment Date shall occur on a date which is not a Business Day, such Payment Date shall be the next following Business Day (unless such next following Business Day is the first Business Day of another calendar month, in which case such Payment Date shall be the immediately preceding Business Day). "PBGC" means the Pension Benefit Guaranty Corporation established under Title IV of ERISA or any other governmental agency, department or instrumentality succeeding to the functions of said corporation. "Pension-Related Event" shall mean any of the following events or conditions: (a) Any action is taken by any Person (i) to terminate, or would result in the termination of, a Plan, either pursuant to its terms or by operation of law (including, without limitation, any amendment of a Plan which would result in a termination under Section 4041(e) of ERISA), or (ii) to have a trustee appointed for a Plan pursuant to Section 4042 of ERISA; A1-24 Definitions Appendix -------------------- (b) PBGC notifies any Person of its determination that an event described in Section 4042 of ERISA has occurred with respect to a Plan, that a Plan should be terminated, or that a trustee should be appointed for a Plan; (c) Any Reportable Event occurs with respect to a Plan; (d) Any action occurs or is taken which could result in Lessee, Genesis or any Subsidiary thereof or any Controlled Group Member becoming subject to liability for a complete or partial withdrawal by any Person from a Multiemployer Plan (including, without limitation, seller liability incurred under Section 4204(a)(2) of ERISA), or Lessee, Genesis or any Subsidiary thereof or any other Controlled Group Member receives from any Person a notice or demand for payment on account of any such alleged or asserted liability; or (e) (i) There occurs any failure to meet the minimum funding standard under Section 302 of ERISA or Section 412 of the Code with respect to a Plan, or any tax return is filed showing any tax payable under Section 4971(a) of the Code with respect to any such failure, or Lessee, Genesis or any Subsidiary thereof or any other Controlled Group Member receives a notice of deficiency from the Internal Revenue Service with respect to any alleged or asserted such failure, or (ii) any request is made by any Person for a variance from the minimum funding standard, or an extension of the period for amortizing unfunded liabilities, with respect to a Plan. "Permits" has the meaning set forth in Section 4.1(l) of the Participation Agreement. "Permitted Contest" means actions taken by a Person to contest in good faith, by appropriate proceedings initiated timely and diligently prosecuted, the legality, validity or applicability to any Site or any interest therein of any Person of: (a) any law, regulation, rule, judgment, order, or other legal provision or judicial or administrative requirements; (b) any term or condition of, or any revocation or amendment of, or other proceeding relating to, any authorization or other consent, approval or other action by any Authority; or (c) any Lien or Tax; provided that the initiation and prosecution of such contest would not: (i) result in, or materially increase the risk of, the imposition of any criminal liability on any Indemnitee; (ii) materially and adversely affect the security interests created by the Operative Documents or the right, title or interest of Agent or Lessor in or to any of the Sites or the A1-25 Definitions Appendix -------------------- right of Lessor, Agent or any Lender to receive payment of the principal of or interest on any Note, Equity Amount of or Yield on the Equity Amount, Rent or the Lease Balance or any interest therein; or (iii) materially and adversely affect the fair market value, utility or remaining useful life of any Site or any interest therein or the continued economic operation thereof; and provided further that in any event adequate reserves in accordance with GAAP are maintained against any adverse determination of such contest (with the determination of the adequacy of reserves taking into account the availability of insurance from reputable insurers). "Permitted Exceptions" mean the exceptions set forth in the Title Policies. "Permitted Investments" means (i) full faith and credit obligations of the United States of America, or fully guaranteed as to interest and principal by the full faith and credit of the United States of America, maturing in not more than one year from the date such investment is made; (ii) certificates of deposit having a final maturity of not more than one year after the date of issuance thereof of a of any commercial bank incorporated under the laws of the United States of America or any state thereof or the District of Columbia, which bank is a member of the Federal Reserve System and has a combined capital and surplus of not less than $500,000,000 and with a senior unsecured debt credit rating of at least "A" by Moody's Investors Service, Inc. and "A" by Standard & Poor's Ratings Group; (iii) commercial paper of companies, banks, trust companies or national banking associations (in each case excluding Lessee and its Affiliates) incorporated or doing business under the laws of the United States or one of the States thereof, in each case having a remaining term until maturity of not more than 180 days from the date such investment is made and rated at least P-1 by Moody's Investors Service, Inc. or at least A-1 by Standard & Poor's Ratings Group; and (iv) repurchase agreements maturing within one year with any financial institution having combined capital and surplus of not less than $500,000,000 with any of the obligations described in clauses (i) through (iii) as collateral so long as title to the underlying obligations pass to Lessor and such underlying securities shall be segregated in a custodial or trust account for the benefit of Lessor. "Permitted Liens" shall have the meaning set forth in the Credit Agreement, but shall include (i) Lessor Liens and (ii) Permitted Exceptions. A1-26 Definitions Appendix -------------------- "Person" means an individual, corporation, partnership, joint venture, association, joint-stock company, trust, limited liability company, unincorporated organization or Authority. "Plan" means any employee pension benefit plan within the meaning of Section 3(2) of ERISA (other than a Multiemployer Plan) covered by Title IV of ERISA by reason of Section 4021 of ERISA, of which Lessee, Genesis or any Subsidiary thereof or any other Controlled Group Member is or has been within the preceding five years a "contributing sponsor" within the meaning of Section 4001(a)(13) of ERISA, or which is or has been within the preceding five years maintained for employees of Lessee, Genesis or any Subsidiary thereof or any other Controlled Group Member. "Postretirement Benefits" has the same meaning specified in the Credit Agreement. "Present Value Amount" has the meaning set forth in Section 2.12 of the Loan Agreement. "Prime Rate" means the interest rate per annum announced from time to time by Mellon as its prime rate. The prime rate may be greater or less than other interest rates charged by Mellon to other borrowers and is not solely based or dependent upon the interest rate which Mellon may charge any particular borrower or class of borrower. If the aforesaid rate changes from time to time after the Document Closing Date, the Prime Rate shall be automatically increased or decreased, as the case may be, without notice to Lessee, Lessor or any Lender, as of the effective time of each change. "Proceeds" has the meaning specified in Section 6.4 of the Lease. "Prohibited Transaction" means a transaction that is prohibited under Code Section 4975 or ERISA Section 406 and not exempt under Code Section 4975 or ERISA Section 408. "Purchase Option" has the meaning specified in Section 6.2 of the Lease. "Purchase Option Exercise Amount" means, as of any date of determination, the sum of (a) the Lease Balance as of the date of purchase, plus (b) all accrued but unpaid Rent, plus (c) all other sums then due and payable under the Operative Documents by Lessee and any of its Affiliates. A1-27 Definitions Appendix -------------------- "Redeployment Rate" has the meaning set forth in Section 2.12 of the Loan Agreement. "Redeployment Period" has the meaning set forth in Section 2.12 of the Loan Agreement. "Regulated Activity" means the use, Release, generation, treatment, storage, recycling, transportation or disposal of Hazardous Material to the extent such activities are regulated by any Authority. "Regulations" mean the income tax regulations promulgated from time to time under and pursuant to the Code. "Release" means the release, deposit, disposal or leak of any Hazardous Material into or upon or under any land or water or air, or otherwise into the environment, including by means of burial, disposal, discharge, emission, injection, spillage, leakage, seepage, leaching, dumping, pumping, pouring, escaping, emptying, placement and the like. "Renewal Request" has the meaning set forth in Section 2.10 of the Participation Agreement. "Renewal Term" has the meaning set forth in Section 2.4 of the Lease. "Rent" means Basic Rent and Supplemental Rent, collectively. "Rent Installment Period" means (i) with respect to any Lease Supplement, the period commencing on (and including) the date of such Lease Supplement and ending on (but excluding) the next succeeding Payment Date, and thereafter, successive periods commencing on (and including) a Payment Date and ending on (but excluding) the next succeeding Payment Date, and (ii) with respect to the Lease, the period commencing on (and including) the date of the initial Lease Supplement and ending on (but excluding) the next succeeding Payment Date, and thereafter, successive periods commencing on (and including) a Payment Date and ending on (but excluding) the next succeeding Payment Date. "Replacement Participant" has the meaning specified in Section 2.10 of the Participation Agreement. "Reportable Event" has the same meaning specified in the Credit Agreement. A1-28 Definitions Appendix -------------------- "Required Lenders" mean, as of the date of the determination, Lenders having aggregate investments in the Overall Transaction (as measured by the outstanding principal amount of the Loans then outstanding) equal to 51% or more of all such investments. "Required Participants" mean, as of the date of the determination, Participants having aggregate investments in the Overall Transaction (as measured by the outstanding principal amount of the Loans then outstanding and the outstanding Equity Amount) equal to 51% or more of all such investments. "Responsible Officer" of a Person means the President, the Chief Executive Officer, any Vice President, the Controller, the Treasurer or the Chief Financial Officer of such Person. "Rolling Period" shall mean the period of twelve consecutive fiscal months, taken as one fiscal period, which ends on the last day of March, June, September or December (the "Rolling Period Ending Date"). "Sale Option" has the meaning specified in Section 6.3 of the Lease. "SEC" means the United States Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933. "Securities Exchange Act" means the Securities Exchange Act of 1934. "Security Agreement" has the meaning specified in the Credit Agreement, and shall include, without limitation, the Amendment to Security Agreement. "Sellers" mean the sellers of the Sites to Lessor, identified on Schedule III. "Senior Officer" means the Chairman or Vice Chairman of the Board of Directors, the Chairman or Vice Chairman of the Executive Committee of the Board of Directors, the President, any Senior Vice President, the Chief Executive Officer, the Chief Financial Officer or the Treasurer of Lessee. "Shortfall Amount" has the meaning set forth in Section 6.4(c) of the Lease. A1-29 Definitions Appendix -------------------- "Site" has the meaning set forth in the Recitals to the Participation Agreement, and shall include, without limitation, all of the right, title and interest of the seller of the Site (or upon the acquisition of title to the Site by Lessor, all right, title and interest of Lessor) in and to the following: (A) the real property described in Schedule III attached to the Participation Agreement (the "Land"); all buildings, structures and other improvements now or in the future located on the Land (the "Improvements"; the Improvements and the Land are sometimes collectively referred to herein as the "Property"); (B) all the estate, right, title, claim or demand whatsoever of such Person, in possession or expectancy, in and to the Property or any part thereof; (C) all right, title and interest of such Person in and to all of the fixtures, furnishings and fittings of every kind and nature whatsoever, and all appurtenances and additions thereto and substitutions or replacements thereof (together with, in each case, attachments, components, parts and accessories) currently owned or subsequently acquired by the Mortgagor and now or subsequently attached to, or contained in or used or usable in any way in connection with any operation or letting of the Property (all of the foregoing in this paragraph (C) being referred to as the "Fixtures"); (D) all right, title and interest of such Person in and to all of the fixtures, chattels, business machines, machinery, apparatus, equipment, furnishings, fittings and articles of personal property of every kind and nature whatsoever, and all appurtenances and additions thereto and substitutions or replacements thereof (together with, in each case, attachments, components, parts and accessories) currently owned or subsequently acquired by Mortgagor and now or subsequently attached to, or contained in or used or usable in any way in connection with any operation or letting of the Property, including but without limiting the generality of the foregoing, all screens, awnings, shades, blinds, curtains, draperies, artwork, carpets, rugs, storm doors and windows, furniture and furnishings, heating, electrical, and mechanical equipment, lighting, switchboards, plumbing, ventilating, air conditioning and air-cooling apparatus, refrigerating, and incinerating equipment, escalators, refrigerators, elevators, loading and unloading equipment and systems, stoves, ranges, laundry equipment, cleaning systems (including window cleaning apparatus), telephones, A1-30 Definitions Appendix -------------------- communication systems (including satellite dishes and antennae), televisions, computers (excluding software), sprinkler systems and other fire prevention and extinguishing apparatus and materials, security systems, motors, engines, machinery, pipes, pumps, tanks, conduits, appliances, fittings and fixtures of every kind and description (all of the foregoing in this paragraph (D) being referred to as the "Equipment"); (E) all right, title and interest of such Person in and to all substitutes and replacements of, and all additions and improvements to, the Improvements and the Fixtures and Equipment, subsequently acquired by such Person or constructed, assembled or placed by such Person on the Land, immediately upon such acquisition, release, construction, assembling or placement, including, without limitation, any and all building materials whether stored at the Property or offsite, and, in each such case, without any further mortgage, conveyance, assignment or other act by such Person; (F) all right, title and interest of such Person in, to and under all books and records relating to or used in connection with the operation of the Property or the Fixtures or any part thereof; and all general intangibles related to the operation of the Improvements now existing or hereafter arising; (G) all right, title and interest of such Person in and to all insurance policies (including title insurance policies) required to be maintained by Lessee pursuant to Article XI of the Lease, including the right to collect and receive such proceeds; and all awards and other compensation, including the interest payable thereon and the right to collect and receive the same, made to the present or any subsequent owner of the Property for the taking by eminent domain, condemnation or otherwise, of all or any part of the Property or any easement or other right therein; and (H) all right, title and interest of such Person in and to (to the extent assignable) (i) all consents, licenses, building permits, certificates of occupancy and other governmental approvals relating to construction, completion, occupancy, use or operation of the Property or any part thereof and (ii) all plans and specifications relating to the Property. A1-31 Definitions Appendix -------------------- "Standard Notice" means a notice of the Lessee for the conversion to or renewal of any portion of the Loans or the Equity Amount to LIBO Rate Loans or to Equity Amount which bears Yield based upon the LIBO Rate or for the making of any Advance which shall bear interest or Yield based upon the LIBO Rate or for the selection of an Interest Period for LIBO Rate Loans or for Equity Amount which bears Yield based upon the LIBO Rate. "Stock Purchase Agreement" means that certain Stock Purchase Agreement dated as of May 3, 1996 among Stock Sellers and Genesis, as amended. "Stock Sellers" means those Persons described on Schedule IV attached hereto. "Structuring/Underwriting Fee" has the meaning specified in Section 2.6 of the Participation Agreement. "Sublease" has the meaning specified in Section 12.1 of the Lease. "Subsidiary" has the meaning specified in the Credit Agreement. "Subtenant" has the meaning set forth in Section 12.1(a) of the Lease. "Supplemental Lease Balance" means the product of the Allocated Share of the Lease Supplement in question and the Lease Balance. "Supplemental Rent" means any and all amounts, liabilities and obligations other than Basic Rent which Lessee assumes or agrees or is otherwise obligated or designated to pay under the Lease or any other Operative Document (whether or not designated as Supplemental Rent) to Lessor, Agent, the Lenders or any other Person, including amounts under Section 9.1 of the Lease, Additional Costs and indemnities and damages for breach of any covenants, representations, warranties or agreements. "Surviving Company" has the meaning set forth in Section 5.2 of the Participation Agreement. "Taxes" and "Tax" mean any and all fees (including documentation, recording, license and registration fees), taxes (including income (whether net, gross or adjusted gross), financial institutions, franchise, gross receipts, sales, rental, use, turnover, value-added, property, excise and stamp taxes), A1-32 Definitions Appendix -------------------- levies, imposts, duties, charges, assessments or withholdings of any nature whatsoever, together with any penalties, fines or interest thereon or additions thereto. "Title Insurance Company" means Chicago Title Insurance Company and its successors and assigns. "Title Policies" have the meaning specified in Section 3.2(d) of the Participation Agreement. "Total Costs" means the sum of the Lessor's Costs plus Transaction Costs funded by Lessor; provided, however, that Transaction Costs shall not exceed $2,000,000 in the aggregate. "Transaction Costs" shall mean all transaction costs and expenses incurred by Mellon as Agent for the Lessor and the Lenders, Lessee and Lessor in connection with the preparation, negotiation, execution, delivery, performance and administration of the Operative Documents and Agent's syndication of the Notes pursuant to Section 6.7, in each case including without limitation (a) the reasonable legal fees and expenses of special counsel to Mellon, as Agent for Lessor and the Lenders (including, without limitation, reasonable fees and expenses of counsel to Mellon, as Agent, in connection with the transfer by Lessor of its interest in the Sites or the transfer by any of the Lenders of any Notes from time to time), special Credit Agreement counsel to Mellon and special counsel to Lessee, (b) reasonable legal fees and expenses of local counsel to the Lessee, (c) the reasonable expenses of Lessor (including, without limitation, residual value insurance premiums if any), (d) all appraisal fees and expenses, including the cost of an appraisal obtained by Lessor with respect to the Facilities upon a Lease Default or Lease Event of Default, (e) all costs and expenses of the preparation of the Environmental Audits, (f) the Structuring/Underwriting Fee, and (g) all recording, filing fees and expenses, including fees and expenses of the Title Insurance Company. Certain Transaction Costs (not to exceed $2,000,000 in the aggregate) incurred in connection with the closing of this lease arrangement will be paid by Lessor pursuant to Section 9.9 of the Participation Agreement. "Treasury Rate" shall have the meaning set forth in the Credit Agreement. "Turnover Date" has the meaning set forth in Section 12.1(b) of the Lease. A1-33 Definitions Appendix -------------------- "UCC" means the Uniform Commercial Code of New York or any other applicable jurisdiction. "Yield" means during the Basic Term, (a) the applicable interest rate payable from time to time pursuant to the Loan Agreement plus 300 basis points; provided, that the Yield Rate for the Equity Amount for the Renewal Term, if any, shall be determined by the mutual agreement of Lessor and Lessee; and provided, further, that during any Holdover Period, the Applicable Margin (and thus, the Yield) shall be increased by 50 basis points. During any period that the applicable interest rate payable with respect to the portion of any Advance allocable to the Notes pursuant to the Loan Agreement is determined by reference to a LIBO Rate, Yield on the portion of such Advance constituting a portion of the Equity Amount shall be calculated on the basis of actual number of days elapsed in a 360-day year. During any period that the applicable interest rate payable with respect to the portion of any Advance allocable to the Notes pursuant to the Loan Agreement is determined by reference to the Prime Rate, Yield on the portion of such Advance constituting a portion of the Equity Amount shall be calculated on the basis of actual number of days elapsed in a 365 or 366-day year, as applicable. A1-34 Appendix 2 to ------------- Participation Agreement ----------------------- APPENDIX 2 to Participation Agreement CONDITIONS PRECEDENT TO DOCUMENT CLOSING DATE (a) Authorization, Execution and Delivery of Documents; No Default. The Operative Documents shall have been duly authorized, executed and delivered by each of the other parties thereto, shall (to the extent the form and substance thereof shall not be prescribed hereby) be in form and substance satisfactory to the Agent and an executed counterpart of each thereof shall have been delivered to the Agent. Each Lender shall have received an original, duly executed Note registered in such Lender's name. Each of the Participation Agreement, the Lease, the Guaranty, the Loan Agreement, the Notes, the Assignment of Lease and the other Operative Documents shall be in full force and effect as to all other parties and no Lease Default or Lease Event of Default shall have occurred or be continuing. (b) Litigation. No action or proceeding shall have been instituted or threatened nor shall any governmental action be instituted or threatened before any Authority, nor shall any order, judgment or decree have been issued or proposed to be issued by any Authority, to set aside, restrain, enjoin or prevent the performance of this Agreement or any transaction contemplated hereby or by any other Operative Document or which is reasonably likely, in the sole opinion of the Agent, to have a Material Adverse Effect. (c) Legality, etc. In the opinion of such Lender or its counsel, the transactions contemplated by the Operative Documents shall not violate any Applicable Laws and Regulations and no change shall have occurred or been proposed in Applicable Laws and Regulations that would make it uneconomic or illegal for any party to any Operative Document to participate in any of the transactions contemplated by the Operative Documents or otherwise would prohibit the consummation of any transaction contemplated by the Operative Documents or expand the duties, obligations and risks of such Lender. (d) Governmental Approvals. All necessary (or, in the reasonable opinion of Lessor, Agent or either of their respective counsel, advisable) Governmental Actions, in each case required by any Applicable Laws A2-1 Appendix 2 to ------------- Participation Agreement ----------------------- and Regulations, shall have been obtained or made and be in full force and effect. (e) Requirements of Law. In the reasonable opinion of Lessor, Agent and their respective counsel, the transactions contemplated by the Operative Documents do not and will not violate in any Applicable Laws and Regulations and do not and will not subject Lessor, Agent or any Lender to any adverse regulatory prohibitions or constraints. (f) Opinions; Local Counsel Questionnaires. The following opinions, each dated the Document Closing Date, substantially in the form set forth in the Exhibit noted below, and containing such other matters as the parties to whom they are addressed shall reasonably request, shall have been addressed to each of Lessor, Agent and the Lenders, and delivered to Lessor and Agent: (i) the opinion of Ira Gubernick, Esq., in-house counsel for Lessee (Exhibit E-1). (ii) the opinion of Blank Rome Comisky & McCauley, special counsel for Lessee (Exhibit E-2); (iii) the opinion of Holland & Knight ("Special Florida Counsel"), special Florida counsel for Genesis (Exhibit E-3); (iv) the opinion of Ober, Kaler, Grimes & Shriver ("Special Virginia Counsel"), special Virginia counsel for Genesis (Exhibit E-3); and (v) the opinion of Blank, Rome, Comisky & McCauley, special counsel for Genesis (Exhibit E-4). In addition, not less than five (5) days prior to the Document Closing Date, local counsel questionnaires (responding to the matters set forth in Exhibit E-5 and such other matters as Agent shall request) for Florida and Virginia, prepared by Special Florida Counsel and Special Virginia Counsel, respectively, and addressed to Lessor, Agent and the Lenders, shall have been delivered to Agent and shall be in form and substance acceptable to Agent. (g) Corporate Status and Proceedings. On or prior to the Document Closing Date, each of the Lenders, Lessor and Agent shall have received: A2-2 Appendix 2 to ------------- Participation Agreement ----------------------- (i) certificates of existence and good standing with respect to Lessee from (A) the Secretaries of State of the State of its incorporation and (B) the Secretary of State of the State of its principal place of business, each dated no earlier than the 10th day prior to the Document Closing Date; (ii) copies of Lessee's certificate of incorporation, certified by the Secretary of State of the State of its incorporation no earlier than the 10th day prior to the Document Closing Date; and (ii) with respect to Lessee, an Officer's Certificate substantially in the form of Exhibit F, dated the Document Closing Date, with respect to such Person's governing documents, resolutions and incumbent officers, representations and warranties and absence of defaults. (h) Lessor Officer's Certificate. Each Lender and Agent shall have received (x) a certificate of the Secretary or Assistant Secretary of Lessor attaching and certifying as to (i) the corporate authority for the execution, delivery and performance by Lessor of each Operative Document to which it is or will be a party, (ii) its organizational documents, (iii) its by-laws, and (iv) the incumbency and signature of persons authorized to execute and deliver such documents on behalf of Lessor and (y) a good standing certificate from the appropriate Authority as to Lessor's good standing. All documents and instruments required to be delivered on the Document Closing Date shall be delivered at the offices of Mayer, Brown & Platt in New York, New York, or at such other location as may be determined by the Lessor, Agent and Lessee. (i) Filings and Recordings. All filings or recordings enumerated and described in Schedule 4.1B hereof, as well as all other filings and recordings necessary or advisable, including precautionary financing statements, in the opinion of Agent or counsel to Agent, to perfect the rights, titles and interests of Lessor, the Lenders, the Guarantors and Agent intended to be created by the Operative Documents shall have been made, or shall have been arranged to be made promptly thereafter, in the appropriate places or offices, including any recordings and filings necessary to create, perfect, preserve and protect (i) Lessor's interest in the Land Interests and the Facilities and (ii) a first mortgage lien on all Land Interests and Facilities included in the Collateral, subject in both cases, to Permitted Exceptions and the rights of Lessee under the Lease. All recording and filing fees and taxes A2-3 Appendix 2 to ------------- Participation Agreement ----------------------- with respect to any recordings or filings made pursuant to this Agreement shall have been paid in full, and satisfactory evidence thereof shall have been delivered to Agent, or arrangements for such payment shall have been made to the satisfaction of Agent. (j) Survey. Lessee shall have delivered, or shall have caused to be delivered, to Agent, with sufficient counterpart originals for Agent to distribute to Lessor and each Lender, and counsel to the Lenders an ALTA survey of the Site in a form satisfactory to the Title Insurance Company and showing no state of facts unsatisfactory to Agent and counsel to the Lenders, which survey shall be certified to Lessor and Agent. (k) Title Insurance. Lessor shall have received from the Title Insurance Company its ALTA 1992 owner's policy of title insurance, acceptable in form and substance to Agent and counsel to the Lenders (the "Lessor's Policy") (or a final hand-marked original thereof signed by the Title Insurance Company) containing all of the provisions to be included in such policy by the Title Insurance Company, in which case Lessor shall receive a clean, final original of such policy within thirty (30) days), insuring that Lessor has good and marketable title to the Site being purchased by Lessor on the Document Closing Date, subject to the Lease and such other exceptions to title as are reasonably acceptable to Agent and counsel for the Lenders, together with complete, legible copies of all encumbrances, maps and surveys of record. Agent, for the benefit of the Lenders shall have received from the Title Insurance Company its ALTA 1992 form of loan policy of title insurance (the "Loan Policy"; together with the Lessor's Policy, the "Title Policies"), reasonably acceptable in form and substance to Agent and counsel for the Lenders, insuring the creation under the Mortgage in favor of Agent and the Lease in favor of Lessor of a valid first priority mortgage lien against the Land Interest, subject to such exceptions to title as are reasonably acceptable to Agent and counsel for the Lenders, together with to the extent available complete, legible copies of all encumbrances, maps and surveys of record. The Title Policies shall be dated as of the Document Closing Date, shall be in an amount equal to the Fair Market Sales Value of such Site as of such date and, to the extent permitted under Applicable Laws and Regulations and to the extent applicable to each type of policy, and to the extent available within the applicable jurisdiction at reasonable prices, shall (x) contain affirmative endorsements as to mechanics' liens, usury, doing business, zoning (with express parking coverage), easements and rights-of-way, comprehensive coverage, encroachments, rights of access and survey matters, (y) delete the creditors' rights exclusion and the general A2-4 Appendix 2 to ------------- Participation Agreement ----------------------- exceptions to coverage, and (z) contain such other endorsements as reasonably requested by Agent. (l) Environmental Audit. Not less than five (5) Business Days prior to the Document Closing Date, Agent shall have received an Environmental Audit for each Site, which shall be in form and substance acceptable to Agent in its sole and absolute discretion. (m) Zoning. In the event that, with respect to a Site, an ALTA 3.1 Zoning Endorsement (with express parking coverage) was not obtained in connection with the Title Policies for such Site, Agent on behalf of the Lenders shall receive a copy of the applicable zoning ordinance, special use permit or other Governmental Action covering the Site, and such evidence as Agent may require (including without limitation the written certification of Lessee's certified professional engineer or registered architect or any other person satisfactory to Agent) that the zoning of the Site is satisfactory and compatible with the Facility located thereon. (n) Deed and Bill of Sale; Ground Lease. As to any Site, Agent shall have received (i) a Deed conveying to Lessor such Site, if any, or other improvements, if any, located on such Site, and (ii) a Bill of Sale conveying any portion of any such Facility or improvements which do not or may not constitute real estate under Applicable Law (provided that no Bill of Sale shall be required if the form of Deed used purports to convey title to the items which would otherwise be conveyed in the Bill of Sale and if such Deed is in fact sufficient under applicable law to convey title to such items); provided, however, that for any Non-Acquired Land Interest, the Deed described in clause (i) shall convey only the related Facility and, in addition, Agent shall have received a Ground Lease of the Non-Acquired Land Interest from Lessee or one of its affiliates (whichever shall acquire such Land Interest), as ground lessor, to Lessor, as ground lessee. (o) Lease Supplement. Agent shall have received, with sufficient counterpart originals for Agent to distribute to Lessor and each Lender, original counterparts of the Lease Supplement executed by Lessee and Lessor with respect to such Site or Group; provided that only Agent shall receive and retain the one original thereof marked as the sole original counterpart for UCC purposes. (p) Mortgage. Agent shall have received a Mortgage duly executed by Lessor with respect to each Site. A2-5 Appendix 2 to ------------- Participation Agreement ----------------------- (q) Assignment of Lease; Consent of Lessee. Agent shall have received an Assignment of Lease duly executed by Lessor, with the consent thereto duly executed by Lessee, with respect to the Lease. (r) Filings and Recordations. Agent shall have received evidence reasonably satisfactory to it that each of the Deeds, the Florida Lease Supplement, the Mortgages and the Assignment of Lease delivered shall have been or are being recorded with the appropriate Authorities in the order in which such documents are listed in this clause, and the UCC Financing Statements with respect to the Facilities acquired shall have been or are being filed with the appropriate Authorities. (s) Insurance. Insurance complying with the provisions of Article XI of the Lease shall be in full force and effect as evidenced by certificates of insurance, broker's reports or insurance binders delivered to Lessor in form and substance reasonably satisfactory to Agent. (t) Appraisal. Not less than ten (10) Business Days prior to the Document Closing Date, Agent shall have received and will deliver to Lessor and each Lender an appraisal (the "Appraisal") which will establish (by the use of appraisal methods satisfactory to the Lenders) that, as of the date such Site becomes subject to the Lease, the Site will have a Fair Market Sales Value of not less than the amount allocated to such Site on Schedule III. The Appraisal will also establish the Fair Market Sales Value of such Site as of the end of the Base Term and the Renewal Term. The Appraisal will be prepared in accordance with the Financial Institutions Reform Recovery and Enforcement Act of 1989 and will be performed by an independent appraisal company chosen by Agent. (u) FIRPTA Affidavit. Lessee shall have caused the seller of the Land Interest to be acquired on the Document Closing Date to deliver to Agent either (i) a FIRPTA Affidavit in customary form or (ii) if such seller is a "foreign person" as defined in Section 1445 of the Code, evidence that a portion of the sales price to be paid to such seller has been withheld, if so required, in accordance with the provisions of the Code and the Regulations. (v) No Event of Loss. No Casualty and no Event of Loss shall have occurred in respect of any Site to be acquired on the Document Closing Date. No action shall be pending or threatened by an Authority to initiate a Condemnation or an Event of Taking in respect of any Site to be acquired on such date. A2-6 Appendix 2 to ------------- Participation Agreement ----------------------- (w) Appraised Value Limitation; 25% Test. The appraised value of the Land Interest of any Site or Group shall not exceed twenty-five percent (25%) of the forecasted Fair Market Sales Value of such Site or Group (on an "as-built" basis). (x) Good Standing. Lessee shall have delivered to Agent a certificate issued by the office of the secretary of state of the jurisdiction in which any Land Interest to be acquired or is located indicating that Lessee is a foreign corporation in good standing under the laws of such jurisdiction. (y) Stock Purchase Agreement; Assignment. Lessee shall have caused Genesis to execute and deliver to Agent a certified copy of the Stock Purchase Agreement, together with the Assignment of Rights under Stock Purchase Agreement. (z) Credit Agreement. Lessee shall have caused Genesis to execute and deliver to Agent a certified copy of the Credit Agreement. (aa) Number of Counterparts. Whenever Agent is to have received any document, agreement or opinion pursuant to the Participation Agreement, such condition shall require that Agent has received sufficient counterpart originals for Agent to distribute to Lessor and each Lender unless otherwise specifically approved by Agent. A2-7 Assignment of Lease Supplement ------------------------------ EXHIBIT H TO PARTICIPATION AGREEMENT FORM OF ASSIGNMENT OF LEASE AND AGREEMENT AND LEASE SUPPLEMENTS AND MEMORANDA OF LEASE AND AGREEMENT This instrument was prepared by and upon recordation should be returned to: Robert E. Gordon, Esq. Mayer, Brown & Platt 190 South LaSalle Street Chicago, Illinois 60603 - -------------------------------------------------------------------------------- ASSIGNMENT OF LEASE AND AGREEMENT AND LEASE SUPPLEMENTS AND MEMORANDA OF LEASE AND AGREEMENT Dated as of July 24, 1996 between MELLON FINANCIAL SERVICES CORPORATION #4, as Lessor and MELLON BANK, N.A., as Agent and Assignee - -------------------------------------------------------------------------------- Assignment of Lease Supplement ------------------------------ TABLE OF CONTENTS Section 1. COLLATERAL ASSIGNMENT OF LEASE...................................1 Section 2. ASSIGNMENT AS COLLATERAL SECURITY................................3 Section 3. PAYMENTS UNDER THE LEASE.........................................4 Section 4. POWER OF ATTORNEY IN RESPECT OF THE LEASE........................4 Section 5. ASSIGNEE DESIGNATED RECIPIENT....................................5 Section 6. ALLOCATION PURSUANT TO LOAN AGREEMENT............................5 Section 7. IRREVOCABILITY; SUPPLEMENTAL INSTRUMENTS.........................5 Section 8. AMENDMENTS OR TERMINATION OF THE LEASE...........................5 Section 9. LESSEE'S CONSENT AND AGREEMENT...................................6 Section 10. REMEDIES CUMULATIVE.............................................6 Section 11. MISCELLANEOUS...................................................6 ATTACHMENTS TO ASSIGNMENT OF LEASE: Exhibit A - Legal Description Consent and Agreement of Lessee A2-2 THIS ASSIGNMENT OF LEASE AND AGREEMENT AND LEASE SUPPLEMENT AND MEMORANDUM OF LEASE AND AGREEMENT dated as of July 24, 1996 (herein, as the same may be amended or supplemented from time to time, called this "Assignment Agreement"), is between MELLON FINANCIAL SERVICES CORPORATION #4, a Pennsylvania corporation, as Lessor ("Lessor") and MELLON BANK, N.A., as Agent and assignee (the "Assignee"). Capitalized terms not otherwise defined in this Assignment Agreement shall have the respective meanings assigned thereto in the Appendix 1 to that certain Participation Agreement, dated as of July 24, 1996 (the "Participation Agreement"), by and among Genesis Eldercare Properties, Inc. ("Lessee"), a Pennsylvania corporation, Lessor, Assignee and the Lenders set forth therein (the "Lenders"). RECITALS: WHEREAS, the Sites legally described on Exhibit A attached hereto, have been leased by Lessor to Lessee pursuant to a Lease and Agreement, dated as of July 24, 1996, together with, for each Site, a Lease Supplement and Memorandum of Lease and Agreement (herein, said Lease and Agreement, together with all Lease Supplements and Memoranda of Lease and Agreement, as the same may be amended or supplemented from time to time as permitted thereby and by the Operative Documents, are collectively called the "Lease"); WHEREAS, Lessor has entered into the Participation Agreement with Assignee, Lessee and the Lenders party thereto providing, among other things, for the commitment of the Lenders to assist in financing Lessor's acquisition of the Sites by making Loans to be evidenced by the respective Notes. Such Loans as evidenced by the Notes (i) mature on July 24, 2001 and (ii) bear interest on the unpaid principal amount thereof from time to time outstanding at the interest rate per annum determined as provided in and payable as specified in the Loan Agreement; and WHEREAS, Lessor is entering into this Assignment Agreement in order to induce the Lenders to make Loans to Lessor and as additional security for the purchase of the Notes. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Lessor hereby agrees for the benefit of Assignee as follows: Section 1. COLLATERAL ASSIGNMENT OF LEASE. Lessor, in consideration of the premises and for other good and valuable consideration, the receipt whereof is hereby acknowledged, and as security for the payment of the principal of, and all interest and all other sums payable on, the Notes and all other H-1 Assignment of Lease ------------------- sums payable by Lessor to Assignee under the Loan Agreement or under any of the other Operative Documents and the performance and observance by Lessor for the benefit of Assignee or the Lenders of the provisions of each thereof, whether contained therein or incorporated therein by reference, has assigned, transferred, conveyed and set over, and by these presents does assign, transfer, convey and set over, to Assignee, for the benefit of Assignee and the Lenders, all of Lessor's interest in, to and under the Lease and all of Lessor's estate, right, title, interest, claim and demand as Lessor under the Lease, and all existing or future amendments, supplements or modifications of the Lease; TOGETHER WITH all rights, powers, privileges, options and other benefits of Lessor under the Lease, including, without limitation (a) the right to receive and collect all Rent, income, revenues, issues, profits, Loss Proceeds, bankruptcy claims, liquidated damages, purchase price proceeds (pursuant to Article VI of the Lease, or otherwise), the Applicable Percentage Amount, and other payments, tenders and security payable to or receivable by Lessor under the Lease, to be applied in accordance with Section 3.3 of the Loan Agreement; (b) the right, subject to the provisions of Section 9.5 of the Participation Agreement and not to the exclusion of Lessor, to give and withhold all waivers, consents, modifications, amendments and agreements under or with respect to the Lease; (c) the right, not to the exclusion of Lessor, to give and receive copies of all notices and other instruments or communications under or pursuant to the Lease; (d) the right to take such action upon the occurrence and during the continuance of a Lease Event of Default as shall be permitted by the Lease or by Applicable Laws and Regulations; and (e) the right to do any and all other things whatsoever which Lessor or any lessor under the Lease, as the case may be, is or may be entitled to do thereunder; TOGETHER WITH the right and power to execute and deliver as agent and attorney-in-fact of Lessor under the Lease an appropriate deed, bill of sale or other instruments of transfer necessary or appropriate for the conveyance and transfer to Lessee of Lessor's interest in the Sites pursuant to Article VI of the Lease, and all interests of Lessor therein and to perform in the name and for and on behalf of Lessor, as such agent and attorney-in-fact, any and all other necessary or appropriate acts with respect to any such purchase, conveyance and transfer; TOGETHER WITH the right, not to the exclusion of Lessor, to inspect the Sites and all records relating thereto and to enforce performance or observance by the Lessee of any of such rights by the exercise of the right to proceed by H-2 Assignment of Lease ------------------- appropriate court action or actions, either at law or in equity, to enforce performance by Lessee of the applicable covenants and terms or to recover damages for the breach thereof; EXCLUDING FROM all of the foregoing the Excluded Amounts. TO HAVE AND TO HOLD the same unto Assignee and its successors and assigns forever. Section 2. ASSIGNMENT AS COLLATERAL SECURITY. The assignment made hereby is executed as collateral security, and the execution and delivery hereof shall not in any way impair or diminish any obligations of Lessor as lessor under the Lease or of Lessor, Assignee, the Guarantor or any Lender under any of the other Operative Documents, nor impair, affect or modify any of the terms and conditions of the Notes or the Loan Agreement or any of the other Operative Documents securing the Notes, nor shall any of the obligations of Lessor or of any other Person under any of the Operative Documents (other than the express obligations of Assignee) be imposed upon Assignee, including, but not limited to, collecting Rent or enforcing performance by Lessee or the Guarantor. Without limiting the generality of the foregoing, Assignee shall not be obligated to perform or discharge, nor does Assignee hereby undertake to perform or discharge, any obligation, duty or liability of Lessor under the Lease, or of Lessor under any of the other Operative Documents, or under or by reason of this Assignment Agreement and the Lessor does hereby waive any and all liability, loss or damage which may or might be asserted against Assignee by reason of any alleged obligations or undertakings on its or their part to perform or discharge any of the terms, covenants or agreements contained in the Lease to be performed or discharged by Lessor thereunder, provided, however, if Assignee does undertake any such action pursuant to the terms, conditions and restrictions contained in this Assignment Agreement and the other Operative Documents, Lessor shall retain any rights it may have with respect thereto under the Operative Documents or by law or in equity, and Assignee shall be liable for its gross negligence or willful misconduct. It is further understood and agreed that this Assignment Agreement shall not operate to (i) place responsibility for the control, care, management or repair of the Sites upon Assignee, nor for the carrying out of any of the terms and conditions of the Lease or of any of the other Operative Documents (except to the extent expressly provided therein), in any such case binding upon or applicable to Lessor, or (ii) make Assignee responsible or liable for any waste with respect to the Sites by Lessee or any Person other than by Assignee, or for any dangerous or defective condition H-3 Assignment of Lease ------------------- of the Sites, or for any negligence of the management, upkeep, or repair or control of the Sites resulting in loss or injury or death to Lessee, any sublessee, sublessor, licensee, employee or stranger other than by Assignee. Section 3. PAYMENTS UNDER THE LEASE. Lessor hereby directs Lessee to pay to Assignee, as and when due pursuant to the Lease, the Applicable Percentage Amount, all Basic Rent, all Supplemental Rent and all payments pursuant to Articles IV and VI of the Lease, purchase proceeds or avails, income, Loss Proceeds, and other sums paid or payable to Lessor pursuant to the Lease (but excluding any indemnity payments or reimbursements to Lessor from Lessee pursuant to the Lease or otherwise). Assignee may, at its option, although it shall not be obligated to do so, and without waiving or releasing any obligation or Loan Event of Default, at any time perform any Lease covenant required to be performed by Lessor for and on behalf of Lessor and may recover any money advanced for any such purpose from Lessor on demand, with interest at the Overdue Rate from the date of advancement; and (b) Assignee is authorized to endorse, in the name of Lessor, any item, howsoever received by it, representing any payment on or other proceeds (including Loss Proceeds) of the Lease (including, without limitation, all Basic Rent, Supplemental Rent, payments pursuant to Articles IV and VI of the Lease, purchase proceeds or avails, income, Loss Proceeds and other sums paid or payable to Lessor pursuant to the Lease) and to endorse and deliver, in the name of Lessor, any instrument or other item of the Rent held by Assignee hereunder, in connection with the sale or collection of the Rent. Section 4. POWER OF ATTORNEY IN RESPECT OF THE LEASE. Lessor does hereby irrevocably constitute and appoint Assignee its true and lawful attorney with an interest and full power of substitution, for it and in its name, place and stead to do any or all of the following (a) ask, demand, collect, receive, receipt for, sue for, compound and give acquittance for the Recourse Deficiency Amount, all Basic Rent, Supplemental Rent, payments pursuant to Articles IV and VI of the Lease, purchase proceeds or avails, income, Loss Proceeds and other sums paid or payable to Lessor pursuant to the Lease and other sums which are assigned under Section 1 hereof, and (b) without limiting the provisions of the foregoing clause (a) hereof, during the continuance of any Lease Event of Default under the Lease, sue for, compound and give acquittance for, or settle, adjust or compromise any claim for any and all such Rent, purchase proceeds or avails, income, Loss Proceeds and other sums which are assigned under Section 1 hereof as fully as Lessor could itself do, and in its discretion to file any H-4 Assignment of Lease ------------------- claim or take any other action or proceedings, either in its own name or in the name of Lessor or otherwise, which Assignee may deem necessary or appropriate to protect and preserve the right, title and interest of Assignee in and to such Rent and other sums and security intended to be afforded hereby. Section 5. ASSIGNEE DESIGNATED RECIPIENT. Lessor hereby directs Lessee to deliver or remit directly to Assignee at its address set forth in the Participation Agreement the Applicable Percentage Amount, all Basic Rent, all Supplemental Rent, payments pursuant to Articles IV and VI of the Lease, purchase proceeds or avails, income, Loss Proceeds and other sums paid or payable to Lessor pursuant to the Lease by wire transfer of Federal or other funds current and immediately available to Assignee on the due date thereof. Section 6. ALLOCATION PURSUANT TO LOAN AGREEMENT. Notwithstanding anything contained herein to the contrary, the Applicable Percentage Amount, any and all Basic Rent, Supplemental Rent, payments pursuant to Articles IV and VI of the Lease, purchase proceeds or avails, income, Loss Proceeds and other sums paid to or received or collected by or on behalf of Assignee shall be paid, allocated and distributed pursuant to the terms of, and in the order of priority provided for in, Section 3.3 of the Loan Agreement. Section 7. IRREVOCABILITY; SUPPLEMENTAL INSTRUMENTS. Lessor agrees that the collateral assignment made hereby and the designation and direction to Lessee hereinabove set forth are irrevocable, and that Lessor will not, while said collateral assignment is in effect or thereafter until Lessee has received from Assignee written notice of the termination of said collateral assignment, make any other assignment, designation or direction inconsistent therewith, and that any assignment, designation or direction inconsistent therewith shall be void. Lessor will from time to time, upon request of Assignee, execute all instruments of further assurance and all such supplemental instruments as Assignee may reasonably specify. Section 8. AMENDMENTS OR TERMINATION OF THE LEASE. Except as otherwise permitted under Section 9.5 of the Participation Agreement, Lessor agrees that it will not enter into any agreement amending, supplementing, hypothecating, waiving, discharging or terminating the Lease. H-5 Assignment of Lease ------------------- Section 9. LESSEE'S CONSENT AND AGREEMENT. The consent and agreement by Lessee to the provisions of this Assignment Agreement is attached hereto. Section 10. REMEDIES CUMULATIVE. Each right, power and remedy of Assignee provided for in this instrument or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Assignment Agreement or in any other Operative Document or now or hereafter existing at law or in equity or by statute or otherwise and the exercise or beginning of the exercise by Assignee of any one or more of such rights, powers or remedies shall not preclude the further exercise thereof or the simultaneous or later exercise by Assignee of any or all such other rights, powers or remedies. No failure or delay on the part of Assignee to exercise any such right, power or remedy (including, without limitation, the granting by Assignee of consent to any action by Lessor) shall operate as a waiver thereof. Lessor stipulates that the remedies at law in respect of any default or threatened default by Lessor in the performance of or compliance with any of the terms of this Assignment Agreement are not and will not be adequate, and that any of such terms may be specifically enforced by a decree for specific performance or by an injunction against the violation of any terms or otherwise. Section 11. MISCELLANEOUS. (a) All notices, requests, offers, consents and other instruments given pursuant to this Assignment Agreement shall be delivered in accordance with Section 9.3 of the Participation Agreement. (b) This Assignment Agreement shall be binding upon, inure to the benefit of and be enforceable by, the respective successors and assigns of the parties hereto. The headings to the various paragraphs of this Assignment Agreement have been inserted for convenience reference only and shall not modify, define, limit or expand the express provisions of this Assignment Agreement. Neither this Assignment Agreement nor any provision hereof may be amended, modified, waived, discharged or terminated orally, but only by an instrument signed by the parties hereto. If any provision of this Assignment Agreement or any application thereof shall be invalid or unenforceable, the remainder of this Assignment Agreement and any other application of such provision shall not be affected thereby. (c) This Assignment Agreement may be executed in counterparts, each of which shall be deemed an original, and such counterparts shall together H-6 Assignment of Lease ------------------- constitute but one and the same Assignment Agreement. It shall not be necessary in making proof of this Assignment Agreement to produce or account for more than one such counterpart signed by the party against which enforcement of this Assignment Agreement is sought. (d) THIS ASSIGNMENT AGREEMENT HAS BEEN DELIVERED IN, AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH COMMONWEALTH, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, EXCEPT THAT, TO THE EXTENT REQUIRED BY APPLICABLE LAW, FORECLOSURE HEREUNDER WITH RESPECT TO ANY SITE SHALL BE GOVERNED BY THE LAWS OF THE STATE IN WHICH SUCH SITE IS LOCATED. (e) Upon payment in full of all indebtedness secured by this Assignment Agreement and the Loan Agreement and performance of all other obligations secured hereby and thereby, Assignee shall, at Lessee's expense, do, execute, acknowledge and deliver each and every deed, conveyance, transfer and release necessary or proper to evidence the release of this Assignment Agreement whereupon this Assignment Agreement and the Lien created hereby shall terminate and be of no further force or effect. (f) Notwithstanding anything to the contrary set forth herein, in the event of any conflict between any provision of this Assignment Agreement and the Loan Agreement, the terms and provisions of the Loan Agreement shall control. H-7 Assignment of Lease ------------------- IN WITNESS WHEREOF, the undersigned have caused this Assignment Agreement to be duly executed and delivered as of the date and year first above written. MELLON FINANCIAL SERVICES CORPORATION #4, a Pennsylvania corporation, as Lessor By:______________________________________ Name:____________________________________ Its:_____________________________________ Address: One Mellon Bank Center Room 151-4444 Pittsburgh, PA 15258-0001 Attention: Leasing Group Telephone: (412) 234-0934 Facsimile: (412) 234-3948 ACCEPTED: MELLON BANK, N.A., as Agent and Assignee By:______________________________ Name:____________________________ Its:_____________________________ Address: Plymouth Meeting Executive Campus 610 West Germantown Parkway Suite 200 Attention: Carol Paige Telephone: (610) 941-8409 Facsimile: (610) 941-4136 H-8 Assignment of Lease ------------------- STATE OF _______________ COUNTY OF ______________ The foregoing instrument was acknowledged before me this ______ day of __________________, 1996, by ____________________, the ________________________ of MELLON FINANCIAL SERVICES CORPORATION #4, a Pennsylvania corporation. ______________________________________ Signature of Notary (Notary Seal must be affixed) - ------------------------------ Name of Notary Printed My Commission Expires: _________ Commission Number: _____________ Assignment of Lease ------------------- STATE OF ___________ COUNTY OF __________ The foregoing instrument was acknowledged before me this ______ day of __________________, 1996, by _____________________, the ____________________, of MELLON BANK, N.A., a national banking association. ______________________________________ Signature of Notary (Notary Seal must be affixed) - ----------------------------- Name of Notary Printed My Commission Expires: ________ Commission Number: ____________ Assignment of Lease ------------------- Exhibit A Legal Description of the Land Assignment of Lease ------------------- CONSENT AND AGREEMENT OF LESSEE THIS CONSENT AND AGREEMENT dated as of July 24, 1996, by GENESIS ELDERCARE PROPERTIES, INC., A Pennsylvania corporation (the "Lessee") for the benefit of MELLON BANK, N.A., as Agent ("Assignee"), to the assignments made under the Assignment of Lease and Rents, dated as of the date hereof (the "Assignment Agreement"), between MELLON FINANCIAL SERVICES CORPORATION #4, a Pennsylvania corporation as assignor ("Lessor") and Assignee. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Assignment Agreement. 1. Lessee hereby consents to the terms and provisions of the Assignment Agreement and agrees it will deliver or remit, as and when payable pursuant to the Operative Documents directly to Assignee, the Applicable Percentage Amount, all Basic Rent, all Supplemental Rent, and all payments pursuant to Articles IV and VI of the Lease, purchase proceeds or avails, income, Loss Proceeds and other sums paid or payable to Lessor pursuant to the Lease (but excluding any indemnity payments or reimbursements to Lessor from Lessee pursuant to the Lease, any other Operative Document or otherwise), in each case, without any offset, deduction, defense, abatement, suspension, deferment, diminution or reduction for any reason so that said funds shall at all times be available for payment of interest and principal due on the Notes, except in each case as expressly provided in the Lease. 2. Notwithstanding (i) the bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceeding affecting Lessor under the Lease, (ii) any action with respect to the Lease which may be taken by any trustee or receiver of Lessor, or by any court in such proceeding, and (iii) the exercise by the Lender of any rights and remedies under the Assignment Agreement, Lessee agrees that it will remain obligated under the Lease in accordance with their respective terms and that it will not take any action to terminate (other than pursuant to its rights under the Lease and the Participation Agreement to do so), rescind or avoid the Lease. 3. To the extent that Lessee may acquire any indebtedness of Lessor or any other party to the Participation Agreement, or any claim against Lessor or any other party to the Participation Agreement, by way of subrogation or otherwise, all such indebtedness and claims are hereby subordinated and made fully subject in right of payment thereof to the prior payment in full of the Notes. Assignment of Lease ------------------- 4. In addition to (and not in limitation of) all of Lessee's reimbursement and indemnity obligations set forth in the Operative Documents, Lessee agrees to pay promptly all reasonable and documented costs and expenses incurred by Lessor, pursuant to the Assignment Agreement, for the release of the Assignment Agreement. Assignment of Lease ------------------- IN WITNESS WHEREOF, Lessee has caused this Consent and Agreement to be duly executed and delivered as of the date and year first above written. GENESIS ELDERCARE PROPERTIES, INC., a Pennsylvania corporation, as Lessee By:___________________________________ Name:_________________________________ Title:________________________________ Assignment of Lease ------------------ STATE OF _________ COUNTY OF ________ The foregoing instrument was acknowledged before me this ______ day of __________________, 1996, by ____________________, the _______________________ of GENESIS ELDERCARE PROPERTIES, INC., a Pennsylvania corporation, on behalf of the ____________________. ______________________________________ Signature of Notar (Notary Seal must be affixed) ______________________________________ Name of Notary Printed My Commission Expires: ________ Commission Number: ____________ Participation Agreement ----------------------- EXHIBIT K TO PARTICIPATION AGREEMENT INTENTIONALLY OMITTED Participation Agreement ----------------------- EXHIBIT L TO PARTICIPATION AGREEMENT INTENTIONALLY OMITTED Participation Agreement ----------------------- EXHIBIT M TO PARTICIPATION AGREEMENT Form of Ground Lease [To be agreed upon by Lessee, Lessor and Agent, if needed] EX-11 9 COMPARATIVE EARNINGS Exhibit 11 GENESIS HEALTH VENTURES COMPARATIVE EARNINGS PER SHARE CALCULATION NINE MONTHS ENDED JUNE 30, 1996 AND 1995 (in thousands, except share and per share data)
6/30/96 6/30/95 ----------------- ---------------- Primary Earnings Per Share: Reported earnings before debenture conversion expense $24,544 $17,508 Debenture conversion expense, net of tax (785) Extraordinary item, net of tax (1,923) ----------------- ---------------- Reported net income $23,759 $15,585 ----------------- ---------------- Weighted average shares & CSE's: 25,438,335 22,556,985 ----------------- ---------------- Primary EPS before debenture conversion expense $0.96 $0.78 Primary EPS - Debenture conversion expense ($0.03) Primary EPS - Extraordinary item, net of tax ($0.09) change in accounting principle ----------------- ---------------- Primary EPS - Net income $0.93 $0.69 Fully Diluted Earnings Per Share: Reported earnings before debenture conversion expense $24,544 $17,508 Debenture conversion expense, net of tax (785) Extraordinary item, net of tax (1,923) ----------------- ---------------- Reported net income 23,759 15,585 Adjustments to net income: Interest expense, amortization and other costs related to the assumed conversion of the Convertible Debentures, net of tax 2,150 2,964 ----------------- ---------------- Adjusted net income $25,910 $18,549 ----------------- ---------------- Weighted average shares & CSE's: Common shares 25,438,335 22,556,985 Additional option shares 55,000 17,400 Convertible Debenture shares 3,865,526 5,710,407 ----------------- ---------------- Total 29,358,861 28,284,792 ----------------- ---------------- Fully diluted EPS before debenture conversion expense $0.91 $0.72 Fully diluted EPS - Debenture conversion expense ($0.03) Fully diluted EPS - Extraordinary item, net of tax (0.06) ================= ================ Fully diluted EPS - Net income $0.88 $0.66 ================= ================
COMPARATIVE EARNINGS PER SHARE CALCULATION QUARTERS ENDED JUNE 30, 1996 AND 1995 (in thousands, except share and per share data)
6/30/96 6/30/95 ----------------- ---------------- Primary Earnings Per Share: Reported earnings before debenture conversion expense $10,189 $6,885 and extraordinary item Debenture conversion expense, net of tax (98) Extraordinary item, net of tax (1,923) ----------------- ---------------- Reported net income $10,091 $4,962 ----------------- ---------------- Weighted average shares & CSE's: 27,507,276 22,635,350 ----------------- ---------------- Primary EPS before debenture conversion expense $0.37 $0.30 Primary EPS - Debenture conversion expense ($0.00) Primary EPS - Extraordinary item, net of tax ($0.08) ================= ================ Primary EPS - Net income $0.37 $0.22 ================= ================ Fully Diluted Earnings Per Share: Reported earnings before debenture conversion expense $10,189 $6,885 Debenture conversion expense, net of tax ($98) Extraordinary item, net of tax (1,923) ----------------- ---------------- Reported net income $10,091 $4,962 ----------------- ---------------- Adjustments to net income: Interest expense, amortization and other costs related to the assumed conversion of the Convertible Debentures, net of tax 665 997 ----------------- ---------------- Adjusted net income $10,756 $5,959 ----------------- ---------------- Weighted average shares & CSE's: Common shares 27,507,276 22,635,350 Additional option shares 111,696 42,068 Convertible Debenture shares 3,489,419 5,710,407 ----------------- ---------------- Total 31,108,391 28,387,825 ----------------- ---------------- Fully diluted EPS before debenture conversion expense $0.35 $0.28 Fully diluted EPS - Debenture conversion expense ($0.00) Fully diluted EPS - Extraordinary item, net of tax ($0.07) ================= ================ Fully diluted EPS - Net income $0.35 $0.21 ================= ================
EX-27 10 FINANCIAL DATA SCHEDULE
5 US DOLLARS 9-MOS SEP-30-1995 OCT-01-1995 JUN-30-1996 1 70,626 0 153,710 (9,674) 16,872 297,009 375,628 (62,240) 878,348 69,410 0 0 0 476 499,762 878,348 460,354 460,354 0 373,041 31,076 0 19,104 37,133 13,374 23,759 0 0 0 23,759 0.93 0.88
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